CHAPTER 2: Nature and Effects of Obligations Art. 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 the stipulation of the parties requires another standard of care. (1094a)

of it with the proper diligence of a good father of a family (Art.1163); (2) to deliver the accessions and accessories although the same may not have been mentioned (Art.1166); (3) to deliver the fruits from the moment the obligation to deliver arises (Art.1164) 2. Generic obligation - has for its object a genus an object that is determined only by the class to which it pertains (incertum corpus) - delivery of a thing belonging to a specie stipulated, usually those which are fungible and those which are determined by amount, number or measure - an obligation to give a generic thing *generic/indeterminate thing - the object is one whose determination is confined to that of its nature to the genus to which it pertains (Jurado) - one that is indicated only by its kinds, without being designated and distinguished from others of the same kind (Tolentino) - examples: ten white horses, Samsung G600, Acer laptop 2 Purposes of obligations to give: (Caguioa) 1. To transfer title (e.g. contract of sale or barter) 2. To transfer merely possessions (commodatum Art. 1933, by the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum )

3 kinds of prestations in obligations: To give real (there is some physical thing which may be the subject of possession, the delivery of which completely discharges the obligation) To do Not to do personal (non-fulfillment is resolved in the end by the payment of an indemnification of damages)

Obligation to do or not to do Perfection of the obligation devolves upon the person himself who is bound Obligation to give Intimately connected with the thing that is the subject matter of relation Definition: That which has for its object the delivery of a thing which the obligor must deliver to the obligee because of whatever right the latter may have acquired over the same (Caguioa) Classification:(distinction lies purely and exclusively on the will of parties or under the norms of law) 1. Specific obligation - an obligation to give a specific or determinate thing *specific/determinate thing - a thing determined individually in such a manner that it cannot be substituted with another - object is particularly designated or physically segregated from all others of the same class; object is a concrete, particularized thing, indicated by its own individuality (Jurado) - one that is individualized and can be identified or distinguished from others of its kind (Tolentino) - examples: white horse which won the Senior Grand Derby in 1979, Samsung G600 G-660#11G-6608>PC< - the very same thing promised must be delivered by the debtor and he cannot substitute said thing with another although the substitute is more valuable than that agreed upon unless the creditor agrees to the substitution (Art. 1206 par.1) - 3 accessory obligations (Note: only in specific obligations): (1) obligation to take care

Other form of classifying obligations in general: (Caguioa) a. Positive- obligations which have for their object to give or to do b. Negative - restrains the obligor from delivering or doing something which he could do where it not for the obligation

Good father of a family (bonus pater familias) general legal standard of care or degree of diligence the law requires in obligation to deliver a thing Circumstances that should be taken into consideration in determining the degree of diligence: (Caguioa) nature of the obligation depending on the circumstances of the debtor nature of the obligation depending on the time of the performance of obligation nature of the obligation depending on the place of the performance of the obligation

Reason behind Art.1163: the obligation to deliver a thing would be illusory if the debtor were not also obliged to preserve it. (Tolentino) Effect of breach: Debtor who fails to exercise the diligence of a good father of a family in preserving the thing can be held liable for damages. (Tolentino)
* Note: Art. 1163 can be read in conjunction with Art. 1173.

is occasioned to the property, since he bears the same from the moment of the perfection of the contract. Distinctions between personal and real rights Personal Right Real Right - power belonging to a power belonging to one person to demand of person over a specific another, as a definite thing, without a passive individually passive subject, the subject fulfillment of a determined, against whom right may be prestation to give, to do, such personally exercised or not to do (Tolentino) jus ad rem right - jus in re right enforceable only enforceable against the against a definite whole world (e.g. right of possession, person or group of ownership, usufruct, or easement) persons Note: Before delivery, the creditor, in obligations to give, has merely a personal right against the debtor a right to ask for delivery of the thing and the fruits thereof; ownership does not pass to the creditor Once the things and fruits delivered, the creditor acquires real right over such which is enforceable against the whole world the creditor only acquires the right of ownership over the thing and the fruits once they are delivered to him. Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 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 any fortuitous event until he has effected the delivery. Rights of the creditor in determinate obligations: 1. To compel specific performance Such action when the debtor does not comply with what he has promised and the creditor demands that he fulfill the same The debtor may be compelled to make the delivery of the very thing agreed upon Complemented by Art. 1244 par.1 which states that the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. Implies that its basis is a contractual relation between plaintiff and defendant (Tolentino) 2. To recover damages for breach of the obligation

Art. 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. (1095) General rule: The creditor or obligee, in an obligation to deliver a determinate thing, is entitled to the fruits from the time the obligation to deliver arises. *When does the obligation to deliver the thing and the fruits arise? Obligations arising from Obligations arising from law, quasi-contracts, contracts criminal offenses, quasidelicts From the time - General rule: from the designated by the moment of the perfection contract (basis: provisions of the Civil of 1 Code or of special laws Art.1537 ) creating or regulating them Exceptions to the general rule: 1. In case there is a contrary stipulation of the parties with respect to the time when the thing or fruits shall be delivered. 2. If the obligation is subject to a suspensive condition obligation to deliver the thing as well as the fruits shall arise only from the moment of the fulfillment of the obligation; otherwise stated, from the moment the condition happens (Art.1187) suspensive condition the happening or fulfillment of the condition results in the birth of the obligation 3. If the obligation is subject to a suspensive term or period obligation to deliver arises only upon the expiration of the designated term or period Reason/justification of the article: found in the corresponding liability of the creditor for any loss that

Art.1537: The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All the fruits shall pertain to the vendee from the day on which the contract was perfected.

