UP 2010 Civil Law Obligations and Contracts Upload

8/10/2019 UP 2010 Civil Law Obligations and Contracts Upload

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CIVIL LAW REVIEWER TABLE of CONTENTS

9

OBLIGATIONS

O LIG TIONS

Table of Contents

Chapter I. General Provisions.......................91I. Obligations ..........................................91II. Sources of Obligations........................91

Chapter II. Nature and Effect of Obligations93I. Kinds of Prestations ............................93II. Breach of Obligation............................94III. Fortuitous Event (Force Majeure) .......96IV. Remedies to Creditors ........................96V. Usurious Transactions and Rules onInterest .........................................................97

Chapter III. Different Kinds of Obligations ..98I. Pure and Conditional Obligations .......98II. Reciprocal Obligations ......................100III. Obligations with a Period ..................100IV. Alternative and Facultative Obligations

101V. Joint and Solidary Obligations ..........103Effects of Prejudicial and Beneficial Acts(Art.1212)...................................................105VI. Divisible and Indivisible Obligations..106VII. Oblligations with a Penal Clause ..106

Chapter IV. Extinguishment of Obligations.......................................................................107

I. Payment or Performance ..................107II. Loss or Impossibility..........................109III. Condonation or Remission of the Debt

109IV. Confusion or Merger of Rights..........110

V. Compensation ...................................110VI. Novation ............................................111

Charts: Payment & Performance................114


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CIVIL LAW REVIEWER Chapter I. GENERAL PROVISIONS

9

OBLIGATIONS

Chapter I. General Provisions

I. OBLIGATIONSII. SOURCES OF OBLIGATIONS

A. LAWB. CONTRACTSC. QUASI-CONTRACTSD. DELICTSE. QUASI-DELICTS

Article 1156, Civil Code. An obligation is a juridicalnecessity to give, to do or not to do.

I. Obligations

Elements of an Obligation (De Leon, 2003)1. ACTIVE SUBJECT (Obligee/Creditor): the

person who has the right or power todemand the prestation.

2. PASSIVE SUBJECT (Obligor/Debtor): theperson bound to the perform the prestation.

3. PRESTATION (Object): the conductrequired to be observed by thedebtor/obligor (to give, to do or not to do).

4. VINCULUM JURIS (Juridical or Legal Tie;Efficient Cause): that which binds orconnects the parties to the obligation.

II. Sources of Obligations

A. LawArt. 1158, Civil Code. Obligations derived from laware not presumed. Only those expressly determined inthis Code or in special laws are demandable, andshall be regulated by the precepts of the law whichestablishes them; and as to what has not beenforeseen, by the provisions of this Book.

B. Contracts

Art. 1159. Has the Force of Law BetweenParties. Obligations arising from contracts havethe force of law between the contracting partiesand should be complied with in good faith

C. Quasi-ContractsArt. 2142, Civil Code. Certain lawful, voluntary andunilateral acts give rise to the juridical relation ofquasi-contract to the end that no one shall be unjustly

enriched or benefited at the expense of another.

Lawful Distinguished from crimesVoluntary Distinguished from quasi-delict,

which are based on fault andnegligence

Unilateral Distinguished from contract which isbased on agreement

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OBLIGATIONS & CONTRACTS TEAM

Prof. Solomon LumbaFaculty Editor

Leo LedesmaLead Writer

Krizel MalabananIvy VelascoTin Reyes

Frances DomingoHazel Abenoja

Writers

CIVIL LAW

Kristine BongcaronPatricia TobiasSubject Editors

ACADEMICS COMMITTEE

Kristine BongcaronMichelle Dy

Patrich LeccioEditors-in-Chief

PRINTING & DISTRIBUTION

Kae Guerrero

DESIGN & LAYOUT

Pat HernandezViktor FontanillaRusell Aragones

Romualdo Menzon Jr.Rania Joya

LECTURES COMMITTEE

Michelle AriasCamille MarananAngela Sandalo

Heads

Katz ManzanoSam Nuez

Arianne Cerezo

Mary Rose BeleyKrizel MalabananMarcrese Banaag

Volunteers

MOCK BAR COMMITTEE

Lilibeth Perez

BAR CANDIDATES WELFARE

Dahlia Salamat

LOGISTICS

Charisse Mendoza

SECRETARIAT COMMITTEE

Jill HernandezHead

Loraine MendozaMary Mendoza

Faye CelsoJoie Bajo

Members


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CIVIL LAW REVIEWER Chapter I. GENERAL PROVISIONS

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OBLIGATIONS

Kinds of Quasi-Contracts Negotiorum Gestio: officious or voluntary

management of the property or affairs ofanother without the knowledge or consent ofthe latter.

Solutio Indebiti: undue payment. Thejuridical relation arises when:o a thing is received without any right; ando the thing delivered by mistake.

Others:See Arts. 2164-2175(De Leon, 2003)

D. Delicts(Acts or omissions punished by law;crimes)

Extent of Civil LiabilityGoverned by the Revised Penal Code and theCivil Code, includes:1. Restitution;2. Reparation of damages caused; and3. Indemnity for consequential damages (Art.

104, Revised Penal Code).(Tolentino, 1987)

Enforcement of Civil Liability1. Independent: Criminal and civil action

arising from the same offense may beinstituted separately.

2. Suspended: However, after criminal actionhas been commenced prosecution for civilaction is suspended in whatever stage itmay be found, until final judgment in thecriminal proceeding is rendered;

3. Impliedly Instituted: Civil action is impliedlyinstituted with the criminal action, when: offended party expressly waives the civil

action or reserves the right to institute a

separate civil action; or the law provides for an independent civil

action

Barredo v. Garcia, (1942): The same negligent actmay give rise to an action based on delict or quasi-delict and the injured party is free to choose whichremedy to enforce.

Mendoza vs. Arrieta, (1979): If the civil action isbased on quasi-delict, there is no need to reserve theright to file a civil action in the criminal case.

Effect of Acquittal on Civil Actions

Barred No Effect

if based on the verysame facts on whichthe criminal actionwhich ended inacquittal was based

if the facts alleged inthe civil case has beenfound to be non-existent in the criminal

an independent civilaction is allowed by law

acquittal is due to lackof proof beyondreasonable doubt

action (res judicata) if judgment of acquittal

contained a declarationthat no negligence canbe attributed to theaccused and that thefact from which civilaction might arise didnot exist

E. Quasi-Delicts (Voluntary acts or omissionswith fault or negligence causing damage toanother; not a crime nor a contract)

Quasi-Delict Crimes

Private, againstindividual

Public, against the State

Criminal intent is notnecessary

Criminal intent isnecessary for criminalliability

Present in any act oromission where fault ornegligence intervenes

An act can is onlypunishable when there isa law penalizing it

Gives rise to liability fordamages to the injuredparty

There are crimes fromwhich no civil liabil ityarises

Reparation,compensation orindemnification of theinjury suffered by theinjured party

Fine or imprisonment orboth, to public treasury

Preponderance ofevidence

Proof of guilt beyondreasonable doubt

Can be compromised Can never becompromised

Requisites of Liability (DWD)

1. Wrongful act or omission by fault ornegligence

2. Damage or injury proven by the personclaiming recovery

3. Direct causal connection between the faultor negligence and the damage or injury

Liability for Quasi-Delict (Art. 2180, NCC)

Liability for Crimes(Art. 103, RPC)

Primary, can be directlysued by the injuredparty

Subsidiary, employeemust first be convictedand sentenced to paycivil indemnity

All employers, whetherengaged in someenterprise or not, areliable for acts ofemployees, evenhousehold helpers

Employer is only liablewhen he is engaged insome kind of businessor industry

Avoid civil liability byproving exercise ofdiligence of a goodfather of a family

Subsidiary liability isabsolute and cannot beavoided by any proof ofdiligence


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CIVIL LAW REVIEWER Chapter II. NATURE and EFFECT of OBLIGATIONS

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OBLIGATIONS

Chapter II. Nature and Effect ofObligations

I. KINDS OF PRESTATIONSII. BREACH OF OBLIGATIONSIII. FORTUITOUS EVENTSIV. REMEDIESV. USURIOUS TRANSACTIONS

I. Kinds of Prestations

KINDS OF PRESTATION1. TO GIVE: real obligation; to deliver either

(1) a specific or determinate thing, or (2) ageneric or indeterminate thing.

2. TO DO: positive personal obligation;includes all kinds of work or services.

3. NOT TO DO: negative personalobligation; to abstain from doing an act;includes the obligation not to give.

Accessories: those joined to or included withthe principal for the latters completion, betteruse, perfection or enjoyment

Accessions: additions to or improvement upona thing, either naturally or artificially

OBLIGATION TO GIVE

Specific Thing Generic Thing LimitedGeneric Thing

Particularlydesignated orphysicallysegregatedfrom all other of

the same class;identified byindividuality.

Object isdesignated onlyby its class/ genus/ species.Debtor can give

anything of thesame class aslong as it is ofthe same kind.

When thegeneric objectsare confined toa particularclass.

Cannot besubstituted.

Can besubstituted byany of the sameclass and samekind.

