TITLE I – OBLIGATIONSChapter 1: General Provisions

OBLIGATIONSArt. 1156. An obligation is a juridical necessity to give, to do or not to do.

Elements of an Obligation: (obligare- to bind)a.) Active subject- called the obligee (if the obligation is

to do) or creditor (if the obligation is to give). The possessor of a right; he in whose favor the obligation is constituted.

b.) Passive subject- called the obligor (if the obligation is to do) or debtor (if the obligation is to give). He who has the duty of giving, doing, or not doing. The passive subject must be determinate or determinable.a. How can both subjects be determinate or

determinable? Obligations where the subjects are completely

and absolutely determined at the birth of an obligation.

Obligations where one subject is determined at the moment of the birth of the obligation and the other subject is to be determined subsequently at some fixed criterion, which criterion is fixed at the start of the obligation.

Obligations in which subjects are determined in accordance with its relation to a real thing. Real rights.

c.) Object or prestation- the subject matter of the obligation. It may consist of giving a thing, doing or not doing a certain act. The law speaks of an obligation as a juridical necessity to comply with a prestation. There is a juridical necessity, for non-compliance can result in juridical or legal sanction.Obligation -> prestation (object of the obligation) -> object of the prestation Requisites of the Object of the Obligation:

o Licit (Legal)o Possible both in fact and in lawo Determinate or determinable- can’t say

you’re going to sell something. o Must have pecuniary value

d.) Efficient cause- the vinculum or juridical tie. The reason why the obligation exists.

e.) Vinculum juris- the legal tie. Consists of the enforceability of the obligation. If the debtor does not conform, the creditor has the power to go to court to make the debtor perform – coercive. What makes an obligation is the power of the creditor to haul the debtor before the court, summoning powers of the state if needed. Voluntariness goes

into entering into an obligation. But once you enter, it becomes involuntary.

f.) Form- means manifestation of intent. There is no specific form for a valid obligation.

Characteristics of Obligations: BALANE1. It represents an exclusively private interest.2. Creates ties which are by nature transitory.

a. Because obligations are extinguished. But the period is relative.

3. It involves the power to make the juridical tie defective in case of non-fulfillment through satisfaction of the debtor’s property.

Kinds of Obligations(a) Sanction

1) Civil obligation or perfect obligation- Art. 1156. The sanction is judicial process.

2) Natural obligation- the duty not to recover what has voluntarily been paid although payment was no longer required. There is no real obligation on the part of the debtor, but due to conscience or guilt, he still fulfills the obligation. (for example, a debt had already prescribed, but the debtor pays the debt because of conscience or guilt)

3) Moral obligation (or imperfect obligation)- the sanction here is conscience or morality. (for example, going to mass)

(b) Subject Matter1) Real obligation- the obligation to give.2) Personal obligation- the obligation to do or not to

do. (for example, refraining from committing a crime)

(c) Affirmativeness or Negativeness of the Obligation1) Positive or affirmative obligation- the obligation to

give or to do.2) Negative obligation- the obligation not to do (which

naturally includes “not to give”).(d) Viewpoint of Persons Obliged

1) Unilateral- where only one of the parties is bound. Every obligation has 2 parties; if only one of them is bound, we have a unilateral obligation.

2) Bilateral- where both parties are bound. a. Reciprocalb. Non-reciprocal- where performance by one

is non-dependent upon performance by the other.

CRITICISM: the obligation stresses merely the duty of the debtor (the passive element) without emphasizing a corresponding right on the part of the creditor (the active element). The definition is incomplete, in that, it views obligations only from the debit side. There is no debt without

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a credit, and the credit is an asset in the patrimony of the creditor just as the debt is the liability of the obligor.

Ramos: “an obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinative conduct (the giving, doing, or not doing), and in case of breach, may demand satisfaction from the assets of the latter.

SOURCES OF OBLIGATIONSArt. 1157. Obligations arise from:

(1) Law;(2) Contracts;(3) Quasi-contracts;(4) Acts or omissions punished by law; and(5) Quasi-delicts.

Sources of Obligation: no obligation exists if the source is not one of those enumerated under Art. 1157 (exclusiveness of the enumeration).1. Law- obligations ex lege. BALANE: there is really only

one source of obligations, law. Without the law saying the particular contract is enforceable, the contract will not give rise to an obligation. However, “source” can be understood in both the ultimate and immediate sense. In the ultimate sense, law is the solidary sense. In the immediate sense, there are 5. Law is both an immediate and ultimate source.

2. Contracts- obligations ex contractu. 3. Quasi-contracts- obligations ex quasi-contractu. (for

example, the duty to refund an “over change” of money because of the quasi-contract of solution indebiti or “undue payment”)

4. Crimes or Acts or Omissions Punished by Law- obligations ex maleficio or ex delicto.

5. Quasi-delicts or Torts- obligations ex delicto or ex quasi-maleficio. (for example, the duty to repair damage due to negligence)

CRITICISM : In reality, there are only 2 sources: the law and contracts, because obligations arising from quasi-contracts, crimes and quasi-delicts are really imposed by law.

LAW/OBLIGATION EX-LEGEArt. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable; and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book.

Meaning of the Article: the obligation must be clearly (expressly or impliedly) set forth in the law.

Conflicts between Civil Code and Special Laws: if regarding an obligation ex lege or law, there is a conflict between the New Civil Code and a special law, the latter prevails unless the contrary has been expressly stipulated in the New Civil Code.

CONTRACTS/OBLIGATION EX-CONTRACTUArt. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Obligations ex-contractu: while obligations arising from a contract have the force of law between the parties, this does not mean that the law is inferior to contracts. Before a contract can be enforced, it must first be valid, and it cannot be valid if it is against the law. Moreover, the right of the parties to stipulate is limited. BALANE: combines equity or good faith and strict compliance by the parties.

Meaning of the Article: Neither party may unilaterally and upon his own exclusive volition, escape his obligations under the contract, unless the other party asserted thereto, or unless for causes sufficient in law and pronounced adequate by a competent tribunal.

OBLIGATIONS CONTRACTSThe result of a contract or some other source.

A contract, if valid, always results in obligations.

Contracts obligations

A contract is a meeting of the minds between 2 persons whereby one binds himself, with respect to the other, to give something or to render some service. (Art. 1305)The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided, they are not contrary to law, morals, good customs, public order, or public policy. (Art. 1306)Perfected by mere consent, and from that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Art. 1315).From another viewpoint. A contract may itself be a result of an obligation. (for example, if someone engages someone as an agent, you have the contract of agency)

Innominate Contracts (Contratas Innominado)a.) Do ut des- I give that you may give.

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b.) Do ut facias- I give that you may do.c.) Facio ut des- I do that you may give.d.) Facio ut facias- I do that you may do.

QUASI-CONTRACTS/OBLIGATION EX QUASI-CONTRACTUArt. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book.

Quasi-contractu: that juridical relation resulting from a lawful, voluntary, and unilateral act, and which has for its purpose that payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another. A quasi-contract is not an implied contract because there is no meeting of the minds.

2 Principal Kinds:a) Negotiorum gestior (unauthorized management)- when

a person voluntarily takes charge of another’s abandoned business or property without the owner’s authority (Art. 2144). Reimbursement must be made to the gestor for necessary and useful expenses, as a rule (Art. 2150).

b) Solutio indebiti (undue payment)- this takes place when something is received when there is no right to demand it, and it was unduly delivered through mistake. The requisites for the claim of refund:a. He who paid was not under any obligation to do so.b. The payment was made by reason of an essential

mistake of fact.

OBLIGATION EX DELICTO OR EX MALEFICIO Art. 1161. Civil obligation arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Art. 2177, and of the pertinent provisions of Chap. 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.

Art. 100 of the RPC: Every person criminally liable for a felony is also civilly liable. Oftentimes the commission of a crime causes not only moral evil but also material damage. If no material damage is done, civil liability cannot be enforced.

Civil Liability arising from a Crime includes:a) Restitutionb) Reparation of the damage causedc) Indemnification for inconsequential damage

Damages in case of death: At least P50,000 must be given to the heirs of the victim. (Loss of earning capacity and moral damages, among other things, should be given)

Civil Action implicitly instituted in criminal case: as a general rule, whenever a criminal action is instituted, the civil action

for the civil liability is also impliedly instituted together with the criminal action.

Kind of Proof:a) If a civil action merely is instituted, mere preponderance

of evidence is sufficient.b) If a criminal case is brought (and with it, the civil case),

the guilt must be established by proof beyond reasonable doubt.

OBLIGATIONS EX QUASI-DELICTS OR EX QUASI-MALEFICIOArt. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.

Quasi-delict: (tort or culpa aquiliana) a fault or act of negligence (or omission of care) which causes damages to another, there being no preexisting contractual relations between the parties.

Negligence: “Negligence is the failure to observe, for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury.” Negligence is the omission of that diligence which is required by the circumstances of person, place, and time. Thus, negligence is a question of fact (Civil Code).Test: would a prudent man foresee harm to the person injured as a reasonable consequence of the course about to be pursued? If so, the law imposes a duty on the actor to refrain from the course, or to take precaution against its mischievous results, and the failure to do so constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition born of this provision, is the constitute fact of negligence.

Requirements before a person can be held liable for a Quasi-delict:a) There must be fault or negligence attributable to the

person chargedb) There must be damage and injury c) There must be a direct relation of cause and effect

between the fault or negligence on the one hand and the damage or injury on the other hand (proximate cause which is the adequate and efficient cause, which in the natural order of events, necessarily produces the damages or injury complained of)

Contractual Liability Quasi-DelictThere is already an obligation which exists prior to or even without a breach. The breach of the contract is immaterial to the legal obligation.

The obligation arises only when there is a violation. Without a violation, there is no obligation. It is the breach itself which gives rise to the

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obligation.Contract and breach may be separable.

Quasi-delict and breach are inseparable.

Chapter 2: Nature and Effect of Obligations

TO GIVE (Art.1163-1166): DUE DILIGENCEArt. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or stipulation of the parties requires another standard of care.

Duty to exercise diligence: the first effect of an obligation to deliver a determinate thing (as distinguished from a generic thing – or one of a class) is the duty to exercise proper diligence. Unless it is exercised, there is a danger that the property would be lost or destroyed, thus rendering illusory the obligation.

Diligence needed:a) That which is required by the nature of the obligation

and corresponds with the circumstances of person, time and place.

b) Or, if the law or contract provides for a different standard of care, said law or stipulation prevails.

TO GIVE: FRUITSArt. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.

Personal right: jus in personam or jus ad rem. Power demandable by one person of another – to give, to do or not to do.Real right: jus in re. A power over a specific thing (like the right of ownership or possession) and is binding on the whole world.

Non nudis pactis, sed traditionis dominia rerym transferatur.As a consequence of certain contracts, it is not agreement but tradition or delivery that transfers ownership.

Kinds of Delivery:a) Actual delivery (or tradition)- where physically, the

property changes hands.b) Constructive delivery- that where the physical transfer is

implied.a. Traditio simbolica (symbolical tradition)b. Traditio longa manu (delivery by mere consent or

the pointing out of an object)c. Traditio brevi manu (delivery by the short hand; that

kind of delivery whereby a possessor of a thing not as an owner, becomes the possessor as an owner)

d. Traditio constitutum possessorium (the opposite of brevi manu; thus, the delivery whereby a possessor of a thing as an owner, retains possession no longer as an owner, but in some other capacity)

e. Traditio by the execution of legal forms and solemnities)

*A sale which is simulated, or even a genuine one, where there is no delivery of the object, does not transfer ownership.

Obligation to deliver arises from:a) If there is no term or condition, then from the perfection

of the contract.b) If there is a term or a condition, then from the moment

the term arrives or the condition happens.

TO GIVE: DELIVERYArt. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Art. 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for fortuitous event until he has effected the delivery.

Classification of Obligation from the Viewpoint of Subject Matter (or Object of the Obligation):a) Real obligations (to give):

a. To give a specific thing (set apart from a class)b. To give a generic or indeterminate thing (one of

a class)b) Personal obligations (to do or not to do)

Specific or Determinate Things: when it is capable of particular designation.

Generic or Indeterminate Things: when it refers only to a class, genus, and cannot be pointed out with particularity.

