Oblicon David Reviewer

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Book IV: Obligations and Contracts Title I OBLIGATIONS Chapter 1: General Provisions Article 1156 An obligation is a juridical necessity to give, to do or not to do Requisites: 1. 2. 3. Juridical tie which is the efficient cause established by the various sources of obligations (Enumerated in Art. 1157) The object required (to give, to do or not to do) Subject-persons who are the active and the passive subjects. Persons Both Natural and Juridical Persons. Elements of object/ prestation: 1. Must be possible, physically and judicially; 2. Must be determinate; 3. Have a possible equivalent in money. Juridical necessity = Legal Bind No other sources of obligations other than those enumerated in this title. Contracts 2 or more parties having a meeting of minds, in good faith; the will of the parties is the force that creates the obligation.

Article 1157 Obligations arise from: 1. 2. 3. 4. 5. Law; Contracts; Quasi-contracts; Acts and omissions punished by law; and Quasi-delicts.

Civil obligations give a right of action to compel their performance. Natural obligations not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. (Art. 1423 - 1430) Among the sources of obligations, the law is the most important. It is imposed by the State and is generally imbued with some public considerations. Existing law enters into and forms part of a valid contract without need for the parties expressly making reference thereto,

Article 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.

A contract is understood to incorporate therein the provision/s of law specifying the obligations of the parties under the contract.

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

Contract a meeting of minds between two persons whereby on binds himself, with respect to the other, to give something or to render some service. -- Contracts may likewise involve more than two persons, whereby a right is acquired by at least one of them to an act or acts, or to forbearance, on the part of other or others. A contract may likewise involve mutual and reciprocal obligations and duties between and among the parties.

Contracts, having the force of law between parties, stresses the obligatory nature of a binding and valid agreement. In effect, non- fulfillment may involve sanctions. As long as they are not contrary to law, morals, good customs, public policy or public order, such contract is the law between the parties. From the moment the contract is perfected, the parties are bound not only to fulfill 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 the law. Negotiorum Gestio -(officious manager) 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. 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.

Article 1160 Obligations derived from quasi-contracts shall be the subject to the provisions of Chapter 1, title XVII of this Book.

Arises from certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of the other.

Article 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

Civil liability attaches to any individual who is found to be criminally liable. A person who commits a crime may be penalized by incarceration or payment of a fine or both.

Reason: Crime causes not only moral evil but also material damage. (J. Mariano A. Albert) In contrast with penalty, civil liability may apply to those exempt from criminal liability.

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2, Preliminary Title on Human Relations, and of Title XVII of this Book, regulating damages. Article 1162 Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book and by special laws. Whoever by act or omission causes dame to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter. Basis: Principle of Equity Requisites of Liability: 1. There exists a wrongful act or omission imputable to the defendant by reason of his fault or negligence; 2. There exists a damage or injury (proved by person claiming); 3. The must be a direct casual connection or a relation between the fault/ negligence to the damage/ injury.

Chapter 2: Nature and effect of Obligations Article 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 require another standard of care. A generic thing/ indeterminate thing one that is indicated by its kinds, without being designated and distinguished from the others of the same kind. Something which is not particularized or specified but has reference to a class or genus. Determinate thing 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. Article 1164 The creditor has a right to the fruits of the thing from the time the obligation to deliver arises. However; he shall acquire no real right over it until the same has been delivered to him. 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. Real right direct and immediate juridical power over a thing (rights of ownership & possession) 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

Refers to an obligation to give Either determinate object/ thing or generic thing diligence of a good father, since a father will always do everything to take care of his concerns.

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determinate things. Personal rights power to demand of another (passive subject) Article 1165 When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be compiled with at the expenses of the debtor. If the obligor delays, or has promised to deliver the same thing or two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. In non-delivery of a generic thing, the creditor may have it accomplished or delivered in any reasonable and legal way charging all expenses in connection with such fulfillment to the debtor. Non-delivery of a determinate thing, creditor may compel the debtor to make the delivery 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. Accessories item/s that come with something Accessions something that is an addition to the thing. 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.

Article 1166 The obligation to give a determinate thing includes that of delivering all its accessories, even though they may not have been mentioned. Article 1167 If the person obliged to do something fails to do it, the same shall be executed at his cost.

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

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

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This same rule shall be observed if he does it in contravention of the tenor of the obligations. Furthermore, it may be decreed that what has been poorly done be undone. Article 1168 When the obligation consists in not doing and the obligor does what has been forbidden, it shall also be undone at his expense. Article 1169 Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra judicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation delay by the other begins.

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

or failure of the debtor to do so.

Reason for rule: prevent the debtor from taking his obligation lightly.