Personal Right Real Right

Vested before delivery Vested after delivery

A right enforceable onlyagainst the debtor

A right enforceableagainst the world

Right of the creditor todemand from the debtor,the fulfillment of aprestation to give, to door not to do

Right pertaining to aperson over a specificthing, without a passivesubject individuallydetermined againstwhom such right may bepersonally enforced

Duties of the Debtor Rights of the creditor

To GiveSpecificThing(Asked

in 83,84, 85and86)

To preserve or take care of the thingdue

To deliver the thing itself To deliver the fruits of the thing

To deliver the accessions andaccessories

To pay for damages in case of breach

To compel specific performance To recover damages in case of breach of

the obligation, exclusive or in addition tospecific performance

Entitlement to fruits and interests from thetime the obligation to deliver arises

To GiveGenericThing

To deliver a thing of the quality intendedby the parties taking into considerationthe purpose of the obligation and othercircumstances

Creditor cannot demand a thing ofsuperior quality neither can the debtordeliver a thing of inferior quality

To be liable for damages in case ofbreach

To ask for performance of the obligation To ask that the obligation be complied with

by a third person at the expense of thedebtor

To recover damages in case of breach ofobligation

To Do To do it To shoulder the cost of having someone

else do it To undo what has been poorly done To pay for damages in case of breach

To compel performance To recover damages where personal

qualifications of the debtor are involved


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OBLIGATIONS

Not ToDo

Not to do what should not be done To shoulder the cost of undoing what

should not have been done To pay for damages in case of breach

To ask to undo what should not be done To recover damages, where it would be

physically or legally impossible to undowhat has been undone, because of :o the very nature of the act itself;o rights acquired by third persons who

acted in good faith;o when the effects of the acts prohibited

are definite in character and will notcease even if the thing prohibited beundone.

II. Breach of Obligation

A. Voluntary fraud, negligence, delay orcontravention of tenor of the obligation

B. Involuntary fortuitous event

TYPES OF BREACH

Substantial Breach Slight or Casual Breach

Total breachAmounts to Non-Performance;Basis for rescissionunder Art. 1191 andpayment of damages

Partial breachObligation is partiallyperformed;Gives rise to liability fordamages only

1. FRAUD (DOLO): deliberate or intentionalevasion of the normal fulfillment of anobligation (De Leon, 2003).

Future Fraud:Any waiver of action forfuture fraud is void (Art. 1171).

Past Fraud: can be subject of a valid

waiver by the aggrieved party (De Leon,2003).

Woodhouse vs. Halili, (1953): In orderthat fraud may vitiate consent, it must bethe dolo causante and not merely thedolo incidente, inducement to themaking of the contract. The falserepresentation was used by plaintiff toget from defendant a bigger share of netprofits. This is just incidental to thematter in agreement. Because despiteplaintiffs deceit, respondent would havestill entered into the contract.

2. NEGLIGENCE or FAULT (CULPA):omission of that diligence which is requiredby the nature of the obligation andcorresponds with the circumstances of theperson, of the time and of the place (Art.1173).

Effect of Contributory NegligenceReduces or mitigates the recoverabledamages, UNLESS, the negligent act oromission of the creditor is theproximate causeof the event which ledto the damage or injury complained of.In this case, he cannot recover.

Diligence Required(De Leon, 2003)a. By stipulation:that agreed upon by

the parties.b. By law:in the absence of

stipulation, that required by law inthe particular case.

c. Diligence of a good father of afamily: if both the contract and laware silent.

Future Negligence: may be waivedexcept in cases where the nature of theobligation or the public requires anotherstandard of care (i.e. extraordinarydiligence as for a common carrier)

Fraud NegligenceThere is deliberateintention to causedamage

There is no deliberateintention to cause damage

Liability cannot bemitigated

Liability may be mitigated

Waiver for future fraudis void

Waiver for futurenegligence may beallowed in certain cases: gross can NEVER

be excused inadvance; amounts towanton attitude; ruleson fraud shall apply

simple may beexcused in certaincases

Mandarin Villa Inc. v. CA (1996):Test of Negligence:Did the defendant in doing the alleged negligent actuse the reasonable care and caution which anordinary and prudent person would have used in thesame situation? If not, then he is guilty of negligence.


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OBLIGATIONS

Extent of Damages to be Awarded

Bad Faith Good Faith

Debtor is liable for alldamages which can bereasonably attributed tothe non-performance ofthe obligation. Any waiveror renunciation made inanticipation of such

liability is null and void

Debtor is liable only forthe natural andprobableconsequences of thebreach of obligation andfortuitous events

Culpa Contractual Culpa AquilianaAskedin 83, 84, and 86)

Negligence is merelyincidental in theperformance of anobligation

Negligence is substantiveand independent

There is always a pre-existing contractualrelation

There may or may not bea pre-existing contractualobligation

The source of obligationof defendant to paydamages is the breach ornon-fulfillment of the

contract

The source of obligationis the defendantsnegligence itself

Proof of the existence ofthe contract and of itsbreach or non-fulfillmentis sufficient prima facie towarrant recovery

The negligence of thedefendant must beproved

Proof of diligence in theselection and supervisionof the employees is NOTavailable as defense

Proof of diligence in theselection and supervisionof the employee is adefense

Culpa Criminal: wrong or negligence inthe commission of a crime

3. DELAY or DEFAULT (MORA): failure toperform an obligation on time whichconstitutes breach of the obligation (DeLeon, 2003). Mora Solvendi: delay on the part of the

debtor to fulfill his obligation either togive (Ex re) or to do (Ex persona),(Asked in 83, 84, 85, and 86);

No Mora Solvendi in: Negative Obligations because delay

is impossible (De Leon, 2003);

Natural Obligations (Tolentino,1987).

Mora Accipiendi: delay on the part ofthe creditor to accept the performance ofthe obligation

Compensatio Morae: delay of theparties in reciprocal obligations; effect:as if there is no default.

Mora Solvendi Mora Accipiendi

Requisites1. Obligation must be

liquidated, due anddemandable

2. Non-performance bythe debtor on periodagreed upon

3. Demand, judicial orextra-judicial, by thecreditor

Requisites1. Debtor offers of

performance2. Offer must be in

compliance with theprestation

3. Creditor refuses theperformancewithout just cause

Effects1. The debtor is liable

for damages2. The debtor is liable

even if the loss is dueto fortuitous events

3. For determinateobjects, the debtorshall bear the risk ofloss

Effects1. The responsibility of

the debtor isreduced to fraudand grossnegligence

2. The debtor isexempted from riskof loss of the thingwhich is borne bythe creditor

3. The expensesincurred by thedebtor for the

preservation of thething after the morashall be chargeableto the creditor

4. If the obligationbears interest, thedebtor does nothave to pay fromthe time of delay

5. The creditor is liablefor damages

6. The debtor mayrelieve himself ofobligation byconsigning the thing

Rules on Mora, Delay or Default

Unilateral Obligations Reciprocal ObligationsGeneral Rule:

No demand no delay.

The mere expiration ofthe period fixed by theparties is not enough inorder that the debtor mayincur in delay.

General Rule:Delay occurs from themoment one party fulfillshis undertaking, while theother does not comply oris not ready to comply ina proper manner withwhat is incumbent uponhim.No delay if neither party

performs his undertaking(Art. 1169, par. 2).Exceptions1. the obligation or law

provides2. time is of the

essence3. demand useless4. debtor

acknowledges thathe is in default

Exception:different dates for theperformance ofrespective obligations arefixed by the parties


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OBLIGATIONS

4. CONTRAVENTION OF THE TENOR:violation of the terms and conditionsstipulated in the obligation, which must notbe due to a fortuitous event or force majeure(De Leon, 2003). In any manner contravenes the

tenor means any illicit act, whichimpairs the strict and faithful fulfillmentof the obligation, or every kind ofdefective performance (Tolentino, 1987).

III. Fortuitous Event (Force Majeure)

Any event which could not be foreseen, or whichthough foreseen are inevitable (Art. 1174)

A happening independent of the will of thedebtor and which makes the normal fulfillment ofthe obligation impossible(De Leon, 2003).

A. Act of God: an accident, due directly orexclusively to natural causes without human

intervention, which by no amount offoresight, pains or care, reasonably to havebeen expected, cold have been prevented.

B. Act of Man: force majeure is a superior orirresistible force, which is essentially an actof man; Includes unavoidable accidents,even if there has been an intervention ofhuman element, provided that no fault ornegligence can be imputed to the debtor

(Asked in 81, 87 and 88)

Liability in case of Fortuitous EventNo person shall be responsible for fortuitousevents, UNLESS:

1. expressly specified by law (Arts. 552(2),1942, 2147, 2148, 2159)

2. liability specified by stipulation3. the nature of the obligations requires

assumption of risk (Art. 1174)4. when debtor is guilty of concurrent or

contributory negligence5. debtor has promised to deliver the same

thing to two or more persons who do nothave the same interests (Art. 1165 par. 3)

6. the thing is lost due to the obligors fraud,negligence, delay or contravention of thetenor of the obligation (Art. 1170)

7. the obligation to deliver a specific thingarises from a crime (Art. 1268)

8. the object is a generic thing, i.e. the genusnever perishes

Requisites for Exemption1. The event must be independent of the

debtors will (fraud or negligence)

2. The event must be unforeseeable orinevitable

3. The event renders it impossible for debtor tofulfill his obligation in a normal manner

4. The debtor must be free from anyparticipation in the aggravation of the injuryto the creditor (Tolentino, 1987; De Leon,2003)

5. It must be the only and sole cause, notmerely a proximate cause.

IV. Remedies to Creditors

Art. 1170, Civil Code. Those who in the performanceof their obligations are guilty of fraud, negligence, ordelay and those who in any manner contravene thetenor thereof, are liable for damages.

