Law on Obligations and Contracts

• The law on obligations and contracts is the body of rules which deals with the nature and sources of obligations and the rights and duties arising from agreements and particular contracts.

Obligations

• An obligation is a juridical necessity to give, to do, or not to do.
• Essential requisites of an obligation are:
  • A passive subject (debtor or obligor)
  • An active subject (creditor or obligee)
  • Object or prestation (the conduct required to be observed by the debtor)
  • A juridical tie (the efficient cause or the reason why the obligation exists)
• Obligations arise from:
  • Law
  • Contracts
  • Quasi-contracts
  • Acts or omissions punished by law
  • Quasi-delicts

Law

• Obligations derived from law are not presumed. Only those expressly determined in the Civil Code or in special laws are demandable.

Contracts

• Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
• A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

Quasi-Contracts

• Obligations arising from quasi-contracts are those that arise from lawful, voluntary, and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another.
• Two principal kinds of quasi-contracts are:
  • Negotiorum gestio (unauthorized management)
  • Solutio indebiti (undue payment)
• Negotiorum gestio is the voluntary management of the property or affairs of another without the knowledge or consent of the latter.
• Solutio indebiti arises when something is received when there is no right to demand it, and it was unduly delivered through mistake.

Delicts

• Obligations arising from acts or omissions punished by law are governed by the penal laws.
• Every person criminally liable for a felony is also civilly liable.
• Civil liability arising from crimes includes:
  • Restitution
  • Reparation of the damage caused
  • Indemnification for consequential damages

Quasi-Delicts

• Obligations arising from quasi-delicts are those that arise from damage caused to another through an act or omission, there being fault or negligence, but without any pre-existing contractual relation between the parties.
• Requisites of quasi-delict:
  • Act or omission
  • Fault or negligence
  • Damage caused to another
  • Causal connection between act/omission and the damage
  • No pre-existing contractual relation between the parties

Nature and Effects of Obligations

• Specific or determinate thing is particularly designated or physically segregated from all others of the same class.
• Generic or indeterminate thing refers only to a class or genus to which it pertains and cannot be pointed out with particularity.
• Duties of debtor in obligation to give a determinate thing:
  • To take care of the thing with the diligence of a good father of a family
  • To deliver the thing
  • To deliver the fruits of the thing
  • To deliver its accessions and accessories
  • To pay damages in case of non-performance or breach
• Duties of debtor in obligation to give a generic thing:
  • To deliver a thing which is of the quality intended
  • To be liable for damages in case of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor thereof
• Kinds of fruits:
  • Natural fruits are the spontaneous products of the soil, and the young and other products of animals.
  • Industrial fruits are those produced by lands of any kind through cultivation or labor.
  • Civil fruits are those derived by virtue of a juridical relation.
• Personal right is the power of a person to demand from another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do.
• Real right is the power over a specific thing and is binding on the whole world.
• Accessions are the fruits of a thing or additions to or improvements upon a thing.
• Accessories are things joined to or included with the principal thing for its embellishment, better use, or completion.
• A person obliged to do something fails to do it, the same shall be executed at his cost.
• Obligation to do cannot be physically compelled, only damages may be asked.
• If a person does something in contravention of the tenor of the obligation, it may be decreed that what has been poorly done be undone.
• Delay (mora) is the non-fulfillment of an obligation with respect to time.
• Kinds of delay:
  • Mora solvendi – delay on the part of the debtor to fulfill his obligation
  • Mora accipiendi – delay on the part of the creditor to accept the performance of the obligation
  • Compensatio morae – delay of the obligors in reciprocal obligations
• Requisites of mora solvendi:
  • The obligation must be demandable and already liquidated
  • The debtor delays performance
  • The creditor requires performance judicially or extrajudicially
• There is no delay in the following cases:
  • When the obligation is not demandable
  • When the obligation is a natural obligation
  • When a period is not fixed
• Effects of delay:
  • Debtor is guilty of breach of obligation
  • Debtor is liable for damages
  • Debtor is liable even for a fortuitous event when the obligation is to deliver a determinate thing
• Requisites of mora accipiendi:
  • An offer of performance by the debtor
  • The offer must be to comply with the prestation as it should be performed
  • The creditor refuses to accept the performance without just cause
• Effects of mora accipiendi:
  • The responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence
  • The debtor is exempted from the risk of loss of the thing, which automatically passes to the creditor
  • All expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor
  • The creditor becomes liable for damages
  • The debtor may relieve himself of the obligation by consignation of the thing
• 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.
• Responsibility arising from fraud is demandable, and any waiver of an action for future fraud is void.
• Responsibility arising from negligence is also demandable, but such liability may be reduced by the courts.
• Kinds of negligence:
  • Culpa contractual – negligence in the performance of a contract
  • Culpa aquiliana – negligence as a source of obligation between parties not otherwise bound by a contract
  • Culpa criminal – negligence resulting in the commission of a crime
• Fortuitous event is an event which could not be foreseen, or which, though foreseen, was inevitable.
• No person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable, 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.
• Requisites of fortuitous event:
  • The event must be independent of the human will or at least of the debtor's will
  • The event could not be foreseen, or if foreseen, is inevitable
  • The event must be of such a character as to render it impossible for the debtor to comply with his obligation in a normal manner
  • The debtor must be free from any participation in, or aggravation of the injury to the creditor
• Simple loan or mutuum is a contract whereby one of the parties delivers to another, money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid.
• Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.
• 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.
• Remedies available to creditors to protect their credit:
  • Exact fulfillment with the right to damages
  • Exhaust the properties in possession of the debtor
  • Accion subrogatoria
  • Accion pauliana
• Accion subrogatoria is the right of the creditor to exercise all of the rights and bring all of the actions which could properly pertain to the debtor.
• Requisites of accion subrogatoria:
  • The creditor has a cause of action against the debtor
  • The debtor is negligent or has refused to proceed against a third person
  • The act or omission of the debtor prejudices the creditor
• Accion pauliana is the right of the creditor to impugn the acts which the debtor may have done to defraud him.
• Requisites of accion pauliana:
  • The plaintiff has a credit prior to the alienation, although demandable later
  • The debtor has made a subsequent contract conveying a patrimonial benefit to a third person
  • The creditor has no other legal remedy to satisfy his claim
  • The act being impugned is fraudulent
  • The third person who received the property is an accomplice in the fraud