Remedies of the Creditor when the Debtor fails to comply with his Obligation:a) Demand specific performance (or compliance) of the

obligation.b) Demand rescission or cancellation (in some cases).c) Demand damages either with or without either of the

first, (a) or (b).

Effect of Fortuitous Events: a specific obligation is an obligation to deliver a specific thing is, as a rule, extinguished by a fortuitous event or act of God. Generic obligations are

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never extinguished by fortuitous events. The two instances where a fortuitous event does not exempt is if the obligor delays (this is default or mora) or if the obligor is guilty of bad faith.

Ordinary Delay Legal Delay (Default)Merely non-performance at the stipulated time.

Delay which amounts to a virtual non-fulfillment of the obligation.

As a rule, to put a debtor in default, there must be a demand for fulfillment, the demand is being either judicial or extrajudicial.

TO GIVE: ACCESSIONS AND ACCESSORIESArt. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned.

Accessions: those joined to or included with the principal for the latter’s better use, enjoyment or perfection.

Accessories: additions to or improvements upon a thing. These include alluvium (soil gradually deposited by the current of a river on a river bank) and whatever is built, planted or sown on a person’s parcel of land.

Effect of stipulation: if there is a stipulation to said effect, accessions and accessories do not have to be included.

BALANE:TO GIVE A DETERMINATE THINGPrimary obligation: giving what is supposed to be given.3 Accessory Obligations:1. After constitution of the obligation and before delivery,

to take care of it with the proper diligence of a good father of the family. (Art. 1163).

2. To account and deliver to the creditor the fruits if the thing bears fruits upon the time the obligation to deliver it arises. (Art. 1164). However, ownership is transferred only by delivery.

Hence, creditor’s rights over the fruits is merely personal.

3. To deliver the accessions and accessories. (Art. 1166).

Remedies available to the creditor:1. Specific performance- the debtor must perform it

personally.2. Equivalent performance- damages. May be obtained

exclusively or in addition to the 1st action.

TO GIVE A GENERIC THINGRemedies available to the creditor:

1. Specific performance- the debtor must perform it personally.

2. Substitute performance- done by someone else (performed at the expense of the debtor).

3. Equivalent performance- damages. May be obtained exclusively or in addition to the 1st 2 actions.

TO DO Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

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

Remedies of Creditor if Debtor fails to do:a) To have the obligation performed (by himself or another)

at debtor’s expense (only if another can do the performance).

b) Also- to obtain damages. (Damages alone cannot substitute for performance if owners can do it; if purely personal or special – only damages may be asked, unless substitution is permitted. Specific performance is not a remedy in personal obligations; otherwise, this may amount to involuntary servitude, which as a rule is prohibited under our Constitution).

A thing may be ordered undone:a) If made poorly. Here performance by another and

damages may be demanded.b) If the obligation is a negative one, provided the undoing

is possible.

Only the obligor can do (personalisimo)1. Equivalent performance- damages.

Anyone else can do it (not personalisimo)1. Substitute performance- done by someone else

(performed at the expense of the debtor).2. Equivalent performance- damages. Can be obtained

exclusively or in addition to other actions.

NOT TO DOArt. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense.

Remedies available to the creditor:1. Substitute performance- done by someone else

(perform at the expense of the debtor).2. Equivalent performance- damages. May be obtained

exclusively or in addition to the 1st 2 actions.

TABLE OF REMEDIESObligation Specific Equivalent Substitute

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Performance Performance PerformanceThe performance of the prestation itself.

The payment of damages.

When someone else performs or something else is performed at the expense of the debtor.

TO GIVE Determinate thing

√ √ X

Determinable thing

√ √ √

TO DOVery personal

Not applicable because of the prohibition against involuntary servitude.

√ X

Not very personal

Not applicable because of the prohibition against involuntary servitude.

√ √

NOT TO DO X √ √

DELAYArt. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:(1) When the obligation or the law expressly so declares; or(2) When from the nature and the circumstances of the

obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the

moment one of the parties fulfills his obligation, delay by the other begins.

Necessity of Demand: to put a debtor in default, demand is needed. The demand may be:a) Judicial, as when a complaint for specific performance is

filed; b) Extrajudicial, without court proceedings.

When Demand is not needed to put Debtor in Default:a) When the law so provides.b) When the obligation expressly so provides. The mere

fixing of the period is not enough; there must be a provision that if payment is not made when due, default or liability for damages or interests automatically arises.

c) When time is of the essence of the contract (or when the fixing of the time was the controlling motive for the establishment of the contract). It is not essential for the contract to categorically state that time is of the essence; the intent is sufficient as long as this is implied.

d) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

e) When the obligor has expressly acknowledged that he really is in default (but it should be noted that his mere asking for extension of time is not an express acknowledgement of the existence of default on his part).

Different Kinds of Mora:a) Mora Solvendi (default on the part of the debtor)- there

is no mora solvendi in negative obligations (one cannot be late in not doing or not giving).- There is no mora in natural obligations.- Requisites for mora solvendi:

1. The obligation must be due, enforceable, and already liquidated or determinate in amount.

2. There must be non-performance.3. There must be a demand, unless the demand is

not required. (When demand is needed, proof of it must be shown by the creditor).

4. The demand must be for the obligation that is due (and not for another obligation, nor one with a bigger amount, except in certain instances, considering all the circumstances).

- Effects of Mora Solvendi:1. If the debtor is in default, he may be liable for

interests or damages.2. He may also bear the risk of loss.

(in both cases, it is, however, essential that his being in default is attributable to his own fault).

3. He is liable even for a fortuitous event, although damages here may be mitigated if he can prove that even if he had not been in default, loss would have occurred just the same.

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- In a purchase by installments, the contract may provide for an “acceleration clause” (a clause which would make all installments due, upon default in one installment). Default in the payment of one installment does not mean default in the whole amount. If there is an acceleration clause, all that happens will be that the whole amount becomes due. And demand is still needed to put the debtor in default.a. Mora Solvendi ex re (debtor’s default in real

obligations)b. Mora Solvendi ex persona (debtor’s default in

personal obligations)b) Mora Accipiendi (default on the part of the creditor)-

the creditor is guilty of default when he unjustifiably refuses to accept payment or performance at the time said payment or performance can be done. Some justifiable reasons for refusal to accept may be that the payor has no legal capacity or that there is an offer to pay an obligation other than what has been agreed upon. - If an obligation arises ex delicto (as the result of a

crime), the debtor-criminal is responsible for loss, even though this be through a fortuitous event, unless the creditor is in mora accipiendi. “When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it.” (Civil Code)

c) Compensatio Morae (when in a reciprocal obligation, both parties are in default; here it is as if neither is in default)- depend upon each other for performance. Performance may be set on different dates.- If the performance is not set on different dates,

either by the law, contract, or custom, it is understood that performance must be simultaneous. When neither has performed, there is compensatio morae (default on the part of both; so it is as is no one is in default). If one party performs, and the other does not, the latter would be in default.

When Damages or Interest may be lost:a) If the principal obligation is allowed to lapse by

prescription;b) If the damages or interest are allowed to prescribe;c) If the damages or interest are condoned (waived or

remitted).

IRREGULARITY IN PERFORMANCE: FRAUD, NEGLIGENCE OR DELAYArt. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in

any manner contravene the tenor thereof, are liable for damages.

Grounds for Liability in the Performance of their Obligations:a) Fraud (deceit or dolo)- intentional evasion of

fulfillment.b) Negligence (fault or culpa)c) Default or mora- if imputable to the debtor.d) Violation of the terms of the obligation (violation)-

unless excused in proper cases by fortuitous events.

Liability for damages: those liable under Art. 1170 should pay damages, but generally only if aside from the breach of contract, prejudice or damage was caused.

Kinds of Damage: damages should be paid by those responsible for them.

1. Moral- for mental and physical anguish. It cannot be recovered unless proved.

2. Exemplary- corrective or to set an example.3. Nominal- to vindicate a right- when no other kind of

damages may be recovered.4. Temperate- when the exact amount of damages

cannot be determined.5. Actual- actual losses as well as unrealized profit.6. Liquidated- predetermined beforehand – by

agreement.

Damages in Monetary Obligations: indemnity for damages consists of:

a.) That agreed uponb.) In the absence of agreement, the legal rate of

interest. If a contract of simple loan stipulates the time when interest will be counted, said stipulated time controls.

IRREGULARITY IN PERFORMANCE: FRAUDArt. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void.

Liability for Fraud or Dolo:a) According to time of commission, fraud may be past or

future (liability for past fraud may be waived; this is not so for future fraud).

b) According to meaning, fraud may be classified as follows:a. Fraud in obtaining consent (may be causal or

merely incidental)b. Fraud in performing a contract. (Fraud here may

be either:i. Dolo causante (causal fraud)

ii. Dolo incidente (incidental fraud)*while dolo causante is so important a fraud that vitiates consent

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(allowing therefore annulment), dolo incidente is not important

IRREGULARITY IN PERFORMANCE: NEGLIGENCEArt. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.

Dolo CulpaThere is deliberate intention to cause damage or prejudice.

Although voluntary (that is, not done through force) still there is no deliberate intention to cause damage.

Liability arising from dolo cannot be mitigated or reduced by the courts.

Liability due to negligence may be reduced in certain circumstances.

Waiver of an action to enforce liability due to future fraud is void.

Waiver of an action to enforce liability due to future culpa may in a certain sense be allowed.

Stipulations regarding Negligence (future Negligence):a) Gross negligence can never be excused in advance

for this would be contrary to public policyb) Simple negligence may in certain cases be excused

or mitigated

Kinds of Culpa Classified According to the Source of Obligationa) Culpa contractual (contractual negligence)- that which

results in a breach of contract.b) Culpa Aquiliana (civil negligence or tort or quasi-delict)c) Culpa Criminal (criminal negligence)- that which results

in the commission of a crime or a delict.

Culpa Contractual Culpa Aquiliana Culpa CriminalNegligence is merely incidental, incident to the performance of an obligation already existing because of a contract.

Negligence here is direct, substantive, and independent.

Negligence here is direct, substantive, and independent of a contract.

There is a pre-existing obligation (a contract, either express or implied).

No pre-existing obligation (except of course the duty to be careful in all human actuations).

No pre-existing obligation (except the duty never to harm others).

Proof needed- preponderance of evidence.

Proof needed- preponderance of evidence.

Proof needed in a crime- proof of guilt beyond reasonable doubts.

Defense of “good father of a family” in the selection and supervision of employees is not a proper complete defense in culpa contractual (though this may mitigate damages).

Defense of “good father, etc.” is a proper and incomplete defense (insofar as employers or guardians are concerned) in culpa aquiliana.

This is not a proper defense in culpa criminal. Here the employee’s guilt is automatically the employer’s civil guilt, if the former is insolvent.

As long as it is proved that there was a contract, and that it was not carried out, it is presumed that the debtor is at fault, and it is his duty to prove that there was no negligence in carrying out the terms of the contract.

Ordinarily, the victim has to prove the negligence of the defendant. This is because his action is based on alleged negligence on the part of the defendant.

Accused is presumed innocent until the contrary is proved, so prosecution has the burden of proving the negligence of the accused.

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time and of the place. When negligence shows bad faith, the provisions of Arts. 1171 and 2201, ¶2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

Kinds of Diligence Under the Civil Code:a) That agreed upon by the parties.b) In the absence of a) that required by law.c) In the absence of b) that expected of a good father

of a family.

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable.

General rule for fortuitous events (caso fortuito, act of God, force majeure or unavoidable accident): no liability.Exceptions:

a) When expressly declared by the law or is in default.b) When expressly declared by stipulation or contract.

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c) When the nature of the obligation requires the assumption of risk.

Essential characteristics of a Fortuitous Event:a) The cause must be independent of the will of the

debtor (free from participation or aggravation).b) Impossibility of foreseeing or impossibility of

avoiding it, even if foreseen.c) The occurrence must be such as to render it

impossible for the debtor to fulfill his obligation in a normal manner.

BALANE:IRREGULARITY IN PERFORMANCE:ATTRIBUTABLE TO DEBTOR (CULPABLE) Art. 1170- those who in the performance of their

obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.

FRAUD: (Art. 1170-1171) Definition: the voluntary execution of a wrongful act, or

willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. The deliberate and intentional evasion of the normal fulfillment of the obligation.

Distinguished from negligence by the presence of deliberate intent, which is lacking in the latter.