 Rights of the creditor in generic obligations: 1. To ask for performance of the obligation the delivery of a thing belonging to the species stipulated will be sufficient and hence, it is not absolutely necessary for the debtor to make the delivery himself, since the delivery of anything of the same species will fulfill the obligation. It may be performed by another, but at the expense of the debtor. (substitute performance) Creditor can only ask for the delivery of a thing or object belonging to the class or genus stipulated which must be neither of superior nor inferior quality (Art.1246) 2. To ask that the obligation to be complied with at the expense of the debtor The creditor may ask a third person to perform the obligation and all expenses incurred shall be charged against him 3. To recover damages for breach of the obligation Remedies available to creditor in specific obligation 1. to compel specific performance 2. to recover damages for breach of the obligation Remedies available to creditor in determinate obligation 1. to ask for the performance of the obligation 2. to ask that the obligation to be complied with at the expense of the debtor 3. to recover damages for breach of the obligation

has promised to deliver the same thing to two or more persons who do not have the same interest, which is equivalent to fraud since there is present the deliberate intent not to deliver to one of the two, the law, by way of punishment, shifts the burden of loss to the debtor. (Caguioa)

Art. 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. (1097a) Accessionsthose things incorporated or attached to the principal either naturally or artificially (e.g., alluvion, buildings, constructions, etc.) Accessoriesthose things which although not incorporated to the principal are added to the same for its completeness, use, perfection or embellishment (e.g., keys to a house, tools of a car, etc) Everything that is attached, naturally or artificially, to the principal thing, as well as that which serves to complete it, even if not attached to it, must be delivered together with it. Exception: When the parties agree to exclude any accession or accessory of the thing.

Note: *Before the thing to be delivered is separated from others of the same kind (and therefore the obligation becomes specific), no accessory obligations arise since the thing has not yet been made determinate; but once the determination occurs the rules applicable to specific obligations will immediately follow. (Caguioa) Liability for fortuitous event a. The classification of obligations into specific and generic is of importance in the determination of the liability of the debtor for fortuitous event. i.Specificthe creditors bear the loss and deterioration of the thing through fortuitous event so long as the debtor is not in mora ii.Genericthe creditor does not bear the loss until the object of the prestation has been individualized or made specific in accordance with the principle genus perire non censetur and consequently, impossibility of performance by fortuitous event is not a possible defense for the debtor. iii. Even if the thing is determinate, and the loss occurs by fortuitous event and as a general rule the creditor should bear the loss, still, in those cases where the debtor is in mora, or whose he

Right by accession right corollary to ownership of property which gives the owner the right to everything produced by the property or which is incorporated or attached thereto, either naturally or artificially. (Art.440) Natural fruits spontaneous products of the soil and the young and other products of animals (Art.442) Industrial fruits produced by lands of any kind through cultivation or labor (Art. 442) Civil fruits rents of buildings, price of leases of lands and other property and the amount of perpetual or life annuities or other similar income (Art.442)

Summary: Obligations of debtor in determinate obligations: 1. To perform the obligation specifically. 2. To take care of the thing with the proper diligence of a good father of a family. 3. To deliver all accessions and accessories of the thing even though they may not have been mentioned. 4. To be liable for damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof.

 Obligations of debtor in generic obligations: 1. To deliver a thing which is neither of superior nor inferior quality. (Art. 1246) 2. To be liable for damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof. Deducible from Art. 1263 which states that in an obligation to deliver a generic thing, the loss or destruction of anything of the same class or genus as that which constitutes the object thereof shall not extinguish the obligation (the genus of a thing can never perish) Dation in payment property is alienated to the creditor in satisfaction of a debt in money can be considered as that exception where an obligor gives something in exchange of the specific thing to be given, with the consent of the obligee

Effects of breach 1. In positive personal obligations to do, if the obligor fails to do that which he has obligated himself to do, the obligee can have the obligation performed or executed at the expense of the former. (Art. 1167, par.2) 2. In case the debtor should have performed the act agreed upon in contravention of the agreement, or in a manner that is improper or inappropriate, the same thing shall be ordered undone and performed by another at the expense of the debtor should he refuse to do it all over again. 3. Obligee can also demand for damages by reason of the breach. (Art. 1170) In case of non-performance by the debtor, the right of the creditor to exact fulfillment encounters two difficulties: (Caguioa) i. That violence cannot be exercised against the person of the debtor for the purpose of compelling him to perform the prestation. ii. If the prestation is purely personal to the debtor and consequently, cannot be performed by any person other than him, execution by another is not possible and will not lie. ***Hence, the only remedy is one of damage.

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. (1098) Obligations to do - those obligations which have for their object a prestation consisting of performing a certain activity, physical or intellectual, distinct from that of the delivery of a thing (Caguioa) - difference from an obligation to give: obligee or creditor does not possess the power to compel the obligor to comply with his obligations o reason: the law recognizes the individuals freedom or liberty to choose between doing that which he has promised to do and not doing it. General rule in obligations to do (or not to do): The debtor must perform the act as promised and cannot substitute the same with another act of forbearance, unless of course with the consent of the creditor or in case the obligation is facultative. (Art.1244, par.2) Note: (from Caguioa) The act to be performed is either very personal or not. *if very personal - when the qualifications of the debtor are involved; the debtor is the only one that must perform it *if not personal performance by an agent is permitted (substitute performance)

Art. 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. (1099a) Obligation not to do Negative personal obligations the object of the obligation is realized or fulfilled so long as that which is forbidden is not done by the obligor (Jurado) - those obligations whose object is the abstention of the debtor from whatever act which otherwise he could perform (Caguioa) - This type of obligation carries with it no accessory obligation and by its nature is purely personal to the debtor and consequently, he himself must abstain or refrain from performing the conditions prohibited and cannot delegate the same to an agent, except when there is consent from the creditor. - Delay or mora is NOT possible unlike in positive obligations; obligation is either fulfilled or not (Jurado) -

