Notes in Business Law
KINDS OF OBLIGATION
1) Pure obligations
2) Conditional obligations
3) Obligations with a period
4) Alternative obligations
5) Joint obligations
6) Solidary obligations
7) Divisible obligations
8) Indivisible obligations
9) Obligations with a penal clause
PURE OBLIGATION
Definition: One where its performance does not depend upon a future or uncertain event, or upon a past
event unknown to the parties, and is demandable at once.
Ex. D obliges himself to pay C P1,000. No specific date or condition was mentioned. Thus, the obligation is
immediately demandable.
Though demandable at once, the debtor should be given reasonable time to perform the obligation depending
on the nature and complexity of such.
Ex. In the abovementioned example, D should be given reasonable time to pay the P1,000.
CONDITIONAL OBLIGATION
Definition: One where 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 condition can either be (a) future AND uncertain or (b) past BUT unknown.
(a) future AND uncertain
Ex. A promised to sell his land to B on the condition that A wins his case against X.
(b) past BUT unknown
Ex. A promised to sell his land to B on the condition that A wins his case against X. He did not know that the
court had already decided in his favor last week because he has not yet received the notice of the court’s
decision. In this case, A is bound to sell the land to B upon receipt of the notice that he had won the case
Kinds of condition
A) As to EFFECT, it can either be (a) SUSPENSIVE or (b) RESOLUTORY. These are the principal kinds of
condition.
a. Suspensive condition - the happening of which gives rise to the obligation.
Ex. A will sell B the land if it is adjudicated to him in the division of his deceased
father’s estate.
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Notes in Business Law
If the land is adjudicated to him, then the obligation to sell the land
will rise and become demandable.
b. Resolutory condition – the happening of which extinguishes the obligation.
Ex. A, in payment of his debt to B, binds herself to give B P3000 monthly allowance
until B graduates from college.
The obligation of A to give B P3000 is already demandable. However,
from the moment B graduates, the obligation to give him P3000 is
extinguished.
B) As to ORIGIN, it can be (a) POTESTATIVE, (b) CASUAL or (c) MIXED
a. Potestative condition – the condition depends upon the will of one of the contracting parties
i. When the condition depends upon the will of the creditor, both the condition and
obligation are valid.
Ex. A will pay his debt to B upon B’s demand.
B is the creditor and the condition is his demand of payment
of the obligation.
ii. When the SUSPENSIVE condition depends upon the will of the debtor, both the
condition and obligation are void. However, if the obligation is a pre-existing one, only
the condition is void.
Ex. A will pay his debt to B if he wants to.
A is the debtor and the condition is his desire to pay the debt.
Since the debt is a pre-existing obligation, only the condition
is void. A still has an obligation to pay the debt.
iii. When the RESOLUTORY condition depends upon the will of the debtor, both the
condition and obligation are valid.
Ex. A binds himself to give B P3000 monthly allowance as long as A wants
to.
b. Casual condition – the condition depends upon chance OR upon the will of a third person
Ex. A binds himself to sell his land to B if he wins the lotto.
Lotto is a game of chance.
A binds himself to sell his land to B if he wins the case pending before
the Supreme Court
The Justices of the Supreme Court decide the case.
c. Mixed condition – the condition depends partly upon chance and partly upon the will of a third
person or any of the parties.
Ex. A, a building contractor, obliges himself in favor of B, to repair at A’s
expense, any damage to the building taking place after an earthquake (chance)
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Notes in Business Law
if found by a panel of arbitrators (third person) that the construction defects
contributed in any way to the damage.
If a suspensive condition depends partly on the will of the debtor and partly on chance or will of a third
person, it is valid. However, if compliance with any part of the obligation solely depends upon the will of the
debtor, that part is invalid.
C) As to POSSIBILITY, it can be (a) POSSIBLE or (b) IMPOSSIBLE
a. Possible condition – the condition is capable of fulfillment, legally AND physically.
Effect: Both obligation and condition are valid.
b. Impossible condition – The condition is incapable of fulfillment, legally or physically.
Article 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.
This article applies only to suspensive condition (the happening of which gives rise to the
obligation) where the impossibility already existed at the time of the obligation. If the
impossibility arises after the creation of the obligation, Article 1266 governs.
Article 1266. The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
2 kinds of impossible conditions
a) Physical impossible condition – they cannot be exist or cannot be done by nature
Ex. A will not pay B if it will not rain for one year in the Philippines.
b) Legal impossible condition – they are contrary to law, morals, good customs, public
order or public policy
Ex. A will pay B if B will kill X.
Effect: GR: Both the impossible condition and the obligation are void.
Exceptions:
If the condition is an condition not to do, the obligation is valid but the impossible
condition will be disregarded. The obligation will just be pure and demandable.
Ex. I will sell you my land if you do not give me a dog that talks.