Fraud under Art. 1170- more properly called malice, Art. 1171-

Fraud under Art. 1338 Fraud under Art. 1171Deceit is antecedent fraud. Malice is subsequent

fraud.Fraud preexists the obligation, thus the obligation is voidable. Deceit vitiates consent in contracts. The deceit occurs by using insidious words machinations. Without this deceit, the other party would not have entered into the contract.

There was already an obligation before the fraud exists.

Effects: 1. Creditor may insist on proper substitute or specific

performance. (Art. 1233).2. Rescission/Resolution. (Art. 1191).3. Damages in either case. (Art. 1170).

NEGLIGENCE: The absence of due diligence (Art. 1173). Like fraud, negligence results in improper performance,

but it is characterized by lack of care (lack of due

diligence in the care of a good father of the family), unlike fraud which is characterized by malice.

2 Types of Negligence:1. Simple2. Gross

The determination of due diligence is always relative. It will depend on:1. The nature of the obligation2. Nature and circumstances of

a. Personb. Timec. Place

Effects: (Art. 1170, 1172)1. Creditor may insist on proper substitute or specific

performance (Art. 1233)2. Rescission/Resolution (Art. 1191)3. Damages in either case (Art. 1170)

DELAY/MORA: Definition: the non-fulfillment of the obligation with

respect to time. In fraud, negligence, the question is the quality even if performed on time. In delay, even if the quality is excellent but the performance is not in due time, the debtor is liable.

Requisites:1. Obligation is demandable and liquidated.2. Delay is through fault or negligence.3. Creditor requires performance either judicially

(through court action) or extrajudicially (any communication by the creditor to debtor).

In reciprocal obligations (obligations with a counterpart prestation) which require simultaneous performance, demand is still needed. What is the form of such a demand? Any communication of a party that he is ready and willing to comply with his obligation. If after receipt of demand and the other party does not comply with his obligation, he is in delay.

3 kinds of delay:1. Mora Solvendi:

Delay in performance incurred by the debtor. Requisites:

o The obligation is demandable and liquidated.

o Debtor delays performance either because of dolo or culpa.

o The creditor demands the performance either judicially or extrajudicially.

General rule: demand is necessary. (Mora solvendi expersona). Thus, no demand, no delay.

Exceptions: (Mora solvendi ex re, Art. 1169).o When the obligation or the law

expressly so declares. Mere setting of due date is not enough. This does not

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constitute automatic delay. There must be an express stipulation to that stipulates that non-performance on the due date is delay without need of demand.

o When it appears from the nature and controlling motive the obligation that time was a controlling motive for the establishment of the contract.

o When demand would be useless, when obligor has rendered it beyond his power to perform.

Effects: o When the obligation is to deliver a

determinate thing, the risk is placed on the aprt of the debtor. (Art. 1165)

o Damages.o Rescission/Resolution. (Art. 1191)

2. Mora Accipiendi Related to payment (consignation). The creditor

incurs in delay when debtor tenders payment or performance, but the creditor refuses to accept it without just cause.

Requisites:1. An offer of performance by the debtor who

has the required capacity.2. The offer must be to comply with the

prestation as it should be performed.3. The creditor refuses the performance

without just cause. Effects:

1. Responsibility of debtor for the thing is limited to fraud and gross negligence.

2. Debtor is exempted from risk of loss of thing which automatically pass to creditor.

3. Expenses incurred by the debtor for preservation of thing after the delay shall be chargeable to the creditor.

4. If the obligation has interest, debtor shall not have obligation to pay the same from the time of the delay.

5. Creditor becomes liable for damages.6. Debtor may relieve himself by consignation

of the thing.3. Compensatio Morae

Delay on both sides on reciprocal obligations, cancel each other out.

NOT ATTRIBUTABLE TO THE DEBTOR (NON-CULPABLE)

Fortuitous event (Art. 1174), caso fortuioto, force majeure, Act of God Also governed by Art. 1221 but is called ‘loss’ there, a

cause for extinguishment of obligation.

Requisites:1. The cause of the unforeseen and unexpected

occurrence, or the failure to comply with his obligations, must be independent of the human will.

2. It must be impossible to foresee the event which constitutes caso fortuito, or if it can be foreseen, it must be impossible to avoid.

3. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner.

4. The obligor must be free from any participation in the aggravation of the injury resulting to the creditor.

General Rule: when a debtor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages or non-performance.

Exception: 1. When the law so provides (Art. 1163)2. When there is express stipulation. Fortuitous event

yields to contrary stipulations.3. When the nature of the obligation requires the

assumption of risk

Art. 1175. Usurious transaction shall be governed by special laws.

Usury: contracting for or receiving something in excess of the amount allowed by law for the loan or use of money, goods, chattels or credits. The exaction of excessive interest.

Kinds of interest:a.) Interest given for compensation or use of the

money. Moratory interest.b.) Interest given by way of damages. Compensatory

interest, it compensates the damage caused.

Simple Loan (Mutuum): by the contract of simple loan, one of the parties delivers to another money or other consumable things upon the condition tat the same amount of the same kind and quality shall be paid.

Art. 1176. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installment, shall likewise raise the presumption that such installments have been paid.

2 Presumptions:1. Interest bearing debt- presumption that interest has

been paid if the principal has been received without reservation regarding interest.

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2. Debt payable in installments- presumption that earlier installments have been paid if the later installment has been received without reservation regarding the previous installments.

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise in all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them.

Rights of Creditors: Enforcement of Creditor’s Remediesa) Exact paymentb) Exhaust debtor’s properties, generally by attachment

(except properties exempted by the law)c) Accion subragatoria (subragatory action)- exercise all

rights and actions except those inherent in the person. Premised on the theory that “the debtor of my debtor is my debtor.” Requisites:

1. Creditor has a right of credit against the debtor.2. Credit is due and demandable.3. Falure of debtor to collect his own credit from a

third person either through malice or negligence.4. Insufficiency of assets of the debtor to satisfy the

creditor’s credit.5. Right (of account) is not intuitu personae.

d) Accion pauliana (impugn or rescind acts or contracts done by the debtor to defraud the creditors, Arts. 1380-1389)- right of creditors to rescind alienations by debtor which are prejudicial to them to the extent of the prejudice. Requisites:

1. There is a credit in favor of the plaintiff.2. The debtor has performed an act subsequent to

the contract, giving advantage to other persons.3. The creditor is prejudiced by the debtor’s acts

which are in favor of third parties and rescission will benefit the creditor.

4. The creditor has no legal remedy.5. The debtor’s acts are fraudulent.

e) Accion directa- a direct (not subragatory) action by the creditor against his debtor’s debtor, a remedy which gives the creditor the prerogative to act in his own name. This is an exception to the relativity of contracts.

Extent of Debtor’s Liability: the debtor is liable with all his property, present and future, for the fulfillment of his obligations subject to the exemptions provided by law.

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there have been no stipulation to the contrary.

Transmissibility of Rules:General Rule: rights are transmissible.Exceptions:

1) If the law provides otherwise2) If the contract provides otherwise3) If the obligation is purely personal*intransmissibility by contractual stipulation, being the exception to the rule, must be clearly proved.

Chapter 3: Different Kinds of Obligations

Section 1: Pure and Conditional Obligations

DIFFERENT KINDS OF OBLIGATIONSArt. 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.

Pure obligation: one without a condition or a term (hence, demandable at once, provided there will be no absurdity). It Is one which is subject to no contingency.

Conditional obligation: when there is a condition. A condition is a future and uncertain event. In conditional obligations, the happening of the condition determines its birth or death. In term, the happening of the term determines its demandability.

When an obligation is demandable at once:a) When it is pureb) Or when it has a resolutory condition

Classification of Conditions:a) Suspensive The happening of the condition gives

rise to the obligation.The fulfillment of a suspensive condition results in the acquisition of rights arising out of the obligation.The condition that some event happens 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. (Art. 1184)The moment the suspensive condition happens, the obligation becomes effective and enforceable. However, the effects of the obligation retroact to

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the moment when such obligation was constituted or created. By the principle of retroactivity, therefore, a fiction is created whereby the binding tie of the conditional obligation is produced from the time of its perfection, and not from the happening of the condition. (Art. 1187)The law does not require the delivery or payment of the fruits or interests accruing before the happening of the suspensive condition. The right to the fuirts of the thing is not within the principle of retroactivity of conditional obligations. (Art. 1187)If the obligation imposes reciprocal prestations, fruits and interest are deemed mutually compensated.If the obligation is unilateral, debtor appropriates the fruits.In obligations to do and not to do, the courts shall use sound discretion to determine the retroactive effect of the fulfillment of the condition. (Art. 1187)The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right (Art. 1188).The debtor who paid before the happening of the condition may recover only when he paid by mistake and provided the action to recover is brought before the condition. (Art. 1188)

Resolutory The happening of the condition extinguishes the obligation.The fulfillment of the resolutory condition results in the extinguishment of rights arising out of the obligation.If the resolutory condition is fulfilled, the obligation is treated as if it did not exist. Thus, each party is bound to return to the other whatever he has received, so that they may be returned to their original condition before the creation of the obligation. (Art. 1190)Resolution (Art. 1191) is found on the conditional obligations because if there is a breach, the breach is a resolutory condition which extinguishes the obligations.Art. 1191 uses the term “rescission” but the better term is resolution. Resolution is different from rescission.

Resolution is based on the non-fulfillment of obligation. Rescission is based on economic prejudice. Furthermore, the character of resolution is principal and retaliatory while the character of rescission is subsidiary. This means that in resolution there is no need to show that there is no other remedy. In rescission, the plaintiff must show that there is no other recourse.The right of resolution applies to reciprocal obligations.A reciprocal obligation has 2 elements:1. 2 prestations arising from the

same source.2. Each prestation is designed to be

the counterpart of the other.Summary of rulings on resolution:1. The right to resolve is in inherent

in reciprocal obligations.2. The breach of obligation must be

substantial. Proof of substantial breach is a prerequisite for resolution.

3. The right of resolution can be exercised extrajudicially and will take effect upon communication to the defaulting party. This notice of resolution is necessary.

4. The exercise of this right can be the subject of judicial review.

5. Upon resolution, there must be mutual restitution of the object and its fruits. The parties are returned to their original situation.

6. If the aggrieved party has not performed the prestation and resolves extrajudicially, then all the aggrieved party has to do is to refuse to perform his prestation.

7. If the aggrieved party has performed the prestation, the aggrieved party can demand recovery. If the defaulting party refuses to return it, the aggrieved party must go to court in order to recover it.

b) Potestative Depends upon the will of the debtor.The fulfillment of the condition depends upon the will of a party to the obligation.If the condition depends upon the will of the creditor, then the obligation is

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valid In this case, there is a vinculum juris. The creditor can compel the debtor to perform the obligation.Art. 1182 prohibits a suspensive potestative condition dpendent on the will of the debtor. The entire obligation is void because there is no juridical tie. An obligation is one which has to be performed regardless of the will of the debtor. There is no element of compulsion. In reciprocal obligations, the law only talks about the first prestation, the reciprocal prestation is not taken into consideration.

Casual Depends on chance or hazard or the will of a third person.The fulfillment of a condition depends upon chance and/or upon the will of a 3rd person and not on the will of a party.

Mixed Depends partly on the will of one of the parties and partly on chance or the will of a third person.The fulfillment of a condition depends partly upon the till of a party to the obligation and partly upon chance and/or the will of a third person.When the condition depends not only upon the will of the debtor, but also upon chance or will of the others, the obligation is void.Doctrine of Constructive Compliance: the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment (Art. 1186). The principle underlying constructive fulfillment of conditions is that a party to a contract may not be excused from performing his promise by the non-occurrence of an event which he himself prevented.Requisites:1. Intent of the debtor to prevent

fulfillment of the obligation. Where the act of the debtor, however, although voluntary, did not have for its purpose the prevention of the fulfillment of the condition, it will not fall under the doctrine of constructive compliance.

2. Actual prevention of compliance. The doctrine applies also to potestative and mixed conditions.

c) Divisible Capable of partial performance. When the condition is susceptible of partial realization.

Indivisible Not capable of partial performance because of the nature of the thing, or because of the intention of the parties. When the condition is not susceptible of partial realization.

d) Positive An act is to be performed. When the condition involves the performance of an act.

