Kinds of Obligations: Module 3

Kinds of Obligations

• Module 3 concerns the different kinds of obligations.

Types of Obligations

• Pure and Conditional Obligations
• Obligations with a Period or Term
• Alternative & Facultative Obligations
• Joint & Solidary Obligations
• Divisible & Indivisible
• Obligations with a Penal Clause

Pure Obligations

• Effectivity or termination does not depend on fulfilling conditions or the expiration of a term.
• It is demandable immediately, without needing to wait.
• Obligations are pure and demandable at once if there are no conditions attached by default.

Conditional Obligations

• Effectivity depends on the fulfillment (or non-fulfillment) of a future and uncertain event.
• Demandability depends on whether the condition is resolutory or suspensive; resolutory is demandable, suspensive is not.

Types of Conditions: Suspensive

• Gives rise to an obligation for the party in whose favor the condition is created.
• Efficacy/obligatory force is subordinate to a future and uncertain event happening.
• Parties would stand as if conditional obligations never existed if the suspensive condition does not take place.
• Non-compliance simply prevents the obligation from acquiring force, not a breach.

Constructive Fulfillment of Suspensive Condition (Art. 1186)

• The condition is considered fulfilled if the obligor prevents it voluntarily.
• The intent of the obligor must be to prevent fulfillment.
• The actual prevention of fulfillment must occur.

Types of Conditions: Resolutory

• Extinguishes rights and obligations already existing.
• Examples:
  • I'll give you my car now but should you pass the bar, the donation will not be effective.
  • If you pass the bar you must return the car to me.
  • The repurchase extinguishes the previous sale in a pacto de retro sale.

Suspensive vs. Resolutory Conditions

• Suspensive:
  • The obligation comes into effect if fulfilled.
  • No juridical relation is created if not fulfilled.
  • Rights are not yet acquired, but there is hope of expectancy that they will soon be acquired.
• Resolutory:
  • The obligation is extinguished if fulfilled.
  • The juridical relation is consolidated if not fulfilled.
  • Rights are already acquired but subject to the threat of extinction.

Types of Conditions: Potestative

• Depends on the exclusive will of one of the parties; it is considered void under Art. 1182 of the Civil Code.
• Only the condition is avoided if the potestative condition is imposed not on the birth of the obligation but on its fulfillment; the obligation itself is unaffected.
• Potestative conditions may be casual if related to chance/third party or mixed if a party is partly related to chance/third party.
• When something depends partly on the will of a contracting party and partly on chance or a third party, the obligation is mixed.
• With a mixed conditional obligation if a condition was not fulfilled but the obligor tried all in their power with obligation, condition should be deemed as satisfied.

Types of Conditions

• Possible: Capable of realization according to nature, law, policy, customs.
• Impossible: Not capable of realization, like making a dead man alive.
• Illegal: Prohibited by customs, policy, law, like executing or robbing.
• Impossible and illegal conditions are void.

Types of Conditions: Positive

• The condition involves performing an act.
• An obligation is extinguished if an event happens at a determinate time or the event will not take place.

Types of Conditions: Negative

• The condition involves not performing an act.
• An obligation becomes effective if an event will not happen at a determinate time, or it is evident that the event cannot occur.
• If no time has been fixed, the condition is deemed fulfilled based on what was probably contemplated (Art. 1185).

Obligations with a Period

• Consequences are subjected to the expiration of a period/term.
• Examples
  • Price is in a contact of sale payable on installment.
• It is demandable only when the day comes (Art. 1193, CC).

What is a PERIOD in an obligation?

• A certain length of time determines the effectivity/extinguishment.
• A day certain must necessarily come, although it may not be known when.

Requisites for a Valid PERIOD or TERM

• It must refer to the future.
• It must be certain but can be extended.
• It must be physical and legally possible; otherwise, the obligation is void.

Period vs Condition

• Period
  • Event must happen sooner or later at known date/time.
  • Always refers to the future.
  • Fixes the time or efficaciousness.
• Condition
  • An uncertain event.
  • May refer even to the past.
  • Causes an obligation to arise or cease.

Different Kinds of Period

• Definite the exact date or time is known and given.
• Indefinite something that will surely happen but the date of happening is unknown.
• Legal a period is granted under the provisions of the law.
• Conventional or Voluntary period agreed upon or stipulated by the parties.
• Judicial the period or term fixed by the courts for the performance of an obligation or for its termination.
• Ex die a period with a suspensive effect; the obligation begins only from a day certain.
• In diem a period or term with a resolutory condition effect; the obligation terminates upon arrival of the set period.

Obligations with a Period

• May be recovered with fruits and interests if anything paid or delivered before the period.

For whom is the Benefit of the Period or Term given?

• The presumption is that the period is for both debtor and creditor (Art. 1196).
  • The debtor cannot pay prematurely.
  • The creditor cannot demand prematurely.
• Exceptions:
  • Term is for the benefit of the debtor alone: The debtor is required to pay only at the end but he may pay even before.
  • Term is for the benefit of the creditor alone: The creditor can demand at any time even before the term expires.