General rule: The debtor must perform the act as promised and cannot substitute the same with another act of forbearance. (Art. 1244, par.2)

Effects of breach: 1. In case the debtor breaches the obligation, the same shall be ordered undone at his expense. (Art.1168) 2. In those cases where it is not possible to undo the act done either physically or legally, or because the rights of third persons are involved, or for some other reason, the only feasible remedy on the part of the creditor is an indemnification for the damage caused. (Art.1170)

2. defects in non-fulfillment those which, without fundamentally affecting the tie of law nor rendering the performance thereof impossible presupposes a defective or an inexact performance of what was agreed upon - example: mora or delay non-fulfillment in point of time OR (other classification of non-fulfillment according to Caguioa) 1. total non-fulfillment no performance whatsoever 2. partial non-fulfillment when there is partial performance or irregular non-fulfillment when there is irregular non-performance. - non-fulfillment occurs either at the very moment of the demand (ordinary breach) or before the maturity of the obligation (anticipatory breach). 2 kinds of Breach of Obligations: (Jurado) 1. Voluntary if the debtor or obligor in the performance of his obligation is guilty of default, fraud, negligence, or in any manner contravenes the tenor thereof; debtor is liable for damages Voluntary breach through default or mora (Art.1169) Voluntary breach through fraud or dolo (Art. 1171) Voluntary breach through negligence or culpa (Art. 1172) Voluntary breach through contravention of tenor of the agreement (Art. 1170) 2. Involuntary if the non-fulfillment is brought about by circumstances foreign to the will of the debtor (Caguioa); otherwise put, if the debtor is unable to comply with his obligation because of some fortuitous event; debtor is NOT liable for damages (Art. 1174)
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Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra-judicially 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 declare; 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. (1100a)

Fulfillment of the obligation Performance of the obligation or payment, juridically speaking, presupposes the exact and complete execution of the prestation on the part of the debtor. (Caguioa) Traditionally, performance or fulfillment of the obligation has been expressed in the term payment or solutio, which expression has also the concept of extinction of the juridical relation. The Civil Code regulates fulfillment or payment among the models of extinguishing obligations Non-fulfillment/Breach of obligation: Manner of non-fulfillment (Caguioa) 1. non-fulfillment properly speaking - causes of non-fulfillment affect the very essence of the obligation thereby rendering it impossible of performance

Default or Mora (1 kind of voluntarily breaching obligation, a defect and partial non-fulfillment of obligation) covers all non-fulfillment in point of time in its broadest sense; juridically, however, it pertains only to culpable delay where fulfillment or compliance with the 2 obligation, although late, is still possible (Caguioa) signifies the idea of delay in the fulfillment of an obligation with respect to time (Jurado) delay in the fulfillment of obligations; it is nonfulfillment with respect to time (Tolentino)
Note: There can be delay ONLY in positive obligations (to do and to give); but there can be NO delay in negative obligations

Rationale: since if as a consequence of the delay the possibility of the performance disappears, there is no more mora or delay but total non-fulfillment properly speaking (Caguioa)

Classification of Mora: 1. Mora solvendi delay on the part of the debtor a. mora solvendi ex re - when demand by the creditor is not necessary to make the debtor in mora (Caguioa) - refers to obligations to give b.mora solvendi ex persona - if demand by the creditor is necessary in order to make the debtor in mora (Caguioa) - refers to obligations to do 2. Mora accipiendi delay on the part of the creditor to accept the delivery of the thing which is the object of the obligation (Jurado); generally, delay on the part of the creditor 3. Compensatio morae delay of the parties or obligors in reciprocal obligations; where mora of the creditor neutralizes the mora of the debtor (Caguioa) 3 requisites which should be present in order that the obligor or debtor may be considered in 3 default (Jurado) o Obligation is demandable and already liquidated o Obligor or debtor delays performance o Creditor requires the performance judicially or extra-judicially Mora solvendi the delay, contrary to law, in the fulfillment of the prestation by reason of a cause imputable to the former (Tolentino) presupposes a prestation that is due and demandable 4 requisites: (Caguioa) o Obligation consists of a positive prestation (to do or to give) 5 6 o Obligation should be demandable , due , 7 determined or liquidated o Debtor delays in the performance due to causes imputable to him o Creditor should demand performance of the debtor When does the obligor incur in delay? The obligor or debtor incurs in delay from the time the obligee or creditor demands from him the fulfillment of the obligation; the demand may be judicial or extrajudicial

judicial: if the creditor files a complaint against the debtor for the fulfillment of the obligation o extrajudicial: if the creditor demands from the debtor the fulfillment of the obligation either orally or in writing (Jurado); sending of a bill or demand letter (Caguioa) Notes: A mere reminder or any act which cannot be qualified as a demand for payment will not be considered a demand since the code requires that the tolerance and benevolence of the creditor has terminated (Castan as cited in Caguioa) The proof of the demand will be incumbent upon the creditor (Tolentino) Demand is generally necessary even if a periof has been fixed in the obligation (Tolentino) Where there has been an extrajudicial demand before action for performance was filed, the effects of default arise from the date of such extrajudicial demand. But where the evidence does not disclose any particular date on which the creditor made extrajudicial demand upon the debtor, the payment of interest or damages for the default must commence from the filing of the complaint. (Tolentino) The demand must refer to the prestation that is due and not to another (Tolentino) When demand is NOT necessary 1. when the obligation or the law expressly so declares the obligation or the law itself must expressly declare that the demand is not necessary in order that the debtor shall incur in delay example: in the obligation it is stipulated that, D shall incur in delay if he does not pay the obligation upon the arrival of the designated date for payment. *Notes: In case of doubt, the doubt should be resolved in favor of the debtor, because dispensing with demand is an exception to a general rule; unless the exception is clearly proved, the general rule must apply. (Tolentino) According to Art.1788 of the Civil Code, where one of the partners who has undertaken to contribute a sum of money to the common fund at a specified date fails to do so, he becomes a debtor of the partnership not only for the amount which he has promised to contribute but also for the interest and damages from the time he should have complied with his obligation (Jurado)