Transmissibility of RightsArt. 1178: Rights acquired by virtue of anobligation are transmissible in character,UNLESS prohibited:

1. by their very nature (i.e. personalobligations)

2. by stipulation of the parties3. by operation of law

(De Leon, 2003)

Primary RemediesArts. 1165-1168:PRESS1. Specific Performance performance

by the debtor of the prestation itself2. Substituted Performance someone

else performs or something else isperformed at the debtors expense

3. Equivalent Performance right toclaim damages (in either performance orrescission)

4. Rescission right to rescind or cancelthe contract

5. Pursue the Leviable to attach theproperties of the debtor, except thoseexempt by law from execution

Subsidiary Remedies of Creditor

General Rule: Contracts are binding onlybetween the parties thereto, and their heirs,

assignees, and the estate, UNLESS: AccionSubrogatoria and Accion Pauliana1. Accion Subrogatoria: right of creditor to

exercise all of the rights and bring all of theactions which his debtor may have againstthird persons; Novation by change of debtor(Art. 1291, par.3).


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OBLIGATIONS

Requisitesa. Debtor to whom the right of action

properly pertains must be indebted tothe creditor

b. The debt is due and demandablec. The creditor must be prejudiced by the

failure of the debtor to collect his owndebt from 3

rdpersons either through

malice or negligenced. The debtors assets are insufficient

(debtor is insolvent)e. The right of action is not purely personal

to the debtor

2. Accion Pauliana: Rescission, whichinvolves the right of the creditor to attack orimpugn by means of a rescissory action anyact of the debtor which is in fraud and to theprejudice of his rights as creditor.

Requisites: CASALa. There is a credit in favor of plaintiff

prior to alienation

b. The debtor has performed asubsequent contract conveying apatrimonial benefit to third persons

c. The creditor hasno other legal remedyto satisfy his claim

d. The debtorsacts are fraudulent to theprejudice of the creditor

e. The third person who received theproperty is anaccomplicein the fraud

Accion Subrogatoria Accion Pauliana

Not necessary thatcreditors claim is prior tothe acquisition of the rightby the debtor

Credit must exist beforethe fraudulent act

No need for fraudulentintent

Fraudulent intent isrequired if the contractrescinded is onerous

No period for prescription Prescribes in 4 yearsfrom the discovery of thefraud

3. Accion Directa (Art. 1729, 1652, 1608,1893): the right of lessor to go directly to asublessee for unpaid rents of the lessee

4. The right of laborers or persons who furnish

materials for a piece of work undertaken bya contractor to go directly to the owner forany unpaid claim due to the contractor

5. The right of vendor against every possessorwhose right is derived from the vendee

6. The right of a principal against a substitutionappropriated by an agent

Siguan v. Lim, (1999): Petitioner cannot invoke thecredit of a different creditor to justify the rescission ofthe subject deed of donation, because the onlycreditor who may benefit from the rescission is thecreditor who brought the action; those who arestrangers to the action cannot benefit from its effects.

V. Usurious Transactions and Rules on

Interest

USURY: stipulation of interest rates higher thanthe ceiling provided by law.

Note: Usury Law (Act No. 2655, as amended)was repealed by Central Bank Circular No. 905,Dec. 10, 1982.

INTEREST

Art. 1176, Civil Code. Receipt of the principal withoutreservation as to the interest shall give rise to a

disputable presumption that the interest has beenpaid. Receipt of the latter installment withoutreservation as to prior installments shall likewise giverise to a disputable presumption that such priorinstallments have been paid.

Determination of InterestsEastern Shipping Lines v. CA (1961)

Stage 1

For loan or forbearanceof money, goods orcredit, the interest rateis12%

NOT for loan orforbearance of money,goods or credit, theinterest rate is6%

a) Interest = interestrate stipulated inwrit ing + 12% legalinterest, computedfrom date of judicialdemand (filing ofcomplaint)

a) If date of demand iscertain, compute fromthe date when demandis made (judicial orextra-judicial)

b) If there is nostipulated interest rate,the interest rate is 12%computed from date ofdefault or demand(judicial or extra-

judicial)

b) If date of demand isNOT certain, computefrom the date of trialcourt decision (judicialdemand)

Stage 2Add 12% interest from finality of SC decision untilfully paid (equivalent to a forbearance of credit)


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CIVIL LAW REVIEWER Chapter III. DIFFERENT KINDS of OBLIGATIONS

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OBLIGATIONS

Chapter III. Different Kinds of Obligations

I. PURE AND CONDITIONAL OBLIGATIONSII. RECIPROCAL OBLIGATIONSIII. OBLIGATIONS WITH A PERIODIV. ALTERNATIVE AND FACULTATIVE

OBLIGATIONSV. JOINT AND SOLIDARY OBLIGATIONSVI. DIVISIBLE AND INDIVISIBLE OBLIGATIONSVII. OBLIGATIONS WITH A PENAL CLAUSE

I. Pure and Conditional Obligations

(Asked in 79, 88, 00, 03)

Pure Obligation (Art.1179): Effectivity orextinguishment does not depend upon thefulfillment or non-fulfillment of a condition orupon the expiration of a term or period andcharacterized by the quality of its beingIMMEDIATELY DEMANDABLE.

Conditional Obligation (Art.1181): Effectivity issubject to the fulfillment or non-fulfillment of acondition, which is characterized to be aFUTURE and UNCERTAIN event.

Effects of Conditions1. Suspensive Condition: Obligation shall

only be effective upon the fulfillment of thecondition (Art.1181). What is acquired by theobligee upon the constitution of theobligation is mere hope or expectancy, but isprotected by law.

Before Fulfillment After Fulfillment

The demandability andacquisition or effectivityof the rights arising fromthe obligation issuspended. Anythingpaid by mistake duringsuch time may berecovered.

The obligation arises orbecomes effective.The obligor can becompelled to comply withwhat is incumbent uponhim.

Doctrine of Constructive Fulfillmentof Suspensive ConditionsArt. 1186: the condition shall be deemedfulfilled when the obligor actuallyprevented the obligee from complyingwith the condition, and that suchprevention must have been voluntary orwillful in character. Applicable to suspensive conditions

and not to resolutory conditions. The article can have no application

to an external contingency which islawfully within the control of theobligor.

The mere intention of the debtor toprevent, without actually preventingfulfillment is not sufficient.Constructive fulfillment will not holdwhen the debtor acts pursuant to aright. There is constructivefulfilment:a. Intent of the obligor to prevent

fulfilment; andb. Actual prevention of compliance

Principle of Retroactivity inSuspensive ConditionsArt.1187, par.1: once the condition isfulfilled its effects must logically retroactto the moment when the essentialelements, which gave birth to theobligation have taken place. Thecondition which is imposed is onlyaccidental, not an essential element ofthe obligation. Applied only to consensual

contracts. No application to real

contracts which can only beperfected by delivery.

To Give To Do/Not To Do

If reciprocal, the fruitsand interests shall bedeemed to have beenmutually compensatedas a matter of justice andconvenience(Art. 1187, par. 1)

In obligations to do or notto do, the court shalldetermine the retroactiveeffect of the conditionthat has been compliedwith.(Art. 1187, par. 2)

If unilateral, the debtorshall appropriate thefruits and interests

received, unless from thenature and circumstanceit should be inferred thatthe intention of thepersons constituting thesame was different.

The power of the courtincludes thedetermination whether or

not there will be anyretroactive effects. Thisrule shall likewise applyin obligations with aresolutory condition (Art.1190 par. 3)

Preservation of Creditors RightsArt.1188, par.1: The creditor may,before the fulfillment of the condition,bring the appropriate action for thepreservation of his rights. However, thisdoes not grant any preference of creditbut only allows the bringing of the proper

action for the preservation of thecreditors rights.

2. Resolutory Condition: Obligation becomesdemandable immediately after itsestablishment or constitution. The rights areimmediately vested to the creditor, butalways subject to the threat or danger ofextinction by the happening of the resolutorycondition (Tolentino, 1987).


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OBLIGATIONS

Before Fulfillment After Fulfillment

Preservation of creditorsrights (Art. 1188, par. 1)also applies toobligations with aresolutory condition

Whatever may havebeen paid or delivered byone or both of the partiesupon the constitution ofthe obligation shall haveto be returned upon thefulfillment of thecondition. There is noreturn to the status quo.However, when conditionis not fulfilled, rights areconsolidated and theybecome absolute incharacter

3. Potestative Condition

Exclusivelyupon the

Creditors Will

Exclusivelyupon the

Debtors Willin case of aSuspensive

Condition

(Art. 1182)

Exclusivelyupon the

Debtors Willin case of aResolutoryCondition

(Art. 1179, par2)

Condition andobligation isvalid

Condition andobligation arevoid because toallow suchcondition wouldbe equivalent tosanctioningobligationswhich areillusory. It alsoconstitutes adirectcontravention ofthe principle ofmutuality ofcontracts.