Demand is generally necessary. Except 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;

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.) When time or period is the controlling motive or the principal inducement for the creation of the obligation; d.) When demand would useless;

C. Compesatio Morae default on the part of both parties in reciprocal obligations Commencement of a suit is a sufficient demand.

e.) When the obligor admits he is in delay. Only two cases where an extra-judicial demand should first be made prior to the filing of a civil suit: i.) Ejectment cases ii.) Consignment cases Requisites in order that the debtor may be in default: * in delay = in default 1. 2. 3. That the obligation be demandable and already liquidated; That the debtor delays performance; and That the creditor requires the performance Obligor is liable for damages for the delay not from the time the object of the prestation is to be delivered but from the time of extra-judicial or judicial demand. (This article is applicable only when the obligation is to do something other than the payment of money)

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judicially and extra-judicially. (Default generally begins from the moment the creditor demands the performance of the obligation.) Article 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 the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effect of such (malice/ dishonesty); 2. Negligence; 3. Default; and 4. Violation of terms of obligations. Significantly, if any of the above co-exist with a fortuitous event or aggravates the loss caused by a fortuitous event, the obligor cannot be excused from being liable on his obligation. Article 1171 Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Article 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. Article 1173 The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature The dolo or fraud involved in Art. 1171 is a valid agreement but, in the performance of the same, fraud is committed. Damages: MENTAL (Moral, Exemplary, Nominal, Temperate, Actual, Liquidated) Indemnity for damages consists of: a. That agreed upon; b. In absence of agreement, legal rate of interest.

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. Negligence is the want of care required by the circumstances. -- It is the omission of that diligence which is required by

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 Bad faith is a state of mind affirmatively operating with furtive design or with some motive of ill will. It is synonymous with fraud and involves a design to mislead or deceive another, and/ or a sinister motive.

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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. Article 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.

the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. General rule: Negligence must always be proven. W/o stipulation of degree of care required: Always be deemed to be diligence of a good father General rule: No one should be held to account for fortuitous cases. a.) The cause of the breach of the obligation must be independent of the will of the debtor; b.) The event must be either unforeseeable or unavoidable; c.) The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and d.) The debtor must be free from any participation in, or aggravation of the injury.

(Articles 1171 and 2

nd

paragraph of 2201 shall apply)

Negligence absence of due care required by the obligation.

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 Yobido v. CA: Defendants 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 routinely check-ups of the vehicle's parts. Usurious transactions contracting for or receiving something in excess of the amount allowed by law for the loan. Monetary interest interest given for compensation or use of money Compensatory interest interest given by way of damages

Article 1175 Usurious transactions shall be governed by special laws.

A special law may either prohibit usurious interest, allow it, or merely put a ceiling as to what can be the highest interest that can be legally imposed.

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Article 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. Article 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.

If an obligation consists in the payment of principal and interest, the payment of the principal without reservation is the fact that will give rise to the presumption that the interest on the principal has already been paid. (Interest is normally paid first) Burden of proof to the contrary lies to the creditor. Example, mode of payment by installments.

The creditor after exhausting all means to satisfy his claim, is given the opportunity to bring all actions which the obligor can institute against his own debtors to protect and satisfy his claims against the said obligor. Successive measures taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: (1) Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana)

Rights of Creditors: 1. Exact payment; 2. Exhaust debtors 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.

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

The person who transmits the right cannot transfer greater rights than he himself has by virtue of the obligation. The person to whom the rights are transmitted can have no greater interest that that possessed by the transmitter at the time of transmission of the rights. The rights of the transferee do not rise higher than the transferor. No transmission can be made of a particular right if the personal qualifications or circumstances of the transferor is a material ingredient attendant in the obligation.

General Rule: All rights acquired in virtue of an obligation are transmissible. 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 Section 1 Pure and Conditional Obligations Article 1179 Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. Pure obligation An unqualified obligation which is demandable immediately. It is an obligation whose performance whose performance does not depend upon a future or uncertain event, or past event unknown to the parties. Conditional obligation performance depends upon a future or uncertain event or upon a past event unknown to the parties. Classifications of Conditions: Suspensive upon happening of the future or condition, gives rise to the performance of the obligation. Resolutory upon happening of event/condition Condition an act or an event, other that a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises or which discharges a duty of performance that has already arisen. When an Obligation is demandable at once: a. When it is pure; b. When it has resolutory condition. (Because the once the condition is established and acknowledged, the right immediately exists and therefore the obligation concomitant to the right can be demanded at once.

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extinguishes the obligation. Article 1180 When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to one with a period, subject to the provisions of Article 1197 (Courts determination) Article 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. Should the creditor file an action it should be prior to the courts affixing of its demandability.

Time when payment is to be made depends upon the debtor The moment of payment is dependent upon the will of he debtor but not the payment.

This provision provides that a condition, whether suspensive or resolutory, can do to the existence or extinguishment of a right.

Suspensive (Condition precedent/ antecedent) An act or an event, other that a lapse of time, which must exist or occur before a duty to perform a promised performance, arises. Resolutory (Condition subsequent) An event, the existence of which, by agreement of the parties, operates to discharge a duty of performance that has arisen.

Article 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 a chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.