Caguioa and Tolentino specified the requisites according to the kind of mora 4 Tolentino version: 3 requisites in order that the debtor may be in default: 1. that the obligation be demandable and already liquidated 2. that the debtor delays performance 3. that the creditor requires the performance judicially or extrajudicially 5 There is NO mora in natural obligations 6 Either because the obligation is pure or because the term has lapsed or the condition has been fulfilled 7 Amount is ascertained

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 basis: the time element for the fulfillment of the obligation is of the essence of the contract examples: (1) where a building was to be completed on a certain date because it was to be opened as a school on a fixed date; (2) where goods were to be delivered on a specified date because they were to be loaded on a boat leaving on such date Note: It is essential that the debtor has knowledge of the fixing of the date of performance as a controlling motive on the part of the creditor in order that it can be said that the debtor has tacitly consented to incur in delay without the necessity of a demand. (Tolentino) 3. when demand would be useless, as when the obligor has rendered it beyond his power to perform where performance has become impossible either through (1) some act or fault of the debtor or (2) as that caused by fortuitous event but the debtor has bound himself to be liable in cases of such events. *Note: 4 instance when demand is not necessary according to some authors (acknowledged by Tolentino) when the debtor expressly recognizes or acknowledges that he has incurred in delay. There must, however, be an express recognition of the default and not merely requests for extension to time to perform. Effects of mora solvendi: 1. to indemnify the creditor for damages which his delay has occasioned in obligations to give and to do (Caguioa) 2. to answer for the loss or deterioration of the thing due even if caused by fortuitous event (Caguioa) 3. When it has for its object a determinate thing, the delay places the risks of the thing on the debtor (Tolentino) Mora accipiendi constitutes non-acceptance without reason (Caguioa) delay in the performance based on the omission by the creditor of the necessary cooperation, especially acceptance on his part (Tolentino) 8 requisites: (Caguioa)
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That there exists an obligation which has already matured and for whose fulfillment an act of cooperation on the part of the creditor is required That the debtor has performed al that is incumbent upon him under the obligation and made tender of payment to the creditor That the creditor refused to accept payment or to cooperate in the fulfillment of the obligation without any justifiable reason

When does the creditor incur in delay? The creditor incurs in delay when the debtor tenders payment or performance, but the creditor refuses to accept it without just cause. Effects of mora accipiendi: 1. it excludes the mora of the debtor and destroys the effects of the latter (Caguioa) 2. it transfers the risk to the creditor for fortuitous events which formerly belonged to the debtor (Caguioa & Tolentino) 3. debtor can obtain his freedom from the obligation by the consignation of the thing due, and consequently, after consignation, his obligation to pay interest is extinguished (Caguioa & Tolentino) 4. the responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence (Tolentino) 5. all expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor (Tolentino) 6. creditor becomes liable for damages (Tolentino) Compensatio morae Reciprocal obligations those which are created or established at the same time, out of the same cause, and which result in mutual relationships of the creditor and debtor between the parties. - are conditional in the sense that fulfillment of an obligation by one party depends upon the fulfillment of the obligation by the other General rule in reciprocal obligations: the fulfillment by the parties should be simultaneous. Where both are in default, their respective liability for damages shall be offset equitably. When does delay or mora begin? Delay or mora begins from the moment the other party fulfills or tenders fulfillment of his obligation in a proper manner (Caguioa)); otherwise put, delinquency commences when one of the contracting parties fulfills his obligation and becomes
2. 3. the offer must be to comply with the prestation as it should be performed the creditor refuses the performance without just cause

Tolentino version: 3 requisites in order that there be delay on the part of the creditor: 1. an offer of performance by the debtor who has the required capacity

invested with power to determine the contract because of failure on the part of the other to carry out the agreement. (Tolentino) How is demand made in reciprocal obligations? Demand is made in only one way and that is by actual performance or tender of performance of the obligation of the party claiming delay or default by the other. (Caguioa) Cessation of Effects of Mora occurs in the following cases: (Caguioa version) (1) through the will of the creditor as in the cases of waiver of the payment of the due indemnification, remission, extension of time, and novation; (2) by concession by the law of a time to fulfill to the debtor (moratorium) (3) when the creditor is also guilty of mora, in which case, there occurs the neutralization of the mora (compensation morae) benefits arising from default or delay may cease upon: (Tolentino version) (1) renunciation by the creditor a. express b. implied when after the delay has been incurred, the creditor grants an extension of time to the debtor or agrees to a novation of the obligation (2) prescription

Breach of contractual obligation entitles the other party damages even if no penalty for such breach is provided in the contract. The responsibility for damages arising from nonfulfillment of a contractual obligation cannot be divided nor can it be extended to persons who have nothing to do with the obligation (Tolentino)

Contravention of the tenor of obligation (also another kind of voluntary breach of obligation or partial nonfulfillment of obligation) Any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind of defective performance. example: an architect who made plans that contain defects and inadequacies which led to the collapse of the building

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a) Fraud or Dolo voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. (Tolentino) consists in the conscious and intentional proposition to evade the normal fulfillment of the obligation (Jurado) 2 kinds: 10 a. Deceit - Exists in the celebration of contracts - Can only exist in contracts and precedes or is simultaneous with the celebration of the contract - Results in a vitiation of consent and a possible annulment of the same b. Malice or bad faith - Exists in the fulfillment of obligations - Requires that there be a pre-existing obligation the fulfillment of which is tainted with bad faith or malice - Since there exists already in obligation, there is no question of annulment and the remedy granted by law is indemnification for damages

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. (1101) enumerated herein are those kinds of voluntary breaches of obligation: (1) through fraud; (2) negligence; (3) delay; (4) contravention of the tenor of the obligation. General rule: in cases where there is voluntary breach of obligation, one of the rights of the creditor is to 9 ask for indemnification of damages under this article. Notes: Damages as used in the above provision include any and all damages that a human being may suffer in any and all manifestations of his life: physical or material, moral or psychological, mental or spiritual, financial, economic, social, political and religious. (Tolentino)

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This right is usually resorted to when other rights are not already available to the creditor, for instance when a debtor acting in contravention of the tenor of the obligation cannot physically undo what he has done.