Negative Something will be omitted. When the condition involves the non-performance of an act.

f) Express The condition is stated. When the condition is stated expressly.

Implied The condition merely inferred When the condition is tacit.

f) Possible Capable of fulfillment in nature and in law.

Impossible Not capable of fulfillment due to nature or due to the operation of the law or morals or public policy; or due to a contradiction in its terms.However, if the obligation is divisible and that part of the obligation is not unaffected by the impossible condition, then the obligation is valid (Art. 1183).1. Positive condition to do something

impossible- Void condition and obligation.

2. Negative condition to do something impossible- Disregard the condition, the

obligation is valid.3. Negative condition not to do

anything illegal- Valid condition and obligation.

The effect of an impossible condition is to annul the obligation (Art. 1183). The effect of an impossible condition regarding donations and succession is different. In donations and succession, an impossible condition is simply disregarded. The distinction can be explained by the fact that Art. 1183 refers to onerous obligation whereas donations and succession are gratuitous.

g) Conjunctive If all the conditions must be performed.Conjunctive when there are several conditions, all of which must be realized.

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Alternative If only a few of the conditions have to be performed.Alternative when there are several conditions, only one of which must be realized.

Rights are transmissible unless the rights are personal.

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 Art. 1197.

Debtor to pay “when his means permit”: payment does not depend on debtor’s will. What depends really on him is not payment, but the time when payment is to be made. Hence, the law consider this obligation as one with a term or a period.

How long is the term: The general rule is for the creditor to ask the court first for the fixing of the term, and it is only when that term set arrives that he can demand fulfillment. Any action to recover before this is done is considered premature.

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.

Suspensive conditions: the happening of which will give rise to the acquisition of a right (also called conditions precedent or conditions antecedent). What characterizes an obligation with a suspensive condition is the fact that its efficacy or obligatory force is subordinated to the happening of a future or uncertain event; if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.

Resolutory conditions: also called conditions subsequent. Rights already acquired are lost once the condition is fulfilled.

Conditional Perfection of a Contract: if the perfection of a contract depends upon the fulfillment of a condition, non-fulfillment thereof means the non-perfection of the contract since the suspensive condition should have been first fulfilled.

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.

Potestative, Casual, Mixed Conditions

a) Potestative- also called facultative condition. Depends on the exclusive will of one of the parties.

b) Casual- depends on chance or upon the will of the third person.

Potestative (Facultative) Conditiona) Potestative on the part of the Debtor

a. If also suspensive- both the condition and the obligations are void, for the obligation is really illusory

b. If also resolutory- valid.b) Potestative on the part of the Creditor

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.

Impossible conditions: illogical condition.

Illegal conditions: prohibited by good customs, public policy; prohibited, directly, or indirectly, by law.

Effects:a) If the condition is to do an impossible or illegal thing,

both the condition and the obligation are void (because the debtor knows that no fulfillment can be done and therefore is not serious about being liable).

b) If the condition is negative, that is, not to do the impossible, just disregard the condition but the obligation remains.

c) If the condition is negative, i.e. not to do an illegal thing, both the condition and obligation are valid.

POSITIVE CONDITIONSArt. 1184. The condition that some even happens 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.

Effect if period of fulfillment is not fixed: if the period is not fixed in the contract, the court, considering the parties’ intentions, should determine what period was really intended.

NEGATIVE CONDITIONSArt. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective

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from the moment the time indicated has elapsed, or 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.

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Requisites:1) Voluntarily made- either maliciously or not, the

intent to prevent must be present.2) Actually prevents- intention without prevention, or

prevention without intention is not sufficient. But intention and prevention in the exercise of a lawful right will not render the Article applicable.

Applicable of the Article to Resolutory Conditions: although in general, Art. 1186 applies only to a suspensive condition, it may sometimes apply to a resolutory condition.

Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution to the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor 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.

Retroacts: as a general rule, to the day the obligation was constituted. (for example, if Jose, in 2004, promises to sell to Maria his land provided she passes the bar in 2006 and she does, it is as is she was entitled to the land since 2004 and any donation or mortgage made by her in 2004 will be considered valid. Future property cannot, as a rule, be donated, but inasmuch as she is entitled to the land since 2004, the property cannot be considered a future one. Same as with mortgages because the mortgagor must be the owner. Any alienation on the land made by Jose will be considered invalid.)

No retroactivity with reference to:a) Fruits or interests- in unilateral obligations, debtor

gets the fruits and interests unless there is a contrary intent. In reciprocal obligations, the fruits and

interests during the pendency of the condition shall be deemed to compensate each other (even though they really be unequal).

b) Period of prescription. Here the period runs from the day the condition was fulfilled, because it can be enforced only from said date.

Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.

Actions to preserve Creditor’s rights: if not allowed to take appropriate action, there is a danger the creditor will receive nothing, as when the object is deliberately destroyed, hidden or alienated. Appropriate actions means to sue in court, as well as other remedies such as asking for security if the debtor is about to be insolvent or asking the court to prevent alienation or concealment of pendent conditionae.

Right of Debtor to recover what was paid by mistake: what was paid by mistake may be recovered because, after all, the condition may not materialize. In the meantime, the debtor has lost the use of the object. It is unfair for the creditor to unjustly enrich himself (solution indebiti, undue payment). The debtor is also entitled to fruits or legal interest if the creditor be in bad faith, that is, if the creditor knew that payment was being made prior to the fulfillment of the 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 fault 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 without 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;

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(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.

Loss, Deterioration, and Improvement During the Pendency of the Condition: Applies only if:

1) The suspensive condition is fulfilled; and2) The object is specific (not generic)

3 things that may happen to the object of an obligation pending the fulfillment of a suspensive condition:1. May be lost

a. Without the fault of the debtorb. With fault of the debtorc. Partly with and partly without the fault of

the debtor2. May deteriorate (value is reduced or impaired)

a. Without the fault of the debtorb. With the fault of the debtorc. Partly with and partly without the fault of

the debtor3. May be improved

a. By nature or by timeb. Through the expense of the debtorc. Partly through nature or time and partly by

the debtor

Loss: it is understood that a thing is lost ifa) When it perishesb) When it goes out of commercec) When it disappears in such a way that its existence is

unknownd) When it disappears in such a way that it cannot be

recovered

Effects of Partial Loss: a) That would amount to a loss important enough to be

considered a complete loss (this will be determined by the courts).

b) That would merely be considered a deterioration of the thing, in which case the rules on deterioration should apply.

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 the 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 2nd paragraph of Art. 1187 shall be observed as regards the effect of the extinguishment of the obligation.

Effects when Resolutory Condition is Fulfilled1. The obligation is extinguished.2. Because the obligation had been extinguished and

considered to have had no effect, the parties should restore to each other what they have received.

3. Aside from the actual things received, the fruits or the interests thereon should also be returned after deducting of course the expenses made for their production, gathering and preservation.

4. The rules given in Art. 1189 will apply to whoever has the duty to return in case of the loss, deterioration, or improvement of the thing.

5. The courts are given power to determine the retroactivity of the fulfillment of resolutory conditions.

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 the 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 Arts. 1385 and 1388 and the Mortgage Law.

Right to Rescind: means the right to cancel or resolve the contract or reciprocal obligations in case of non-fulfillment on the part of one. This the rescission referred to here is not predicated on injury to economic interests on the part of the party plaintiff (which is the basis for the rescission mentioned in Arts. 1380 and 1381), but on the breach of faith by the defendant, which breach is violative of the reciprocity between the parties.

Reciprocal Obligations: refers to obligations where two parties are reciprocally obliged to do or give something. It is not enough that both parties are indebted to each other. The cause must be indentical and the obligations should arise simultaneously. Parenthetically, in reciprocal contracts or

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transactions, the obligation or promise of each party is the cause or consideration for the obligation or promise of the other.

Characteristics of the Right to Rescind or Resolve:1. It exists only in reciprocal obligations. Be it noted,

however, that if the obligation is reciprocal but with a period, neither party can demand performance or be considered in default before the expiration of the period.

2. It can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation, and the other is not. Otherwise, if neither is ready, neither can resolve. Moreover, the guilty party cannot rescind. He who comes to equity must come with clean hands.

3. The right to rescind is not absolute. Thus:a. Trivial causes or slight breaches will not

cause rescission.b. If there be just cause for fixing the period

within which the debtor can comply, the court will not decree rescission.

c. If the property is now in the hands of an innocent third party who has lawful possession of the same.

4. The right to rescind needs judicial approval in certain cases, and in others, does not need such approval.

a. Judicial approval is needed when there has already been delivery of the object (unless of course there is a voluntary returning).

b. Judicial approval is not needed when there has been no delivery yet. Or in case there has been delivery, the contract stipulate that either party can rescind the same or take possession of the property upon non-fulfillment of the party.

5. The right to rescind is implied (presumed) to exist and, therefore, need not be expressly stipulated upon.

6. The right to rescind may be waived, expressly or implied.

Choice by the Injured Party:1) The injured party may choose between:

a. Fulfillment (specific performance) (plus damages)

b. Or rescission (plus damages)2) The right is alternative and an alternative prayer may

be made in a court complaint unless either had been waived previously.

3) The right is not conjunctive, that is, the plaintiff cannot ask for both remedies. Thus, if the plaintiff elects fulfillment of a reciprocal obligation, rescission thereof may not be declared at the same time.

However, in some cases, in the interest of justice partial rescission and partial fulfillment may be allowed.However, the rule is still that the rescission or resolution of a contract has the effect of abrogating it in all its parts, the creditor cannot demand rescission, and still insist on the performance of subordinate stipulations. Hence, a clause allowing for attorney’s fees for the foreclosure of a mortgage cannot be availed of if the mortgage itself is rescinded.

4) The injured party who has elected fulfillment may, if fulfillment be impossible, still ask for rescission (provided that rescission is otherwise proper). The rule is vice-versa, provided the court has not yet given final judgment.

5) If an action is brought for specific performance, the damages sought must be asked in the same action; otherwise the damages are deemed waived.

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 deemed extinguished, and each shall bear his own damages.

If both parties have committed a breach: The above rules are deemed just. The first one is fair to both parties because the second infractor also derived or thought he would derive some advantage by his own act or neglect. The second rule is likewise just, because it is presumed that both at about the same time tried to reap some benefit.

Section 2: Obligations with a Period

TERMArt. 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.

Term: a length of time, which, exerting an influence on an obligation as a consequence of juridical acts, suspends its

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demandability or determines its extinguishment. A future and certain event.

Period: a certain length of time which determines the effectivity or the extinguishment of the obligation. Manresa: a term or a period consists in a space of time which has an influence on obligations as a result of judicial act, and either suspends their demandableness, or produces their extinguishment… Obligations with a period are, therefore, those whose consequences are subjected in one way or another to the expiration of said term.

Period ConditionIn their fulfillment An event which

must happen sooner or later, at a date known beforehand, or a time which cannot be determined.

An uncertain event.

With reference to time

Always refers to the future.

May, under the law, refer even to the past.

As to influence on the obligation

Merely fixes the time or the efficaciousness of an obligation.

Causes an obligation to arise or to cease.

May have a suspensive or resolutory effect. In the former, it cannot prevent the birth of the obligation in due time, and in the latter, it does not militate against its existence.

The Different Kinds of Terms and Periodsa) Definite The exact date or time is known and

given.Indefinite something that will surely happen, but

the date of happening is unknown (as in the case of death).

b)

Legal A period granted under the provisions of the law.

Conventional or Voluntary

Period agreed upon or stipulated by the parties.

Judicial The period or term fixed by the courts for the performance of an obligation or for its termination.

c) Ex die A period with a suspensive effect. Here,

the obligation begins only from a day certain, in other words, upon the arrival of the period.

In diem a period or term with a resolutory effect. Up to a time certain, the obligation remains valid, but upon the arrival of said period, the obligation terminates.

Requisites for a Valid Period or Term:1. It must refer to the future.2. It must be certain (sure to come) but can be extended. (if

eliminated subsequently by mutual agreement, the obligation becomes pure and immediately demandable).

When Period of Prescription Begins: it commences from the time the term in the obligation arrives, for it is only from that date that it is due and demandable.

Extension of Period: evidence of extension of period, if any be given, must be shown by debtor.

Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Art. 1189 shall be observed.

Rules in case of Loss, Deterioration or Improvement:1. Art. 1189 of the Civil Code.