Is a potestative resolutory condition Void? No, because a resolutory condition is always potestative. Is a potestative suspensive condition Void? It is always void, no exception. Is the obligation Void? It depends. If the potestative condition refers to the birth of the obligation, then it is always Void. If the potestative condition refers to the performance of the obligation, obligation is valid because in this case, the obligation becomes simple. What then should the creditor do in case of a potestative suspensive condition which refers to the performance of the contract? He must go to court

Potestive conditions depends on the exclusive will of one of the parties

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to have the period fixed (Patente v. Omega) Article 1183 Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof 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. 1. If condition is to do an impossible or illegal thing CONDITION & OBLIGATION ARE VOID. Ex: Ill sell you my land if you can make a dead man live again 2. If condition is negative (not to do) DISREGARD CONDITION BUT OBLIGATION REMAINS. Ex: Ill sell you my land if you cannot make a circle that is at the same time a square 3. If condition is negative (not to do an illegal thing) BOTH CONDITION & OBLIGATION ARE VALID. Ex: Ill sell you my land if you do not kill X. Article 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. Article 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 This article deals with the existence of an obligation as soon as the condition happens at a particular time and it is extinguished should the condition not happen. Impossible Conditions physically not possible Ex: to make a dead man live Illegal Conditions Prohibited by good customs, public policy, and law Ex: killing a person

This article deals with the effectivity of an obligation in case the condition does not happen at a particular time. 2nd

paragraph talk of a condition which has no time fixed

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obligation. Article 1186 The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Also known as, Constructive fulfillment, it is considered to constitute a breach of contract therefore are unwarranted and unlawful. There is constructive fulfillment only if the act of the debtor had in fact prevented compliance with the condition. Requisites: 1. Voluntarily made either malicious or not, the intent to prevent must be present 2. Actual Prevention Intention and prevention must come together otherwise, this article will not apply Article 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. Applies only to obligations subject to a suspensive condition. In conditional obligation, to give, once fulfilled, shall retroact to the day of the constitution of obligation. In reciprocal obligations the fruits and interests during the pendency of condition shall be deemed to have been mutually compensated In unilateral obligations 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. General Rule: effects of a fulfilled conditional obligation shall retroact to the day the obligation was constituted. Exceptions: 1. No retroactivity for fruits and interests 2. Period of prescription (the period shall only be counted from the day the condition was fulfilled) Example on suspensive condition: A must give B a car when the latter shall pass the bar. On the day of the exams, A caused B to be poisoned and hospitalized. A (debtor) is still liable. Example on resolutory condition: A gave a car to B revocable when the latter shall fail the bar. On the day of the exams, A caused B to be poisoned and hospitalized. A(debtor) cannot revoke the donation

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Article 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.

Appropriate actions for the creditor to preserve his rights: 1. Action for prohibition restraining the alienation of the thing pending the happening of the condition 2. Petition for the annotation of the creditors right, if real property is involved; 3. Action to demand security in case the debtor becomes insolvent; 4. Action to set aside alienations made by the debtor in fraud of the creditors 2nd Par: a case of solutio indebiti (undue payment) if creditor is in bad faith, debtor is entitled to fruits and interests.

General Rule: Recovery is allowed of payment was made mistakenly Exception: 1. When the payment was made knowingly and the condition is already fulfilled, there is no recovery 2. When the payment was made knowingly but the condition is not yet fulfilled, there can be recovery because the creditor cannot be unjustly enriched

Article 1189 When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; It is understood that the thing is lost when it perishes or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

This article applies only if: i. ii. the suspensive condition is fulfilled; and the object is specific and not generic

Loss -

When the improvement is partly because of nature and debtor, the creditor shall enjoy the fruits by nature and the debtor will have rights of a usufrustuary over those benefits caused at his expense

-

When it perishes When it goes out of commerce of man (when the thing becomes illegal) When it disappears in such a way that its existence is unknown (missing in action) When it disappears in such a way that it cannot be recovered (when a ring got lost in the middle of the ocean)

Partial Loss - if substantial, would amount to complete loss - if not substantial, would only be considered as deterioration Remedies of the Creditor: 1. Rescission plus damages 2. Specific Performance plus damages Usufruct the right to the enjoyment of the use and the

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(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. Article 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. Article 1191 The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, Characteristics of the Right to Rescind: 1. 2. It exists only in reciprocal obligations It can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other is not. (he who comes to equity must come with clean hands) Trivial causes or slight breaches will not cause rescission Once a resolutory condition is fulfilled, the obligation is extinguished. There must be a restitution of what has been obtained. Effects when the resolutory condition is fulfilled: 1. The obligation is extinguished 2. Mutual Restitution of actual benefits 3. Mutual restitution of fruits and interests 4. Court shall determine the retroactivity of the fulfilment of the resolutory conditions 5. Article 1189 shall govern losses, deteriorations and improvements if any

fruits of a thing

In obligations to do and not to do, the court shall determine the effect of the extinguishment of the obligation.