The obligation to sell the land is valid but the condition is
disregarded. The obligation is now pure and demandable and not
conditional.
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If the obligation is divisible, only the obligation which depends upon the impossible
condition is void.
Ex. I will give you P100,000 if you sell my land, and a car if you kill Pedro.
The first obligation is valid, but the second is not because the
condition imposed is legally impossible
If the obligation is a pre-existing obligation, only the condition is void.
Ex. A borrowed P10,000 from B. If A agrees to kill X before he pays B, the
condition is void but the obligation to pay the loan is still valid and
demandable.
D) As to MODE, it can be (a) POSITIVE or (b) NEGATIVE
a. Positive condition – the happening of an event at a determinate time
This applied only to obligations subject to suspensive condition.
Effects:
If the event takes place before the determinate time expires, the obligation becomes
demandable.
If the even does not take place before the determinate time expires or it has become
indubitable that the event will not take place, the obligation is extinguished.
Ex. A obliges himself to give B P100,000 if B will marry C before B reaches the age of 23.
If B marries C before B reaches the age of 23, then B can demand from A the amount of
P100,000.
If B does not marry C before B reaches the age of 23, then the obligation of A to give
P100,00 to B is deemed extinguished.
b. Negative condition – the non-happening of an event at a determinate time
Effect:
If the event does not take place before the determinate time or it has become evident that
the event cannot occur, the obligation becomes effective and demandable.
If the event takes place before the determinate time, then the obligation does not arise.
E) As to NUMBERS, it can be (a) CONJUNCTIVE or (b) DISJUNCTIVE
a. Conjunctive – there are several conditions and all must be fulfilled.
b. Disjunctive – there are several conditions and only one or some of them must be fulfilled.
F) As to DIVISIBILITY, it can be (a) DIVISIBLE or (b) INDIVISIBLE
a. Divisible – the condition is susceptible of partial performance.
b. Indivisible – the condition is not susceptible of partial performance.
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Notes in Business Law
G) As to FORM, it can be (a) EXPRESSED or (b) IMPLIED
a. Express – the condition is clearly stated
b. Implied – the condition is merely inferred
The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Constructive Fulfillment of Suspensive Condition
Requisites:
1) The condition is suspensive;
2) The obligor actually prevents the fulfillment of the condition; and
3) He acts voluntarily.
Malice or fraud is not required as long as the purpose of the obligor is to prevent the fulfillment of
the condition.
Ex. A agreed to give B a 5% commission if B could sell A’s land at a certain price. B found a buyer who
definitely decided to buy the property. To evade the payment of the commission, A directly sold the
property to the buyer at a lower price without the aid of B. In this case, the obligation is deemed
fulfilled and the obligation is extinguished.
Constructive Fulfillment of Resolutory Condition
Ex. X obliges himself to allow Y to occupy the former’s house in Manila as long as X is assigned by their
company in the province. When Y learned that X would be transferred to Manila, he was able to induce
the president of the company to assign another person in place of X. In this case, the condition is deemed
fulfilled and the obligation is extinguished.
Effect of Loss, Deterioration, or Improvement BEFORE arrival of the suspensive 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 fault of the debtor, he shall be obliged to pay damages;
(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 other right than that granted to the
usufructuary.
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Notes in Business Law
A thing is lost when it (1) perishes (2) goes out of commerce (3) or disappears in such a way that its existence
is unknown or it cannot be recovered;
OBLIGATIONS WITH A PERIOD
Definition: one whose fulfillment or extinguishment a day certain has been fixed.
Period – future AND certain event upon the arrival of which, the obligation either arises or is terminated.
Ex. December 1, Christmas day, death of a person
The death of a person is future and certain. It will necessarily come, although it may
not be known when.
Kinds of Period
a) Suspensive period – the obligation begins only upon the arrival of the period.
Ex. I will pay you on July 30, 2020.
I will pay you 30 days from today.
I will pay you at the end of this month.
b) Resolutory period – the obligation takes effect at one and is extinguished upon the arrival of the period.
Ex. I will give you P500 a month until December 2020.
I will give you P500 a month until the end of the year.
I will give you P100 a year until X dies.
As source, a period can be (a) legal (b) conventional or voluntary or (c) judicial
As to definiteness, a period can be (a) definite) or (b) indefinite
Effect of Loss, Deterioration, or Improvement BEFORE arrival of the period
The rule in Article 1189 shall be observed.
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.
Application: Obligation to give.
The obligor may no longer recover the thing or money once the period has arrived but he can
recover the fruits or interests thereof from the date of premature performance to the date of
maturity of the obligation.
Ex. D owns C P10,000 which was supposed to be paid on December 31 this year. By mistake,
B paid his obligation on December 31 last year.