This type of fraud is that which is contemplated in Art.1338 which stipulates: There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (Manresa as cited in Tolentino) Deceit is referred to by Jurado as causal or incidental fraud (dolo causante or dolo incidente

Distinctions between the deceit and malice: Deceit

As to time Exists ahead of the contractual obligation, or at the birth of the obligation Securing the consent of the other party to enter into the contract Vitiation of consent of the party upon whom it is employed for entering into the contract Gives rise to a right of the innocent party to ask for the annulment of the contract if the fraud is causal or to recover damages if it is incidental

Malice
Present only during the performance of a pre-existing obligation Evading the normal fulfillment of an obligation Non-fulfillment breach of obligation or the

As to purpose

As to result

As to rights that arise

Gives rise to a right of the creditor or obligee to recover damages from the debtor or obligor

Responsibility for malice or bad faith: For the consequences of his malicious act, the debtor is liable not only for the results intended but also for their natural and probable consequences even though they havent been foreseen by the debtor or they exceeded its intention This responsibility for malice or bad faith is demandable in all kinds of obligations but it is necessary that it must be proved and not simply presumed and results in an aggravation of the damages that are recoverable Waiver of action for malice or bad faith: o if in advance, i.e. a waiver for a fraud which has not yet been committed void; prohibited because it is against law and public policy o if past, i.e. a waiver for a fraud already committed valid; is deemed an act of generosity on the part of the creditor

What type of fraud is contemplated under Art.1171? The fraud referred to in this article is malice or bad faith. Malice or bad faith any voluntary and willful act or omission which prevents the normal realization of the prestation, knowing and intending the effects which naturally and necessarily arise from such act. (Tolentino) Manresa: deliberate and intentional purpose to evade the normal compliance of an obligation (as cited in Caguioa) Castan: an act or omission which with awareness and will to produce an anti-judicial result, prevents the normal compliance of an obligation (as cited in Caguioa) 2 essential elements: (Caguioa) i. Intellectual awareness (conciencia) ii. Will (desire to violate a right of credit, voluntad) * Is the intention of the violator determined by the motive which impelled him to commit the act essential for malice or bad faith? Modern doctrine says that the motive or intention is irrelevant in civil law. As Diaz Pairo says, there is a distinction between a debtor in good faith and a debtor because of dolo which consequently makes the latter a debtor in bad faith. For malice or bad faith to exist, it is sufficient to infringe voluntarily the obligation which falls over the debtor consciously, or with his awareness. 11 (Caguioa)
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Art. 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. (1103) Culpa or fault or negligence consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place (Art. 1173) omission of that diligence required in social relations which if observed would have prevented the contrary and undesired result (Caguioa) simply the absence of due care required by the nature of the obligation (Jurado) 12 Kinds/classes: a. According to form i. Culpa in faciendo (positive act) ii. Culpa in non faciendo (omission) b. According to degree of culpa / diligence i. Culpa lata (grave which is the omission of the most minimum diligence) ii. Culpa leve (omission of the diligence of an ordinary layman or bonus pater familias) iii. Culpa levissima (omission of the maximum diligence of a very careful man)
such, it cannot cover cases of mistake and errors of judgment made in good faith. (Tolentino & Jurado) The element of intent, and not the degree of actual harm done is the test. (Tolentino) 12 This classification is patterned after Caguioas. 13 The Civil Code follows the modern tendency admitting of no degrees of culpa but sets up a standard of diligence in that of a good father of a family, saving agreement to the contrary, and leaving it to the courts either to moderate or aggravate the responsibility of a person guilty of culpa depending on the circumstances
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In other words, the intention or motive of a debtor in malice is always irrelevant. It always implies some kind of malice or dishonesty. As

c. Most important classification i.Culpa contractual fault or negligence in the performance of a preexisting contractual obligation resulting in a breach of obligation (Caguioa & Tolentino) fault or negligence of the obligor by virtue of which he is unable to perform his obligation arising from a pre-existing contract because of the omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place (Jurado) ii.Culpa extra-contractual or aquiliana failure to observe the care required by law with respect to other persons not connected by contract or of any juridical relation whatsoever save the generic one which is common to all men of not damaging another (Caguioa) fault or negligence of a person, who, because of the omission of the diligence which is required by the nature of the obligation and which must correspond with the circumstances of the persons, of the time and of the place, causes damage to another. (Jurado) fault or negligence which constitutes an independent source of obligation between parties not previously bound. (Tolentino) Distinctions between culpa contractual and culpa aquiliana: CULPA CONTRACTUAL There is pre-existing contractual relation The negligence of the defendant is merely an incident in the performance of an obligation Source of liabilitybreach or non-fulfillment of the contract There is presumption of negligence from the breach of the contract The master cannot exempt himself by proving due diligence in the selection and supervision of employee Damages may be claimed only by the parties, their heirs and privies Negligence referred to in Art.1173 CULPA AQUILIANA None. The negligence involved is substantive and independent.