Reciprocal obligations those which arise from the same cause and in which each party is both debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. Rescission power to cancel a contract or reciprocal obligations predicated not on injury to economic interests but on breach of faith. Rescission Nullifies (as opposed to annul) the obligation and entails mutual

3.

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even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

4. 5. 6. 7. 8.

If there be just cause for fixing the period within which the debtor can comply, the court will not decree a rescission If the property is now in the hands of an innocent third party who has lawful possession of the same, rescission will not prosper The right to rescind needs judicial approval when there is already delivery of the object. Otherwise, there is no need for judicial approval The right to rescind is implied to exist and therefore need not expressly stipulated on. The right to rescind may be waived, expressly or impliedly

restitution of benefits. For rescission to prosper, the breach should be Substantial Padilla v. Paredes: 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 obligors 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. Note: 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. Remedies of the Creditor: 1. Rescission plus damages OR 2. Specific Performances plus damages 3. Rescission plus damages when Specific Performance fails or becomes impossible *Damages must be sought in the same action for specific performance, otherwise, it is deemed waived.

Breaches in Lease Contracts: 1. 2. If the creditor selects specific performance, he can collect the accrued rent (arrears) plus the future rent of the unexpired term If the creditor selects rescission, he gets only the arrears and the ejectment of the debtor plus damages but not the future rents of the unexpired term.

Article 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.

Also known as: Pari delicto

Offset equitably where both parties are in default, their respective liability for damages shall be offset equitably.

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Section 2 Obligations with a Period Article 1193 Obligations for whose fulfilment 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 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. Period A certain length of time, which determines the effectivity or the extinguishments of obligations. It consists in a space of time which has an influence on obligations as a result of a judicial act, and either suspends their demandableness, or produces their extinguishment. Period v. 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. Kinds of Period: A. 1. Definite the exact time or date is known and given 2. Indefinite something that will surely happen, but the date of happening is not known B. 1. LEGAL period granted under the provisions of the law 2. CONVENTIONAL/VOLUNTARY period agreed upon or stipulated by the parties A day certain understood to be that which must necessarily come, although it may not be known when. Requisites of a Valid Period or Term: 1. 2. 3. It must refer to the future It must be certain (sure to come) but can be extended It must be physically and legally possible, otherwise the obligation is void

When does Prescription begin? - The period of prescription begins from the time the term in the obligation arrives, for it is only from that date that it is due and demandable. When can extensions of period be appreciated? - Evidences of extension of period, if any be given, must be shown by the debtor

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3. JUDICIAL the period or term fixed by the courts for the performance of an obligation or for its termination C. 1. EX DIE a period with a suspensive effect (Ex: I will support you starting January 1) 2. IN DIEM a period with a resolutory effect (Ex: I will support you until Janurary 1) Article 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. Applicable in case there is loss, deterioration or improvement of the thing which is the object of the prestation during the pendency if the condition suspending the efficacy of an obligation to give. 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. Example: A was supposed to pay B P1million on Dec. 31, 2005. But believing that the obligation was due and demandable on Dec. 31, 2004, A paid B the P1million on said date. How much may A recover from b, say on Jun. 30, 2005? A may recover from B on jun. 30, 2005 the amount of P1million which has been prematurely paid plus interest (legal rate of 6%= P30,000 the interest for only half a year). So A may recover a total of P1million from B. Of course, when Dec. 31, 2005 finally arrives, a is supposed to give B the P1million. Here A is allowed to recover what has been prematurely paid, plus interest of

Article 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.

This article applies only to obligation TO GIVE. It is similar to Article 1188, par. 2, which allows the recovery of what has been paid by mistake before the fulfillment of a suspensive condition. The creditor cannot unjustly enrich himself by retaining the thing or money received before the arrival date of the period. (De Leon) This article has no application to obligations To do or Not to do because as to the former, it is physically impossible to recover the service rendered, and as to the latter, as the obligor performs by not doing, he

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cannot, of course recover what he has not done. (Manresa) Debtor has the burden of proving that he was unaware of the period. The debtor may not recover the thing or money once the period has arrived but he can recover the fruits or the interests thereof from the date of premature performance to the date of maturity of the obligation. (De Leon) (RECOVERY MUST BE MADE BEFORE THE DEBT MATURES)

course. Q: Suppose in the preceding problem, A had paid prematurely knowing fully well of the existence of the term, how much can A recover? A: A can recover nothing. The reason is the law does not give him such right. To be able to recover, A: 1. Must have been unaware of the period; or 2. Must have believed that the obligation has become due and demandable.

Article 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.

General Rule: term is for the benefit of either the debtor or the creditor. (The debtor cannot pay prematurely and the creditor cannot demand prematurely) Exception: (if there be such intent, express stipulation of the parties) Term is for the benefit of the debtor alone he cannot be compelled to pay prematurely, but he can, if he desires to do so. Term is for the benefit of the creditor alone he may demand fulfillment even before the arrival of the term but the debtor cannot require him to accept payment before the expiration of the stipulated period. 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;

Article 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.