Different Kinds of Obligations

• Pure obligation is one which is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable.
• Conditional obligation is one whose consequences are subject in one way or another to the fulfillment of a condition
• A condition is a future and uncertain event upon the happening of which the effectivity or extinguishment of an obligation subject to it depends.
• Characteristics of a condition:
  • Future and uncertain
  • Possible
  • Lawful
• Kinds of conditions:
  • Suspensive - the happening of the condition gives rise to the obligation
  • Resolutory - the happening of the condition extinguishes the obligation
  • Potestative - depends upon the will of one of the contracting parties
  • Casual - depends upon chance or the will of a third person
  • Mixed - depends partly upon the will of one of the parties and partly upon chance or the will of a third person
  • Possible - capable of fulfillment, legally and physically
  • Impossible - not capable of fulfillment, legally or physically
  • Divisible - susceptible of partial performance
  • Indivisible - not susceptible of partial performance
  • Positive - the performance of an act
  • Negative - the omission of an act
• 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:
  • If the thing is lost without the fault of the debtor, the obligation shall be extinguished
  • If the thing is lost through the fault of the debtor, the debtor shall be obliged to pay damages
  • When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor
  • 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
  • If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor
  • If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary
• The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
• The effect of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation.
• In obligations to do or not to do, the courts shall determine the retroactive effect of the condition that has been complied with.
• 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.
• If it should be impossible to return the thing because it was lost, the obligation is covered by the rules provided in the first paragraph of the preceding article.
• An obligation with a period is one whose consequences are subjected in one way or another to the expiration of said period or term.
• A period is a future and certain event upon the arrival of which the obligation subject to it either arises or is terminated.
• Kinds of period:
  • Suspensive (ex die) - the obligation begins only from a day certain
  • Resolutory (in diem) - the obligation is valid up to a day certain and terminates upon arrival of the period
  • Legal - when it is provided for by law
  • Conventional or voluntary - when it is agreed to by the parties
  • Judicial - when it is fixed by the court
  • Definite - when it is fixed or it is known when it will take place
  • Indefinite - when it is not fixed or it is not known when it will take place
• 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.
• The debtor shall lose every right to make use of the period:
  • 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 guaranties or securities which he has promised
  • When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory
  • When the debtor violates any undertaking, in consideration of which the creditor agreed to the period
  • When the debtor attempts to abscond
• An alternative obligation is one wherein various prestations are due but the performance of one of them is sufficiently determined by the choice of the debtor.
• 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.
• The choice shall produce no effect except from the time it has been communicated.
• The obligation shall cease to be alternative from the day when the selection has been communicated.
• If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may bring an action to rescind the contract with damages.
• The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable.
• If all the things which are alternatively the object of the obligation have been lost through the debtor's fault, the creditor shall have a right to indemnity for damages, which shall be based on the value of the last thing which disappeared, or that of the service which last became impossible.
• When the right of election 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:
  • 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
  • If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages
  • 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.
• A joint obligation is one where there are two or more debtors or two or more creditors.
• A solidary obligation is one where each one of the debtors is bound to perform the entire obligation and where each one of the creditors has the right to demand from any of the debtors the entire fulfillment of the obligation.
• The words "jointly," "equally," or "pro rata" indicate a joint obligation.
• Solidarity is not presumed.
• Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to them.
• 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 1215.
• 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.
• Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.
• He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due no interest for the intervening period may be demanded.
• When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.
• 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.
• A divisible obligation is one the object of which, in its delivery or performance, is capable of partial fulfillment.
• An indivisible obligation is one the object of which, in its delivery or performance, is not capable of partial fulfillment.
• A penal clause is an accessory undertaking attached to an obligation in order to create an effective guaranty that the principal obligation will be performed.
• The penalty may be fixed either for failure to perform the obligation or for delay in performance.
• 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.
• The creditor cannot demand fulfillment of both the principal obligation and the penalty at the same time, unless this right has been clearly granted him.
• Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.
• 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.