Obligations with a Period

• If the obligation does not fix a period, but from its nature, the circumstances are inferred that a period was intended, the courts may fix the duration.
• The courts shall determine such period that have been contemplated by the parties.
• Once fixed by the courts, the period cannot be changed.

Instances when courts may fix the period (Art. 1197)

• When the duration depends upon the will of the debtor; example: "when my means permit me to do so" or "as soon as I have money".
• When the nature of the obligation does not fix a period, but the circumstances inferred that a period was intended, for example, "A lease contract".
• The creditor must ask court to set the period before demanding payment.

Note Regarding Obligations with a Period

• Courts may be asked to fix the period of obligation under Art. 1197 of the Civil Code so that the seller could have a valid cause of action.

Alternative Obligations

• More than one, performance of one is enough.
• Debtor gets to choose; effective upon communicating to creditor.
• Ceases to be alternative when the creditor is given the right to election upon choice communication.
• It is a Facultative obligation if one prestation has been agreed upon, but the debtor may render another in substitution.

Alternative vs. Facultative Obligations

• Alternative obligations refer to juridical relations with several objects/prestations due, but performing one suffices.
• Facultative obligations refer to relations where only one object/prestation is agreed upon, but the obligor may substitute it.

Who has the right to choose in either ALTERNATIVE or FACULTATIVE OBLIGATIONS?

• The right belongs to the debtor.
• By way of exception, it may belong to the creditor when such right has expressly granted to him.

Alternative vs. Facultative Obligations

• ALTERNATIVE
  • Several objects are due.
  • May be complied by object delivery or prestation performance.
  • Right to choice may pertain to the debtor, creditor or 3rd person.
  • Necessary to extinguish the obligation without any fault of debtor is the loss/impossibility of all prestation/objects.
  • May give rise to liability by culpable loss of any alternatively due objects.
• FACULTATIVE
  • Only one object is principally due.
  • May be complied with delivery of another object.
  • The right to choice only pertains to the debtor.
  • Sufficient to extinguish the object/prestation without any fault of debtor is the loss/impossibility
  • The culpable loss of the debtor to deliver in substitution gives no rise to liability.

Alternative Obligations: Notice is Key

• No specific form is required to communicate choice--orally, writing, express, implied, etc.
• Notice once made makes the obligation a simple obligation to do or deliver object selected.

Requisites for Choice

• Made properly so that the creditor/agent knows.
• Made with full knowledge that a selection is being made.
• Voluntary/freely made.
• At the right time, before or upon maturity.
• To all proper persons.
• No conditions added, unless agreed to by creditor.
• May be waived.

Alternative Obligations: When are parties bound by choice?

• Parties are bound once the choice or selection has been communicated to the other party.

Limitation on Debtor's Choice

• Prestations which are impossible, unlawful, or could not have been the object of the obligations.

Indemnity for Damages

• The creditor can have a right to indemnity for damages.
• Applies when the debtor is at fault, and items/compliance become impossible.
• Indemnity is fixed based on the last thing's value or last impossible service.
• Extra damages can be awarded beyond last thing's value/service.

Alternative vs. Facultative Obligations: Note

• The obligation ceases to be alternative from the day the choice has been communicated to the debtor when the choice has been expressly given to the creditor.

Joint & Solidary Obligations

• Joint: Each obligor is only responsible for their part of the liability.
• Solidary: Each party must comply with/demand the whole obligation.
• Joint obligations are presumed.

Joint & Solidary Obligations Defined

• Joint obligation: Each debtor answers only for a part of the whole liability, and each obligee belongs only to a part of the correlative rights.
• Solidary obligation: Each of the active/passive subjects may demand/comply with the whole obligations.

Joint & Solidary Obligations: Exceptions

• General rule: Obligations are joint.

• Exceptions:

  • Stipulation in the contract.
  • The nature of the obligation requires.
  • The law declares.

Nature and Effects of Joint Obligations

• Shares of each debtor/creditor are equal unless indicated otherwise.
• The default of one debtor will not affect the other.
• Other debtors cannot be compelled to perform all obligations.

Art 1207, Inciong Jr. vs. Courtof Appeals

• Art. 1207 states the law on joint and several obligations.
• The presumption is that the obligation is joint so that each debtor is only liable for the proportionate part of debt when there are multiple debtors.
• A solidary liability exists if specified, provided by law, or required by the obligation.
• Proceedings may be pursued against any/all of them for the entire duty because the Promissory note expressly states the signatories are jointly and severally liable.
• The choice is for the solidary creditor when deciding whom to impose the collection.
• One's dismissal does not free the others.

Obligations: Joint vs Solidary

• Yes, the rules should be applied to each obligation subject and can be joint or solidary vice versa.
• Example: A and B are joint debtors to C, D, E, and F (who are solidar creditors) for 10,000. C is entitled to collect 5,000 from A because A is only a joint debtor.

Joint (divisible) Obligation

• Concurrence of two or more creditors and/or debtors.
• Each creditor can demand payment only for their share, and each debtor is liable only for their payment share of the debt.
• A joint creditor cannot represent the others; a joint debtor cannot be compelled to answer for the actions of others.