General Rule: The courts cannot fix a period. Exception: when the courts may fix a period. 1. If it depends upon the will of the debtor. Example: when my means permit me to do so; Ill pay you little by little 2. Although the obligation does not fix a period, it can be inferred that a period was intended.

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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. Article 1198 The debtor shall lose every right to make use of the period: 1. 2. 3. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; When he does not furnish to the creditor the guaranty or securities which he has promised; When by his own acts he has impaired said guaranty or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; When the debtor attempts to abscond.

Example: A contract to construct a house where the period was not stated.

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

When obligation can be demanded before the lapse of the period General Rule: Obligation is not demandable before the lapse of the period. However, in any cases mentioned in Article 1198, the debtor shall lose every right to make use of the period, that is, the period is disregarded and the obligation becomes pure and, therefore demandable at once. The exceptions are based on the fact that the debtor might not be able to comply with his obligation. (INIVA) 1. When debtor becomes insolvent. 2. When debtor does not furnish guaranties or securities promised. 3. When guaranties or securities given have been impaired or have disappeared. 4. When debtor violates an undertaking. 5. When debtor attempts to abscond.

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.

4. 5.

Section 3 Alternative Obligations Article 1199 A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one Alternative(Facultative) Obligation one where out of the two or more prestations which may be given, only one is due. Example: A will give B this car or this ring or this pen. A is not obliged to give all three things. The giving of one object shall satisfy the obligation.

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and part of the other undertaking.

*A cannot compel B to accept half the car and half the pen (thus, establishing a co-ownership) Who has the right of Choice? General Rule: Right belongs to the Debtor Exception: It may belong to the creditor when such right has expressly been granted to him. Limitation on the debtors choice - the debtor shall have no right to choose those prestations which are: 1. Impossible 2. Unlawful 3. Which could not have been the object of the obligation

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

Means of notification or communication to other party of choice: 1. Orally or in writing; 2. Expressly or impliedly Effect of notice that choice has been made: Once notice has been made that a choice has been done, the obligation becomes a simple obligation to do or deliver the object selected.

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. Example: Objects A, B, & C. A&B are destroyed; C can only be delivered- if C is destroyed (fortuitous event) obligation is extinguished.

Article 1202 The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. Article 1203 If through the creditors acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages.

Example: For P200k D promised to teach C math for the year 2005 or to buy him a state-of-the-art computer notebook. If in 2005, C goes to Germany, D obviously cannot teach him and since D is deprived of the right to choose because of Cs own act, D may either:

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Buy the state-of-the-art laptop; Or rescind the contract with the right to recover whatever damages he has suffered. *Contract not automatically rescinded. Article 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. Article 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 Effect if Creditor delays in making the choice: He cannot hold the debtor in default for the debtor does not know what to deliver; If debtor wants to relieve himself from the obligation, he may petition the court to compel Creditor to accept in the alternative, at the petitioners option with damages. Alternative Rights of Creditor When Loss or Impossibility Occurs Before the Debtors Choice This article applies when: 1. The right to choose belonged to the debtor; 2. And the loss or impossibility happened before selection was made.

1. 2.

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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. Article 1206 When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. Facultative Obligation it is one where only one prestation has been agreed upon but the obligor may render another in substitution. Example: D promised to give C his diamond ring but it was stipulated that D could give his BMW as a substitute

ALTERNATIVE 1. Various things are due, but giving of one is enough 2. If one prestation is illegal, others may be valid and the obligation remains 3. If it is impossible to give all except one, the one left must still be given 4. The right to choose may be given either to debtor/creditor

FACULTATIVE 1. Only one thing is principally due but may be substituted 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 the principal, the substitute does not have to be given; if vice versa, the principal must be given 4. The right to choose is given only to the debtor

Section 4 Joint and Solidary Obligations Article 1207 Joint obligation one in which each of the debtors is liable only for a proportionate part of the debt, and each A solidary obligation exists only when the obligation expressly so states, or when the law or the nature of the

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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.

creditor is entitled only to a proportionate part of the credit. Solidary obligation each debtor is liable for the entire obligation, and each creditor is entitled to demand the while obligation.

obligation requires solidarity. (Sesbreno v. CA) When solidary exists: a. Stipulation of parties b. Nature of the obligation (Art 19- 22 Civil code) c. Law (Art. 94 and 121 of the Family Code) Some instances where the law imposes solidary liability: 1. Obligations arising from tort. 2. Obligations arising from quasi-contracts. 3. Legal provisions regarding the obligations of devisees and legatees. 4. Liability of principals, accomplices, and accessories of a felony. 5. Bailees in commadatum.

Article 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.

Unless there is no specification as to their proportionate share in the credit or in the debt, the creditors and debtors in a joint obligation shall be entitled or shall make payment in equal proportions.

