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Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

OBLIGATIONS & CONTRACTS

Chapter 1-

GENERAL PROVISIONS

Art. 1156.

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

An incomplete definition because it only refers to the debt side; it only refers to the conduct to be observed by the obligor; there is no debt without credit.

o Complete definition: A juridical relation between two persons, known as the creditor and debtor, whereby the former can demand from the latter the observance of a determinate conduct and in case of breach, may obtain satisfaction from the assets of the latter.

Why is it a juridical necessity? Because the term, “juridical necessity” connotes that in case of noncompliance, there will be legal sanction.

- Note: It covers only civil obligations, not natural obligations.

Characteristics of an Obligation:

1. It represents an exclusively private interest

2. It creates ties that are by nature transitory

3. It involves the power to make the juridical tie effective in case of non-fulfillment through an economic equivalent obtained from the debtor's patrimony.

Types of obligations:

a. Civil obligations - those which derive their binding force from positive law, and can be enforced by

court action or the coercive power of public authority.

b. Natural obligations - refer to those which derive their binding force from equity and natural justice,

and its fulfillment cannot be compelled by court action but depends exclusively on the conscience of the debtor.

c. Moral obligations - are those which arise from moral law developed by the church and not

enforceable in court. It deals with the spiritual obligation of a person in relation to his God and church

ELEMENTS of an OBLIGATION CODE: A P O E

A. Active subject (creditor, obligee)-

Has the power to demand the prestation; it is he who in his favor the obligation is constituted, established or created; it is he who has the right to demand.

B. Passive subject (debtor, obligor)

One who is bound to perform the prestation; passive because without the demand, there will be no action, he has to wait for the demand from the creditor.

Has the juridical necessity of adjusting his conduct to the demand of the creditor pursuant to the obligatory tie.

NB: It is not necessary that the active/passive subject (also known as the personal elements of the obligation) be determinate at the time of the constitution, but they must at least be determinable. When the subject cannot be determined, the obligatory tie can have no effect.

C. The object or the prestation

The object is not a thing but a particular conduct of the debtor. It is the subject matter of the obligation which has an economic value or susceptible to pecuniary substitution in case of noncompliance.

D. Efficient cause or juridical tie between the two subjects

The vinculum by which the debtor is bound to in favor of the creditor to perform the prestation. It is determined by knowing the sources of the obligation (Art. 1157)

Note: Additional elements from RAM Notes:

5. Causa debendi/ obligationes (Castan).-- This is what makes the obligation demandable. This is the proximate why of an obligation.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

6. Form.-- This is controversial. This is acceptable only if form means some manifestation of the intent of the parties.

KINDS OF PRESTATION:

a. to give” consists of the delivery of a movable or immovable thing which is either determinate (specific) or indeterminate (generic). This is in order to create a real right, or for the use of the creditor, or for its simple possession, or in order to return to its owner.

b. “to do” involves all kinds of work or services whether physical or mental, but in most cases the essence of the act man not be such, but merely the necessity of concluding a juridical operation, such as, when a person promises to give a bond.

c. not to do” is a negative obligation which consists of abstaining from some act, it includes “not to give”.

REQUISITES OF PRESTATION

1. it must be physically and juridically possible;

2. it must be determinate or at least determinable according to pre-established elements or criteria;

3. it must have a possible equivalent in money or a pecuniary value. (why: so in case of breach, one can demand damages)

Article 1157 – Sources of obligation

a. Law;

b. Contracts;

c. Quasi-Contracts;

d. Crimes;

e. Quasi-delicts;

The enumeration of the sources of obligation is exclusive; no obligation exists if its source is not one of those enumerated above.

Note:

1. Unilateral promise is admitted by modern doctrine, which recognizes that unilateral engagements

may give rise to obligations without the need of acceptance.

2. Contrary to Pineda, Tolentino supports that it cannot be said with certainty that the enumeration

in this article is exclusive because there is nothing which expressly precludes other sources of obligation, such as the unilateral promise to the public of an award for a certain act or accomplishment.

3. The clear implication of Sagrada Orden vs. Nacoco is that, these five (5) are the only sources of obligations.

Articles 1158 - 1162 specify the general principles regarding the sources of obligation enumerated in Art. 1157.

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

Note: When we say that law is an independent source of obligation, it does not mean that law and human acts exclude each

other completely. The law cannot exist as a source of obligation, unless the acts to which its principles may be applied exists. But once those acts exist, the obligations arising from them by virtue of law are entirely independent of the agreement of the

parties.

NB: When the law merely acknowledges the existence of an obligation generated by an act which constitutes a contract, quasi-contract, delict or quasi-delict, and its only purpose is to regulate such obligation which did not arise from it, the act itself is the source of obligation and not the law. But, when the law creates the obligation, and the act upon which it is bases is nothing more that a mere factor in determining the moment when it becomes demandable, then the source of obligation is the law itself. (i.e. a husbands’ obligation to his spouse is not anchored upon the contract of marriage but on the law which dictates it.)

Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Known as the Principle of autonomy of will. The parties can stipulate anything (they have the freedom), provided that the terms of the contract are not contrary to law, public policy or public order.

Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage and law. Since a contract has the force of law between parties, each is bound to fulfill what has been expressly stipulated therein.

does not apply to attorney’s contracts: courts can decide whether or not attorney’s fees are reasonable.

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII,of this book.

A quasi-contract is a juridical relation which arises from certain lawful, voluntary and unilateral act/s executed by somebody for the benefit of another and for which the former must be indemnified to the end that no one shall be enriched or benefited at the expense of another; It is a kind of contract created without the consent of one party but whose missing consent is given by law (presumptive consent).

Characteristics of a Quasi-Contract

a. The acts executed must be lawful

b. The acts executed must be voluntary

c. The acts executed must be unilateral

TWO PRINCIPLE TYPES:

1. NEGOTIORUM GESTIO- (officious manager) juridical relation which takes place when somebody takes

charge of the agency or management of the business or property of another without any power form the latter. The owner shall reimburse the gestor for the necessary and useful expenses incurred by the latter, and for the damages suffered by him in the performance of his functions.

2. SOLUTIO INDEBITI – a juridical relation which takes place when somebody received something from

another without any right to demand for it, and the thing was unduly delivered through mistake (compared to Art. 22 or unjust enrichment wherein there was no mistake). Obligation to return the thing arises on the part of the recipient.

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title on Human Relations, and of Title XVIII of this Book, regulating damages.

Basis is Article 100 of RPC, that every person criminally liable is also civilly liable

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.

Chapter 2- NATURE AND EFFECT 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.

Refers to the obligation to give.

The obligation to give may refer to a

determinate object / thing or to an indeterminate or generic thing.

A generic thing/ indeterminate thing is one that is indicated by its kinds, without being designated and distinguished from the others of the same kind. In an obligation to deliver a generic or indeterminate thing, the thing is determinable and becomes determinate from the time the obligation has been fulfilled or performed. A generic thing is something which is not particularized or specified but has reference to a class or genus.

A limited generic obligation is one when a the generic objects are classified to a particular class, i.e. one of my cars

A Determinate thing is something which is susceptible of particular designation or specification. It is one which is individualized and can be identified or distinguished form the others of its kind.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Read in relation to 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 bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

Effect of breach: Liability for damages, unless the loss or damage of the thing is due to a fortuitous event.

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.

Delivery is essential to acquire real right 1 .

WHEN DOES OBLIGATION TO DELIVER ARISE?

a. Perfection of contract if no term/condition;

b. From the moment the term/condition arrives if there is a term

The creditor has a right to the fruits of the thing from the time to deliver it arises. The fruits referred involve

only determinate things.

Kinds of fruits: (cf: Property)

1)

Natural

2)

Civil

3)

Industrial

The moment when the obligation to deliver arises varies in different types of obligations:

 

a.

In obligations arising form law, quasi-delicts, quasi-contracts and crimes, the specific provisions of

law applicable to the obligation determine when the delivery should be made.

b.

Suspensive conditions attached to an obligation to deliver arises only form the moment the

condition happens.

c.

Suspensive periods agreed upon for the performance of the obligation gives rise to its delivery only

upon the expiration of the term.

d.

Pure obligations are immediately demandable

The right to the fruits of the thing shall only be personal, and only upon the delivery of the

thing, its fruits, accessory and accession shall the creditor acquire a real right over it.

Classes of Delivery or Tradition:

REAL or ACTUAL tradition- This contemplates the actual delivery of the

thing from the hand of the grantor to the hand of the grantee , if it is a personal property. If it is a real property, it is manifested by certain possessory acts executed by the grantee with the consent of the grantor such as by taking over the property; occupying the property.

a.

b.

CONSTRUCTIVE tradition- when the delivery of the thing is not actual but

representative or symbolical in essence. But there must be intention to deliver the ownership.

Kinds of CONSTRUCTIVE TRADITION:

1 REAL right- is the power belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised. It gives to a person a direct and immediate juridical power over a thing, which is susceptible of being exercised against the whole world. There is a need for tradition or delivery since from the time the obligation to deliver a determinate thing arises, the creditor has only a personal right. He can only demand that the debtor deliver such thing and its fruit. The delivery or tradition of a thing constitutes a necessary and indispensable requisite for the purpose of acquiring ownership. The ownership of things is transferred not by mere agreements but by delivery.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

i. Tradicion Symbolica- delivery of certain symbols or things representing the thing to be delivered such as keys, titles.

ii. Tradicion Instrumental – consists in the delivery of the instrument of conveyance to the grantee by the grantor.

iii. Tradicion Longa Manu – consists in the pointing to a movable property within sight by the grantor to the grantee but which at the time of the transaction, the thing could not be placed yet in the possession of the grantee.

iv. Tradicion Brevi Manu – consists in the grantee’s continuation of his possession over the thing delivered but now under a title of ownership as in case of a lessee who had purchased the property leased to him. (Jovellanos)

v. Tradicion Constitutum Possessorium – consists in the owner’s continuous possession of the property he had sold to another person and his present possession thereof is no longer that of the owner but of a lessee.

vi. Tradicion by operation of law – consists in the delivery of the thing by operation of law such as intestate succession

vii. Quasi-Tradicion- consists in the delivery of incorporeal property.