BALANE:Requirements:1. Obligation has a suspensive condition, a resolutory

condition or term.2. The obligor is obligated to deliver a determinate thing.3. There is improvement, loss or deterioration before the

fulfillment of the condition or the period.4. The condition is fulfilled or the period arrives.

Rules:1. If the thing is lost without the fault of the debtor, the

obligation is extinguished.2. If the thing is lost through the fault of the debtor, he

must pay damages. The thing is lost when it perishes, goes out of

commerce or disappears in such a way that its existence is unknown or cannot be recovered.

3. If the thing deteriorates without the fault of the debtor, the creditor must accept the thing in its impaired condition.

4. If the thing deteriorates through the fault of the debtor, the creditor may choose between Resolution (Art. 1189) plus damages Fulfillment of the obligation plus damages

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5. If the thing is improved by nature or by time, the improvement shall inure to the benefit of the creditor.

6. If the thing is improved at the expense of the debtor, the debtor shall have the same rights as a usufructuary.

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.

To be able to recover:1. The obligor must be unaware of the period; or2. Must have believed that the obligation has become

due and demandable.

Period within which recovery may be made:If the debtor did not know that payment was not yet due

Before the debt matures. Even after maturity (regarding interest) for after all the creditor was in bad faith. (But the right prescribes 5 yrs. after premature payment).

If the debtor knew that payment was not yet due

No recovery can be had of what has been paid, much less can there be recovery of interest. This is true whether the creditor is in good or bad faith, since the important thing is the knowledge by the debtor of the prematureness (Implied waiver).

Presumption that Debtor knew of Prematureness: the law presumes that the debtor knew of the prematureness. This may, however, be rebutted by him.

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 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 the other.

For whose benefit the term has been established: General rule: term is for the benefit of debtor or creditor. The debtor cannot pay prematurely and the creditor cannot demand prematurely. This Art. applies only where the parties to a contract themselves have fixed a period, and not to a case where the parties have authorized the Court to fix a reasonable term.Exceptions:

1. Term is for the benefit of debtor alone. The debtor is required to pay only at the end, but he may pay even before.

2. Term is for the benefit of the creditor alone. Creditor can demand at any time even before the term expires, and he cannot be compelled to accept payment from the debtor prior to the stipulated period.

Circumstances which indicate for whom the benefit of the term is1. For the benefit of both

a. When there is interest stipulated. Here, the creditor is interested in the term because of the interests that would be earned; the debtor is interested because he is given enough time to pay.

b. When the creditor is interested in keeping his money safely invested (thus making the debtor a sort of depository), or when the creditor wants to protect himself from the dangers of currency depreciation.

2. For the benefit of the debtora. When the loan is without interest, this is

generally only for the benefit of the debtor. This rule, however, is not absolute, for even if the creditor receives no interest, still he may have entered into the contract to protect himself against the sudden decline in the purchasing power of the currency.

b. When payment is to be made within a certain period from date of contract.

3. For the benefit of the creditor- usually, this only exists if there is a stipulation to this effect, as when the contract provides that no payment should be made till after a certain given period. Acceptance of partial payment even before the expiration of the period means a waiver on the part of the creditor of his right to refuse payment before the end of said period.

When Prescriptive Period Begins: an action upon a written contract must be brought within 10 yrs. from the time the right of action accrues. In obligations with the benefit of the term given to both debtor and creditor, the right of action accrues from the end of the stipulated period, because it is only from that time that the obligation really becomes enforceable.

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.

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The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In ever 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.

When the Court may fix a Period: 1. When the duration depends upon the will of the

debtor.2. When although the obligation does not fix a period,

it can be inferred that a period was intended.

When the Court may not fix the Term:1. When no term was specified by the parties because

no term was even intended, in which case the obligation is really a pure one, and demandable at once, unless of course absurd consequences would arise.

2. When the obligation or note is payable on demand.3. When a repairer of a machine has been given

something to repair but without a period within which to do the work, returns the machine without performing any work on it, he has lost whatever right he originally had to have the period fixed under Art. 1197. The Court has ruled that the original repairman can be required to pay the person who actually made the needed repairs.

4. When specific periods are provided for in the law, as in an employment contract where if no period was agreed upon, the time of employment depends upon the time for payment of salary.

5. When what appears to be a term is really a condition (such as when a debt is payable only after the debtor’s estate’s other debts have been paid, for this does not depend upon the exclusive will of the debtor).

6. When the period within which to ask the Court to have the period fixed has itself already prescribed.

Applicability of the Article to the Obligations Contemplated therein: Art. 1197 should be considered as part and parcel (or automatically incorporated) in all obligations which are contemplated therein. If the Court actually fixes the term, the Court does not amend or modify the obligation. The Court merely enforces or carries out an implied stipulation in the contract.

The Action to bring out this Article: the only action which the creditor can bring upon an obligation that does not fix a term, but where a term was indeed intended, is to ask the court to fix the period within which the debtor must pay for the simple reason that the fulfillment of the obligation itself

cannot be demanded until after the court has fixed the period for its compliance. The Court may fix a period, even if this has not been specifically asked, so long as the prayer, for example, asks for “such other and further relief as to the court may appear just and equitable.” And ordinarily specific performance cannot be demanded at the same time that the court is asked to fix the period, such action for specific performance being premature.

Within what period must the action to fix the period be brought: within the proper prescriptive period for specific performance if a period had been originally fixed, but to be counted from the perfection of the contract. This is because the right exists by operation of law from the moment of such an agreement. Extrajudicial demand is not therefore essential for the creation of the cause of action to have the period fixed.

How the Courts Fix a Period: The Court determines the period by considering the time probably contemplated by the parties. Once the period is fixed by the courts, the period becomes part of the contract, thus the courts cannot change it. The parties may of course change the period by mutual agreement, or may even disregard the same in which case, the obligation becomes a pure one, and demandable at once.

Art. 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 had 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.

When the debtor loses the benefit of the period: meaning the debtor shall lose every right to make use of the period – the term is extinguished, and the obligation is demandable at once.

BALANE NOTES: When the debtor binds himself to pay when his means

permit him to do so, the obligation is one with a term (Art. 1180). Although Art. 1180 looks like a condition dependent on the sole will of the debtor, the law treats it as a term.

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If prepayment is made without the debtor being aware that the period had not yet arrived, then the thing and the fruit can be recovered (Art. 1195). If prepayment is made and the debtor was aware that the period had not yet arrived, then the debtor waives the benefit of the term. There are 2 views about who is entitled to the fruits which have been produced in the meantime:1. The debtor is entitled to the fruits produced in the

meantime.2. The creditor is entitled to the fruits since the

obligation is demandable only when the period arrives.

Instances when the Fruits cannot be recovered:1. When the obligation is reciprocal and there has been

prepayment on both sides.2. When the obligation is a loan and the debtor is

bound to pay interest.3. When the period is exclusively for the creditor’s

benefit.4. When the debtor is aware of the period and pays

anyway – waiver. The presumption is that the period is for the benefit of

both the debtor and the creditor (Art. 1196). The effect of this presumption is that the creditor cannot demand payment before the period arrives nor can the debtor demand the creditor to accept payment before the period arrives.

If the period is for the benefit of the creditor only, the creditor can demand performance at any time, but the debtor cannot compel him to accept payment before the period expires.

If the period is for the benefit of the debtor only, the debtor may oppose a premature demand for payment, but may validly pay at any time before the period expires.

o When the obligation is worded such that payment is to be made within 6 mos., the period is for the benefit of the debtor.

o When the obligation is worded such that payment is to be made “on or before”, the period is for the benefit of the debtor.

The debtor shall lose every right to make use of the period:1. When after the obligation has been contracted, the

debtor becomes insolvent unless he gives a guaranty or security for the debt (Art. 1198). The insolvency here need not be judicial. It can be actual insolvency.

2. When he does not furnish to the creditor the guarantees or securities which he has promised (Art. 1198).

3. When by his own acts he has impaired the said guaranties or securities alter their establishment, and when through a fortuitous event they disappear,

unless no immediately gives new ones equally satisfactory (Art. 1198).

4. When the debtor violates any undertaking, in consideration of which the creditor agreed (Art. 1198).

5. When the debtor attempts to abscond (Art. 1198).6. When the creditor is deceived on the substance or

quality of the thing pledged, the creditor may either claim another thing in its stead or demand immediate payment of the principal obligation (Art. 2109).

Types of periods:1. Suspensive (ex die)- when the obligation becomes

demandable only upon the arrival of the period.2. Resolutory (in diem)- the period is resolutory when the

performance must terminate upon the arrival of the period.

3. Legal- when it is granted by law.4. Voluntary- when it is stipulated by the parties.5. Judicial- when it is fixed by the courts.

o If the obligation does not fix a period, but from its nature and circumstances it can be inferred that a period was intended, the courts may fix the duration thereof (Art. 1197).

o 2 steps involved in an action for fixing a period:1. The court should determine that the obligation

does not fix a period but it can be inferred that a period was intended due to the circumstances or the period is dependent on debtor’s will.

2. Court shall decide what period was probably contemplated by the parties. They should fix a period which was probably contemplated by the parties.

Generally, you cannot ask for specific performance because fixing a period contemplates something in the future, hence to ask for specific performance would be illogical.

Instances when Court may fix a period:1. Art. 1197. When the obligation does not fix for a

period.Exceptions:1. Art. 1682 and 1687.2. Pacto de retro sales (Art. 1606).3. Contract of services for an indefinite period-

court cannot fix a period or else it would amount to involuntary servitude.

2. Art. 1197.3. Art. 1191.4. Art. 1687.5. Art. 1180.

6. Express- when period is specifically stated.7. Tacit- when a person undertakes to do some work which

can be done only during a particular season.8. Original

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9. Grace- an extension fixed by the parties or by the court.10.Definite- refers to a fixed known date or time.11. Indefinite- refers to an event which will necessarily

happen but the date of its happening is unknown.

Section 3: Alternative Obligations

ACCORDING TO PLURALITY OF OBJECTArt. 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 art of the other undertaking.

Alternative Obligation: (facultative) where out of the two or more prestations which may be given, only one is due.

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted by the creditor.

The debtor shall have no right to choose those prestations which are impossible, unlawful or which would not have been the object of the obligation.

Who has the right of choice: as a general rule, the right belongs to the debtor. By way of exception, it may belong to the creditor when such right has expressly been granted to him.

Obligation with a term Alternative obligation with reference to benefit

The general rule is that the term is for the benefit of both the debtor and creditor.

The general rule is that the debtor has the right of choice.

Limitation on the Debtor’s Choice: 1. Impossible prestations2. Unlawful prestations 3. Or which could not have been the object of the

obligation

Art. 1201. The choice shall produce no effect except from the time it has been communicated.

Effect of Notice that Choice has been made: Once notice has been made that a choice has been done, the obligation becomes a simple obligation to do or deliver the object selected. An election once made is binding on the person who makes it, and he will not, therefore, be permitted to renounce his choice and take an alternative which was first open to him.

Reason for Communicating the Choice to the Creditor: To inform the creditor that the obligation is now a simple one, no longer alternative, and if already due, for the creditor to receive the object being delivered, if tender of the same has been made.

Requisites for the Making of the Choice:1. Made properly so that the creditor or his agent will

actually know;2. Made with full knowledge tat a selection is indeed

being made. Thus error in appreciating the meaning of alternative obligations will give rise to vitiated consent, and the choice can later on be annulled.

3. Made voluntarily and freely (without force, intimidation, coercion or undue influence).

4. Made in due time, that is, before or upon maturity (otherwise, the creditor can sue him in court with an alternative relief as give this or that, depending upon your choice.

5. Made to all the proper persons. Hence, if there be joint creditors, all of them must be notified.

6. Made without conditions unless agreed to by the creditor (otherwise, it can be said that no real choice is being made).

7. May be waived, expressly or impliedly (since all rights in general may be waived.)

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable.

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.

*the contract is not automatically rescinded; the law says that the debtor may rescind, implying that he may allow it to remain in force insofar as the possible choice or choices are involved.

Art. 1204. The creditor shall have a right to indemnity for damages when, through the default 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 become impossible.

Damages other than the value of the last thing or service may also be awarded.

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Alternative rights of creditor when Loss or Impossibility occurs before Debtor’s Choice: applies when

1. The right to choose belonged to the debtor2. The loss or impossibility happened before selection

was made

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.