Some consequences of Joint Liability 1. 2. 3. 4. 5. Vitiated consent on the part of 1 debtor does not affect the others. Insolvency of 1 debtor does not make others responsible for his share. Demand by the creditor on 1 joint debtor puts him in default, but not the others since the debts are distinct. When the creditor interrupts the running of the prescription period by demanding judicially from one, the others are not affected. Defenses of 1 debtor are not necessarily available to the others.

Article 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

Joint indivisible obligations when there are several debtors or creditors, but the prestation is indivisible, the obligation is joint unless otherwise stipulated. Plurality of creditors: The obligation can be performed

Note: 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

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debtors. If one of the latter should be insolvent, the others shall not be liable for his share.

only by delivering the object to all the creditors jointly (failure to do so may be liable for damages unless allowed by the other creditors) Plurality of debtors: They (debtors) can perform the obligation only by acting together. All must be sued. If any debtor is not willing to perform, the creditor can sue him for damages on their respective shares. Indivisibility

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

Solidarity Refers to the juridical or legal tie that binds parties Solidary obligations all of the debtors are liable for the breach of the obligation committed by a debtor. There must be at least 2 debtors and 2 creditors Solidary obligations the other debtors are proportionately liable Different kinds of Solidarity First Classification: According to the parties bound 1. Active Solidarity on the part of the creditors or obligees (where any one of them can demand the fulfillment of the entire obligation) 2. Passive Solidarity on the part of debtors or obligors (where any one of them can be made liable for the fulfillment of the entire obligation) 3. Mixed Solidarity on the part of the creditors and debtors (where each one of the debtors is liable to render, and each one of the creditors has a right to demand, entire compliance with the obligation) Second Classification: According to source 1. Conventional Solidarity When agreed upon by the parties. If nothing is mentioned in the contract relating to solidarity, the obligation is only joint.

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

1. Refers to the prestation 2. Indivisible obligations - Only the debtor is guilty of breach of obligation and is liable for damages 3. Can exist although there is only 1 debtor and 1 creditor 4. Indivisible obligations the others are not liable in case of insolvency of 1 debtor Kinds of solidary obligation according to legal tie: 1. Uniform when the parties are bound by the same stipulations; or 2. Non-uniform or varied when the parties are not subject to the same stipulations

Article 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.

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2. Article 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. Beneficial Act: interrupt running of prescription by making judicial demand. Prejudicial Act: Remission or condonation which would result in extinguishment of obligation, the creditor responsible shall be responsible to others for damages. Reason for Article: Mutual agency (mutual trust) implies mutual confidence. Each creditor represents the others and the assignee may not have the confidence of the original solidary creditors considering that the assignee, after receiving payment may not give the shares of the others.

Legal Solidarity that imposed by the law.

Note: If their own co-creditor prejudiced them by means or remission to the debtor/s, it will not invalidate the extinguishment of the obligation. Their remedy is to collect their share of the debt from the latter. They may also ask for damages.

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

Note: If the assignment is made to a co-creditor, the consent of the other creditors is not necessary (De Leon).

Article 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.

To whom the debtor must pay: (1) Any of the solidary creditors (2) Exception payment must be to the solidary creditor who made a judicial or extrajudicial demand.

Reason: To avoid confusion and prejudice to the more diligent creditor. Otherwise, the obligation will not be extinguished except insofar as the creditor-payees share is concerned in case the latter does not give to the other creditors their shares in the payments (De Leon). Basis: The mutual representation of the creditors with respect to each other. If payment was given to the creditor not included who made the demand, the payment shall not be considered as valid. If partial payment was given as an effect to the demand, any of the creditors may then receive the remaining balance. (Sta. Maria)

Article 1215

Novation the change of creditors, debtors, or the principal condition of the contract.

Dation in payment the delivery of a specific object as a substitute for the performance of the obligation.

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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.

Modification of an obligation by: 1. Changing its object or principal conditions 2. Substituting the person of the debtor 3. Subrogating a third person in the rights of the creditor Compensation when two persons, in their own right, are creditors and debtors of each other. Confusion when the characters of creditor and debtor are merged in the same person (as when my check in the course of negotiation is eventually endorsed to me). Remission that act of liberality whereby a creditor condones the obligation of the debtor, to forget about the whole thing.

Novation, compensation, confusion and remission are modes of extinguishing an obligation.

Article 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.

Passive Solidarity and Suretyship: (Similarities) 1. Both the solidary debtor and the surety guarantee for another person. 2. Both can demand reimbursement

(Differences) 1. Solidary debtor is liable not only for his co-debtors obligation but also of his own; hence he is both a principal debtor and a surety; Surety is indebted only for the share of the principal debtor 2. A solidary debtors responsibility for his co-debtor is primary, not subsidiary. 3. An extension of time given by the creditor to a debtor would not release a solidary co-debtor but would release a solidary guarantor or surety.

Article 1217 Payment made by one of the solidary debtors

Payment by one of the solidary debtors and his subsequent release from liability results in release from liability of the other debtors to the creditor.