Art. 1156. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted to 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 2 or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery.

RULES:

OBLIGATION TO DELIVER

REMEDY

1. Determinate thing

Creditor may compel debtor to deliver

2. Indeterminate or generic thing

Creditor may ask for compliance at the expense of the debtor

REMEDIES OF CREDITOR

a. Demand for specific performance - This action presupposes that it is based on a contractual relationship between the contending parties. Specific performance is available even if the thing to be delivered is indeterminate.

b. Rescission of the obligation which is under Art. 1380.

c. Resolution of the contract under Art. 1191 if it is a reciprocal obligation.

d. Damages exclusively or in addition to either of the first actions.

General Rule:

Obligation to deliver a specific thing is extinguished by fortuitous event; Indeterminate thing is however not

extinguished.

Exceptions:

1.

If obligor delays or in default;

2.

Obligor is guilty of bad faith;

Art. 1166. Obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned.

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

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

This same

rule shall be observed if he

does it in contravention of the tenor of the

obligation. Furthermore, it may be decreed that what has been poorly done be undone.

Remedies:

1.

have obligation executed at debtor’s expense;

2.

obtain damages.

Thing may be ordered undone if done poorly or obligation is a negative one This article presupposes that the thing can be done by the creditor himself or a third person. However, if the prestation can be done only by the debtor, the only recourse available to the creditor is a claim for damages since it is against the constitution to force the debtor to perform the obligation.

Coverage:

a. the obligor failed to fulfill a positive personal obligation, that is TO DO something;

b. he fulfilled the obligation but in contravention of the agreement;

c. There was fulfillment but the same was poor or inadequate.

Note: if any of the above happens, the creditor is entitled to have the thing done in a proper manner, by himself or by

a third person, at the expense of the debtor. The court has no discretion to merely award damages to the creditor when the act can be done in spite of the refusal or failure of the debtor to do so.

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.

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

Demand is generally necessary, even if a period has been fixed in the obligation. Even in obligations where there is an acceleration clause, there is still a need for demand.

INSTANCES when demand by Creditor not necessary in order that delay may exist:

a. when there is an express stipulation between the parties to that effect;

b. where the law so provides;

c. when time or period is the controlling motive or the principal inducement for the creation of the obligation;

d. when demand would useless;

e. when the obligor admits he is in delay

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.

Note:

The demand must refer to the prestation due and not to another, however, there will still be delay even if the demand was wrong if:

1. even if the demand had been absolutely correct, the debtor would not have performed the obligation, or

2. in the light of good faith he should have offered the prestation in the form and manner that it is due.

When the time for the fulfillment of the obligation is fixed, no further demand is necessary. In case of doubt on

whether the debtor has incurred delay, the doubt is resolved in favor of the debtor. REASON: because the dispensing

of demand is only an exception, it is not a general rule.

The law does not require expressly that the debtor should know that the fixing of the date for the performance was a controlling motive on the part of the creditor; but this knowledge is essential in order that it can be said that the debtor has tacitly consented to incur delay without the necessity of delay.

KINDS OF DELAY:

A. MORA SOLVENDI – default on the part of the debtor which may either be ex re (real obligations; obligations

to give) or ex persona (personal obligations; obligations to do)

B. MORA ACCIPIENDI – default on the part of the creditor

C. COMPESATIO MORAE – default on the part of both parties in reciprocal obligations

I. MORA SOLVENDI-

REQUISITES FOR MORA SOLVENDI TO EXIST:

1. the obligation pertains to the debtor or obligor;

2. the obligation is determinate or liquidated, due and demandable;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

3. the obligation has not been performed on its maturity date;

4. there is a demand made by the creditor on the debtor for the fulfillment of the obligation that is due.

DOES NOT APPLY IN THE FF. OBLIGATIONS:

1. natural obligations;

2. negative obligations

CONSEQUENCES/EFFECTS OF MORA SOLVENDI:

1. debtor may be liable for damages or interests;

2. debtor may bear the risk or loss of the things even if the default is due to fortuitous event, subject to equitable

mitigation if the loss would have still occurred even if there was no default on the part of the debtor.

II. MORA ACCIPIENDI- delay in the performance of the obligation based on the omission by the creditor of the necessary cooperation, especially in acceptance on his part.

- it is necessary that it be lawful for the debtor to perform, and that he can perform.

REQUISITES FOR MORA ACCIPIENDI TO EXIST

1. an offer of performance by the debtor who has the required capacity;

2. the offer must be to comply with the obligation as it should be performed;

3. the creditor refuses the performance without just cause

CONSEQUENCES OF MORA ACCIPIENDI

4. the responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence;

5. the debtor is exempted from the risks of loss of the thing, which automatically pass to the creditor;

6. all expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the

creditor;

7. the debtor may relieve himself from the obligation by consignation of the thing.

III. COMPENSATIO MORAE – applies only in reciprocal obligations. Where the parties are both guilty of mora or mutual default, the default of one compensates the default of the other.

o Delay begins when one party fulfills his obligation.

o When one party does not fulfill his obligation, he releases the other from his obligations, who therefore does not become delinquent in the fulfillment.

o Neither party incurs delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

CESSATION OF THE EFFECTS OF DELAY:

(may the right to place the debtor in delay be renounced or waived? Yes. How: )

1. Renunciation by the creditor, which may be implied or expressed. There is implied renunciation when the

creditor, even after the delay, grants an extension of time to the debtor or agrees to a novation of the obligation. (remember Tayag vs. Leyva case. The effects of delay was not applied since there was a waiver on the part of Tayag when she accepted the payments even after the due date)

2. Prescription

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.

GROUNDS FOR LIABILITY:

1.

Fraud;

2.

negligence;

3.

default; and

4.

violation of terms of obligations.

Damages:

MENTAL

Indemnity for damages consists of:

a. that agreed upon;

b. in absence of agreement, legal rate of interest.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

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.

KINDS:

1. Culpa Contractual – breach of contract

2. Culpa Aquiliana – civil negligence, tort or quasi-delict;

3. Culpa Criminal – criminal negligence that which results in commission of crime or a delict.

 

Culpa Contractual

 

Culpa Aquiliana

   

Culpa Criminal

 

1.

negligence is incidental; oblig. Exists-

N

is

direct,

substantive

and

N

is direct, substantive

 

contract

independent;

   

2. there is pre-existing obligation.

No pre-existing obligation;

 

No pre-existing obligation except not to harm others

3. preponderance of evidence

- same -

 

Guilt beyond reasonable doubt

 

4. master-servant rule

Defense of a good father of a family

ER’s

guilt-

civilly

liable

in

case

of

insolveny

 

5. there is a contract

Prove that defendant is negligent

 

Presumption of innocence until contrary

 

is

proved.

Case: Prudential Bank vs. CA: responsibility from negligence in the performance of every kind of obligation is demandable. While in the case at bar there was no bad faith, respondent still suffered anxiety, embarrassment and humiliation. Hence, entitle to recover (moral) damages.

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 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.

DILIGENCE REQUIRED:

1. that agreed upon by parties;

2. in the absence of #1, that required by law;

3. in absence of #2, that expected of a good father of a family.

(cases) SABEDA airlines, Prudential Bank cases

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.

o

General Rule:

Fortuitous events absolve Obligor from liability.

o

ELEMENTS OF FORTUITOUS EVENT:

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, or of the debtor’s will.

In the case of PAL, the hijacking was independent of the will of PAL.

2. It must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen, it was inevitable to

avoid

Although under normal circumstances, it was not impossible for PAL to foresee the hijacking of the airplane, the military take over that took place that afternoon rendered the foreseeability of the event as impossible since it was the army already conducting the checking and frisking.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Note: In the case of PHILCOMSAT v Globe: the SC held that although the parties could have foreseen the closure of the military bases, it was impossible to avoid.

3. The occurrence must be of 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, or aggravation of, the injury resulting to the creditor.

Note:

o An obligation consisting of the delivery of a specified thing shall be extinguished when the said thing shall be lost or destroyed without the fault of the obligor and before he is in default.

o The obligor is released from liability no only when the non-performance of the obligation is due to fortuitous events, but also when it is due to the act of the creditor himself, such as defective packing.

o EXCEPTIONS: (when obligor is still liable even if there is a fortuitous event)

1. When the law so provides;

2. When it is expressly stipulated by the parties;

3. When the nature of the obligation requires the assumption of risk;

4. When the obligor is in delay already;

5. When the obligor has promised the same thing to two or more persons who do not have the same interest (Art. 1165);

6. When the possessor is in bad faith and the thing is lost or deteriorated due to a fortuitous event;

7. When the obligor contributed to the loss of the thing during the fortuitous event;

8. When the obligor is guilty of fraud, negligence or delay or if he contravened the tenor of the obligation.

o ASSUMPTION OF RISKS: (doctrine of created risk)

The exception is based on social justice: If a person, for his convenience or profit, creates risks for the public which formerly did not exist, although morally his fault or negligence may not be the cause of the damages resulting therefrom, he should nevertheless be held liable for such. If he benefits from the means that have produced the loss, it is only equitable that he should bear the consequences of such loss.

Case: Yobido vs. CA: Even if the tires are new, or that it had a good brand name, it is settled that all accident caused either by defects in the automobile Or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages. Moreover, a common carrier may not be absolved from liability in case of force fortuitous event alone. The common carrier must still prove that it was not negligent in causing the death or injury resulting from an accident. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicle's parts.

Art. 1175. Usurious transactions shall be governed by special laws. (n)

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.

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)

Rights of Creditors:

1. exact payment;

2. exhaust debtor’s properties generally by attachment;

3. subrogatory action – exercise all rights and actions except inherent rights;

4. impugn/rescind acts or contracts done by debtor to defraud them.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Exceptions:

1. if law provides otherwise;

2. if contract provides otherwise;

3. if obligation is purely personal

Note: The exceptions refer to:

a. those not transmissible by their nature, i.e. purely personal rights; and

b. those not transmissible by law or by stipulation of the parties.