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Negligence distinguished from fraud There is malice or dolo when there is non-fulfillment due to a cause of which the debtor is aware; there is actual knowledge There is culpa when there is nonfulfillment due to a cause which the debtor could or ought to have foreseen; there is possibility of knowledge There is fortuitous event when there is non-fulfillment for causes which the debtor could not foresee and could not have avoided; there is total absence or possibility of knowledge Distinguishing element of fraud from negligence: INTENTION presence of intent to cause damage or injury dolo mere abandonment, inattention, carelessness, lack of diligence culpa

Dolo (malice) The guilty party is aware that his conduct will violate another right or duty There is no presumption of its existence but it must be proved The guilty party is responsible for all the consequences attributable to his act whether intended or not or foreseen or not Waiver in advance is not allowed

Culpa(Fault or negligence) The guilty party is not aware but should have been aware There is presumption because of breach of contract The guilty party only answers for the damages which are foreseen or could have been foreseen at the time the obligation was constituted Allowable unless contrary to public policy

Source of liability negligent act or omission itself Plaintiff must prove the existence of negligence The master is free from liability upon proof of such diligence

A stranger may claim damages such as the relatives and dependents Negligence referred to in 15 Art. 2176
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Responsibility for fault or negligence: If the debtor or obligor is unable to comply with his obligation because of his fault or negligence, the creditor or obligee can hold him liable for damages. The liability arising from negligence in the performance of every kind of obligation may be regulated by the courts. The court may increase or decrease the liability of the party at fault

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According to Jurado, negligence may either be criminal or civil. Culpa aquiliana and culpa contractual are the two kinds of civil negligence.

Art. 2176: Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, is there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

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depending upon the circumstances of each case. Exemptions from liability: (1) in which a party to a contract is relieved from the effects of his fault or negligence by a third person (2) in which one party to a contract renounces in advance the right to enforce liability arising from the fault or negligence of the other. Notes: Test of negligence: If the defendant in doing the alleged negligent act DID NOT use the reasonable care and caution which an ordinarily prudent person would have used in the same situation, he is guilty of negligence. Waiver of action for negligence: o Future negligence can be waived, unless the nature of the obligation and public policy should require extraordinary diligence; or if the negligence is so gross that it amounts to malice or bad faith o Past negligence all the more valid Effect of good/bad faith o If the obligor has acted in good faith, he shall be liable only for natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. o If the negligence of the obligor shows bad faith, provisions of Arts. 1171 and 2201, 16 par.2 shall apply. It is in this case that the boundary line, at least with regard to effects, between negligence and fraud disappears altogether; otherwise put, when negligence shows bad faith the rules on fraud or dolo shall govern. Effect of contributory negligence: If there was contributory negligence of the obligee or creditor, the effect is to reduce or mitigate the damages which he can recover from the obligor or debtor as a result of the breach of the obligation. BUT, if the negligent act or omission of the obligee or creditor was a proximate cause of the event which led to the damage or injury complained of, he cannot recover. (Jurado)

bad faith, the provisions of Articles 1171 and 2201, paragraph 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. (1104a)

General degree of diligence required: When neither the law nor the obligation itself states the degree of diligence required of the obligor or debtor in the performance or fulfillment of the obligation, the standard diligence required is that which would be observed by a good father of a family. Exceptions: 1. when the parties stipulated another degree of diligence required 2. when the law requires a higher degree of diligence 17 - example: common carriers (Art.1733, par.1) good father of a family (bonos paterfamilias) a person of ordinary or average diligence

Notes from class: 3 quantum of diligence: 1. extraordinary diligence 2. diligence of a good father of a family (DOAGFOAF) general degree of diligence expected of an owner of a property 3. simple diligence

Summary of remedies available to the creditor in cases of non-fulfillment: Remedies of creditor for non-fulfillment The creditor may either demand specific performance and where it is not possible, equivalent or substitute performance: a. Remedies in obligations to give: The creditor could obtain the same through the exercise of the action known as specific performance. If the obligation is to deliver a generic or indeterminate thing and the same is within the patrimony of the debtor, again the creditor may demand for specific performance. In other cases, the creditor may demand that the obligation be performed at the expense of the debtor, which means to say
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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 persons, of the time and of the place. When negligence shows

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Art. 2201, par.2: In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

Art.1733, par.1: Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all circumstances of each case.

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that the thing will be acquired at the expense of the debtor if that is possible and later on delivered to the creditor (substitute performance) Requisites for substitute performance: There be non-fulfillment of the obligation either totally or partially whether non-performance or mere delay, and the same is imputable to the debtor Specific performance is not possible There exists a compensable damage or injury There is a casual relation as of cause and effect between the non-fulfillment of the obligation and the damage done. The indemnification for damages covers both the injury suffered (damnum emergens or dao emergente) and the loss of profits (lucrum cesans or lucro cesante) b. Remedies to obligation to do: When it treats of obligations that are not of obligations that are not personal and therefore can be performed by anybody, performance in the specific manner can be demanded not by the debtor himself, but by other persons at the expense of the debtor (substitute performance). This same rule will apply where the debtor has performed the act in contravention of the obligation in which case what has been done will be ordered undone and done according to the obligation, all at the expense of the debtor. When it treats of very personal obligations which only the debtor can perform with utility to the creditor as for example a work of art, it is not possible to demand specific performance and is substituted by performance by equivalent or indemnification for damages. Where the obligation requires the declaration or performance of a voluntary act by the debtor, modern doctrine admits of specific performance in such cases, substituting the will of the debtor with that of the judge. c. Remedies in obligations not to do: The creditor may ask that the same be undone at the expense of the debtor Where above is not possible legally or physically, the only alternative is performance by equivalent or damages.