Rules when the choice has been given to creditor:1. For the choice to be given the creditor, the right

must be expressly given to him.2. As in the case of the debtor, it should be understood

that the creditor loses the right to choose if only one of the prestations is practicable. The debtor’s obligation had ceased to be alternative and had become a simple one.

3. This Art. does not apply when the contract does not state to whose the right to choose Is given, for in such case it is the debtor who can choose.

Effect of Creditor Delays in making a choice: he cannot yet hold the debtor in default, notwithstanding the lapse of maturity, for the debtor does not know what to deliver. Upon the other hand, if the debtor wants to relieve himself, he may petition the court to compel creditor to accept it, in the alternative, at the creditor’s option, with resultant damages if any.

BALANE:

ALTERNATIVE: when several objects or prestations are due, but the payment or performance of 1 of them would be sufficient.General Rule: the right of choice belongs to the debtor.

1. When through fortuitous event or through the debtor’s acts, there is only 1 prestation left, the obligation ceases to be alternative (Art. 1202).

2. When the choice of the debtor is limited through the creditor’s own acts, then the debtor has the remedy of resolution (art. 1191) plus damages (Art. 1203).

3. When all the things are lost due to a debtor’s fault, the creditor can sue for damages (Art. 1204).

4. When some things are lost due to the debtor’s fault but there are still some things remaining, then the debtor can choose from what’s left.

5. When all the things are lost due to a fortuitous event, the obligation is extinguished.

6. When all but 1 of the things are lost due to a fortuitous event, and the last object is lost through the debtor’s fault, then the creditor can sue for damages.

7. When all but one of the things are lost through the debtor’s own acts and the last object is lost through the fortuitous event, the obligation is extinguished.

Exception: 1. When it is expressly granted by the creditor.

a. When 1 or some of the objects are lost through fortuitous events, then the creditor chooses from the remainder.

b. When 1 or some of the objects are lost due to the debtor’s faults, the creditor may choose from the remainder or get the value of any of the objects lost plus damages in either case.

c. When all the things are lost due to the debtor’s fault, the creditor can get the value of any of the object s lost plus damages.

d. When some are lost through the debtor’s fault, the creditor chooses from the remainder.

e. When all the objects are lost due to a fortuitous event, then the obligation is extinguished.

f. When all the objects are lost due to the creditor’s fault, the obligation is extinguished.

2. When it is agreed upon by the parties that a 3rd person shall make the choice.

FACULTATIVE: when only 1 object or prestation has been agreed upon by the parties to the obligation, but the debtor may deliver or render another in substitution. Bear a resemblance to alternative obligations particularly when the choice in an alternative obligation is with a debtor. The right of choice is always with the debtor. If the principal obligation is impossible, then everything is annulled.

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The act of making the choice is called concentration. Once the choice has been made, then the obligation is concentrated in one object.

Whoever has the right of choice must communicate it to the other party (Art. 1201). The creditor has to communicate his choice to the debtor so that the debtor will know.

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: it is one where only one prestation has been agreed upon but the obligor may render another in substitution.

Alternative FacultativeVarious things are due, but the giving of one is sufficient.

Only one thing is principally due, and it is that one which generally is given, but the other (the substitute) may be given to render payment or fulfillment easy.

If one of the prestations is illegal, the other may be valid and the obligation remains.

If the principal obligation is void, and there is no necessity of giving the substitute. (The nullity of the principal carries with it the nullity of the accessory or substitute)

If it is impossible to give all except one, that last one must still be given.

If it is impossible to give the principal, the substitute does not have to be given; if it is impossible to give the substitute, the principal must still be given.

The right to choose may be given either to debtor or creditor.

The right of choice is given only to the debtor.

Section 4: Joint and Solidary Obligations

ACCORDING TO PLURALITY OF SUBJECTArt. 1207. The concurrence of 2 or more creditors or of 2 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 Obligations Solidary ObligationsTo each his own. One for all, all for one.Each obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights.

The relationship between the active and the passive subjects is so close that each of the former or of the latter may demand the fulfillment of or must comply with the whole obligation.

When there are two or more debtors or two or more creditors.

When there is a stipulation in the contract that the obligation is solidary.When the nature of the obligation requires liability to be solidary.When the law declares the obligation to be solidary.Some instances:

1. Arising from tort/damages

2. Arising from quasi-contracts

3. Legal provisions regarding the obligations of devisees and legatees

4. Liability of principals, accomplices and accessories of a felony

5. Bailees in commodation

MancomunadaMancomunada simpleProportionatePro rata

Joint and severalIn solidumMancomunada solidariaJuntos o separadamaneteIndividually and collectively Each will pay the whole value

We promise to pay (when there are two or more signatures)

I promise to pay (when there are two or more signatures)

Some consequences:1. Vitiated consent on the

part of one debtor does not affect the others. (for example, if A and B were joint debtors of C

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for P1000 and A’s consent was obtained by C through fraud, B would still be liable for P500 while A will not be liable because the 2 debts are considered distinct from each other.)

2. Insolvency of one debtor does not make others responsible for his share. (if one is insolvent, it doesn’t make the other debtors share bigger to compensate for his share. They must pay only for theirs.)

3. Demand by the creditor on one joint debtor puts him in default, but not the others since the debts are distinct.

4. When the creditor interrupts the running of the prescriptive period by demanding judicially from one, the others are not affected. It is possible that the share of one debtor has prescribed, while the others have not.

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

*The obligation may be joint on the side of the creditors and solidary on the side of the debtors, or vice-versa.

Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear, the creditor 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.

Presumption that Obligation is Joint: when there are two or more debtors or creditors, the obligation is presumed joint and as a consequence:

1. The debt shall be divided into as many shares as there are creditors or debtors.

2. The creditors or the debts will be distinct from one another, BUT regarding the bringing of the action in court, the Rules of Court governing the multiplicity of suits will be followed.

Distinct Shares: In joint obligations, the different shares of the debt or the credit are considered distinct from one another. But they are subject to the Rules of Court governing the multiplicity of suits. This means that ordinarily one creditor may sue one of the debtors for the latter’s share of obligation but to obtain a just, speedy and inexpensive determination of every action or proceeding, it would be better to sue all the necessary parties at the same time.

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: indivisible refers to the object, joint refers to the tie between the parties, who are merely proportionately liable, unless solidarity has been stipulated by the parties or by the law, in which case it becomes a solidary indivisible obligation. Manresa: the obligation is in a sense midway between the joint and the solidary, although it preserves the two characteristics of the joint obligation in that: (a) no creditor can do an act prejudicial to the others, and (b) no debtor can be made to answer for the others. The peculiarity of this obligation, however, is that fulfillment requires the consent of all the debtors, although each for his part. On the side of the creditors, collective action is also required for acts which may be prejudicial.

Characteristics: 1. The obligation is joint but since the object is

indivisible, the creditor must proceed against ALL the joint debtors, for compliance is possible only if all joint debtors act together.

2. Demand must, therefore, be made on ALL the joint debtors.

3. If any one of the debtors does not comply with his monetary obligations for damages.

4. If any one of the joint debtors be insolvent, the others shall not be liable for his share. The obligation to pay monetary damages is no longer indivisible then, and therefore, the creditor may go against each debtor individually.

5. If there be joint creditors, delivery must be made to all, and not merely to one, unless that one be specifically authorized by the others.

6. Each joint creditor is allowed to renounce his proportionate credit.

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

Indivisibility SolidarityRefers to the Subject Matter Refers to the tie between the

parties.

Different Kinds of Solidarity

First Active solidarity On the part of the creditors or obligees

Passive solidarity On the part of the debtors or obligors

Mixed solidarity On the part of the obligors and obligees, or on the part of the debtors and the creditors

Second Conventional Solidarity

Agreed upon by the parties

Legal solidarity That imposed by law

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 despite different terms or conditions:1. Uniform- when the debtors are bound by the same

stipulations and clauses2. Otherwise- where the obligors though liable for the

same prestation, are nevertheless not subject to the same secondary stipulations and clauses.

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.

Prejudicial Acts: should not be performed, otherwise, there will be liability for damages. However, in the case of rescission or condonation (which is really prejudicial, the solidary creditor is allowed to so remit, and the obligation is extinguished, without prejudice to his liability to other creditors.

Art. 1213. A solidary creditor cannot assign his rights without the consent of the others.

Non-assignment of rights by Solidary Creditor: General rule: solidary creditor cannot assign his rights.

Exception: if all the others consent.Reason: essentially, a solidary obligation implies mutual agency and mutual confidence. Should the assignee or substitute do acts which would prejudice the others, there is no doubt that the other creditor’s rights are endangered, hence, the necessity of their consent.

Art. 1214.The debtor may pay any one of solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.

To Whom Debtor Must Pay:1. To any of the solidary creditors2. Exception: payment must be made to solidary

creditor who made a demand (judicial or extrajudicial).

Art.1215. Novation, compensation, confusion or remission of debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provision of Art. 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.

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

Effect of Compensation

That which takes place when two persons, in their own right, are creditors and debtors of each other. It may be total or partial, depending upon the amount involved. Total compensation automatically extinguishes the obligation, whether known or unknown to the parties.

Effect of Confusion (or Merger)

That which takes place when the characters of creditor and debtor are merged in the same person.

Effect of Remission or Waiver

That act of liberality whereby a creditor condones the obligation of the debtor; that where the creditor tells the debtor to forget about the whole thing. Remission may be total or partial.

Art. 1216. The creditor may proceed against any one o 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.

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Against whom Creditor may proceed: against any, some, or all of the solidary debtors – simultaneously.

Effect of not proceeding against all: if the creditor sues only one, or two, or several of the debtors (but not all) there is no waiver against those not yet sued. They may be proceeded against later.

Applicability: applies only to solidary obligations, not to joint ones, for in the latter, failure to collect from one joint debtor his share does not authorize the creditor to proceed against the others, regarding the insolvent debtor’s share. It applies to what is called passive solidarity (solidarity among the debtors). It can also apply to mixed solidarity.

Similarities DifferencesSolidarity Both the

solidary debtor and the surety guarantee for another person.Both can demand reimbursement.

The solidary debtor is indebted for his own share only.The solidary debtor can be reimbursed what he has paid minus his own share.If a solidary debtor receives an extension of the period for payment, the others are still liable for the whole obligation now, minus the share of the debtor who has received the extension (but same share can be demandable also from them upon the arrival of the extended term).

Suretyship The surety is indebted only for the share of the principal debtor.The surety can be reimbursed for everything he had paid.If a principal debtor receives an extension, without the surety’s consent, the surety is released.

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.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interests 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: one of the ways by which an obligation is extinguished and consists in the delivery of the thing or the rendition of the service which is the object of the obligation.

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

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.

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.

Reason for the Provision: since payment extinguishes the obligation, there is nothing more to remit. 3 Kinds of Defenses1. Real defenses- these are defenses derived from the

nature of the obligation. A real defense is a total defense. It benefits all the debtors.

2. Personal defenses- personal defenses may either be total or partial defenses. An example of a total personal defense is if the consent of the debtors were all vitiated. An example of a partial defense is that a certain amount is not yet due. It is partial since there may be amounts which are already due. Thus, the debtor has to pay for those amounts which are due.

3. Defenses which are personal to the other co-debtors- The debtor can only avail himself of these defenses only with regard to the part of the debt which his co-debtors are responsible for. These defenses are partial.

The debtor sued can invoke all three kinds of defenses. The difference is whether such defense would result in total or partial exculpation.

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 of the whole obligation: Remission is essentially gratuitous. This Art. applies only when the whole obligation is remitted.

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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 a fault on the part of any one of them, all shall be responsible to the creditor for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply.

Effect of Loss or Improbability: 1. If without fault- no liability.2. If with fault- there is liability (also for damages and

interest).3. Loss because of a fortuitous event after default-

here, there will be liability because of default.

Art. 1222. A solidary debtor may, in actions fled 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 belongs to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.

Kinds of Defenses:1. Those derived from the nature of the obligation (this

is a complete defense).2. Those personal to the debtor sued. (This is a

complete defense generally, but if the defense is non-fulfillment yet of the term, this Is only a partial defense, that s, he will still be liable except for his own share in the meantime).