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS

CHAPTER 3

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS
DIFFERENT KINDS OF OBLIGATIONS
DIFFERENT KINDS OF OBLIGATIONS

DIFFERENT KINDS OF OBLIGATIONS

SECTION 1. - Pure and Conditional Obligations

PURE AND CONDITIONAL OBLIGATIONS:

o Condition: An event which is both future and uncertain upon which the existence or extinguishment of an obligation

is made to depend. The element of futurity and uncertainty must concur. The condition must be imposed by the will of

a party and must not be a necessary legal requisite of the act.

o

PAST EVENTS can be conditions too. The futurity required in past events is the future knowledge or proof of a past event unknown to the parties, not the event itself. Example: I will pay you 1,000 if the number of people who died in the 9/11 attack exceeds 2,000. In past events, the contract or obligation arises not when the event happened or the fact came into existence, but when the proof of such fact or event is presented, which would be in the future.

   

Art. 1179.

Every obligation whose performance does not depend upon a future or

 

uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113)

o

Kinds of Obligations:

 

a.

PURE

- When the obligation contains no term or condition whatever upon which depends the fulfillment of the obligation

contracted by the debtor. it is immediately demandable and there is nothing to exempt the debtor from compliance therewith. If

the debtor does not fulfill his prestation, especially after a valid demand, he is placed in default.

b. CONDITIONAL with a condition

CONDITION- is an uncertain event w/c wields an influence on a legal relation.

TERM – is that w/c necessarily must come whether the parties know when it will happen or not.

INSTANCES WHEN AN OBLIGATION IS DEMANDABLE AT ONCE:

a. when it is pure;

b. when it has resolutory condition.

CLASSIFICATION OF CONDITIONS

A. SUSPENSIVE

- happening of event/condition gives rise to obligation.

RESOLUTORY – happening of event/condition extinguishes the obligation.

B. POTESTATIVE – depends upon the will of the debtor.

CASUAL – depends on chance/will of a 3 rd person.

MIXED – depends partly on will of 3 rd person and partly on chance.

C. DIVISIBLE – capable of partial fulfillment.

INDIVISIBLE – not capable of partial fulfillment.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

D. POSITIVE – an act is to be performed

NEGATIVE – something will be omitted.

E. CONJUNCTIVE – if all the conditions must be performed.

ALTERNATIVE – if only a few of the conditions have to be performed.

Q: What does automatically/immediately demandable mean?

A: Immediate demandability is not impaired when the performance of the obligation is allotted a reasonable time by the court. It does not imply immediate instantaneous compliance.

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n)

payment does not depend on debtor’s will for he has promised to pay.

TIME when payment is to be made depends upon the DEBTOR.

HOW LONG?

COURTS will fix the duration of the period.

Article 1180- read in relation with Art. 1197.

- in cases falling under this article, the creditor should file an action to fix a period for the payment of the obligation. An action to enforce the obligation is premature if the court has not yet fixed a period.

- covers cases wherein the debtor binds himself to pay when his means permit him to do so, such as “I’ll pay you little by little; as soon as possible; as soon as I have the money; in partial payments ”

- Here, the moment of payment is dependent upon the will of he debtor but not the payment. (or not the performance of the condition)

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)

a. Suspensive – conditions precedent/antecedent. The happening of w/c will give rise to the acquisition of a right – future & uncertain event.

b. Resolutory

-- conditions subsequent – rights are lost once the condition is fulfilled.

Case: Padilla vs. Paredes: there was no obligation to perform since the suspensive condition did not happen.

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)

3 KINDS OF CONDITIONS

a. Potestative (facultative)

b. Casual

c. Mixed

POTESTATIVE ON THE PART OF THE DEBTOR

1. IF SUSPENSIVE – both condition and obligation are void.

2. IF RESOLUTORY – valid.

Pure potestative conditions renders the whole obligation void.

o This article applies only to potestative SUSPENSIVE CONDITIONS. Potestative and resolutory valid since there is immediate performance on the part of the obligor.

o If it depends solely on the will of the creditor, it is valid. Reason: to allow conditions whose fulfillment depends exclusively on the debtor’s will, is to sanction illusory obligations; this cannot happen when the fulfillment depends on the will of the

creditor. This is because the creditor is naturally interested in the fulfillment of the condition which will benefit him.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a)

EFFECTS:

1.

If condition is to do an impossible or illegal thing – CONDITION & OBLIGATION ARE VOID.

2.

If condition is negative (not to do) DISREGARD CONDITION BUT OBLIGATION REMAINS.

3.

If condition is negative (not to do an illegal thing) BOTH CONDITION & OBLIGATION ARE VALID.

Note:

o

This article applies only to cases where the conditions was already impossible from the time of the constitution of the obligation, and also to POSITIVE SUSPENSIVE CONDITIONS.

o

The condition must already be existing at the time of the creation of the obligation. Supervening events which would

render the obligation no longer impossible does not affect the effect of annulling the obligation.

o

In order for the condition to be considered as illicit or juridically impossible, it must consist of an act or fact for one of the parties. The mere mention of a juridically impossible condition does not annul the obligation. The criterion is the effects upon one of the parties.

o Reason: one who promises something under a condition that is impossible or illicit knows that it cannot be fulfilled, and manifests that he does not have any intention to be bound.

o NEGATIVE SUSPENSIVE CONDITIONS have the effect of converting the obligation into a pure and simple one. It is simply considered not written, thus as if no condition exists.

Art. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117) - positive condition

Effect if Period of Fulfillment is not fixed: the Court considering the parties intentions should determine what period was really intended.

Art. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. – Negative Condition

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)

Requisites:

1. Voluntarily made – the intent to prevent is present.

2. Actual prevention of compliance.

Note: This refers to Constructive Fulfillment/ Implied fulfillment

o

Applies to a condition which, although not exclusively within the will of the debtor, may in some way be prevented by the debtor from happening.

o

There is constructive fulfillment only if the act of the debtor had in fact prevented compliance with the condition.

o

EXCEPTION: if in preventing the fulfillment of the condition the debtor acts pursuant to a right, the condition will not be deemed fulfilled. Example: B ordered A to stop building because it was against the city ordinance.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation.

Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated.

If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120)

In conditional oblig, to give, once fulfilled, shall retroact to the day of the constitution of obligation.

In reciprocal oblig. – the fruits and interests during the pendency of condition, shall be deemed to have been mutually

compensated.

In unilateral oblig. – the debtor shall appropriate the fruits and interests received UNLESS from the nature of the obligation it should be inferred that the intention of person was different.

In Obligation to do or not to do – the Court shall determine the retroactive effect of condition that has been complied with.

- Remember: between the constitution and the happening of the suspensive condition, the creditor cannot enforce the obligation.

- The right of the creditor during the period is mere expectancy. (Jovellanos case: The right of Daniel to the property was merely inchoate and expectant right which would ripen into a vested right only upon his acquisition of the ownership)

- The moment the suspensive condition happens, the right becomes enforceable and the debtor may be compelled to perform the obligation. Cause of action accrues, and prescription is computed from this time.

- The EFFECTS, however, RETROACTS to the moment of constitution of such obligation. Reason: suspensive conditions are merely accidental to the obligation, they are not essential elements of the obligation. An obligation is deemed constituted when all the necessary elements are present. The suspensive condition only prevents the efficacy of the obligation.

- Case: DBP vs. CA

- Limitations to retroactivity: the right to the fruits or interests of the thing accruing before the happening of the condition, unless otherwise stipulated by the parties.

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

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a)

APPROPRIATE ACTIONS FOR CREDITOR TO PRESERVE HIS RIGHTS:

a. action for prohibition restraining the alienation of the thing pending the happening of the condition

b. petition for the annotation of the creditor’s right, if real property is involved;

c. action to demand security in case the debtor becomes insolvent;

d. action to set aside alienations made by the debtor in fraud of the creditors;

2 nd Par: a case of solutio indebiti (undue payment) if creditor is in bad faith, debtor is entitled to fruits and interests.

IF PAYMENT WAS NOT BY MISTAKE, CAN THERE BE RECOVERY?

a.

If condition is fulfilled – NO RECOVERY

b.

If condition is not fulfilled, there should be recovery EXCEPT when a pure donation was intended.

Note:

-

Before the happening of the suspensive condition, the debtor cannot alienate the subject property if it is a determinate thing.

-

If the obligor alienated the determinate property to a 3 rd person (good faith on part of the 3 rd person), the creditor cannot reclaim the property as the delivery of the thing vests ownership. His only recourse is damages against the debtor. However, if there was bad faith on the part of the 3 rd person, he may be compelled to deliver the thing to the creditor.

-

Creditors can however, alienate their inchoate right.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

- If payment was a determinate thing, the cause of action is accion revindicatoria, otherwise the provisions of solution indebiti applies.

- If however, payment was made with the knowledge of the condition, there is an implied waiver of the condition and what has been paid cannot be recovered.

- No express provision regarding fruits and interests, however, there can be recovery by the provisions of solution indebiti.

Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

(1)

extinguished;

If

the

thing

is

lost

without

the

fault

of

the

debtor,

the

obligation

shall

be

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; It is understood that the thing is lost:

a. when it perishes; (physical loss) or

b. goes out of commerce; (legal loss) or

c. disappears in such a way that its existence is unknown or it cannot be recovered; (civil

loss)

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5)

benefit of the creditor;

If the thing is improved by its nature, or by time, the improvement shall inure to the

(6)

granted to the usufructuary. (1122)

If it is improved at the expense of the debtor, he shall have no other right than that

Article applies if:

a. suspensive condition is fulfilled;

b. and if object is specified (not generic)

Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123)

EFFECTS WHEN RESOLUTORY CONDITION IS FULFILLED:

1. Obligation is extinguished;

2. Parties shall return what they have received, including fruits & interests;

3. Courts shall determine the retroactivity of resolutory conditions

4. In case of loss, deterioration, or improvement, apply Art. 1189.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

CHARACTERISTICS OF RIGHT TO RESCIND

1.

It exists only in reciprocal obligations. If there is a fixed period, no actions can be done before the expiration of period.

2.

can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other is not.

3.

not absolute

 

slight breach is not sufficient as held in Tayag vs. CA- The right to rescind is not absolute and will not be

 

granted if there has been substantial performance by partial payments.