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Assuming that today is June 30, D can recover the P10,000 plus P300 which is the
interest rate for one half year at the legal rate of 6% or a total of P10,300. However, if the debt
already matured, D can only recover the interest which is P300.
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.
Before the expiration of the period, the debtor may not fulfill the obligation and neither may the
creditor demand its fulfillment without the consent of the other.
The presumption in rebuttable.
Ex. On January 1, D borrowed from C P10,000, payable on December 31 at 15% interest. D
cannot pay before December 31 without the consent of C. Neither can C compel D to
pay before the expiration of the term.
Exception to the presumption: Express or implied intention of the parties that the period is for
the benefit of either the debtor or creditor only.
1) If the period is for the benefit of the creditor, then he can fulfillment before the expiration of
the period, but he cannot be compelled to accept fulfillment before the expiration of the period.
2) If the period is for the benefit of the debtor, then he can pay before the expiration of the
period, but cannot be compelled to pay before the expiration of the period.
General rule: obligation is not demandable before the lapse of the period.
Exception: Article 1198
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.
Alternative Obligations
Definition: One where various prestations are due but the performance of one of them is sufficient as
determined by the choice, as a general rule, of the debtor.
Ex. D borrowed from C P10,000. It was agreed that D could comply with his obligation by giving C P10,000 or
a color television set, or by painting the house of C.
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General rule: The choice belongs to the debtor.
Ex. The choice belongs to D. He can give P10,000 or a color television set, or paint the house of D as payment
for the P10,000 loan.
Exception: The right is expressly granted to the creditor or a third person.
Ex. The contract expressly states that the right to choose among the alternative obligations belongs to C.
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.
Ex. D could comply with the obligation by giving P10,000, or a color television set, or a soil from Mars, or by
killing X. D cannot choose to the option to give soil from Mars because it is impossible nor choose the option to kill
X because it is unlawfull.
The debtor shall lose the right of choice when among the prestations when only one is practicable.
Ex. D could comply with the obligation by giving P10,000, a soil from Mars, or by killing X. D can only give
P10,000 because it is the only practicable option.
The chosen prestration must be completely performed. The creditor cannot be compelled to receive part of
one and part of the other undertaking.
Ex. In the given problem, D cannot compel C to accept P5,000 only and the remaining balance will be paid by
painting half of C’s house.
The choice shall produce no effect except from the time it has been communicated.
The choice, once communicated, cannot be changed by either party without the consent of the other.
The choice can be done orally or in writing, expressly or impliedly.
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.
Ex. It is agreed that instead of paying P10,000, D could deliver the TV in his house or his Rolex watch.
However, through the fault of C, the TV was destroyed, D MAY rescind the contract.
By choosing recision, D will return the P10,000 to C with interest and C will pay the value of the TV plus
damages.
If through the fault of the debtor, all the things of the alternative obligations have been lost, or the compliance
of the obligation has become impossible, the creditor shall have a right to indemnity for damages.
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.
Facultative obligation - when only one prestation has been agreed upon, but the obligor may render another
in substitution.
Ex. I will give you my piano but I may give my LCD television set as a substitute.
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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.
JOINT OBLIGATION
Definition: one where the whole obligation is to be paid or fulfilled proportionately by the different debtors
and/or is to be demanded proportionately by the different creditors.
Ex. 1) A, B and C are jointly liable to D for P9,000.
Since A, B and C are jointly liable, then they are liable to D for P3,000 each. D can only demand and
receive P3,000 each from A, C and C and not the total of P9,000 to any of them.
2) A, B and C are joint creditors of D for P9,000.
Since, A, B and C are joint creditors, they are entitled to P3,000 each. They cannot demand nor receive the
payment for the whole P9,000.
SOLIDARY OBLIGATION
Definition: one where each one of the debtors is bound to render and/or each one of the creditors has a right
to demand from any of the debtors, entire compliance with the prestations.
Ex. 1) A is solidarily liable to B and C for P10,000.
A may pay either B and C the whole amount of P10,000.
2) A is liable to B and C as solidary creditors.
Either B or C may demand the payment of the whole P10,000.
In both examples, whoever receives the P10,000 shall be liable to the share of his co-creditor.
General Rule: If there are several creditors of debtors in one obligation and it is not specified how much their
respective share is in the credit or debt, it shall be presumed that the obligation is joint.
Exception to the General Rule: When the law, stipulation of the parties, by virtue of final judgement or nature
of the obligation requires solidarity, then the obligation is solidary and not joint.
Ex. 1) A, B and C are liable to D for P9,000.
Since the share of A, B and C to the debt is not mentioned, the obligation is presumed to be joint.
Thus, A, B and C are liable to D for P3,000 each. D can only demand P3,000 each from A, C and C and not
the total of P9,000 to any of them.
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2) A, B and C are creditors of D for P9,000.