Fortuitous Event an event which could not be foreseen, or which, though foreseen, was inevitable. includes unavoidable accidents, even if there has been an intervention of human element, provided fault or negligence cannot be imputed to the debtor. (Tolentino) Negative Def: that incident not imputable to the debtor which impedes the exact fulfillment of the obligation. (Caguioa) Positive Def: event not imputable to the debtor which is unforeseen or although foreseen is inevitable and which renders impossible to exact fulfillment of the obligation (Caguioa) may be: As to cause a. fortuitous event proper or that which is caused by an act of God examples: earthquakes, floods, storms, epidemics, fires, etc. b. force majeure where there is human intervention -- examples: armed invasion, attack by robbers, attack by bandits *Note: Essentially, there is NO substantial difference between the two, they both refer to an event or cause which is independent of the will of the obligor. 18 As to foreseeability a. ordinary fortuitous event - refers to an event which usually happens or which could have been reasonably foreseen - example: tropical storms, floods b. extraordinary fortuitous event - refers to an event which does not usually happen and which could not have been reasonably foreseen - examples: fire, war, pestilence, unusual flood (Ondoy), locust, earthquake characteristics/requisites: (1) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of the human will (2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen, it must be impossible to avoid o possibility of foreseeing the event should be appreciated rationally according to the circumstances o inevitableness of the event varies according to the case and circumstances and must have a relation with the means of the debtor and

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. (1105a)

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According to Caguioa, this classification must be based on the frequency of the occurrence.

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therefore with the degree of diligence he should have exercised. (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 Effects of fortuitous event on liability: General rule: The effect of fortuitous event is to exempt the debtor from liability for the nonfulfillment of the obligation and to the payment of damages to the creditor. His obligation is extinguished. Exceptions: b. The law expressly so provides as in the case of aleatory contracts 19 example: Arts. 552, par.2 c. The parties expressly so stipulated d. The nature of the obligation requires the assumption of risk as in the case of insurance contracts Assumption of risk refers to a situation in which the obligor or debtor, with full knowledge of the risk voluntarily enters into some relation with the obligee or creditor - ordinarily requires knowledge and the appreciation of the risk and the voluntary choice to encounter it. - doctrinal basis: no wrong is done to one who consents (volenti non fit injuria) - based on social justice; it is based on an ethicoeconomic sensibility of modern society, which has noted the injustices which industrial civilization has created

Notes: In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or misconduct by reason of which the loss may have been occasioned. (Southeastern College Inc. vs. CA); otherwise put, the fortuitous event must not only be the proximate cause of the loss or destruction, but that it must be the SOLE cause.

Art. 1175. Usurious transactions shall be governed by special laws. (n) Usury contracting for or receiving something excess of the amount allowed by law for the loan forbearance of money, goods or chattels; the taking more interest for the use of money, goods or chattels credit than the law allows. in or of or

The special laws referred to are the Usury Law (Act. No. 2655) and the different laws amending it. Usury Law provided for a legal rate interest of 6% per annum and a contractual rate not exceeding 12% per annum if the loan is secured by a duly registered real estate, and 14% if not so secured. Usury Law was repealed during the martial law period, leaving parties free to stipulate higher rates. There is now no longer any ceiling in interest rates on loans pursuant to Central Bank Circular No. 224 issued last Dec.1, 1982.

e. The debtor is guilty of dolo, malice or bad faith as when he promises to deliver the same thing to two or more persons who do not have the 20 same interest (Art. 1165, par.3) f. The debtor is already in mora at the time the fortuitous event happens g. The liability arises from a criminal act unless the loss occurs after the debtor tendered the thing to the creditor and the creditor refused to accept 21 the same without justifiable cause. (Art. 1268)
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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 installments, shall likewise raise the presumption that such installments have been paid. (1110a) The presumptions enunciated in the above provision are rebuttable and not conclusive 2 presumptions stipulated by Art.1176: Par. 1 If the debtor is issued a receipt by the creditor and on the face of the receipt it is shown that the principal has been paid without any reservation with

Art.552, par.2: A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event. 20 Art. 1165, par.3: 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. 21 Art. 1268: 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.

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respect to the interest, there arises a disputable presumption that the interest has also been paid. Basis: If a debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (Art. 1253) Par. 2 If the debtor is issued a receipt by the creditor acknowledging payment of a latter installment of a specified debt without any reservation with respect to prior installments, there also arises a disputable presumption that such prior installments have already been paid. (This rule is in conformity with the rule stated in Rule 131, Sec.5, subsec. (i) of the New Rules of 22 Court.) Estoppel (Art. 1431, Civil Code) a condition or state by virtue of which an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person 23 relying thereon.

property, present and future for the fulfillment of his obligations subject to the exemptions provided by law. (2) to exercise all the rights and actions of the debtor, except such as are inherently personal to him creditor being subrogated to all of the rights and actions of the debtor save those which are inherent in his person subrogatory action Subrogatory action the remedy granted by law to creditors who cannot in any other way recover their credit to exercise the rights and actions not used by the debtor and which are not inherent in his person. (Caguioa) the action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover the patrimony of the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit (Tolentino) Characteristic: indirect & independent => because the creditor cannot in his own name file the action but in the name of the debtor Requisites/Conditions: The creditor has a right of credit against the debtor although at the moment it is not liquidated The credit must be due and demandable Failure of the debtor to collect, or inaction of the debtor, whether the same be willful or negligent Insufficiency of the assets in the hands of the debtor although the creditor need not bring a separate action to show this exhaustion or insolvency of the debtor but he can prove the same in the very action to exercise the subrogatory action The right and actions are not purely personal or inherent in the person of the debtor rights that are purely personal or inherent of the debtor: o right to existence (support) o rights or relations of a public character o rights of an honorary character o rights consisting of powers which have not been used, including: (a) power to administer; (b) power to carry out an agency or deposit; (c) power to accept an offer for a contract 24 o non-patrimonial rights o patrimonial rights not subject to 25 execution o patrimonial rights inherent in the person of 26 the debtor
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Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise 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. (1111)