4.

it needs judicial approval in some cases – when there has already been delivery of thing. If there’s no delivery, judicial approval may not be needed; if there has been delivery, the contract stipulates for rescission in case the other has not performed.

5.

the right to rescind is implied to exist;

6.

the right to rescind may be waived expressly or impliedly

o

DAMAGES FOR BREACH OF LEASE CONTRACT:

a)

If he selects specific performance as an action, he can demand the accrued rent plus the future rent for the unexpired term;

b)

If lessor demands rescission, he gets only the back rents and ouster the lessee plus damages but not future rents.

Note:

- This article is applicable only to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of each other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. It is not enough that both parties are creditor and debtor or each other, the reciprocity in the obligation must arise from the same cause.

- Even if there is no corresponding agreement between the parties, the law provides for such power to rescind. This article does not apply when the parties made a stipulation providing for the automatic rescission of the contract in case of violation of the terms thereof without need of judicial intervention or permission.

- The breach contemplated is the obligor’s failure to comply with an obligation already existing, not a failure of a condition to render binding that obligation. There can be no breach of a non-existent obligation. Case: “Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. (Ong vs. CA)

- Case: Padilla vs. Paredes : There can be no rescission of an obligation that is non-existent, considering that the suspensive condition has not yet happened. The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.

- “Rescission” here is to be understood as “resolution” or cancellation of the contract.

- Who can demand rescission: The party who can demand rescission should be the party who is ready, willing and able to comply with his own obligations while the other is not capable to perform his own. A party who has not performed his pat of the obligation cannot rescind.

- When one party fails to comply with his obligation under a contract, the other party has the right to either demand performance, or ask for the resolution of the contract. These remedies/choices are mutually exclusive. One cannot choose specific performance then rescission. Case: Velarde vs. CA: when Padilla chose to rescind the contract,

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

although Velarde opted to pay, the choice had already been made and to allow Velarde to pay the existing amount would tantamount to a novation of the contract

.

-

In cases of specific performance, there is always a need for judicial action if the other party refuses to make the delivery of the thing promised. exception: when the injured party chose specific performance, and the prestation had become impossible to perform, he may then cancel or rescind the contract. However, so long as there has been no judgment declaring rescission, however, the creditor who has asked for it may change his mind and demand specific performance instead, or vice-versa, unless he has previously renounced one of these remedies.

-

Where both parties have committed a breach of obligation, and it cannot be determined who was the first infractor, the contract shall be deemed extinguished and each shall bear his own damages.

-

EXTRAJUDICIAL rescission produces legal effects. Once one of the parties fails to comply with his obligation, the other is relieved from complying with his, and he may therefore by his own declaration elect to rescind by not performing his own undertaking.

-

When can there be extrajudicial rescission? When there has been no performance of the obligation or whatsoever. If the obligation has not yet been performed, extra-judicial declaration of rescission by the party who is ready and willing to perform would suffice. However, if the injured party has already performed such as when property has already been delivered by him to the other party, he cannot by his own declaration rescind the contract. Hence, the court must declare the rescission.

-

Case: Cannu vs. Galang-

o

Limitations/Restrictions on the right to rescind:

 

1.

DUE PROCESS MUST BE OBSERVED- the rescission authorized is judicial rescission; the other party must be given his day in court. It is the judgment of the court and not the mere act of the vendor which produces the rescission of the sale (Cannu)

2.

The right to rescind is SUBORDINATED TO THE RIGHTS OF 3 RD PERSONS who acquired the thing in good faith.

3.

The injured party must respect the power of the court to fix period in lieu of decreeing rescission. (case:

 

Central Univ- the court may fix the period for the fulfillment of the obligation, however, in this case, the court held that there was no need to fix the period since sufficient time had already lapse for the plaintiff to fulfill the condition.)

 

Note: When the contract, however, is one of lease, and the lessee fails to pay the rents stipulated within the time agreed upon, the court will have no discretion to grant the lessee a period within which to pay the rents.

4.

Evidence is needed to justify the rescission.

-

5.

Slight breach of the contract will not justify rescission, the breach should be substantial and fundamental as to defeat the object of the parties in making the contract.

 

o

EFFECTS OF RESCISSION

-

Note that the exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect. The rescission has the effect of abrogating the contract in all parts and The parties will be brought back, as much as possible to the status quo before they entered into the contract. Hence, there is always a need for restitution. The resolution or cancellation shall take effect only after the creditor has notified the debtor of his choice of rescission.

(case: Laperal vs. Solid Homes. Rescission under Art. 1191 always carries with it the obligation of mutual restitution. However, in this case, Laperal was not made to pay restitution since the parties had expressly stipulated the payment for damages in case of breach.)

In Ong vs. CA, the SC held that Ong was not entitled to reimbursement as regards the improvements he made on the property because he contracted these improvements in bad faith.

-

In estimating the damages to be awarded in case of rescission or resolution, those elements of damages only can be admitted that are compatible with the idea of rescission

-

In case of resolution of a contract of sale, the purchaser is entitled to indemnity for damages. This indemnity, in case of resolution for non-delivery of the thing sold cannot consist in the fruits, to which he is entitled only when delivery is made. Having chosen rescission, he is only entitled to the interest on the amount he has paid.

-

Tayag case: WAIVER.

o

Inapplicability of Art. 1191:

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

1. in obligations of sales of real property by installments since Maceda Law RA 6552 governs;

2. sales of personal property by installments governed by RA 1484 (Recto Law)

3. Contracts of partnerships

4. Contracts of lease

o Cases when judicial approval is not needed in rescission:

a.

if there is an express stipulation of automatic rescission;

 

b.

if there is no express stipulation of automatic rescission in case of breach, judicial approval is needed when there has been already delivery of the object—unless the debtor voluntarily returned the thing.

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)

 
 

SECTION 2. - Obligations with a Period

 
 

Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

 

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A

day certain is understood to be that which must necessarily come, although it may not be

known when.

 

If

the uncertainty consists in whether the day will come or not, the obligation is conditional,

and it shall be regulated by the rules of the preceding Section. (1125a)

 

Period:

A certain length of time which determines the effectivity or the extinguishments of obligations.

PERIOD vs. CONDITION

A. As to their fulfillment –

1. a condition is an uncertain event;

2. a period is an event which must happen sooner or later at a date known beforehand or a time which cannot be determined.

B. With reference to time

1. Period refers to future;

2. Condition may under the law refer to past.

C. As to Influence on the obligation

1. Condition causes an obligation to arise or to cease;

2. Period merely fixes the time or the efficaciousness of an obligation.

DIFFERENT KINDS OF TERMS/PERIODS

a. DEFINITE – exact date/time is known and given INDEFINITE – something that will surely happen, but date of happening is unknown.

b. LEGAL – a period granted by law CONVENTIONAL/VOLUNTARY – period agreed upon or stipulated by parties. JUDICIAL – period or term fixed by Courts for the performance of an obligation, or for its termination.

c. EX DIE or SUSPENSIVE PERIOD– a period with suspensive effect. Obligation begin only from a day certain; upon

arrival of period.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

IN DIEM or RESOLUTORY PERIOD– a period/term with a resolutory effect. arrival of said period.

REQUISITES FOR A VALID PERIOD/TERM

1. Must refer to the future;

2. must be certain but can be extended;

3. must be physical and legally possible otherwise it is void.

Termination of obligation upon the

NOTE: An action may be brought to immediately enforce an obligation originally with a term if:

a. the contract in which the terms is imposed has been cancelled by mutual agreement of the parties; or

b. When the non-fulfillment of the terms of the contract resolves the period and authorizes the creditor to immediately demand performance. (the obligation is converted into a pure obligation)

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

Article 1194- Article 1189 is applicable in cases of loss, deterioration, and improvement during the pendency of condition.

Thing Is Lost When –

1. It perishes.

2. It goes out of commerce.

3. It disappears in such a way that its existence is unknown.

4. It disappears in such a way that it cannot be recovered.

Note: “Genus nunquam perit” – in an obligation to deliver generic thing the loss or destruction of anything of the same kind does not extinguish the obligation.

If the thing is lost through the fault of the debtor, he shall be obliged to pay damages.

If the thing deteriorates through the fault of the debtor, the creditor may choose between (1) rescission of

the agreement or obligation plus damages, or (2) fulfillment of the obligation plus damages.

If the thing is improved by nature, or by time, the creditor gets the benefit.

If the thing has improved through the expense of the debtor, he shall have the rights granted to a

usufructuary for improvements on a thing held in usufruct.

Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a)

PERIOD W/IN W/C RECOVERY MAY BE MADE

Without Debtor’s knowledge –

1. Before the debt matures ( Art. 1194)

2. Even after maturity – if creditor is in bad faith – the right prescribes in 5 years after premature payment

With Debtor’s knowledge – NO RECOVERY (implied waiver)

Note: the law presumes that the debtor knew of the prematureness.

Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127)

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

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

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

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a)

WHEN THE COURT MAY FIX A PERIOD

1. When the duration depends upon the will of the debtor.

2. When although the obligation does not fix a period, it can be inferred that a period was intended.

INSTANCES WHEN THE COURT MAY NOT FIX THE TERM:

1. When no term was specified because no term was ever intended;

2. When the obligation or not is “payable on demand”;

3. When specific periods are provided for in the law;

4. When what appears to be a term is really a condition;

5. When the period w/in which to ask the court to have the period fixed has itself already prescribed.

PRESCRIPTIVE PERIOD: ACTION MUST FIX THE PERIOD – 10 YEARS

Art. 1198. The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;

(4)When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;

(5)When the debtor attempts to abscond. (avoid legal process) (1129a) – actual absconding, intent to do so is sufficient.

Note: the insolvency referred to does not have to be judicially declared; it is sufficient for him to find a hard time paying off his obligations because of financial reverses that have made his assets less than his liabilities.

SECTION 3. - Alternative Obligations

Art. 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking.

(1131)

Alternative Obligation is one where out of the 2 or more prestations which may be given, only one is due.

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

The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132)

In obligation with a term general rule: term is for both parties’ benefit

In obligation/alternative oblig general rule: Debtor has the right of choice.