Condition andobligation isvalid because insuch situation,the position ofthe debtor isexactly thesame as theposition of thecreditor whenthe condition issuspensive. Itdoes not renderthe obligationillusory.

4. Casual Condition: The fulfillment of thecondition depends upon chance and/or uponthe will of a third person (Art. 1182)

5. Mixed Condition: The fulfillment of thecondition depends partly upon the will of aparty to the obligation and partly uponchance and/or will of a third person

Osmena v. Rama : Defendant executed anendorsement saying that shell pay her debt if thehouse in which she lives is sold. Such conditiondepended upon her exclusive will thus it is void.

Hermosa v. Longara: The condition that paymentshould be made by Hermosa as soon as he receivesfunds from the sale of his property in Spain is a mixedcondition. The condition implies that the obligoralready decided to sell the house and all that was

needed to make the obligation demandable is that thesale be consummated and the price thereof remittedto the islands. There were still other conditions thathad to concur to effect the sale, mainly that of thepresence of a buyer, ready, able and willing topurchase the property under the conditions set by theintestate.

6. Impossible Condition: conditions whichare impossible, contrary to good customs, or

public policy and those prohibited by lawshall annul the obligations which dependupon them (Art. 1183). If pre-existing obligation, only the

impossible condition is void, but not theobligation.

If divisible obligation, that part which isnot affected by the impossible orunlawful condition shall be valid.

If the condition is not to do animpossible thing, it shall be consideredas not having been agreed upon (Art1183, par. 2). Consequently, it becomespure and immediately demandable.

If attached to a simple or remuneratorydonation (Art. 727), or testamentarydisposition (Art. 873), condition isconsidered as not imposed while theobligation is valid.

7. Positive Condition: Obligation shall beextinguished as soon as the time expires orif it becomes indubitable that the event willnot take place (Art.1184)

8. Negative Condition: Obligation shall berendered effective from the moment the time

indicated has lapsed, or if it has becomeevident that the event will not occur(Art.1185) When no period has been fixed, the

intention of the parties is controlling,and the time shall be that which theparties may have contemplated, takinginto account the nature of the obligation(Art 1185, par. 2).

Effects of Loss, Deterioration, andImprovement in Real Obligations Pending the

Condition (Art. 1189)

WithoutDebtorsFault/Act

With DebtorsFault/Act

Loss Obligation isextinguished

Obligation isconverted intoone ofindemnity fordamages


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OBLIGATIONS

Deterioration Impairment to beborne by thecreditor

Creditor maychoosebetweenbringing anaction forrescission ofthe obligationOR bringing anaction forspecificperformance

with damagesin either case.

Improvement Improvement atthe debtorsexpense, thedebtor shallONLY haveusufructuaryrights

Improvementby the thingsnature or bytime shall inureto the benefit ofthe creditor

Loss, defined: when the thing perishes; goesout of commerce; disappears in such a way thatits existence is unknown or it cannot be

recovered

II. Reciprocal Obligations

Obligations which are established from samecause, such that one obligation is correlative tothe other. It results in mutual relationshipbetween the creditor and the debtor. It isperformed simultaneously, so that theperformance of one is conditioned upon thesimultaneous fulfillment of the other.

Tacit Resolutory Condition: if one of theparties fail to comply with what is incumbentupon him, there is a right on the part of the otherto rescind the obligation. The power to rescind isgiven to the injured party (Tolentino, 1987).

Rescission of Reciprocal Obligations (Art.1191, CC) Right to rescind is implied in reciprocal

obligations thus where one party fails tocomply with this obligation under a contact,the other party has the right to eitherdemand the performance or ask for the

resolution of the contract. Based on the breach of faith committed by

the person who is supposed to comply withthe obligation as compared to the rescissionreferred to in Art. 1308 which involves thedamage or lesion, or injury to the economicinterest of a person.

Where both parties have committed abreach of obligation, the liability will be

shouldered by the first infractor. This shallbe determined by the courts. However, if itcannot be determined who was the firstinfractor, the contract shall be deemedextinguished and each shall bear his owndamages (Art.1192).

UP v. Delos Angeles (1970): The injured party mayextra-judicially rescind the contract on account of thebreach of the other party. However, this is without

prejudice to the option of the other party to resort tothe courts in order to determine if the rescission madeis valid, if not, the party who rescinded the contractwill be sentenced to pay damages.

Where the other party does not oppose theextra-judicial declaration of rescission, suchdeclaration shall produce legal effect.

Effect is retroactive therefore invalidatingand unmaking the juridical tie between thecontracting parties, leaving things in theirstatus before the celebration of the contract.

III. Obligations with a Period

Period or Term (Asked in 84, 86 and 91):Interval of time, which either suspendsdemandability or produces extinguishment.The period must be: future, certain, and possible(Tolentino, 1987).

Fortuitous event does not interrupt therunning of the period. It only relieves thecontracting parties from the fulfillment oftheir respective obligations during the

period. Kinds of Period (Art. 1193):

1. Ex die - period with a suspensive effect.Obligation becomes demandable afterthe lapse of the period.

2. In diem - period with a resolutory effect.Obligation is demandable at once but isextinguished upon the lapse of theperiod.

Art. 1180, Civil Code. When the debtor binds himselfto pay when his means permit him to do so, theobligation shall be deemed to be one with a period,subject to the provisions of Article 1197.

Term/Period and Condition Distinguished

Term/Period Condition

Interval of time which isfuture and certain

Fact or event which isfuture and uncertain

Must necessarily come,although it may not beknown when

May or may not happen


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OBLIGATIONS

Exerts an influence uponthe time of demandabilityor extinguishment of anobligation

Exerts an influence uponthe very existence of theobligation itself

No retroactive effectunless there is anagreement to the contrary

Has retroactive effect

When it is left exclusivelyto the will of the debtor,the existence of theobligation is not affected

When it is left exclusivelyto the will of the debtor,the very existence of theobligation is affected

Benefit of the PeriodPresumption: Period in an obligation ispresumed to be established for the benefit ofboth the creditor and debtor, UNLESS: If fromthe tenor of the obligation or othercircumstances, it shall appear that the periodhas been established in favor of either thecreditor or debtor (Art. 1196).

Period for the Benefit of either Creditor orDebtor

Creditor DebtorCreditor may demandthe fulfillment orperformance of theobligation at any timebut the obligor cannotcompel him to acceptpayment before theexpiration of the period

Debtor may oppose anypremature demand onthe part of the oblige forthe performance of theobligation, of i f he sodesires, he mayrenounce the benefit ofthe period by performinghis obligation in advance

When court may fix periodArt. 1197: as general rule, the court is not

authorized to fix a period for the parties (DeLeon, 2003).

Araneta v. Phil. Sugar Estates,provides:First, the Court shall determine: If the obligation does not fix a period, but from

its nature and circumstances, it can be inferredthat a period was intended

If the period is void, such as when it dependsupon the will of the debtor

If the debtor binds himself when his meanspermit him to do so.

Second, it must decide what period was probablycontemplated by the parties.

The only action that can be maintainedunder Art. 1197 is the action to ask thecourts to fix the term within which the debtormust comply with his obligation. Thefulfillment of the obligation itself cannot bedemanded until after the court has fixed theperiod for compliance, therewith, and suchperiod has arrived.

Art. 1197 does not apply to contract ofservices and to pure obligations.

The court, however, to preventunreasonable interpretations of theimmediate demandability of pure obligations,may fix a reasonable time in which thedebtor may pay.

(Tolentino, 1987)

When Debtor Loses Right to Use PeriodArt.1198:I GIV A LA1. Debtor becomes Insolvent, unless he gives

a guaranty or security for his debt, afterobligation is contracted

2. Debtor fails to furnish the Guaranties orsecurities promised

3. Debtor by his own acts Impaired saidguaranties or securities after theirestablishment, and when through afortuitous event they disappear, unless heimmediately gives new one equallysatisfactory

4. Debtor Violates any undertaking, in

consideration of which the creditor agreed tothe period

5. Debtor attempts toAbscond6. ByLaw or stipulation7. Parties stipulate anAcceleration Clause

In the cases provided, the obligation becomesimmediately due and demandable even if theperiod has not yet expired. The obligation is thusconverted into a pure obligation (Tolentino,1987).

IV. Alternative and FacultativeObligations

Alternative Obligations Facultative Obligations

Several objects are due Only one object is due

May be complied with bydelivery of one of theobjects or by performanceof one of the prestationswhich are alternativelydue

May be complied with bythe delivery of anotherobject or by theperformance of anotherprestation in substitutionof that which is due

Choice may pertain todebtor, creditor, or thirdperson

Choice pertains only tothe debtor

Loss/impossibility of allobjects/prestations due tofortuitous event shallextinguish the obligation.The loss/impossibility ofone of the things does notextinguish the obligation.