Joint Indivisible Obligation

• Obligations are performed in parts, but debtors are bound jointly.
• Failure of one joint debtor creates default but only the guilty debtor is liable for damages.
• Characteristics:
  • Creditor must act against all joint debtors.
  • Demand must be made by all joint debtors.
  • Indemnity of damages happens if the obligation does not comply.
  • Others are not liable if joint debtors are insolvent.
  • Delivery must me made to all if there are joint creditors, unless one is authorized specifically.
  • Each joint creditor is allowed to renounce their proportionate credit.

Solidary Obligation

• The obligation is solidary in the following cases:
  • When stated.
  • Law requires.
  • The nature requires.

Different Kinds of Solidarity

• Active( among the creditors).
• Passive (among debtors).
• Mixed (among creditors and debtors at the same time).

Solidary Obligations: Notes

• Payment by one debtor extinguishes obligations.
• Creditor picks offer to accept when 2+ solidary debtors offer to pay
• Debtor paying gets share from co-debtors plus interest already paid; no interest for intervening period if paid early.
• If one solidary debtor cannot reimburse due to insolvency, remaining co-debtors bear the share proportionally (Art. 1217).

Solidary Obligations: Problem

• A, B, C, & D are solidary debtors of E for P12,000 and A paid E the whole amount.
• It is clear that A is entitled to reimbursement because A is now the creditor for reimbursement.
• Are B, C, and D now considered solidary debtors to A?
• No; with reference to the reimbursement, B, C, and D are not solidary debtors of A, but merely joint debtors.

Divisible and Indivisible Obligations

• Divisible obligations pertain to those with execution of days of work, metric units, can be partially performed, per Art. 1225, CC.
• Indivisible obligations pertain to those with definite things that cannot be partially performed, per Art. 1225, CC.
• Is determined from law or the parties' perspective.

Divisible and Indivisible Obligations (Art. 1225)

• Divisible obligations- capable of partial performance.
  • Example: To deliver 200 kilos of sugar.
• Indivisible obligations- not capable of partial performance.
  • Example: To deliver a specific car.

Indivisible Obligations

• Obligations to give definite things.
• Those not susceptible to partial performance.
• Could be by the law.
• The intent of the parties concerned determines this.

Divisible Obligations

• Execution of a certain number of days of work. Example: laborer is hired to work for 10 days.
• Accomplishment of metrical units . Example: laborer is hired to construct a street 3 meters wide and 50 meters long.
• Paying installments. Example: a debtor must make 10 annual installments.
• A partial performance.

Obligations with a Penal Clause

• The penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary.
• Nevertheless, damages shall be paid if: The obligor refuses to pay the penalty; or The obligor is guilty of fraud in the fulfillment of the obligation (Art. 1226, CC).
• The penalty is generally undertaken to ensure performance and works as either, or both, punishment and reparation and is an exception to recovery rules.
• It must be specifically set forth.
• The amount of liquidated damages may be reduced if iniquitous/unconscionable.

Obligations with a Penal Clause (Arts. 1226, 1228-1230)

• Definition: It is a coercive measure for compliance and an accessory undertaking for greater liability in breach.
• Functions in insuring obligation performance.

Principal Purposes of the Penal Clause

• Inducement for fulfilling obligation,
• Punishment for non-compliance,
• Deterrence,
• Retribution,
• To fix in advance damage amount.

Obligations with a Penal Clause

• Debtors cannot get out of obligation by paying penalty, unless right is expressly reserved.
• Creditors cannot demand both fulfillment and penalty at the same time unless the right has been granted; penalty may be enforced if performance is impossible.

Obligations with a Penal Clause

• Exceptions to the Rule that the Penalty Trumps Damages/Interest:
  • Damages can still be recovered despite the penalty if expressly stipulated.
  • When the debtor refuses to pay the penalty.
  • When the debtor is guilty of fraud/dolo.

Obligations with a Penal Clause: Actual Damages Required?

• No. You don't need the actual damages in order for the penalty to be demandable.

Penalties: Reduction

• Penalties can be reduced for:
  • Partial compliance.
  • Irregular compliance.
  • Iniquitous/unconscionable penalties.

Obligations with a Penal Clause: Florentino vs. Supervalue Inc. (G.R. No. 172384)

• Courts cannot ignore agreed-upon terms unless contrary to law, morals, customs, order, or policy.
• Courts may reduce penalties if obligation has been partly/irregularly followed, or penalty is unconscionable per Article 1229.
• Courts may equitably reduce penalties when the principal obligation has been partly/irregularly complied within accordance with Civil Code Art. 1229.
• In the case of Ligutan v. Court of Appeals, a penalty can be unreasonable or iniquitous if depending on the gravity.
• In the instant case, the forfeiture of the whole P192,000 was excessive and unconscionable so should be reduced to 50% of the total security deposits.
• Tempering the penalty is within court's sound discretion, and sum of P192,000.00 is clearly a usurious and iniquitous penalty.
• Therefore, the respondent returns 50% of P192,000.00 to the petitioner.