The Debtor Shall Have No Right To Choose Those Prestations Which Are:

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

1. Impossible.

2. Unlawful.

3. Or which could not have been the object of the obligation.

Art. 1201. The choice shall produce no effect except from the time it has been
Art.
1201.
The
choice
shall
produce
no
effect
except
from
the
time
it
has
been
communicated. (1133)

Means of Communication to other party – oral, written, implied, express

EFFECT OF NOTICE THAT CHOICE HAS BEEN MADE

Obligation becomes a simple obligation to do or deliver the object selected.

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

REQUISITES FOR MAKING A CHOICE

1. Made properly so that creditor or agent will know;

2. made with full knowledge that a selection is indeed being made (if there is error – choice can be annulled)

3. made voluntarily and freely (no force, coercion etc. )

4. made in due time and that is before or upon maturity;

5. made to all the proper persons;

6. made w/o conditions unless agreed to by the creditor;

7. may be waived, expressly/impliedly.

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)

Example: Objects A,B & C. extinguished.

A&B are destroyed; C can only be delivered-

if C is destroyed (fortuitous event) obligation is

Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n)

Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded. (1135a)

Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor.

Until then the responsibility of the debtor shall be governed by the following rules:

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages;

(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a)

if contract does not state to whom the right to choose is given, THE DEBTOR MAY CHOOSE.

Effect if Creditor delays in making the choice:

he cannot hold the debtor in default for the debtor does not know what to deliver;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

if debtor wants to relieve himself from the obligation, he may petition the court to compel Creditor to accept in the alternative, at the petitioner’s option with damages.

Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n)

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

DISTINCTIONS

 

ALTERNATIVE

 

FACULTATIVE

1.

various things are due, but giving of one is enough;

1.

only one thing is principally due but may be

 

substituted.

2. if one prestation is illegal, others may be valid and the obligation remains;

2.

if principal obligation is void, giving of the

substitute is no longer necessary. (NULLITY OF

 

PRINCIPAL CARRIES WITH IT THE NULLITY OF SUBSTITUTE.)

3.

if it is impossible to give all except one, the one left must

3.

If it is impossible to give the principal, the

still be given.

substitute does not have to be given; if vice versa, the

principal must be given.

 

4. the right to choose may be given either to debtor/creditor

4.

The right to choose

is

given only to the

debtor.

SECTION 4. - Joint and Solidary Obligations

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a)

JOINT

 

SOLIDARY

Each of the debtors is liable only for a proportionate part of the debt and each creditor is entitled to a proportionate part of the credit.

Each debtor – entire obligation; each creditor is entitled to demand the whole obligation.

GENERAL RULE:

EXCEPTIONS:

When there are 2 or more debtors or creditors, the obligation is JOINT.

1. when there is a stipulation in the contract that the obligation is solidary;

2. when the nature of the obligation requires liability to be solidary;

3. when the law declares so

INSTANCES WHERE LAW IMPOSES SOLIDARY LIABILITY

a. obligation arising from torts;

b. quasi-contracts;

c. legal provisions re: the obligation of legatees and devisees;

d. liability of principals, accomplices and accessories of a felony;

e. bailees in commodatum.

a) There may be plurality of creditors

b) Plurality of both debtors and creditors;

c) Plurality of debtors.

EFFECTS OF JOINT LIABILITY

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

a. Demand by one creditor upon one debtor produces effects of default only with respect to both parties but not with respect to the others;

b. Interruption of prescription by judicial demand of one creditor upon one debtor does not benefit the other creditors;

c. Vices of each obligation arising from personal defect of a particular debtor or creditor does not affect the obligation or rights of the others;

d. Insolvency of a debtor does not increase the responsibility of his co-debtors nor does it authorize a creditor to demand anything from his co-creditors;

e. In joint divisible obligation, the defense of res judicata is not extended from one debtor to another.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)

Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.

(1139)

Indivisible joint obligation – requires the consent of all debtors

CHARACTERISTICS

Obligation is joint but since it is indivisible, creditor must proceed against all the joint debtors.

Demand must be to all joint debtors;

In case of insolvency of one debtor; others are not liable for his share;

If there are joint creditors, delivery must be made to all unless authorized by others;

Each joint creditor may renounce his share

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

Solidarity ---the tie between parties

Indivisibility --- subject matter

KINDS OF SOLIDARITY

1. ACTIVE – on the part of creditors/obliges

2. PASSIVE – debtors/obligors part

3. MIXED – both

4. CONVENTIONAL – agreed by parties

5. LEGAL – imposed by law

Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140)

Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a) Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)

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

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

NOVATION; EFFECT

Modification of an obligation by changing its object or principal conditions; by substituting the person of debtor; subrogation

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

COMPENSATION

Is that w/c takes place when 2 persons in their own right, are creditors and debtors of each other.

CONFUSION/ MERGER

W/c takes place when the characters of creditor and debtor are merged in the same person, as when a check issued by A, in the course of negotiation, is eventually endorsed to him.

The solidary obligation is extinguished; but the other is still indebted to the other for his share.

REMISSION (WAIVER)

That act of liberality whereby a creditor condones the obligation of the debtor; that where the creditor tells the

debtor to “forget about the whole thing.”

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a.)

Effect of not proceeding against ALL – there is no waiver against those not yet sued; they may be proceeded against later.

Applies only to solidary obligation, not joint.

PASSIVE SOLIDARITY & SURETYSHIP (similarities)

1. both the solidary debtor and the surety guarantee for another person.

2. both can demand reimbursement

Differences:

1. Solidary debtor indebted for own share only; SURETY is indebted only for the share of the principal debtor;

2. Solidary debtor can be reimbursed with what he has paid less his own share; SURETY can be reimbursed for everything he has paid.

3. SD receives an extension of period of payment, others are still liable for the whole obligation minus the share of the debtor who has extension. If the principal debtor receives extension w/out surety’s consent, the surety is released.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co- debtors if such payment is made after the obligation has prescribed or become illegal. (n)

Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a)

Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n)

Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

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

(1147a)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

PAYMENT Payment is one of the ways by which an obligation is extinguished and consists in the delivery of the thing or the rendition of the service which is the object of the obligation

EFFECTS OF LOSS/ IMPOSSIBILITY

1. if w/out fault – no liability

2. if w/ fault – liable + damages and interest

3. fortuitous event after default – there is liability because of default.

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a)

KINDS OF DEFENSES

a. Those derived from the nature of the obligation

b. Those personal to the debtor sued.

SECTION 5. - Divisible and Indivisible Obligations

Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149)

Divisible obligation – capable of partial performance;

Indivisible – not capable of partial fulfillment.

INDIVISIBILITY vs. SOLIDARITY

SOLIDARITY

INDIVISIBILITY

1. refers to the tie between parties;

Refers to nature of obligation;

2. needs at least 2 debtors or creditors;

May exist even if there is one debtor and one creditor;

3. fault of one is fault of others

Fault of one – not fault of others

CLASSES/KINDS OF INDIVISIBILITY

1. Conventional – agreed to by parties;

2. Natural/absolute – nature of obligation

3. Legal – by law

KINDS OF DIVISION

1. Quantitative – depends of quantity

2. Qualitative – depends of quality

3. Intellectual/ moral – one that exists merely in the mind and not in physical reality

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150)

EFFECT OF NON-COMPLIANCE – the obligation is converted into a monetary one for indemnity.

Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a)

OBLIGATIONS THAT ARE DEEMED INDIVISIBLE

1. Obligations to give definite things.

2. Those which are not susceptible of partial performance.

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

4. Even if the thing is physically divisible, it may be indivisible if such was the intention of the parties concerned.

OBLIGATIONS THAT ARE DEEMED DIVISIBLE

1. When the object of the obligation is the execution of a certain number of days of work.

2. When the object of the obligation is the accomplishment of work by metrical units.

3. When the purpose of the obligation is to pay a certain amount in installments.

4. When the object of the obligation is accomplishment of work susceptible of partial performance.

SECTION 6. - Obligations with a Penal Clause

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a)

PENAL CLAUSE – a coercive means to obtain from debtor compliance. It is an accessory undertaking to assume greater liability in case of breach.

KINDS OF PENAL CLAUSE

a. legal;

b. conventional/ voluntary

c. Subsidiary – when only penalty may be asked.

d. Joint – when both the principal contract and penal clause can be enforced

*** be noted on this points (read the book)

Penal Clause constitutes an obligation although an accessory

May become demandable in default of the unperformed principal obligation

PURPOSE: to insure performance and also to substitute for damages and the payment of interest in case of non-compliance

EXCEPTIONS:

1. Expressly stipulated – to the effect that damages and interests may still be recovered despite the presence of Penal clause

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

3. When debtor is guilty of fraud or dolo in the fulfillment of the obligaton. (reason: no waiver of future action for fraud)

Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a)

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

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)

WHEN PENAL CLAUSE CANNOT BE ENFORCED:

a) The breach is the fault of creditor;

b) Fortuitous event intervened unless the debtor expressly agreed on his liability in case of fortuitous event.;

c) When debtor is not yet in default.

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

The nullity of the principal obligation carries with it that of the penal clause. (1155)

CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS

CHAPTER 4

CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS
EXTINGUISHMENT OF OBLIGATIONS
EXTINGUISHMENT OF OBLIGATIONS

EXTINGUISHMENT OF OBLIGATIONS

Art. 1231. Obligations are extinguished:

(1)

By payment or performance:

(2)

By the loss of the thing due:

(3)

By the condonation or remission of the debt;

(4)

By the confusion or merger of the rights of creditor and debtor;

(5)

By compensation;

(6)

By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)

CLASSIFICATION OF CAUSES OF EXTINGUISMENT

A.

VOLUNTARY

1.

Performance

- payment

- consignation

2.

Substitution of Performance

- compensation

- novation

- dacion en pago

3.

Agreement to Obligation

a. Subsequent to Obligation

- unilateral waiver

- natural waiver

- remission

- mutual dissent

- compromise

b. Simultaneous with Creation of Obligation

- resolutory term or extinctive period

- resolutory condition or condition subsequent

B.