In case of partial payment: He can recover reimbursment from the co-debtors only in so far as his payment exceeded his share of the obligation.

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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 codebtors 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 codebtors, in proportion to the debt of each. Article 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. Article 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.

Effect when the co-debtor pays the obligation gives birth to a right to be reimbursed based on the payment made by him in proportion to the co-debtors liability.

Note: In cases of Reimbursement, the resulting obligation of the co-debtors to reimburse him becomes joint.

Two kinds of Prescription (1106): a. Acquisition of a right b. Loss of a right

Note: If one of the debtors actually pays such an obligation, he does not thereby revive the obligation as to the co-debtors.

Applies where a co-debtor has already paid the obligation in full when the remission of the part affecting another co-debtor is made.

Reason: to prevent fraud and to give justice to the paying debtor. Since payment extinguishes the obligation, there is nothing more to remit. *Note: Principle followed in cases of insolvency still applies. So in the event of insolvency, the debtor whose share has been remitted still has to bear part of the burden of his co-debtors insolvency. Note: If the creditor or one of the creditors declares a remission of one of the debtors obligation, such remission extinguishes the whole obligation and benefits all the debtors.

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

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Article 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. Article 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.

Effect of Loss or Impossibility 1. If without fault of the solidary debtors obligation extinguished. 2. If there was fault on the part of any one of then, all shall be responsible to the creditor for the price and damages and interest (but those without fault may bring an action to recover from those at fault). 3. If lost through a fortuitous event after default by one of the debtors, all will still be liable (but action may be brought against the guilty debtor by the others).

Defenses of Solidary debtor: 1. Defenses derived from the nature of the obligation. (Extinguishment, defects, nonarrival of period, etc. 2. Defenses personal to the debtor defendant. (minority, insanity, violence, etc.) 3. Defenses personal to the other solidary debtors.

Section 5 Divisible and Indivisible Obligations Solidarity Article 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 Divisible Obligation capable of partial performance Indivisible Obligation not capable of partial performance (ex. to delivers a specific car) 1. Refers to the tie between parties; 2. Needs at least 2 debtors or creditors; Indivisibility Refers to nature of obligation; May exist even if there is one debtor and one creditor;

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provisions of Chapter 2 of this Title.

Kinds of Indivisibility: 1. Conventional by common agreement 2. Natural/Absolute by nature of the object or undertaking 3. Legal if so provided for by the law Kinds of Division: 1. Quantitative depends on quantity (ex. 10 chairs equally divided) 2. Qualitative depends on quantity, irrespective of quantity (ex. if one child inherits land, and another inherits cash) 3. Intellectual/moral one that exists mentally rather than physically (ex. my brother and I own in common a car)

3. Fault of one is fault of others

Fault of one not fault of others

Article 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.

(Indivisible Joint Obligation) Applies when one of the debtor/s fail or refuses to fulfill the obligation. If it gives rise to damages and fees, only such debtor is liable. The others will not be liable for his share; the debtors who are ready to perform their part do not become liable for more than the portions respectively corresponding to them in the price of the subject matter of the obligation. Test of divisibility: Whether or not it is susceptible of partial performance. Indivisible Obligations: 1. To give definite things 2. Not susceptible of partial performance 3. If so provided by law 4. Such was the intention of the parties

In case of non-performance by any of the debtors, the obligation is converted into a liability for losses and damages, which is divisible. As effect of non-compliance the obligation is converted into a monetary one for indemnity.

Article 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

In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation. They are generally indivisible (De Leon). In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter shall be enforced. General Rule: a contract to do several things at

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work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case.

concerned Divisible Obligations: 1. Execution of a certain number of days of work 2. Accomplishment of work by metrical units 3. Purpose of obligation is to pay a certain amount in installments 4. Susceptible of partial performance Even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. Section 6 Obligations with a Penal Clause

several times is divisible, and a judgment for a single breach of a continuing contract is not a bar to a suit for the subsequent breach. A claim for damages for a breach is an indivisible demand, and where a former final judgment was rendered, it is a bar to any damages which the plaintiff may thereafter sustain.

Article 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.

Penal Clause accessory undertaking to assume greater liability in case of breach. It is attached to an obligation to insure its performance. It is a coercive means to obtain compliance. It may be governed by the stipulation of the parties. Kinds of Penal Clause: First classification: 1. Legal imposed by law 2. Conventional agreed upon by the parties Second Classification: 1. Subsidiary only the penalty may be asked 2. Joint both the principal contract and the penal clause can be enforced. The penalty may be claimed only when there is demand, whether judicial or extra-judicial, unless the law, the stipulation of the parties or the nature of the contract (time is of the essence) otherwise demands.

Penal Clause An obligation, though accessory Demandable in default of the unperformed obligation

Condition Not an obligation Never demandable

A stipulation in the contract providing for the compounding of interest in case of nonperformance partakes of the nature of a penalty clause. If iniquitous or unconscionable, the interest may be reduced.