3. Those personal to the others (partial defense regarding share of others involved).

BALANE:SINGLE: only 1 debtor and 1 creditor.

JOINT: when each of the debtor is liable only for a proportional part of the debt, and each creditor is entitled only to a partial part of the credit. General: joint obligations are less onerous.Exceptions:

1. Agreement of the parties.2. Law (i.e. tort feasors are solidarily liable)3. Nature of the obligation.

Essential nature: there are as many obligations as there are creditors multiplied by as many debtors.Types of Joint Obligations:

1. Active Joint- there are multiple creditors. The demand of 1 creditor on 1 debtor will not constitute a demand on the others. The prescription of 1 of the debts will not affect the other debts.

2. Passive Joint- there are multiple debtors. The demand of 1 creditor on 1 debtor will not constitute a demand on the others. The prescription of 1 of the debts will not affect other debts. The insolvency of 1 of the debtors will not affect the burden of the other debtors.

3. Mixed joint- there are multiple creditors and debtors.

SOLIDARY: when any of the debtors can be held liable for the entire obligation, and any if the creditors is entitled to demand the entire obligation. Also called joint and several, joint and individual, and in solidum. When:

1. The parties so agree.2. When the law so provides. 3. When nature of the obligation requires the

obligation to be solidary.Types of Solidary Obligations:1. Active solidary- there are multiple creditors. A credit

once paid is shared equally among the creditors unless a different intention appears. The debtor may pay any of the creditors, but if any demand, judicial or extrajudicial is made on him, he must pay only to the one demanding payment (Art. 1214).

2. Passive solidary- there are multiple debtors. Each debtor may be required to pay the entire obligation but after payment, he can recover from his co-debtors their respective shares.

3. Mixed solidary- there are multiple debtors and creditors. A credit once paid is shared equally among the creditors unless a different intention appears. The debtor may pay any of the creditors, but if any demand, judicial or extrajudicial, is made on him, he must pay only to the one demanding payment (Art. 1214). Problematic: the debtor cannot pay the other non-demanding solidary creditors only if one of the solidary creditor makes a judicial demand. If the debtor pays a creditor who did not make a demand, the payment is considered a payment to a third person. The debtor can still be made to pay by the one who made a demand on him. But the payment to the demanding creditor can be reduced by the share of the paid creditor. The debtor can still recover from the paid creditor (unjust enrichment). Each debtor may be required to pay the entire obligation but after payment, he can recover from his co-debtors their respective shares.

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Section 5: Divisible and Indivisible Obligations

ACCORDING TO PERFORMANCEArt. 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 Chap. 2 of this Title.

Divisible IndivisibleOne capable of partial performance.

One not capable of partial performance. It cannot be validly performed in parts.

Gen. Rule:Obligations are indivisible:

Exceptions:Kinds of indivisibility:1. Conventional- by common agreement.2. Natural or absolute- because of the

nature of the object of undertaking (Art. 1225). However, even thought the object or service may be physically divisible, an obligation is indivisible if:- So provided by law.- Intended by the parties.

3. Legal- if so provided for by law.

Divisibility of the object does not mean that the obligation is also divisible. But indivisibility of the object necessarily means an indivisible obligation.

The test of divisibility of an obligation is whether or not it is susceptible of partial performance.

Solidarity IndivisibilityRefers to tie between the parties.

Refers to nature of obligation.

Needs at least two debtors or creditors.

May exist even if there is only one debtor and only one creditor.

The fault of one is the fault of the others.

The fault of one is not the fault of the others.

Kinds of Division:1. Quantitative- depends on quantity.2. Qualitative- depends on quality, irrespective of

quantity.3. Intellectual or moral division- one that exists merely

in the mind and not in physical reality.

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with this undertaking. The debtors who may have 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 obligation consists.

Effect of Non-Compliance: 1. The obligation is converted into a monetary one for

indemnity.

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.

Obligations that are deemed indivisible:1. Obligations to give definite things.2. Those which are not susceptible of partial

performance.3. Even if the thing is physically divisible, it may be

indivisible if so provided by law.4. Even if the thing is physically divisible, it may be

indivisible if such was the intention of the parties concerned.

Obligations that are deemed divisible: 1. When the object of the obligation is the execution of

a certain number of days of work.2. When the object of obligation is the accomplishment

of work by metrical units.3. When the purpose of the obligation is to pay a

certain amount in installments.4. When the object of the obligation is the

accomplishment of work susceptible of partial performance.

Effect of illegality on a Divisible contract: in case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.

Section 6: Obligations with a Penal Clause

ACCORDING TO SANCTION FOR BREACHArt. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment

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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 obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

Penal Cause: it is a coercive means to obtain from the debtor compliance from the debtor. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to obligations in order to insure their performance. Governed by Arts.2226-2228, the provisions on liquidated damages since a penal clause is the same as liquidated damages. It may be reduced by the courts if unconscionable. Its principal purpose is to insure the performance of an obligation and also to substitute for damages and the payment of interest in case of non-compliance.

Functions of a Penal Clause:1. To provide liquidated damages

The creditor can demand liquidated damages without having to prove actual damages.

The only limitation that the courts will reduce the liquidated damages if the same is scandalously unconscionable.

2. To strengthen the coercive force of the obligation by the threat of greater responsibility in case of breach.

Stipulates a penalty which is greater than one without a penal clause.

Kinds of Penal Clauses

First Legal Penal Clause

One that is imposed by the law.

Conventional Penal Clause

That which has been agreed upon by the parties.

Second Subsidiary When only the penalty may be asked.

Joint When both the principal contract and the penal clause can be enforced.

Penal Clause ConditionThe former does not.

The latter constitutes an obligation although accessory.May become demandable in default of the unperformed principal obligation, and sometimes jointly with it, while the former or the condition is never demandable.

Instances when ADDITIONAL DAMAGES MAY BE RECOVERED:

1. When there is express stipulation to the effect that damages or interest may still be recovered, despite the presence of the penalty clause;

2. When the debtor refuses to pay the penalty imposed in the obligation;

3. When the debtor is guilty of fraud or dolo in the fulfillment of the obligation. The reason for the third exception is clear: there can be no renunciation of an action to enforce liability for future fraud because, as we have seen, this is against public policy and against the express provisions of law.

Breach of obligation without fraud cannot constitute one of the exceptions.

May any penalty be demandable: No. the penalty may be enforced only when it is demandable in accordance with the provisions of the Civil Code, one of which states that the penalty may be reduced if it is iniquitous or unconscionable.

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.

2 Characteristics of a Penal Clause:1. Subsidiary or alternative (Art. 1227)

General rule: upon breach of the obligation, the creditor has to choose whether to demand the principal or the penalty.Exception: the principal obligation and the penalty can be demanded when the penal clause is joint or cumulative. This occurs when the creditor has been clearly granted such right, either expressly or impliedly. The implied right must be one ascertainable from the nature of the obligation.

2. Exclusive (Art.1226)General rule: the penalty clause takes the place of other damages.Exception: both the penalty and actual damages may be recovered in the following:1.) Express stipulation2.) Refusal by the debtor to pay the penalty3.) The debtor is guilty of fraud (malice) in the performance of the obligation.

Generally, 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

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can only 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.

Generally, Creditor cannot demand both fulfillment and the penalty at the same time: as a general rule, the creditor does not have this right to demand fulfillment of the obligation and the penalty at the same time. The exception arises when such a right has been clearly granted to him.

Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.

No Necessity in Proving Actual Damages: the penalty may, in the proper case, be demanded without the necessity of proving actual damages.Reason: when a penal clause has been agreed upon in a contract, more as a punishment for the infraction thereof than a mere security, it is a lawful means for repairing losses and damages, and upon evidence of the violation of the conditions stipulated, the injured party is not obliged to prove losses and damages suffered, nor the extent of the same in order to demand the enforcement of the penal clause agreed upon.

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.

When Penalty may be reduced by the Court:1. Partial performance- when the obligation has

been partly complied with by the debtor.2. Irregular Performance- When the obligation has

been irregularly complied with by the debtor.3. Unconscionable or Iniquitous- when the penalty

is iniquitous or unconscionable, even if there has been no performance at all.

Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligations.

The nullity of the principal obligation carries with it that of the penal clause.

Effect of Nullity of the Penalty Clause: if the principal obligation is null and void, the penal clause will have no more use for existence and is therefore also considered null and void. Upon the other hand, just because the penal clause is not valid, it does not mean that its nullity will also make the principal obligation null and void. The principal obligation can

stand alone, and the void penal clause will just be disregarded.

CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONGeneral Provisions

EXTINGUISHMENT OF OBLIGATIONArt. 1231. Obligations are extinguished:

1. By payment or performance2. By the loss of the thing due3. By the condonation or remission of the debt4. By the confusion or merger of the rights of creditor

and debtor5. By compensation6. 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.

Classification of Causes of Extinguishment of Obligations: CASTAN

Voluntary InvoluntaryPerformance payment or performance consignation

By failure to bring an action.

Substitution of performance Compensation Novation Dacion en pago (datio in

solutum)

Resolutory condition or condition subsequent.

Agreement to release Subsequent obligation

- Unilateral waiver- Natural waiver- Remission- Mutual dissent

(disenso)- Compromise

Simultaneous with creation of obligations - Resolutory term or

extinctive period- Resolutory condition

or condition subsequent

By reason of the object.

Classification according to the Civil Code:Ordinarily by

1. Payment or performance2. Loss of the thing due3. Condonation or remission of the debt

or waiver4. Confusion or merger of the rights of

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creditor and debtor5. Compensation6. Novation

Other causes mentioned in Art. 1231 but goverened under other Chapters

- Annulment- Rescission- Fulfillment of resolutory condition- prescription

Still other causes

- death of a party in case the obligation is a personal one

- resolutory term here the obligation ceases upon the arrival of the term

- change of civil status- compromises- mutual dissent - impossibility of fulfillment- fortuitous event

Section 1: Payment or Performance

PAYMENT OR PERFORMANCEArt. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.

Payment: that mode of extinguishing obligations which consists of:

1. delivery of money2. the performance in any other manner of an

obligation

Pre-existing Obligation: a person pays a pre-existing obligation. If no such obligation exists, strictly speaking, there is no payment.

Acceptance by Creditor: for payment to properly exist, the creditor has to accept the same, expressly or implicitly. Payment, for valid reasons, may properly be rejected.

Effect of Payment made under a Void Judgment: if the judgment upon which the aggrieved party made payment is null and void, the payment made thereunder is also null and void.

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.

Completeness of Payment: Requisitesa) The very thing or service contemplated must be paidb) Fulfillment must be complete

How Payment or Performance is Made:a) If the debt is a monetary obligation, by delivery of

the money. The amount paid must be full, unless of course otherwise stipulated in the contract. Indebtedness has been defined as an unconditional and legally enforceable obligation for the payment of money.

b) If the debt is the delivery of a thing or things, by delivery of the thing or things.

c) If the debt is the doing of a personal undertaking, by the performance of said personal undertaking.

d) If the debt is not doing of something, by refraining from doing the action.

e) An alleged creditor has the burden of showing that a valid debt exists. Once he does this, the debtor has the burden of proving that he has paid the same.

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:a) In case of substantial performance, the obligee is

benefited. So the obligor should be allowed to recover as if there had been a strict and complete fulfillment, less damages suffered by the obligee. This last condition affords a just compensation for the relative breach committed by the obligor.

b) The liability of the debtor for damages suffered by the creditor in case of substantial performance does not arise under the conditions set forth in Art. 1235.

c) Inasmuch as substantial performance in good faith may already be equivalent to “fulfillment” or “payment”, it follows that the right to rescind cannot be used simply because there have been slight breaches of the obligation. Such right to rescind is not absolute, and therefore the Court may even grant, at its discretion, a period to a person in default, within which the obligation can be fulfilled.

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.

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Qualified Acceptance: there is a possibility that a protest or objection can be made. Hence, there is what is called “qualified acceptance of incomplete or irregular payment.” A creditor who gives a receipt for partial payment does not necessarily acquiesce to such incomplete payment. His actuations may show his dissatisfaction. A creditor may conditionally accept performance by the debtor after the time of maturity, but with the stipulation that the surety or guarantor of the debtor should give consent to prevent the surety or guarantor from later on alleging that the creditor had given an extension of time to the debtor. In this way, the surety or guarantor cannot claim that he had been released from the obligation.