INVOLUNTARY

a) by failure to bring an action (prescription)

b) resolutory/ condition subsequent (merger/confusion; in personal obligation- death; change of civil status)

c) by reason of object – impossibility of performance; loss of thing due

SECTION 1. - Payment or Performance

Art. 1232 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n)

PAYMENT – mode of extinguishing obligation consists of:

c. delivery of money;

d. performance in any other manner of an obligation;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Payment is defined as not only the delivery of money but also the performance, in any other manner, of an obligation. Payment is the satisfaction or fulfillment of a prestation that is due, resulting in the extinguishment of the obligation of the debtor. (Pineda); Payment and performance is identical.

Two kinds of payment:

1. It is normal (or voluntary) when the obligor voluntarily pays the obligation.

2. It becomes abnormal (involuntary) when the creditor institutes an action to collect payment in order that the obligor shall

comply with his obligation.

Requisites of a valid payment:

1. Capacity of the person paying;

2. Capacity of the person receiving the payment;

3. Delivery of the full amount or the full performance of the prestation;

4. Propriety of time, place and manner of payment;

5. Acceptance of the payment by the creditor.

Art. 1233: A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. (1157)

Requisites of Valid Payment:

1. the very thing/ service contemplated must be paid;

2. fulfillment must be complete.

HOW PAYMENT/ PERFORMANCE IS MADE

1. If monetary obligation, by delivery of money – in full payment unless otherwise stipulated in contract;

2. if debt is delivery of thing/s, by delivery of such thing/s

3. if debt is doing of a personal undertaking, by performance of said undertaking;if debt is not doing of something, by refraining from doing such.

Note: A debtor cannot compel the creditor to accept partial payment. But, he can accept partial payment. If he voluntarily accepts such payments then he is deemed to have waived the requirements in Art. 1233 that the performance of the obligation is not considered complete unless there is complete delivery or complete performance.

While it may be true that there is no payment if there is no complete delivery or performance of the service, there are two exceptions to the general rule. And those are Art. 1234 and 1235.

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

Note:

1. In 1234 there has been substantial performance by the obligor in good faith. So, if there has been substantial performance

IN GOOD FAITH by the obligor, then the obligor can recover as though there had been strict and complete fulfillment, less of course the damages suffered by the creditor.

2. The omission or defect must be slight and unimportant, that is, it must not be so material as to frustrate the accomplishment

of the intended work.

3. There must be no willful or intentional deviation from the contract or prestation by the debtor, and the omission or defect

must not be material, otherwise, the performance will not amount to substantial compliance.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

How shall it happen? The creditor accepts the performance despite knowledge of the incompleteness or irregularity and without protest or objection accepts the performance. In effect, he is deemed to have waived the irregularity because the law requires that he must know the incompleteness or irregularity of the performance and accept it without protest or objection.

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a) Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)

The creditor can refuse payment by a 3 rd person, EXCEPT:

a. When stipulated;

b. If said 3 rd person has an interest in the fulfillment of the obligation.

Instance when RECOVERY can be had from Creditor and not from Debtor:

1.

Prescription;

2.

Remission;

3.

Paid/performed debt;

4.

When legal compensation had already taken place

NB:

If the 3 rd person pays the obligation of the debtor with the knowledge and consent of the debtor, the payor is entitled to be reimbursed for the full amount. The same applies if the debtor knows that the third person is making the payment but he did not object thereto, or he did not repudiate the same at anytime.

If payment was made without the knowledge or without the consent of the debtor, the reimbursement shall be only up to the amount or extent by which the debtor was benefited. (With knowledge but without consent of debtor falls under this situation)

o From transcription: So, if he does not consent even if he knew about it, how much can the 3rd person demand reimbursement? Only to the extent that the debtor is benefited. What if he has the knowledge but he does not say anything? Full reimbursement, because the law does not require that knowledge and consent must come together. There can be knowledge without the consent, in effect he has the knowledge but the consent is tacit or implied. Because if he does not want that the 3rd person will pay his obligation, then definitely he would express his refusal, diba? This is just like the MU sa inyo. So, if he pays with the knowledge, then the third person can demand full reimbursement, or with the consent. Consent of course always means with the knowledge. Knowledge does not always mean there is consent because consent can be implied. But with the knowledge but without the consent, only so much as the payment redounded to the benefit of the debtor, and we call that beneficial reimbursement.

Consequently, if the debt had already prescribed or had already been compensated, the payment would no longer be beneficial. Under this situation, the payor is definitely not entitled to reimbursement from the debtor.

Another effect if payment was with the knowledge and consent is that the 3 rd is subrogated into the rights of the former creditor. He becomes the new creditor. But if it is without the consent or against the will of the debtor or without the knowledge, then he has no right to demand that he be subrogated into the right of the creditors. Such right is not granted to him by law as stated in Art. 1237.

SUBROGATION – act of putting somebody into the shoes of the Creditor, hence, enabling the former to exercise all the rights and actions that could be exercised by the creditor.

Rights w/c may be exercised by Person subrogated in the Place of Creditor:

1. arising from mortgage;

2. guaranty;

3. penalty

SUBROGATION

REIMBURSEMENT

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

1.

recourse can be had to the mortgage or guaranty or

no recourse

pledge;

 

2.

debt is extinguished in one sense but a new creditor

new creditor has different rights

appears with same rights;

 

3.

there

is

something

more

than

a

personal

action

of

Personal action

recovery.

 

Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it.

If the creditor accepts payment even if it is against the will of the debtor, the payment is still valid, only that we will apply 1236, with respect to reimbursement.

But take note that if the payment made by the third person who does not intend to be reimbursed exceeds P5,000 the requirement of the law is that the payment must be in writing.(to be considered as a valid donation) But the payment is still valid since the consent of the debtor is immaterial as the extinguishment of the obligation is concerned.

Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on "Natural Obligations." (1160a)

PAYMENT BY AN INCAPACITATED PERSON

GENERAL RULE:

If payment is made by a person incapacitated to give:

1. payment is not valid – if accepted;

2. creditor cannot be compelled to accept;

3. remedy of consignation is not proper.

EXCEPT: Art. 1247 -- The minors who entered into a contract, without the consent of the parents or the guardian, but voluntarily pays a sum of money or delivers a fungible thing for the fulfillment of the obligation, the minor cannot recover the same from the creditor who accepted it or consumed it in good faith.

Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (1162a)

TO WHOM PAYMENT MUSTBE MADE

1. To person in whose favor the obligation has been constituted (creditor);

2. successor in interest;

3. to any person authorized to receive it (eg. Guardian of insane, agent)

Q: Pedro borrowed money (900,000) from Juan, who is married to Petra. Petra died. They had a child, JR (17 years old). Juan remarried to Jane. Juan died. Pedro, when the obligation became due and demandable, paid Jane. Is the payment valid?

Answer: The payment is not valid despite the authority of Juan. It belongs to the first marriage. What about the authority? Authority terminates upon the death of the person executing that authority. It terminates upon the death, diba? So, the payment is not valid. So, kanino pala nya ibayad? To the administrator of the property. Now, if JR is of age, then the payment to JR is valid. But definitely not to the 2nd wife, because the 2nd wife is not part of the agreement. This belongs to the estate of the former marriage.

(Discussion of Culaba case)

Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases:

(1)

If after the payment, the third person acquires the creditor's rights;

(2)

If the creditor ratifies the payment to the third person;

(3)

If by the creditor's conduct, the debtor has been led to believe that the third person

had authority to receive the payment. (1163a)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

If payment was made to the incapacitated creditor who cannot administer his property, or if he has not kept the thing delivered, the debtor may be compelled by the creditor to pay anew when he regains capacity, or by the latter’s representative during the time of the incapacity of the creditor. (Pineda)

Benefit may be in the form of financial, moral or intellectual advantages which must be proved.

From Transcription:

Payment to a third person shall also be valid if it has redounded to the benefit of the creditor. So, you have the burden of proving that payment made to the third person redounded to the benefit of the creditor. But benefit need not be proved in the following instances:

1. if after the payment, the third person acquires the creditor's rights – Ex: you have an obligation to deliver a diamond

ring, and it was received by a third person, and later on you saw the third person wearing the same ring, the presumption is that he had acquired ownership over the property you had delivered;

2. the creditor ratifies the payment to the third person. So it follows that at the time of payment, the creditor had no authority to

accept payment, but when you made the payment, he ratified it. Ratification comes after, because if it is prior, ano yan? Authorization. The presumption is that the payment was without his authority, only that he ratified it.

3. You lead the debtor to believe that the third person is authorized to receive payment.

Other instances where payment to a third person releases the debtor:

1. When the creditor assigns his credit to a third person, without the consent of the debtor, and the debtor paid the original

creditor. When a creditor assigns credit to a third person, the third person becomes the new creditor, but in as much as he did not inform the debtor, and the debtor paid the old creditor, the payment is still valid. Why? Because he did not inform the debtor.

2. Another instance is, under 1242 payment is made to a third person in possession of the credit. In possession of the credit,

not the evidence of the credit.

What is the difference between a person in possession of the credit? An example of a document which is the credit itself is a check payable to the order of the bearer, or in cash. But if what is presented is the evidence of the credit, an example a promissory note payable to the order of Pedro, the person must present evidence that he is Pedro. So, that is the difference between possession of the credit and the evidence of the credit.

Cases: Culaba vs. CA; PnB vs. CA; Sering vs. CA; Meat Packing vs. Sandiganbayan; FEB vs. Diaz Realty; Seguvia Dev't case; Pabugais vs. Sahijwani; Torquator vs. Bernabe;

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164)

Requisites:

1. payment must be in good faith;

2. payee must be in possession of the credit itself.

Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165)

judicial order prompted by an order of attachment, injunction, or garnishment

GARNISHMENT- takes place when the debtor of a debtor is ordered not to pay the latter so that preference would be given to the latter’s creditor.

INTERPLEADER – action in w/c a certain person in possession of certain property wants claimants to litigate among themselves for the same.