Loss/impossibility of theobject/prestation due tofortuitous event issufficient to extinguishthe obligation

Culpable loss of any ofthe objects alternatively

Culpable loss of theobject which the debtor


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OBLIGATIONS

due before the choice ismade may give rise toliability on the part of thedebtor

may deliver insubstitution before thesubstitution is effecteddoes not give rise to anyliability on the part of thedebtor

A. Alternative Obligations

Several prestations are due but the performance

of one is sufficient (De Leon, 2003).

Right of ChoiceArt. 1200: to the debtor, UNLESS:

1. when it is expressly granted to thecreditor

2. when it is expressly granted to a thirdperson

Limitations to the right of choice1. impossible prestations2. unlawful prestations3. those which could not have been the

object of the obligation4. only one prestation practicable (Art.1202)

(De Leon, 2003)

When choice shall produce effectArt. 1201: Choice shall produce no effect exceptfrom the time it has been communicated. Theeffect of the notice is to limit the obligation of theobject or prestation selected. Notice of selectionor choice may be in any form provided it issufficient to make the other party know that theselection has been made. It can be:

o oralo in writingo tacito any other equivocal means

Choice of the debtor when communicated tothe creditor does not require the lattersconcurrence.

When the choice is rendered impossiblethrough the creditors fault, the debtor maybring an action to rescind the contract withdamages (Art.1203).

Obligation is converted into a simpleobligation when:o When the person who has the right of

choice has communicated his choice(Art. 1201)

o When only one prestation is practicable(Art. 1202)

Effect of Loss of Objects

Art. 1204: Debtors ChoiceFortuitousEvent

Debtors Fault

All Lost Debtor isreleased from theobligation

Creditor shall havea right to indemnityfor damages basedon the value of thelast thing which

disappeared orservice whichbecome impossible

Some Debtor to deliverthat which heshall choosefrom among theremainder

Debtor to deliverthat which thecreditor shallchoose from amongthe remainderwithout damages

OneRemains

Debtor to deliverthat whichremains

Debtor to deliverthat which remains

Art. 1205: Creditors ChoiceFortuitous

Event

Debtors Fault

All Lost Debtor isreleased from theobligation

Creditor may claimthe price/value ofany of them withindemnity fordamages

Some Debtor to deliverthat which heshall choosefrom among theremainder

creditor may claimany of thosesubsisting without aright to damagesOR price/value ofthe thing lost withright to damages

One

Remains

Creditor may

claim any ofthose subsistingwithout a right todamages ORprice/value of thething lost withright to damages

Creditor may claim

the remaining thingwithout a right todamages OR theprice/value of thething lost with rightto damages

B. Facultative Obligation

Only one prestation has been agreed upon butthe debtor may render another in substitution(De Leon, 2003)

Effect of Loss of Substitute

Before Substitution isMade

After Substitution isMade

If due to bad faith orfraud of obligor: obligoris liable

The loss ordeterioration of thesubstitute on accountof the obligors delay,negligence or fraud


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OBLIGATIONS

If due to the negligenceof the obligor: obligor isnot liable

obligor is liablebecause oncesubstitution is made,the obligation isconverted into a simpleone with the substitutedthing as the object ofthe obligation.

V. Joint and Solidary Obligations

A. Joint Obligations

One where a concurrence of several creditors,or of several debtors, or of several creditors anddebtors, by virtue of which, each of the creditorshas a right to demand, and each of the debtorsis bound to render compliance with hisproportionate part of the prestation whichconstitute the object of the obligation (ObligacionMancomunada).

Presumption: Obligation is presumed joint ifthere is a concurrence of several creditors, ofseveral debtors, or of several creditors anddebtors in one and the same obligation (Art.1207).

Exceptions:1. When the obligation expressly stated that

there is solidarity2. When the law requires the solidarity3. When the nature of the obligation requires

solidarity4. When the nature or condition is imposed

upon heirs or legatees, and the testamentexpressly makes the charge or condition insolidum

5. When the solidary responsibility is imputedby a final judgment upon several defendants

Principal Effects of Joint Liability1. Demand by one creditor upon the debtor,

produces the effects of default only withrespect to the creditor who demanded andthe debtor on whom the demand was made,but not with respect to others

2. Interruption of prescription by the judicialdemand of one creditor upon a debtor, does

not benefit the other creditors nor interruptthe prescription as to other debtors

3. Vices of each obligation arising from thepersonal defect of a particular debtor orcreditor does not affect the obligation or rightof the others

4. Insolvency of a debtor does not increase theresponsibility of his co-debtors, nor does it

authorize a creditor to demand anythingfrom his co-debtors

5. Defense ofres judicatais not extended fromone debtor to another

Joint Divisible ObligationArt. 1208: Each creditor can demand only for thepayment of his proportionate share of thecredit, while each debtor can be liable only forthe payment of his proportionate share of thedebit

Presumption: Credit or debt shall be presumedto be divided into as many equal shares as thereare creditors or debtors. Joint creditor cannot act in representation of

the others, neither can a joint debtor becompelled to answer for the liability ofothers.

Joint Indivisible ObligationArt. 1209: no creditor can act in representationof the other; no debtor can be compelled to

answer for the liability of the others. If there are two or more debtors, the

fulfillment of or compliance with theobligation requires the concurrence of all thedebtors, although each for his own shareand for the enforcement of the obligation

In case of breach where one of the jointdebtors fails to comply with his undertaking,the obligation can no longer be fulfilled orperformed. Consequently, it is convertedinto one of indemnity for damages.

In case of insolvency of one of thedebtors, the others shall not be liable for his

shares. To hold otherwise would destroy thejoint character of the obligation.

Joint DivisibleObligations

Joint IndivisibleObligations

In case of breach ofobligation by one of thedebtors, damages duemust be borne by himalone

In case of breach whereone of the joint debtorsfails to comply with hisundertaking, theobligation can no longerbe fulfilled or performed.Thus action must beconverted into indemnityfor damages.

Plurality of Creditors: If one or some ofthe creditors demands the prestation,the debtor may legally refuse to deliverto them, he can insist that all thecreditors together receive the thing, andif any of them refuses to join the others,the debtor may deposit the thing in courtby way of consignation (Tolentino,1987).


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OBLIGATIONS

B. Solidary Obligation

An obligation where there is concurrence ofseveral creditors, or of several debtors, or ofseveral creditors and several debtors, by virtueof which, each of the creditors has the right todemand, and each of the debtors is bound torender, entire compliance with the prestationwhich constitutes the object of the obligation(Obligacion Solidaria).

Indivisibility Solidarity

Refers to the prestationwhich constitutes theobject of the obligation

Refers to the legal tie orvinculum, andconsequently to thesubjects or parties ofthe obligation

Plurality of subjects is notrequired

Plurality of subjects isindispensable

In case of breach,obligation is converted intoindemnity for damagesbecause the indivisibility ofthe obligation is terminated

When there is liabilityon the part of thedebtors because of thebreach, the solidarityamong the debtors

remains

The indivisibility of an obligation does notnecessarily give rise to solidarity. Nor doessolidarity itself imply indivisibility. (Art. 1211)

Kinds of Solidary Obligations1. Active (solidarity among creditors): Each

creditor has the authority to claim andenforce the rights of all, with the resultingobligation of paying everyone of whatbelongs to him. Creation of a relationship of mutual

agencyamong co-creditors.

A solidary creditor cannot assign hisrights without the consent of the others.(Art. 1213)

Each debtor may pay to any solidarycreditor, but if any demand, judicial orextrajudicial, has been made by one ofthem, payment must be made to him.(Art. 1214)

2. Passive (solidarity among debtors): Eachdebtor can be made to answer for theothers, with the right on the part of thedebtor-payor to recover from the others theirrespective shares. Creation of a relationship of mutual

guarantyamong co-debtors The total remission of the debt in favor

of a debtor releases all the debtors All the debtors are liable for the loss of

the thing due, even if such loss iscaused by the fault of only one of themand for delay, even if it is caused by justone of them

The interruption of prescription as to

one debtor affects all the others; but therenunciation by one debtor ofprescription already had does notprejudice the others

3. Mixed: Solidarity among creditors anddebtors Solidarity is not destroyed by the fact

that the obligation of each debtor issubject to different conditions or periods.The creditor can commence an actionagainst anyone of the debtors for thecompliance with the entire obligationminus the portion or share which

corresponds to the debtor affected bythe condition or period.

____________________________________________________________________________________

Effects of Modes of Extinguishment

Assignment ofRights in Solidary

ObligationsNovation

Compensation &Confusion

RemissionLoss or

Impossibility

The solidarycreditor cannotassign his rightbecause it is

predicated uponmutualconfidence,UNLESS, the (1)the assignment isto a co-creditor;(2) assignment iswith consent ofco-creditor

If prejudicial, thesolidary creditorwho effected thenovation shall

reimburse theothers fordamages incurredby them;

If beneficial andsecured by one,he shall be liableto the others forthe share(obligation &benefits) which

If it is partial, therules regardingapplication ofpayment shall

apply (w/o)prejudice to theright of othercreditors whohave not causedthe confusion orcompensation tobe reimbursed tothe extent thattheir rights arediminished or

If entireobligation,obligation is totallyextinguished.