Instances when Additional Damages may be recovered (exception to the GR that penalty takes the place of indemnity for damages): 1. 2. Express stipulation to the effect that damages or interest may still be recovered, despite the presence of the penalty clause When the debtor refuses to pay the penalty

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3.

imposed in the obligation When the debtor is guilty of fraud or dolo in the fulfillment of the obligation. (Reason: no waiver of future action for fraud)

Article 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.

The payment of the penalty is merely an accessory obligation. It is not the principal obligation. General Rule: Upon breach of the obligation, the creditor has to choose whether to demand the principal or the penalty. Exception: The principal obligation and the penalty can be demanded when the penal clause is joint or cumulative. This occurs when the creditor has been clearly granted such right, either expressly or impliedly.

Note: The implied right must be one ascertainable from the nature of the obligation. Example: In the construction industry where the contractor must pay the penalty if the work is completed after the stipulated time frame but mist also finish the agreed construction.

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

The person is mandated to pay the amount or perform the penalty specified in the agreement of the parties for as long as there is irregular or no compliance with the principal obligation regardless of whether or not the person seeking it suffers the damages.

Basis: Contracts are enforced as they are read, and parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and the courts will enforce them according to their terms. Instances when a penalty clause cannot be enforced: 1. 2. 3. Breach is the fault of the creditor A fortuitous event intervened (unless debtor expressly agreed on his liability in case of these events) Debtor is not yet in default

Article 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. Article 1230

Even if the penalty is iniquitous or unconscionable, it is not void but subject merely to equitable reduction. A fortuitous event militates against the enforcement of a penalty clause against the lessor and against the lessee. Construed against the one enforcing it

General Rule: The nullity of the principal obligation also nullifies the penal clause, which is only an accessory to

Exception:

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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.

the principal obligation. (The penal clause may be void because it is contrary to law, morals, good customs, public order, public policy)

1. 2.

When the penalty is under taken by a third person precisely for an obligation, which is unenforceable, voidable, or natural. (Guaranty) The nullity of the principal obligation itself gives rise to liability of the debtor for damages.

Chapter 4: Extinguishment of Obligations General Provisions Article 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. Classification of Cause of Extinguishment A. Voluntary 1. Performance i. Payment ii. Consignation 2. Substitution of Performance i. Compensation ii. Novation iii. Dacion en pago 3. Agreement to Obligation a. Subsequent to Obligation i. Unilateral waiver ii. Natural waiver iii. Remission iv. Mutual dissent v. Compromise b. Simultaneous with Creation of Obligation i. Resolutory term or extinctive period ii. Resolutory condition or condition subsequent Question: Does death of a party extinguish an obligation? Answer: No, unless the obligation is personal in nature or in transmissible. B. Involuntary 1. By failure to bring an action (prescription) 2. Resolutory/ condition subsequent (merger/confusion; in personal obligation- death; change of civil status) 3. By reason of object impossibility of performance; loss of thing due

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Section 1 Payment or Performance Article 1232 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment 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) Requisites of 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. Article 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. Requisites of Valid Payment: 1. The very thing/ service contemplated must be paid; 2. Fulfillment must be complete. How Payment or 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 4. If debt is not doing of something by refraining from doing such. Article 1234 Note: 1. In 1234 there has been substantial performance 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. Kinds of Payment: A. B. Normal when the debtor voluntarily performs the prestation stipulated. Abnormal when he is force by means of judicial proceeding, either to comply with the prestation or to pay indemnity.

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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.

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. The substantial compliance contemplated in Article 1235 connotes the waiver of the obligee of damages arising from the breach of contract, which resulted in the incompleteness, or irregularity of the obligation. Obligee is in estoppel barred from further action or claims The creditor can refuse payment by a 3rd person, Except: 1. When stipulated; 2. If said 3rd person has an interest in the fulfillment of the obligation. (Ex. Guarantor, surety or codebtor) Reason: The creditor cannot be compelled to accept performance by a third person who isnt bound under the obligation, because whenever a third person pays there is a modification of the prestation that is due (Tolentino) Applies when: 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. The law limits his recovery to the amount by which the debtor has been benefited, if the debtor has no know ledge of, or has expressed his opposition to such payment. 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

Article 1235 When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

Article 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.

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Article 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.

In cases where subrogation takes place by virtue of the payment of the credit, the payor actually steps into the shoes of the creditor and becomes entitled, not only to recover what he has paid, but also to exercise all the rights which the creditor could have exercised. There is a change in the active subject and no extinguishment of obligation.

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 Note: 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. Except: Art. 1427: 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. (Applies persons 17 years of age and below) Payment made to a third person even if though error and in good faith: - Obligation is not extinguished - Loss resulting from such shall be borne by the deceived debtor, unless there is a stipulation for the wrongful payment.

Article 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. Article 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." Article 1240 Payment shall be made to the person in whos

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