INJUNCTION – a judicial process by virtue of w/c a person is generally ordered to refrain from doing something.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a)

EXCEPTIONS:

a) In case of FACULTATIVE OBLIGATION

b) In case there is another agreement resulting in:

- Dation in payment

- Novation

c) In case of waiver by creditor

SPECIAL FORMS OF PAYMENT

A. Dation in payment

B. Application of payments

C. Assignment in favor of Creditors (cession)

D. Tender of payment and consignation.

I. DATION IN PAYMENT /DATION EN PAGO/ ADJUDICACION EN PAGO

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

Concept: Property is alienated to the creditor in satisfaction of a debt in money. At the time of the constitution of the obligation what is due is money, but at the time of fulfillment, the debtor could no longer deliver the money. So, what he did instead is to offer that instead of the money, he will deliver another thing in lieu of the money. If the creditor accepts, then the obligation is extinguished, depending on the agreement of the parties. If it extinguishes the entire obligation then there is full extinguishment. But, if it will only be based on the value of the thing that is delivered, and it is not sufficient to cover the monetary obligation, then there is partial fulfillment.

Take note that as soon as the agreement has been perfected, it is no longer governed by the law on obligations and contracts but the law on sales.

SALE

DATION IN PAYMENT

1. no pre-existing credit;

1. There is pre-existing credit;

2. gives rise to obligations;

2. Extinguishes the obligation;

3. cause/consideration is the price or obtaining the object;

3. Extinguishment of his debt & acquisition of object offered in credit (part of creditor);

4. greater freedom in determining price;

4. Less freedom

5. giving of price may generally end the obligation of buyer.

5. May extinguish completely or partially the credit.

CONDITIONS under w/c a Dation in Payment is valid

a) If creditor consents;

b) If dation in payment will not prejudice the other creditors;

c) If debtor is not judicially declared insolvent.

Q: Suppose there was an agreement between the parties but the debtor delivered a car and the creditor accepts, what presumption arises? Is dation in payment presumed?

A: When there is delivery and you cannot presume what the agreement of the parties is, and money is exchanged for the delivery, the presumption is there is merely a pledge.

Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a)

Except: if there is WAIVER.

When the Kind and quantity cannot be determined w/out need of a new agreement, the contract is VOID.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a)

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a)

GEN. RULE:

EXCEPT:

Payment shall be complete

1. when it is stipulated otherwise;

2. when different prestations are subject to different conditions or terms;

3. when debt is part liquidated and part unliquidated;

4. when a joint debtor pays his share or the creditor demands the same;

5. when a solidary debtor pays only the part demandable;

6. in case of compensation, when one debt is bigger than the other;

7. when work is to be done by parts.

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

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

In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)

LEGAL TENDER – is that w/c a debtor may compel a creditor to accept in payment of the debt.

case of International Corporate Bank vs. Gueco

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

Applies only to cases where a contract or agreement is involved. This does not apply where obligation to pay arises from law, independent of contracts. (This applies only to contractual obligations, to indebtedness. This will not apply to quasi-delict, quasi-contract, to obligations arising from law. Purely contractual obligations; payment of monetary obligations.

Case of Filipino Bank vs. MWSA,

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

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

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

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

These provisions are without prejudice to venue under the Rules of Court. (1171a)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

WHERE PAYMENT MUST BE MADE

1. If there is a stipulation – in designated place.

2. if there is no stipulation

i. if its determinate, at the place where the thing might be at the time the obligation was constituted.

ii. If its generic/personal, at the domicile of the Debtor.

Note: the creditor shall bear the expenses, unless the debtor changes his domicile in bad faith.

Transcription: Now what about if payment is made through couriers, like the LBC? Suppose the debtor sent the money through the LBC, and the courier ran away with the money, who shall bear the loss? It depends. If it was the creditor was the one who said that it should be sent to him through the courier, then he bears the loss. What will the creditor do? Wala na syang pag- asa? The creditor would run after the courier. But if it was through the initiative of the debtor, then he should bear the loss? Merisi. Why is he merisi? What will be your defense? In the absence of any stipulation, payment shall be made in the domicile of the debtor.

II. APPLICATION OF PAYMENT

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)

APPLICATION OF PAYMENT – shows w/c debt, out of 2 or more debts owing the same creditor, is

being paid.

Note: The right to choose w/c debt to serve first is vested to the DEBTOR except:

If there was a valid prior but contrary agreement;

Debtor cannot choose to pay part of the principal ahead of the interest unless the creditor consents.

Note: When shall the debtor make the choice? At the time payment shall be made, but subject to certain conditions:

First, that he cannot apply it to a debt which will not cover the entire obligation because under the law, the creditor cannot be compelled to accept partial payment.

Second, he cannot choose to apply it first to the principal. The law says interest should be paid first before the principal.

Third, he cannot choose a debt that is not yet due and demandable.

Fourth, he cannot choose a debt or an obligation which is not of the same kind of the other debt. So those are the limitations.

REQUISITES FOR APPLICATION OF PAYMENT

1. There must be 2 or more debts (severalty of debts);

2. Debts must be of the same kind;

3. Debts are owed by the same debtor in favor of the same creditor;

4. All debts must be due unless contrary is provided – eg. Stipulated by parties.

5. Payment is not enough to extinguish all the debts.

RULE WHEN DEBTS ARE NOT YET DUE – there may be application of payments when:

a. the parties so stipulate;

b. when application of payment is made by the party for whose benefit the term has been constituted.

HOW APPLICATION IS MADE

A. Debtor designates

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

B. If not, creditor makes it – known or made at the time of the issuance of the receipt; unless there is cause for voiding

the contract ( ex. Creditor does it w/o debtor’s consent)

C. If both do not avail of it, by operation of law. (Applying Arts. 1253 and 1254)

REVOCATION

GEN. RULE:

Once application of payment is made, it cannot be revoked.

EXCEPT:

If both parties agree

Even if both parties agree, if it will prejudice 3 rd persons—cannot revoke

WHEN APPLICATION CANNOT BE AVAILED OF?

1. In case of partner-creditor

2. Surety or a solidary guarantor – one debt only not several.

From transcription: Now, suppose, the debtor has 50,000, and the debtor has to make the choice under the given situation:

1. 20,000 due on June 25, 2004 with an interest of 6% plus a penalty of 2% on the interest in case of delay;

3. 20,000 due on Dec. 25, 2004, secured by a mortgage.

4. 10,000 without interest;

5. a 4 carat pink diamond ring

6. 50,000 with interest and penalty due on Dec. 24, 2006.

To where shall the 50,000 be applied? To the most onerous of the debts already due and demandable. The most onerous of the 3 debts due is the 20,000 because of the penalty. The debt with a mortgage is less onerous because there is only that tendency to lose the mortgage, and once the mortgage is foreclosed, the obligation is extinguished. A simple debt, (without interest) is the least onerous because it can run up to how many years and the amount would be the same. Number 4 cannot be the subject of application of payment because it is not of the same kind. Likewise, 50,000 is the most onerous of the debts, however, it is not yet due and demandable. So, the application of payment will only be centered on the 3.

Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173)

Interest must be paid first except if creditor consents to payment of the principal first

WHAT INTEREST IS SUPPOSED TO BE PAID?

a. interest by way of compensation;

b. interest by way of damages by way of default.

Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)

Burdensome Debts

1. Older accounts in case of running accounts

2. Interest-bearing debts;

3. If 2 interest-bearing debts, that w/c charges the higher interest;

4. debts secured by mortgage/pledge;

5. debts w/ penal clause;

6. advances for subsistence than cash advances;

7. a debt where debtor is in mora (default)

8. exclusive debt than solidary

Note: The “more burdensome rule” does not apply if debtor has used “application of payment”.

From transcription; What are the rules to remember?

1. Creditor cannot be forced to accept partial payment.

2. Payment cannot be applied to the principal first if there is interest due. Except: if creditor agrees.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

3. The debtor cannot also pay the debt not yet due. Exception: if the period is for the benefit of the debtor, he can choose a debt not yet due.

4. When the parties have an agreement as to which debt shall be paid first, then the debtor cannot vary the agreement.

5. All obligations must be due and of the same kind, generally. Exception: unless the obligation is converted into the payment of damages. It becomes monetary in character.

III. PAYMENT BY CESSION OR ASSIGNMENT

It is the process of transfer of debtor’s property to creditors not subject to execution so that the latter may sell them and thus apply the proceeds to their credits. The purpose of the transfer or the assignment or the cession, is for the creditors to sell these properties, and to apply the proceeds in proportion to their respective credit.

An assignment of credit is an agreement by virtue of which the owner of a credit, by legal causes (such has sale, dation, etc) without the need of the debtor’s consent, transfers the credit and its accessory rights to another who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor.

Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a)

2 Kinds of Assignment

a. Legal – majority of creditors must agree

b. Voluntary – all creditors must agree

REQUISITES FOR VOLUNTARY ASSIGNMENT

1. More than 1 debt

2. More than 1 creditor

3. Complete or partial insolvency of debtor

4. Abandonment of all debtor’s property not exempt from execution to the creditors

5. Acceptance or consent on creditor’s part

EFFECTS OF VOL. ASSIGNMENT

a) Creditors do not become owners; merely assignees with authority to sell;

b) Debtor is released up to the amount of the net proceeds unless stipulated;

c) Creditors will collect credits in the order of preference agreed upon or in default, in the order established by law.

 

DACION EN PAGO

CESSION

1. does not affect all properties;

In general, affects all properties;

2. does not require plurality of creditors;

Requires more than 1 creditor;

3. only the specific creditor’s consent is needed;

All creditors’ consent; (there are various creditors)

(transfer is only in favor of one creditor to satisfy a debt)

4.

may take place during solvency; (no presumption of

Requires full/partial insolvency; (there is presumption of insolvency)

insolvency)

5. transfers ownership upon delivery;

Does not transfer ownership, only possession and administration are transferred to the creditors with the authorization to convert the property into cash with which the debts shall be paid.

6. there is an act of novation

Not an act of novation

7. May totally extinguish the obligation and release the

Only extinguishes the credits to the extent of the amount realized from the properties assigned, unless otherwise agreed upon.

 

debtor

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

SUBSECTION 3. - Tender of Payment and Consignation

IV. TENDER OF PAYMENT AND CONSIGNATION

TENDER OF PAYMENT – the act of offering the creditor what is due him together with a demand that the creditor accept the same.