Since the share of A, B and C to the credit is not mentioned, the obligation is presumed to be joint.
Thus, A, B and C are entitled to P3,000 each. D cannot pay the total of P9,000 to any of them.
JOINT INDIVISIBLE OBLIGATION
Definition: One which is joint as to the liabilities of debtors or rights of creditors but indivisible as to
compliance.
Indivisible obligation – the object or subject matter is not physically divisible into different parts. Thus it
cannot be performed in parts.
Ex. 1) A, B and C are jointly liable to give D a car valued at P240,000. On the day of the delivery, A and B are
willing to deliver but C is not.
Their liability will be converted into one for damages, so that A, B and C will be liable for P80,000 each.
Should anyone of them be insolvent, the others shall not be liable for their share. D must wait until the
insolvent debtor can pay.
2) D is liable to give A, B and C a card value at P240,000. I either one of them refuses to join the other in
accepting the delivery, D may legally refuse to deliver the car. He may deposit the car in the court by way
of consignation.
If D did not deliver the car through his own fault o will, then A, B, and C can recover their respective
shares in the indemnity.
Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the
same periods and conditions.
Ex. A, B and C obliged themselves solidarily to pay D P15,000 as follows:
A, to pay by installment at the rate of P1,000 a month to start on July
B, to pay in September
C, to pay in December
In July, D can demand only P1,000 from A, B or C, but D cannot recover yet the obligations of C and D
which are not yet due and demandable.
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. The guilty creditor will be responsible to others for damages.
Ex. A owes B and C, solidary creditors the sum of P10,000. B may make a demand for payment as this will
benefit C, but B cannot condone the whole obligation as this will be prejudicial to C. If C condones the whole
obligation, he shall be liable to pay for C’s share.
A solidary creditor cannot assign his rights without the consent of the others.
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.
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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.
Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer
to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which corresponds to each, with the
interest for the payment already made. If the payment is made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying
the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.
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.
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.
The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
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.
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.
DIVISIBLE OBLIGATION
Definition: One the object of which, in its delivery or performance, is capable of partial fulfillment.
Ex. D agreed to pay C P10,000 in four equal monthly installments. The obligation of D is divisible because it is
capable of partial fulfillment.
INDIVISIBLE OGLIGATION
Definition: One the object of which, in its delivery or performance, is not capable of partial fulfillment.
Ex. S obliged himself to deliver to B a specific car. This obligation is indivisible because it is not capable of
partial fulfillment.
Even if the object or service mat be physically divisible, an obligation is indivisible if so provided by law or
intended by the parties.
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Ex. If the agreement is that D will pay C on a certain date the full amount of P10,000, the obligation in
indivisible although money is physically divisible because the intention of the parties is that the obligation must be
fulfilled at one time and as a whole, not partially.
OBLIGATIONS WITH A PENAL CLAUSE
Definition: One which an accessory undertaking (penal clause) is attached for the purpose of insuring its
performance by virtue of which, the obligor is bound to pay a stipulated indemnity or perform a stipulated
prestation in case of breach.
General Rule: The penalty takes the place of indemnity for damages and the payment of interests in case of
non-compliance. Proof of actual damages suffered by the creditor is not necessary in order that the penalty
may be enforced.
Ex. X obliged to construct a house for Y. The contract carried a penal clause that in case of non-compliance, X
would have to pay a penalty of P100,000. X did not construct the house and, as a consequence, Y suffered
damage in the amount of P40,000.
In this case, the penalty of P100,000 substitutes the indemnity for the damage of P40,000.
Exceptions:
1) If there is stipulation to the contrary
2) If the obligor refuses to pay the penalty, the creditor may claim legal interest aside from the penalty.
3) If the obligor is guilty of fraud in the fulfillment of the obligation, the creditor may recover damages aside
from the penalty.
Penal clause may be provided by law or stipulation of the parties.
Penalty may be for indemnity for damages of breach of obligation.
The penalty is demandable only when it is tin case of breach of obligation
General Rule: The debtor cannot exempt himself from the performance of the obligation by paying the
penalty,
Ex. In the above given example, X cannot just pay the penalty of P100,000 as a substitute for the non-
compliance of the principal obligation of constructing a house.
Exception: If this right has been expressly reserved for him by stipulation.
General rule: The creditor cannot demand the fulfillment of the obligation and the satisfaction of the penalty
at the same time.
Exception: If right has been clearly granted him.
This does not require express grant by stipulation. An implied grant clearly deductible from the evidence
or the nature of the obligation is sufficient.
Ex. When a penalty is stipulated for default in an obligation to pay a sum of money, it is clear that
the creditor can demand both the principal obligation and the penalty.
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Exception to the exception: 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.
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.
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.
It proceeds from the principle that “the accessory follows the principal”.
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