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 had 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.

Right of Creditor to Refuse Payment by 3rd Person:1. If there is a stipulation allowing this.2. If said third person has an interest in the fulfillment

of obligation (co-debtor, guarantor, even a joint debtor).

Payment by a 3rd Person:1. With the knowledge and consent of the debtor.

Here, the payor is entitled to reimbursement and subrogation to such rights as guaranty, penalty clause, or mortgage.

2. Without the debtor’s knowledge or against his will. Here, the payor is not entitled to subrogation; he is allowed only beneficial reimbursement.

Other instances when recovery can be had from the creditor and not from the innocent debtor:a. When the debt had prescribedb. When the debt had been completely

remittedc. When the debt has already been paid.d. When legal compensation had already

taken place.

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.

Subrogation: the act of putting somebody into the shoes of the creditor, hence, enabling the former to exercise all the rights and actions that could have been exercised by the latter. Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against the third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.

Subrogation ReimbursementRecourse can be had to the mortgage or guaranty or pledge.

No such recourse.

The debt is extinguished in one sense, but a new creditor, with exactly the same rights as the old one, appears on the scene.

The new creditor has different rights, so it is as if there has indeed been an extinguishment of obligation.

Something more than a personal action of recovery.

Only a personal action to recover the amount.

There can be a recovery to what has been paid.

Art. 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.

Reason for consent: no one should be compelled to accept the generosity of another.

Art. 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 Art. 1247 under the Title on “Natural Obligations”.

Payment by an incapacitated personGeneral rule: if person paying has no capacity to give:

1. Payment is not valid – if accepted.2. Creditor cannot even be compelled to accept it.3. The remedy of consignation would not be proper.

Exceptions: when a minor between 18 and 21 yrs. of age has entered into a contract without the consent of parents or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.

Art. 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.

To whom payment has been made:

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1. To the person in whose favor the obligation has been constituted (the creditor); This refers to the creditors at the time of the payment, not the original creditor at the time the obligation was constituted.

2. To the successor-in-heirs.3. To any person authorized to receive it. If the

recipient is not authorized, the payment is generally not valid (w/o prejudice to Art. 1241).

Art.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 been 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 creditors conduct, the debtor has been led to believe that the third person had authority to receive the payment.

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.

Requisites:1. Payment by payor must be made in good faith but

payor may be in bad or good faith.2. The payee must be in possession of the credit itself

(not merely the document evidencing the credit).

Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.

Payment made after Judicial Order to retain: the judicial order may have been prompted by an order of attachment, injunction or garnishment (garnishment takes place when the debtor of a debtor is ordered not to pay the latter so that preference would be given to the latter’s creditor).

Garnishment: the proceeding by which a debtor’s creditor is subjected to the payment of his own debt to another. It consists in the citation of some stranger to the litigation, who is the debtor of one of the parties to the action. By this means, such debtor-stranger becomes a forced intervenor, and the court, having acquired jurisdiction over his person by means of the citation required of him to pay his debt, not to his former creditor, but to the new creditor, who is the creditor in the main litigation.

Interpleader: it is the technical name of the action in which a certain person in possession of certain property wants claimants to litigate among themselves for the same.

Injunction: a judicial process by virtue of which a person is generally ordered to refrain from doing something. It is called preliminary injunction if the prohibition is during the pendency of certain proceedings.

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same vale as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligees will.

Instances where Art. 1244 does not apply:1. In case of facultative obligations.2. In case there is another agreement resulting in

either:1. Dation in payment (Art. 1245)2. Novation (Art. 1291)

3. In case of waiver by the creditor (expressly or impliedly).

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law in sales.

Dation: datio in solutum or adjudicacion en pago. That mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor, property for the satisfaction of monetary debt.

SALE DATION IN PAYMENTThere is no pre-existing contract

There is a pre-existing credit

This gives rise to obligations This extinguishes obligationThe cause or consideration here is the price (from the viewpoint of the seller); or the obtaining of the object (from the viewpoint of the buyer)

The cause or consideration here, from the viewpoint of the debtor in dation in payment is the extinguishment of his debt; from the viewpoint of the creditor, it is the acquisition of the object offered in credit.

There is greater freedom in the determination of the price.

There is less freedom in determining the price.

The giving of the price may generally end the obligation

The giving of the object in lieu of the credit may

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of the buyer. extinguish completely or only partially the credit (depending on the agreement).

Conditions under which a Dation in Payment would be valid:1. If the creditor consents, for a sale presupposes the

consent of both parties.2. If the dation in payment will not prejudice the other

creditors, for this might lead the debtor to connive with one creditor in defrauding the other creditors.

3. If the debtor is not judicially declared insolvent, for here his property is supposed to be administered by the assignee.

Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.

Waiver: If the contract does not specify quality:

1. The creditor cannot demand a thing of superior quality (but if he so desires, he may demand and accept one of inferior quality).

2. The debtor cannot deliver a thing of inferior quality, but if he so desires, he may deliver one of superior (provided it is not of a different kind, Art. 1244).

Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.

Debtor pays generally for extrajudicial reasons: it is the debtor who benefits primarily since his obligation is thus extinguished. Exception is when there is a stipulation to the contrary.

Judicial Costs: generally, costs shall be awarded to the winning party but this is subject to the discretion of the court.Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter.

Performance should generally be complete: Under 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. Hence, partial performance is not allowed generally under this Article.

Exceptions:1. When there is stipulation to this effect;2. When the different prestations are subject to

different conditions or different terms;3. When a debt is in part liquidated and in part

unliquidated, in which case performance of the liquidated part may be insisted upon either by the debtor or the creditor;

4. When a joint debtor pays his share or the creditor demands the same. This is a complete payment of his share, but it is still a partial fulfillment of the whole obligation;

5. When a solidary debtor pays only the part demandable because the rest are not yet demandable on account of their being subject to different terms and conditions;

6. In case of compensation, when one debt is larger than the other, it follows that a balance is left;

7. When work is to be done by parts.

Art. 1249. The payment of debt in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.

Legal tender: that which a debtor may compel a creditor to accept in payment of the debt (whether public or private).

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of the payment, unless there is an agreement to the contrary.

Inflation: a sharp sudden increase of money or credit or both without a corresponding increase in business transaction.

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Since the value of money here tends to increase, the natural result is an increase in the price of goods or services.

Applied only during the Japanese occupation.

Art. 1251. Payment shall be made in the place designated in the obligation.

There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted.

In any other case the place of payment shall be the domicile of the debtor.

If the debtor charges his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court.

Where Payment must be made:1. If there is a stipulation – in the place designated.2. If there is none

1. If it is an obligation to deliver a determinate specific thing, then in the place where the thing might be at the time the obligation was constituted (if temporary, then in the domicile of the debtor).

2. If the obligation is any other thing, delivery is in domicile of debtor.

BALANE: Payment refers to obligations to give while performance

refers to obligations to do. When obligations are entered into, the parties except payment or performance. All other modes of extinguishing payment are abnormal modes.

REQUISITES OF PAYMENT: As to Prestation:1. IDENTITY- means the very prestation must be performed.

o If the prestation: Specific- the debtor must give or deliver

the specific thing which was agreed upon (Art. 1244).

Generic, the creditor cannot demand a thing of superior quality. However, the debtor cannot give a thing of inferior quality (Art. 1246).

o Payment:

The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines (Art. 1249, 1st ¶). R.A. No. 529 has been repealed by R.A. No. 8183, which allows payment in a different currency but in the absence of an agreement, it shall be made in pesos.

Negotiable papers and other commercial documents can be refused by the creditor unless there is a stipulation to the contrary.

If the negotiable papers and other commercial documents are accepted by the creditor, it has only a provisional effect. There is payment only in the ff (Art. 1249, 2nd ¶):

When they have been honored and cashed;

When through the fault of the creditor, they have been impaired.

A certified check or a manager’s check may not be considered as legal tender and thus, the creditor can refuse to accept.

o Exceptions: Dacion en pago (Art. 1245)- when property

is alienated to the creditor in satisfaction of a debt in money.

Novation2. INTEGRITY- means that the entire prestation must be

performed – completeness (Art. 1233)o Exceptions:

Substantial compliance 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.

Waiver (Art. 1235)- when the obligee accepts the performance, knowing its incompleteness or irregularity, without protest or objection, the obligation is deemed fully complied with.

In application of payments if the debts are equally onerous (Art. 1254, 2nd ¶) - if the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.

3. INDIVISIBILITY- the obligor must perform the prestation in one act and not in installments (Art. 1248). The creditor can validly refuse if the performance is not in one act.o Exceptions:

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1. Express stipulation and if the debts are liquidated and unliquidated in parts(Art. 1248) – Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligations consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter.

2. In prestations which necessarily entail partial performance (Art. 1225, 2nd ¶)- when the obligation has for its object the execution of a certain no. 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.

3. In joint divisible obligations (Art. 1208)- if from the law, or the nature or the wording of the obligations to which the preceding article refers to the contrary does not appear, the credit or debt.

4. In solidary obligations when the debtors are bound under different terms and conditions (Article 1211).

5. In compensation when there is a balance left (Art. 1290).

6. If work is to be deliver partially, the price or compensation for each part having been fixed (Art. 1720).

7. In case of several guarantors who demand the right of division (Article 2065)

8. In case of impossibility or extreme difficult of a single performance

As to the Parties:

PAYOR, OBLIGOR, DEBTOR: Who may be the Payor

1. Without the consent of the creditoro The debtor himselfo The debtor’s heirs or assignso The debtor’s agento Anyone interested in the fulfillment of the

obligation (e.g. guarantor)2. With the consent of the creditor

o Anyone can pay if the creditor consents. Effect of payment by a third person.

1. Payment was with the Debtor’s Consento General Rule: The payor steps into the shoes of

the creditor and becomes entitled not only to recover what he has paid, but also to exercise all the rights which the creditor could have

exercised – subrogation (Articles 1236, 1237). There is no extinguishment of the obligation but a change in the active subject.

o Exception: No subrogation if intended to be a donation (Article 1238).

2. Payment was without the Debtor’s Consento The 3rd person may demand repayment to the

extent that the debtor has benefited (Article 1236, 2nd ¶).

PAYEE, OBLIGEE, CREDITOR Who may be the Payee

1. The creditor himself (Articles 1240, 1626)2. The creditor’s successor or transferee (Article 1240)3. The creditor’s agent (Article 1240)4. Any third person subject to the following conditions:

a. Provided it redounded to the creditor’s benefit and only to the extent of such benefit (Article 1241, 2nd par)

b. If it falls under Article 1241 ¶2 (1), (2) and (3), the benefit is total.

5. Anyone in possession of the credit (Article 1242)* In all these 5 instances, it is required that the debt should not be garnished (Article 1242). If there is payment despite garnishment, then there is no payment.

AS TO TIME AND PLACE OF PERFORMANCE When Payment should be made

Payment should be made when it is due. Even if the payment is due, the General Rule is that

demand is still necessary. Article 1169 provides the instances when demand is

not necessary1. When the obligation or the law expressly so declares2. Time is the controlling motive for the establishment

of the contract3. Demand would be useless

Where Payment Should be Madeo Primary Rule: Agreement of the Partieso Secondary Rule: Place where the thing was at

the time the obligation was constituted if the obligation is to deliver a determinate thing.

o Tertiary Rule: Debtor’s domicile (not residence). 4 Special Forms of Paymenta. Dacion en pago (Article 1245)- Dacion en pago is the act of extinguishing the obligation by the substitution of payment. It is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted performance/payment of an obligation. By agreement of the parties, the prestation is changed. Dacion en pago is a special form of payment since it does not comply with the requisite of identity. Other terms for dacion en pago include dation in payment, dation en paiement and datio in solutum. Dacion en pago is governed by the law on sales (Article 1245). There

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are 2 ways of looking at dacion en pago. The traditional way is to view dacion en pago as a sale. However, the modern view is to look at dacion en pago as a novation. Castan has another view of dacion en pago. He believes that it is neither a sale nor a novation but a special form of payment. It is a species/variation of payment implying an onerous transaction similar to but not equal to a sale. It is not novation since there is no new obligation. Dacion en pago will take place only if the parties consent. Dacion en pago extinguishes the obligation up to the value of the thing delivered unless the parties agree that the entire obligation is extinguished (Lopez vs. CA).

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