CONSIGNATION – the act of depositing the thing due with court or judicial authorities whenever the creditor cannot accept or refuse to accept payment.

From transcription: tender of payment is the manifestation made by the debtor to the creditor of his desire to comply with his obligation with the offer of immediate performance. But mere tender alone does not extinguish the obligation. It must be followed by consignation, if the creditor refuses what you have tendered, without just cause.

Note: Tender and consignation is only true if there is a debt due. Because if it were in an exercise of a right, then mere tender is sufficient, as in the case of exercising the right to repurchase

(Meat Packing case).

Like the case of DBP

, that act of the respondent in buying the property was an exercise of the right to repurchase.

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2)

When he is incapacitated to receive the payment at the time it is due;

(3)

When, without just cause, he refuses to give a receipt;

(4)

When two or more persons claim the same right to collect;

(5)

When the title of the obligation has been lost. (1176a)

REQUISITES OF A VALID TENDER OF PAYMENT

a) Must be in legal tender (lawful currency) – not a check but if there is consent – valid;

b) It must include whatever interest is due;

c) It must be unconditional; but if made with conditions and no protest on creditor’s part, he cannot later on prescribe the terms for the validity of the acceptance w/c he had already made – complete payment;

d) The obligation must be due.

Requisites wherein the creditor is deemed to have unjustly refused the tender of payment

1. That there was previous tender of payment

2. That the tender of payment was of the very thing due, or in case of money obligations, that the legal tender

currency was offered;

3. That the tender of payment was unconditional; and,

4. that the creditor refused to accept payment without just cause.

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177)

REQUISITES OF CONSIGNATION

a) Existence of a valid debt;

b) Valid prior tender of payment, unless tender is excused;

c) Prior notice of consignation (before deposit);

d) Actual consignation (deposit);

e) Subsequent notice of consignation

f) Hearing;

g) Judgment

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

DEPOSIT; EFFECTS OF

a) The property is in “custodia legis”;

b) Not exempt from attachment and execution;

c) But if property be perishable by nature, the court may order the sale of the property;

d) The debtor by consigning the thing practically makes himself the agent or receiver of the court, particularly if for some reason, the property cannot actually be placed in the hands of the court.

From transcription:

REQUISITES FOR VALID CONSIGNATION

1. There must be a debt due; there must be a debt owing.

2. That the consignation was made because of some legal cause provided in the present article. (the unjust refusal of the creditor)

3. Previous notice of the consignation has been given to the persons interested in the performance of the obligation.

4. That the amount or thing due was placed at the disposal of the court (actual consigning or depositing the thing due with the clerk of court); and

5. That after the consignation had been made, the persons interested were notified thereof.

Q: what if the debtor decides to withdraw what has been consigned, would that be allowed? A: Yes. The original obligation is revived.

Q: Can he withdraw after the court finds that consignation is proper? A: Generally, no, unless or the exception is the creditor consents.

Q: what are the consequences if the creditor consents to the withdrawal after the finding of the court that consignation is proper? One of the consequences is that the creditor loses the preference of credit; He loses the security attached to that obligation.

EFFECT OF PROPER CONSIGNTATION: It retroacts to the time of consignation. Likewise, all interest shall be deemed to stop running from the time of consignation.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof.

(1178)

HOW IS CONSIGNATION MADE?

1. The things due must be deposited with the proper judicial authorities;

2. There must be proof that:

Tender was previously made;

Or that the creditor had previously notified the debtor that consignation will be made (in case tender is not required)

Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178)

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)

VALID CONSIGNATION, EFFECTS OF:

1. Debtor may ask the judge to cancel the obligation;

2. The running of interest is suspended;

3. It should be observed that before the creditor accepts or before the judge declares that consignation has been properly made, the obligation remains.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

IMPROPER CONSIGNATION; EFFECTS:

1. If improperly made, obligation remains;

2. At the time of consignation, the debt already due; requisites are absent – DEBTOR is in default.

Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a)

Effects of Withdrawal

a) Obligation remains;

b) Creditor loses any preference over the thing;

c) Co-debtors, guarantors and sureties are released (unless they consented)

LOSS OF THE THING DUE

WHEN IS A THING CONSIDERED LOST

a) When it perishes;

b) When it goes out of commerce;

c) When it disappears in such a way that:

Its existence is unknown; or

It cannot be recovered.

Note: The term loss does not refer strictly to actual or physical loss but contemplates also impossibility of performance.

WHAT IMPOSSIBILITY OF PERFORMANCE INCLUDES

a) Physical impossibility;

b) Legal impossibility;

Directly – prohibited by law;

Indirectly – e.g when debtor is required to enter a military draft.

c) Moral impossibility

Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a)

2 Kinds of Obligation “to give”

1. to give a generic thing;

2. to give a specific thing

Effect of Loss

GEN. RULE:

Obligation is extinguished

EXCEPTIONS

1. If debtor is at fault;

2. When debtor is made liable for fortuitous event because of:

Provision of law;

Contractual stipulation;

Nature of obligation requires the assumption of risk (debtor)

INSTANCES when Law requires Liability even in case of Fortuitous Event:

1. Debtor is in default;

2. When debtor has promised to deliver the same thing to 2 or more persons who do not have the same interest;

3. Obligation arises from a crime;

4. When borrower has lent the thing to another who is not a member of his own HH;

5. When thing loaned has been delivered with appraisal of value unless stipulated exempting borrower from responsibility;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

6. When payee in solutio indebiti is in bad faith.

Q: What about partial loss? Will that extinguish the obligation? It depends. Why? Generally, if the partial loss is due to a fortuitous event, the obligor has to deliver the object at its deteriorated state. But if the loss is such that led the parties to enter into the contract, then there is extinguishment of the obligation. For instance, you bought a lot at Royal Pines because of the view that it affords. And then a high rise hotel was constructed which obstructed the view. Is there total loss? No, but there is extinguishment of the obligation.

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n)

GEN. RULE:

Genus never perishes

EXCEPTIONS

1. If the generic thing is delimited;

2. If generic thing has been segregated or set aside – it becomes specific now.

e.g. MONEY

Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n)

Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165.

This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a)

Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a)

Article 1266 refers to impossibility in obligations to do when the prestation has become legally or physically impossible without the fault of the obligor. The impossibility must arise after the constitution of the obligation. Because if it were prior or at the time of the inception, the nullity of the contract. Legal/physical impossibility must be after the constitution of obligation.

Effect of Loss Thru Fortuitous Event in Reciprocal Obligation

GEN. RULE:

The obligation that was not extinguished by the fortuitous event remains.

EXCEPTIONS:

1. In case of lease – if object is destroyed, both lease and rent are extinguished;

2. In contracts for a piece of work.

Note from transcription: what are the forms of impossibility?

1. It might be physical, when by reason of its nature the act cannot be performed.

2. Second, legal: a law is subsequently passed making the act illegal.

3. Objective when the act or service itself, without considering the person of the obligor, becomes impossible. It is the act itself.

4. The last is subjective

which is the opposite of objective. The act or service cannot be done by the obligor, and the

reason why you entered into the obligation is the person who would perform the act or the service.

Q: What happens if there is temporary impossibility? A: You merely wait for the impossibility but you still have to comply with the obligation. Exception is if the obligation is to be performed at a definite time, and that time is within the period of that impossibility, so the obligation is extinguished.

Q: What happens if the debtor has complied with the obligation then here comes this temporary impossibility by reason of a circumstance or a situation. Is he entitled to the payment of his performance of what he has partially performed? A: Yes, of course, unless it is an indivisible obligation. If it turns out the impossibility has become permanent, and you have not yet paid, then you have to pay, unless there is extinguishment of the obligation (falling under 1234 and 1235),

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

Refers to moral impossibility or impracticability due to change of certain conditions;

Refers to personal obligation (or obligations to do) and not real ( to give)

Does not cover highly speculative contracts or agreements such as stocks and aleatory contracts such as insurance contracts

Based on the doctrine of unforeseen events or rebus sic stantibus

Requisites:

1. Even or change of circumstances could not have been forseen at the time of the execution of the contract;

2. Performance is extremely difficult but not impossible;

3. The impossibility was not due to acts of any of the parties;

4. The prestation refers to a future one, not an immediate fulfillment;

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. (1185)

Effect of Loss in Criminal Offenses – DOES NOT EXTINGUISH OBLIGATION, EVEN IF FORTUITOUS EVENT

INTERVENES e.g theft. So this is one of the exceptions to the rule that if a determinate thing is lost through fortuitous

events, the obligation is extinguished.

Exception is when Creditor is in Mora Accipiendi (default); otherwise stated, if the thing was offered to the person

who should receive it and the latter refused without just cause.

Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186)

CONDONATION/REMISSION OF A DEBT

It is the gratuitous abandonment by the creditor of his right against the debtor. Condonation/remission is

essentially a donation of the credit to the debtor. It is a bilateral act (not reciprocal), which requires the acceptance by the donor. It is therefore, subject to the rules on donations with respect to acceptance, amount and revocation 2 . It may be made expressly or impliedly. Express condonation shall, furthermore, comply with the forms of donation.

Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.

One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187)

ESSENTIAL REQUISITES FOR REMISSION

1. There must be an agreement;

2. Parties must be capacitated and must consent;

3. There must be subject matter (object/prestation);

4. The cause or consideration must be liberality – essentially gratuitous;

5. Obligation remitted must be demandable at the time of remission;

6. The remission must not be inofficious – not excessive;

7. Formalities of a donation are required in case of an express remission;

8. Waivers/remissions are not to be presumed generally – it must be expressed or implied;

9. The debtor must accept the remission.

CLASSES OF REMISSION

A. AS TO EFFECT/EXTENT 1. Total

2 Note: On acceptance: see Art. 745, on amount Arts 750-752, and on revocation, Arts. 760-765 of the New Civil Code (more thoroughly discussed in property)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes

Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009

2. Partial (upto the portion/ or may refer to accessory obligation)

B. AS TO DATE OF EFFECTIVITY

1. Inter vivos (during lifetime)

2. Mortis Causa (after death)

C. AS TO FORM

1. Implied (no formality) – conduct is enough

2. Express/formal

If debtor does not accept and creditor does not collec