If for the benefitof one of thedebtors coveringhis entire share,he is completelyreleased from thecreditor/s.

If for the benefitof one of thedebtors and itcovers only part

If not debtorsfault, theobligation isextinguished

If thru debtorsOR fortuitousevent after delay,the obligation isconverted intoindemnity fordamages but thesolidary characterof the obligationremains.


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OBLIGATIONS

corresponds tothem

If by substitutingthe debtor, thesolidary creditorwho effected thenovation is liablefor the acts of thenew debtor indeficiency ordamages

If by subrogatinga third person increditors rights,the obligation isnot in realityextinguished asthe relationbetween the othercreditors and thedebtor/s ismaintained.

affected If total, the

obligation isextinguished,what is left is theensuing liabilityfor reimbursement

of his share, hischaracter as asolidary debtor isnot affected.

Effects of Prejudicial and Beneficial Acts(Art.1212)

1. Each one of the solidary creditors may dowhatever may be useful or beneficial to theothers, but not anything which may beprejudicial to the latter.

2. As far as the debtors are concerned, aprejudicial act performed by a solidarycreditor is binding.

3. As between the solidary creditors, thecreditor who performed such act shall incurthe obligation of indemnifying the others fordamages.

Defenses Available to a Solidary Debtor (Art.1222)1. Those derived from the nature of the

obligation2. Those personal to him3. Those pertaining to his own share4. Those personally belonging to other co-

debtors but only as regards that part of thedebt for which the latter are responsible.

Effects

Demand Upon a

Solidary Debtor

Payment by a Debtor

The demand madeagainst one of them shallnot be an obstacle tothose which maysubsequently be directedagainst the others solong as the debt has notbeen fully collected. (Art.1216)

Full payment made byone of the solidarydebtors extinguishes theobligation. (Art. 1217)

The creditor may proceedagainst any one of thesolidary debtors or allsimultaneously (Art.1216)

If two or more solidarydebtors offer to pay, thecreditor may choosewhich offer to accept.(Art. 1217)

A creditors right toproceed against thesurety existsindependently of his rightto proceed against theprincipal

The solidary debtor whomade the payment shallhave the right to claimfrom his co-debtors theshare which correspondsto them with interest,UNLESS barred byprescription or illegality.(Art. 1218)

When a solidary debtor pays the entireobligation, the resulting obligation of the co-debtors to reimburse him becomes joint.

If payment was made before the debtbecame due, no interest during theintervening period may be demanded. (Art.1217 par. 2)

When one of the solidary debtors cannotreimburse his share to the debtor paying theobligation due to insolvency, such shareshall be borne by all his co-debtors, inproportion to the debt of each. (Art. 1217,par. 2)

Inchausti v. Yulo, (1914): Debtors obligatedthemselves solidarily, so creditor can bring its actionagainst any of them. Remission of any part o fthedebt, made by the creditor in favor of one of thesolidary debtors, inures to the benefit of the rest ofthem.


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OBLIGATIONS

VI. Divisible and Indivisible Obligations

A. Divisible Obligations

One which is susceptible of partial performance;that is, the debtor can legally perform theobligation by parts and the creditor cannotdemand a single performance of the entireobligation(Tolentino, 1987).

B. Indivisible Obligations

One which cannot be validly performed in parts(Tolentino, 1987). Divisibility/indivisibility refers to the

performance of the prestation and not to thething which is the object thereof. The thingmay be divisible, yet the obligation may beindivisible.

When the obligation has for its object theexecution of a certain number of days ofwork, the accomplishment of work by

metrical units, or analogous things which bytheir nature are susceptible of partialperformance, it shall be divisible (Art.1225,par. 2).

When there is plurality of debtors andcreditors, the effect of divisibility/indivisibilityof the obligation depend upon whether theobligation is joint or solidary.

A joint indivisible obligation give rise toindemnity for damages from the time anyoneof the debtors does not comply with isundertaking.

(Art. 1224)

EffectCreditor cannot be compelled partially to receivethe prestation in which the obligation consists;neither may the debtor be required to make thepartial payment (Art. 1248), UNLESS: The obligation expressly stipulates the

contrary The different prestations constituting the

objects of the obligation are subject todifferent terms and conditions

The obligation is in part liquidated and in partunliquidated

VII. Oblligations with a Penal Clause

Penal Clause: An accessory undertaking toassume greater liability in case of breach (DeLeon, 2003). It is attached to an obligation inorder to ensure performance. The enforcementof the penalty can be demanded by the creditoronly when the non-performance is due to thefault or fraud of the debtor.

If the principal obligation is void, penalclause shall also be void. However, thenullity of the penal clause does not carrywith it the nullity of the principalobligation (Art.1230).

Purposes of Penalty1. Funcion coercitiva de garantia - to insure the

performance of the obligation.2. Funcion liquidatoria - to liquidate the amount of

damages to be awarded to the injured party incase of breach of the principal obligation(compensatory).

3. Function estrictamente penal - to punish theobligor in case of breach of the principalobligation (punitive).

Effects of Penalty1. The penalty shall substitute the indemnity for

damages and payment of interest in case ofnon-compliance (Art. 1226), UNLESS:a. There is a stipulation to the contraryb. The obligor refuses to pay the penaltyc. The obligor is guilty of fraud

2. Debtor cannot exempt himself from theperformance of the principal obligation bypaying the stipulated penalty unless thisright has been expressly reserved for him(Art. 1227).

3. Creditor cannot demand the fulfillment of theprincipal obligation and demanding thesatisfaction of the penalty at the same timeunless the right has been clearly granted tohim (Art. 1227). Tacit or implied grant isadmissible.a. If creditor has chosen fulfillment of the

principal obligation and performance thereofbecome impossible without his fault, he may

still demand the satisfaction of the penalty.b. If there was fault on the part of the debtor,

creditor may demand not only satisfaction ofpenalty but also the payment of damages.

c. If creditor chooses to demand thesatisfaction of the penalty, he cannotafterwards demand the fulfillment of theobligation.

Proof of Actual DamageArt. 1228: Proof of actual damages is notnecessary is applicable only to the general rulestated in Art. 1226 and not to the exceptions.The penalty is exactly identical with what is

known as liquidated damages in Art. 2226.

When Penalty may be ReducedArt. 1229:1. If the principal obligation has been partly

complied with.2. If the principal obligation has been irregularly

complied with.3. If the penalty is iniquitous or unsconscionable

even if there has been no performance.


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CIVIL LAW REVIEWER Chapter IV. EXTINGUISHMENT of OBLIGATIONS

10

OBLIGATIONS

Chapter IV. Extinguishment ofObligations

I. PAYMENT OR PERFORMANCEII. LOSS OF THE THING DUE OR IMPOSSIBILITY

OF PERFORMANCEIII. CONDONATION OR REMISSION OF THE

DEBTIV. CONFUSION OR MERGER OF RIGHTS

V. COMPENSATIONVI. NOVATION

I. Payment or Performance

Art. 1232, Civil Code. Payment means not onlydelivery of money but also performance, in anymanner, of the obligation.

See Diagrams of Prof. Labitag at the endsection of Obligations.

SPECIAL FORMS OF PAYMENT

A. Application of Payment (Art. 1252)

Designation of the debt to which should beapplied a payment made by a debtor who owesseveral debts to the same creditor

Rules on Application1. Preferential right of debtor - debtor has the

right to select which of his debts he ispaying.

2. The debtor makes the designation at thetime he makes the payment

3. If not, the creditor makes the application, byso stating in the receipt that he issues,unless there is cause for invalidating thecontract.

4. If neither the creditor nor debtor exercisesthe right to apply, or if the application is notvalid, the application is made by operation oflaw.

5. If debt produces interest - payment notdeemed applied to the principal unlessinterests are covered.

6. When no application can be inferred fromthe circumstances of payment, it is applied

to: to the most onerous debt of the debtor; orif debts due are of the same nature andburden, to all the debts in proportion

7. Rules of application of payment may not beinvoked by a surety or solidary guarantor.

Reparations Commission vs. Universal Deep SeaFishing Corp. (1978):Rules on application of paymentcannot be made applicable to a person whoseobligation as a mere surety is both contingent and

singular. There must be full and faithful compliancewith the terms of the contract.

B. Payment by Cession (Art. 1255)

Act whereby a debtor abandons all his propertyto his creditors, so that the latter may apply theproceeds (of its sale) to their credits.

C. Dation in payment (Art. 1245)

Delivery and transmission of ownership of athing by the debtor to the creditor as anaccepted equivalent of the performance of theobligation (dacion en pago).

Dation in payment Payment by cession

In favor of only onecreditor

There are variouscreditors

Payment extinguishes theobligation to the extent ofthe value of the thingdelivered, unless the

parties agree that theobligation be totallyextinguished

Extinguishes creditsonly up to the extent ofproceeds from sale ofassigned property,

unless otherwiseagreed upon

Transfer of ownership ofthing alienated to creditor

Only possession andadministration withauthorization to convertproperty to cash withwhich the debts shallbe paid

Not necessarily in state offinancial difficulty

Assignmentpresupposesinsolvency of debtor.