2 distinct aspects/elements of an obligation: (Caguioa) Debtor Guaranty/responsibility duty of the debtor to answer for his obligation with his entire patrimony Rights of creditors in satisfying their claims against the debtor: (1) to levy by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution exhausting the property in possession of the debtor For the fulfillment of the obligation of the debtor responds with all his property present and future. All the property of the debtor is answerable for the obligation not only those properties existing at the time of birth of the obligation but also all those which later on become or form part of the patrimony of the debtor. in conformity with Art. 2236 of the Civil Code which states that the debtor is liable with all his
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Sabi ni Jurado Rationale: Estoppel applies perhaps because when one already benefited from a certain act, he is already precluded to question the same. (Not so sure of this)

E.g. action to establish the debtors status as a legitimate/illegitimate child, action for legal separation or annulment of marriage 25 E.g. right to a government gratuity or pension

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 Other actions that cannot be subject of a subrogatory action: Mere options and powers of the debtor such as the power to exercise legal redemption or to revoke a stipulation pour autri Properties exempt from execution such as those mentioned in section 12, Rule 39 of the New Rules of Court, the family home, etc. Effects of subrogatory action The creditor may exercise the subrogatory action in behalf of the debtor not only up to the amount of his credit but in its totality. However, the excess over and above the credit or the damage must be returned to the debtor The bringing of the action does not entitle the creditor to preference; hence, any other creditor may avail of himself of the credit collected except when the suing creditor attaches the debtors credit or the judgment that is obtained. The debtor of the debtor, may avail himself of all defenses available against the creditor. Note: The law in certain cases gives to the creditor a direct action, an action by the creditor in his own name but directed against the name of his debtor. (Caguioa) Examples: - action of the lessor directly against the sublessee - action of the laborers of the independent contractor against the owner - action of the vendor a retro against the transferees of the property made by the vendee - action of the creditor to utilize the defense of prescription although waived by the debtor either tacitly or expressly.

(3) to ask for the rescission of the contracts made by the debtor in fraud of their rights to impugn all of the acts which the debtor may have done to defraud the creditor accion pauliana or action to declare absolute simulation of transfer Note: Accion subrogatoria and accion pauliana are known as acts of preserving the patrimony of the debtor since the guaranty of the obligation with the patrimony of the debtor may be rendered useless simply by omission or inaction on the part of the debtor by failing to collect his credits or by positive acts, such as by fraudulently transferring his property to other persons. (Caguioa)

Rescissory action (action pauliana) a remedy granted by law to creditors who cannot in any other way recover their credit to impugn (rescind) the acts which the debtor may have done to defraud them (Caguioa) refers to the right available to the creditor by virtue of which he can secure the rescission of any act of the debtor which is in fraud and to the prejudice of his rights as a creditor. (Jurado) character: subsidiary principle from which its based: the property of the debtor, whether present or future, stands as a guaranty for the payment of the obligation or credit can only be availed of in the absence of any other legal remedy to obtain reparation for the injury. requisites: There exists a credit in favor of the plaintiff The debtor has performed an act or contract subsequently which is beneficial to a third person giving him an economic advantage The creditor is prejudiced by the disposition in favor of the third person and that the rescission of the same would benefit the creditor The creditor has no other legal remedy to obtain payment of his credit The act impugned is fraudulent although said fraudulent intent may be presumed in certain cases The one who acquired the property was in complicity with the fraudulent intent or bad faith of the debtor. effects: The fraudulent transaction is rescinded and consequently it obliges him who has acquired the thing to return the same If the third person who acquired acted in bad faith; that is, the knowledge of the fraud, and he cannot return for any reason the things alienated, as for example, when the same are in the hands legally of third persons who did not act in bad faith, he is obliged to indemnify the creditors for the damage which the alienation may have caused them. The action can only lie as far as the credit of the plaintiff-creditor and consequently only those alienations necessary to satisfy his credit. Distinctions between subrogatory and rescissory actions Rescissory Subrogatory The credit must exist The credit need not exist before the fraudulent before the action. act. In onerous contracts, Malice or fraudulent intent on fraudulent intent is the part of the debtor is not necessary although the necessary. same may be presumed. Must be brought within Has no prescriptive period 4 yrs from discovery

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E.g. right to revoke a donation by reason of ingratitude, right to demand the exclusion of an unworthy heir

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Action to declare absolute simulation of transfer a remedy available on the part of the creditor against the debtor who, knowing that he cannot pay his debt, or not wishing to pay his debt and not wishing his property to answer for the debt, will simulate a fictitious transfer to a third person in order to have the property beyond the reach of the creditors. Distinctions between rescissory action and action to declare absolute simulation of transfer Rescissory Action Action to declare inexistent a fictitious transfer of property (absolute simulation) The alienation is fictitious and apparent Not necessary Action is principal Covers the entire alienation Does not prescribe

The alienation by the debtor is real and not fictitious Fraud actual or presumed must exist. Action is subsidiary Only lies as far as is necessary to cover the credit of creditor Prescribes within 4 yrs

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112) General rule: Rights of obligations or those rights which are acquired by virtue of an obligation are as a general rule transmissible in character they may be alienated or assigned to third persons. Exceptions: (1) where they are not transmissible by their very nature (personal right) (2) where there is a stipulation of the parties that they are not transmissible (3) where they are not transmissible by operation of law Note: Intransmissibility by stipulation of the parties, being exceptional and contrary to the general rule, should not be easily implied, but must be clearly established, or at the very least, clearly inferable from the provisions of the contract itself. (Jurado)

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