Assignment of only somespecific thing

Assignment involves allthe property of thedebtor.

D. Tender of payment and consignation

1. Tender of payment: Manifestation made bydebtor to creditor of his desire to complywith his obligation, with offer of immediateperformance Preparatory act to consignation Extrajudicial in character

2. Consignation: Deposit of the object ofobligation in a competent court inaccordance to the rules prescribed by law,

whenever the creditor unjustly refusespayment or because of some circumstanceswhich render direct payment to the creditorimpossible or inadvisable. Principal act which constitutes a form of

payment. Judicial in character.


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OBLIGATIONS

When Tender and Refusal Not Required (Art.1259)1. Creditor is absent or unknown, or does not

appear at the place of payment2. Creditor is incapacitated to receive the thing

due at time of payment3. Without just cause, creditor refuses to give

receipt4. Two or more persons claim the same right to

collect5. Title of the obligation has been lost

Effects of Withdrawal by DebtorArts. 1260- 12611. Before approval of the court - Obligation

remains in force.

2. After approval of the court or acceptance bythe creditor, with the consent of the latter -Obligation remains in force, but guarantorsand co-debtors are liberated. Preference ofthe creditor over the thing is lost.

3. After approval of the court or acceptance bythe creditor, and without creditors consent -Obligation subsists, without change in theliability of guarantors and co-debtors, or thecreditors right of preference.

Art. 1259, Civil Code. Expenses of consignation,when properly made, shall be charged against thecreditor.

Requisites and Effects

Application ofPayment

Cession Dation Tender and Consignation

Requisites

1. Plurality ofdebts

2. Debts are ofthe same kind

3. Debts are owedto the samecreditor and bythe samedebtor

4. All debts mustbe due

5. Payment madeis not sufficient

to cover alldebts

Requisites

1. Plurality of debts2. Plurality of

creditors3. Partial insolvency

of the debtor4. Abandonment of

the totality of thedebtorsproperties for thebenefit of thecreditors

5. Acceptance bythe creditors

Requisites

1. Should not beprejudicial toother creditors

2. Should notconstitute apactumcommissorium

Requisites

1. There is a debt due2. consignation is made because

of some legal cause3. previous notice of consignation

was given to those personsinterested in the performanceof the obligation

4. amount or thing due wasplaced at the disposal of thecourt

5. after the consignation has beenmade, the persons interestedwere notified thereof

EffectsPayment of debtdesignated as tocorrespondingamount

EffectsAssignment liberatesdebtor up to theamount of the netproceeds of the saleof his assetsAssignment does notvets title to theproperty in thecreditors,who are only

authorized to sell it.

EffectsExtinguishment ofdebt from as anequivalent of theperformance of theobligation

EffectsIf accepted by the creditor ordeclared properly made by theCourt:1. Debtor is released in same

manner as if he had performedthe obligation at the time ofconsignation

2. Accrual of interest issuspended from the moment ofconsignation.

3. Deterioration or loss of thething or amount consigned,occurring without the fault ofdebtor, must be borne bycreditor from the moment ofdeposit

4. Any increment or increase inthe value of the thing afterconsignation inures to thebenefit of the creditor


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OBLIGATIONS

II. Loss or Impossibility

(Asked in 83, 84, 85, and 94)

A. Loss

A thing is lost when it perishes, goes out ofcommerce or disappears in such a way that itsexistence is unknown or it cannot be recovered

(Art. 1189, par. 2)

Effects of Loss

Obligation to Deliver aSpecific Thing

Obligation to Deliver aGeneric Thing

Extinguishment of theobligation if the thing wasdestroyed w/o fault of thedebtor and before he hasincurred delay.

Loss of a generic thingdoes not extinguish anobligation, UNLESS,Delimited generic things: kind or class islimited itself, and thewhole class perishes

Action against 3rd persons - creditor shall haveall the rights of action the debtor may haveagainst 3

rdpersons by reason of the loss.

Presumption: The loss was due to the debtorsfault, UNLESS:1. Law provides that the debtor shall be liable

even if the loss is due to fortuitous events(Arts. 1942, 1979, 2147, 2159)

2. Obligor is made liable by express stipulation3. Nature of the obligation requires an

assumption of risk4. Fault or negligence concurs with the

fortuitous event5. Loss occurs after delay6. Debtor has promised to deliver the same

thing to two or more different parties7. Obligation arises from a criminal act8. Borrower in commodatum: saves his own

things and not the thing of the creditorduring a fortuitous event

In Reciprocal ObligationsExtinguishment of the obligation due to loss ofthe thing or impossibility of performance affectsboth the creditor and debtor; the entire juridical

relation is extinguished.

Partial lossArt. 1264: Partial loss due to a fortuitous eventdoes not extinguish the obligation; thing dueshall be delivered in its present condition,without any liability on the part of the debtor,UNLESS, the obligation is extinguished whenthe part lost was of such extent as to make thething useless.

Loss of the thing when in possession of thedebtor: Loss was due to the debtors fault.Burden of explaining the loss of the thing fallsupon him, UNLESS, due to a natural calamity:earthquake, flood, storm, etc.

Subjective impossibility: Where there is no physicalor legal loss, but the thing belongs to another, theperformance by the debtor becomes impossible. The

debtor must indemnify the creditor for damages.

B. Impossibility of Performance (Arts. 1266-1267, CC)

When prestation becomes legally or physicallyimpossible (by fortuitous event or forcemajeure), the debtor is released.Impossibilitymust have occurred without fault of debtor, andafter the obligation has been constituted.

PARTIAL IMPOSSIBILITY

1. Courts shall determine whether it is soimportant as to extinguish the obligation.2. If debtor has performed part of the obligation

when impossibility occurred, creditor mustpay the part done as long as he benefitsfrom it.

3. If debtor received full payment from creditor,he must return excess amountcorresponding to part which was impossibleto perform.

Doctrine of Unforeseen EventsWhen the service has become so difficult as tobe manifestly beyond the contemplation of allthe parties, the obligor may be released in wholeor in part (De Leon, 2003).

Requisites:1. Event could not have been foreseen at the

time of the constitution of the contract.2. Event makes performance extremely difficult

but not impossible.3. Event not due to any act of the parties.4. Contract is for future prestation.

III. Condonation or Remission of theDebt

CONDONATION: An act of liberality, by virtue ofwhich, without receiving any equivalent, creditorrenounces the enforcement of the obligation.The obligation is extinguished either in whole orin such part of the same which to remissionrefers.


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Requisites1. Debt must be existing and demandable2. Renunciation must be gratuitous; without

any consideration3. Debtor must accept the remission

EffectArt. 1273: Renunciation of the principal debtshall extinguish the accessory obligations, butremission of the latter leaves the principalobligation in force.

PresumptionsArts. 1271, 1272, 1274: Whenever the private document in which the

debt is found in the possession of thedebtor, it shall be presumed that the creditordelivered it voluntarily, unless contrary isproved.

Delivery of a private document evidencingcredit, made voluntarily by the creditor to thedebtor, implies the renunciation of the actionof creditor against the latter.

Kinds1. As to form(Art. 1270)

Express: made formally; in accordancewith forms of ordinary donations

Implied: inferred from the act of theparties

2. As to extent Total: entire obligation Partial: may refer only to amount of

indebtedness, or to an accessoryobligation, or to some other aspect ofthe obligation

3. As to constitution Inter vivos: effective during the lifetime

of the creditor Mortis causa: effective upon death of the

creditor; must be contained in a will ortestament

IV. Confusion or Merger of Rights

CONFUSION: The meeting in one person of thequalities of creditor and debtor of the sameobligation.

Requisites1. It should take place between principal debtor

and creditor2. It must be complete and definite- Parties

must meet all the qualities of creditor anddebtor in the obligation/ in the part affected.

EffectsArts. 1275- 1277:1. The obligation is extinguished from the time

the characters of the debtor and creditor aremerged in the same person.

2. In joint obligations, confusion does notextinguish the obligation except as regardsthe corresponding share of the creditor ordebtor in whom the two characters concur.

3. In solidary obligations, confusion in one ofthe solidary debtors extinguishes the entireobligation.

4. Obligation is not extinguished whenconfusion takes place in the person ofsubsidiary debtor (e.g. guarantor), butmerger in the person of the principal debtorshall benefit the former.

V. Compensation

COMPENSATION: Offsetting of two obligations

which are reciprocally extinguished if they are ofthe same value, or extinguished to theconcurrent amount if of different values. (Askedin 80, 81, 98, and 02)

Compensation Confusion

There must always be 2obligations

Involves only oneobligation

There are 2 persons who aremutually debtors andcreditors of each other in 2separate obligations, eacharising from the same cause.

There is only oneperson whom thecharacters of thecreditor and debtormeet

Kinds1. As to extent

Total: Debts are of the same amount Partial: Amounts are not equal

2. As to origin Legal: takes place by operation of law Conventional: parties agree to

compensate their mutual obligationseven when some requisite in Art. 1279 islacking (Art. 1282).

Judicial: decreed by court when there iscounterclaim; effective upon final

judgment (Art. 1283). Facultative: when it can be claimed by

one of the parties who, however, has theright to object to it.


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OBLIGATIONS

Requisites Effects

1. Each obligor isbound principally,and at the same timea principal creditor ofthe other

2. Both debts mustconsist in a sum ofmoney, or if thethings due areFUNGIBLE, of thesame kind & quality

3. Both debts are due4. Debts are liquidated

and demandable5. There must be no

retention orcontroversy overeither of the debts,commenced by 3

rd

persons andcommunicated indue time to thedebtor

6. Compensation is not

prohibited by law

1. Effects rise from themoment all therequisites concur.

2. Debtor claiming itsbenefits must provecompensation; onceproven, effectsretroact from themoment when therequisites concurred.

3. Both debts areextinguished to theconcurrent amount,eventhough thecreditors and debtorsare not aware of thecompensation.

4. Accessoryobligations are alsoextinguished.

Compensation is prohibited in:1. Contracts of depositum2. Contracts of commodatum3. Future support due by gratuitous title4. Civil liability arising from a penal offense5. Obligations due to the government6. Damage caused to the partnership by a

partner

ASSIGNMENT OF CREDIT (Art. 1285):No effect and does not bind the debtor unlessand until the latter is notified of the assignment

or learns of it.

With DebtorsConsent

With DebtorsKnowledge

WithoutDebtors

Knowlege

Debtorsconsent toassignment ofcreditconstitutes awaiver ofcompensation,unless hereserved hisright to

compensation.

Debtor may setupcompensationof debts(maturing)before theassignment ofcredit but not ofsubsequentones

Debtor maysetupcompensationof all credits(maturing) priorto theassignment andalso latter onesuntil he hadknowledge of

the assignment.

Facultative compensation: Compensation whichcan only be set up at the option of a creditor, whenlegal compensation cannot take place because somelegal requisites in favor of the creditor are lacking.Creditor may renounce his right to compensation, andhe himself may set it up.As opposed to conventionalcompensation, facultative compensation is unilateraland does not depend upon the agreement of theparties.

VI. Novation

NOVATION: Extinguishment of an obligation bythe substitution or change of the obligation by asubsequent one which extinguishes or modifiesthe first either by changing the object or principalconditions, or by substituting the person of thedebtor, or by subrogating a third person in therights of the creditor. A juridical act of dual

functionit extinguishes an obligation, and atthe same time, it creates a new one in lieu of theold. (Asked in 78, 88, 94 and 01)

Requisites1. A previous valid obligation2. Agreement of all the parties to the new

obligation3. Extinguishment of the old obligation4. Validity of the new obligation

Novation is not presumed. Express novation: Parties must expressly

disclose their intent to extinguish the oldobligation by creating a new one. Implied novation: No specific form is

required. There must be incompatibilitybetween the old and new obligation orcontract.(Asked in 79, 82, 88, and 94)

California Bus Line v. State Investment (2003):In theabsence of an unequivocal declaration ofextinguishment of the pre-existing obligation, onlyproof of incompatibility between the old and newobligation would warrant a novation by implication.The restructuring agreement merely provided for a

new schedule of payments and authority giving Deltato take over management and operations of CBLI incase it fails to pay installments. There was no changein the object of prior obligations.

Test of IncompatibilityWhether or not the old and new obligation canstand together, each one having an independentexistence. No incompatibility exists when theycan stand together. Hence, there is no novation.Incompatibility exists when they cannot standtogether. Hence, there is novation.

Effects

In General If OriginalObligation isVoid

If NewObligation isVoid

1. Oldobligation isextinguishedand replacedby the newonestipulated.

Novation is void ifthe originalobligation wasvoid, exceptwhen annulmentmay be claimedonly by the

New obligation isvoid, the oldobligationsubsists, unlessthe partiesintended that theformer realations


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OBLIGATIONS

debtor, or whenratificationvalidates actsthat are voidable.(Art. 1298)1. Originalobligation is void:No novation2. Originalobligationvoidable:Effective if

contract is ratifiedbefore novation

shall beextinguished inany event. (Art.1297)1. New obligationvoid: No novation2. New obligationvoidable:Novation iseffective

Accessory obligations are also extinguished,but may subsist only insofar as they maybenefit 3

rdpersons who did not give their

consent to the novation OR may not beaffected upon agreement between theparties.

Original or new obligation with suspensive orresolutory conditionArt. 1299: If original obligation was subject to asuspensive or resolutory condition, the newobligation shall be under the same condition,unless it is otherwise stipulated.

Compatible Conditions IncompatibleConditions

Fulfillment of bothconditions: newobligation becomesdemandable

Fulfillment ofcondition concerningthe originalobligation: oldobligation is revived;

new obligation losesforce

Fulfillment ofcondition concerningthe new obligation:no novation;requisite of aprevious valid andeffective obligationlacking

Original obligation isextinguished, whilenew obligation exists

Demandability shallbe subject tofulfillment/nonfulfillment of thecondition affecting it

OBJECTIVE NOVATION1. Change of the subject matter

2. Change of causa or consideration3. Change of the principal conditions or terms

SUBJECTIVE NOVATION1. Substitution of the Debtor: Consent of

creditor is an indispensable requirementboth in expromision and delegacion.

Expromision Delegacion

Initiative for change doesnot emanate from thedebtor, and mayEven be made withouthis knowledge.

Debtor (delegante) offersor initiates the change,and the creditor(delegatorio) accepts 3

rd

person (delegado) asconsenting to thesubstitution

Requisites1. Consent of the

creditor and the newdebtor

2. Knowledge orconsent of the olddebtor is notrequired

Requisites1. Consent of old

debtor, new debtor,and creditor

Effects1. Old debtor is

released2. Insolvency of the

new debtor does notrevive the oldobligation in case theold debtor did notagree to expromision

3. If with knowledgeand consent of olddebtor, new debtorcan demandreimbursement theentire amount paidand w/ subrogationof creditors rights

4. If without knowledgeof the old debtor,new debtor candemandreimbursement onlyup to the extent thatthe latter has been

benefited w/osubrogation ofcreditors rights

Effects1. Insolvency of the

new debtor revivesthe obligation of theold debtor if it wasanterior and public,and known to the olddebtor.

2. New debtor can

demandreimbursement ofthe entire amount hehas paid, from theoriginal debtor. Hemay compel creditorto subrogate him toall of his rights.

2. Subrogation of a 3rd

person in the rightsof the creditora. Conventional subrogation: by

agreement of the parties;

Requisites: t he consent of the 3rd

person, and of the original parties (Art.1301).

Conventionalsubrogation

Assignment of credit

Debtors consent isnecessary

Debtors consent is notrequired

Extinguishes anobligation and givesrise to a new one

Refers to the same rightwhich passes from oneperson to another, withoutmodifying or extinguishingthe obligation


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OBLIGATIONS

Defects/ vices in theold obligation arecured

Defects/ vices in the oldobligation are not cured

b. Legal subrogation: by operation of law

Legal subrogation is not presumed,except in the following circumstances:1. When creditor pays another creditor

who is preferred, even without the

debtors knowledge2. When a 3

rdperson not interested in

the obligation pays with the expressor tacit approval of the debtor

3. When, even without the knowledgeof the debtor, a person interested inthe fulfillment of the obligationwithout prejudice to the effects ofconfusion as to the latters shareeffects of confusion as to the lattersshare

Effects

Total Partial

1. Transfers to theperson subrogatedthe credit with all therights theretoappertaining, eitheragainst the debtor or3

rdpersons.

2. Obligation is notextinguished, even ifthe intention is topay it.

3. Defenses against theold creditor are

retained, unlesswaived by the debtor

1. A creditor, to whompartial payment hasbeen made, mayexercise his right forthe remainder, andshall be preferred tothe personsubrogated in hisplace in virtue of thepartial payment.


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CIVIL LAW REVIEWER Charts: PAYMENT & PERFORMANCE

114

OBLIGATIONS

Charts: Payment & Performance

by Professor Eduardo A. LabitagUP College of Law(Asked in 75, 84, 88, 95, and 98)

114

WHO CAN PAY?

In GENERAL1. Debtor or his:2. Authorized Agent3. Heir4. Successor-in- interest

3rd PERSON

Interested in obligation(creditor cannot refuse

to accept valid payment)

Payment w/ orw/o debtorsknowledge

Effects:1. Valid payment;obligation extinguished2. Debtor to reimbursefully 3rd person interestedin obligation3. 3rd person subrogatedto rights of creditor

Not interested in obligation(creditor may refuse to accept

a ment 1236

Payment withdebtors consent

(express/tacit)

Payment withoutdebtors knowledge

or against the will of D

Effects:1. 3rd person is entitledto full reimbursement2. Legal subrogation(novation) 3rd personis subrogated/step intothe shoes of creditor

Effects:3rd person can only bereimbursed only insofar aspayment has been beneficial todebtor(1236, 2nd. par.)burden of proof on 3rd personcannot compel C to subrogatehim (1237)

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