Law on Obligations & Contracts PDF

TOURISM AND HOSPITALITY AS A TRADE (LAW ON OBLIGATIONS AND CONTRACTS) Atty. Ian Ben C. Payoyo I.B. Payoyo Law Office ART. 1156. AN OBLIGATION IS A JURIDICAL NECESSITY TO GIVE, TO DO OR NOT TO DO. OBLIGATIONS AS DEFINED BY ARIAS RAMOS IS A JURIDICAL RELATION WHEREBY A PERSON (CALLED...

TOURISM AND HOSPITALITY AS A TRADE (LAW ON OBLIGATIONS AND CONTRACTS) Atty. Ian Ben C. Payoyo I.B. Payoyo Law Office ART. 1156. AN OBLIGATION IS A JURIDICAL NECESSITY TO GIVE, TO DO OR NOT TO DO. OBLIGATIONS AS DEFINED BY ARIAS RAMOS IS A JURIDICAL RELATION WHEREBY A PERSON (CALLED THE CREDITOR) MAY DEMAND FROM ANOTHER (CALLED THE DEBTOR) THE OBSERVANCE OF A DETERMINATE CONDUCT, AND, IN CASE OF BREACH, MAY OBTAIN SATISFACTION FROM THE ASSETS OF THE LATTER. (APPROVED BY MR. JUSTICE J. B. L. REYES) JURIDICAL NECESSITY MEANS A LEGAL REQUIREMENT. IT ALSO MEANS THE RIGHTS AND DUTIES ARISING FROM OBLIGATION ARE LEGALLY DEMANDABLE AND THE COURTS OF JUSTICE MAY BE CALLED UPON THROUGH PROPER ACTION TO ORDER THE PERFORMANCE. CIVIL OBLIGATIONS – THE CREDITOR OR OBLIGEE HAS A RIGHT UNDER THE LAW TO ENFORCE THEIR PERFORMANCE IN COURTS OF JUSTICE WHAT IS AN ACTION? Action means an ordinary suit in court of justice by which one party prosecutes another for the enforceable or protection for a right or a prevention or redress of a wrong. Example – Richter bought a Nintendo Switch from Trevor but Richter did not pay the said gaming console. If after demand, Richter still did not pay, Trevor can sue Richter in Court either to demand payment or for recovery of the Nintendo Switch. 4 ESSENTIAL REQUISITES OF AN OBLIGATION a) An active subject, who has the power to demand the prestation, known as the creditor or oblige; b) A passive subject, who is bound to perform the prestation, known as debtor or obligor. c) An object or the prestation which may consist in the act of giving, doing or not doing something. d) The vinculum juris or the juridical tie between the two subjects by reason of which the debtor is bound in favor of the creditor to perform the prestation. It is the legal tie which constitutes the source of obligation—the coercive force which makes the obligation demandable. It is the legal tie which constitutes the devise of obligation… the coercive force which makes the obligation demandable.  - the source of obligation  DISTINCTIONS BETWEEN OBLIGATIONS AND CONTRACTS:  Contract is the only one of the sources of obligation, while obligations have other sources like law, quasi-contracts, delicts or quasi-delicts;  Contract is a bilateral obligation while obligation is a unilateral obligation;  All contracts are obligations while not all obligations are contracts. 6 ART. 1157. Obligations arise from: Law; Contracts; Quasi-contracts; Acts or omissions punished by law; and Quasi-delicts. ART. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. ART. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. ART. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. ART. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVIII of this Book, and by special law. QUASI-CONTRACTS AS A SOURCE OF OBLIGATIONS The ‘quasi’ literally means ‘as if’.  QUASI-CONTRACT IS THE JURIDICAL RELATION RESULTING FROM A LAWFUL, VOLUNTARY AND UNILATERAL ACT WHICH HAS FOR ITS PURPOSE THE PAYMENT OF INDEMNITY TO THE END THAT NO ONE SHALL UNJUSTLY ENRICH OR BENEFITED AT THE EXPENSE OF ANOTHER. (ART. 2142, NCC) Contracts and quasi-contracts distinguished:  in a contract, consent is essential requirement for its validity while in quasi-contract, there is no consent as the same is implied by law;  contract is a civil obligation while quasi-contract is a natural obligation. 2 KINDS OF QUASI-CONTRACTS 1. Solutio Indebiti (payment by mistake) It is the juridical relation which arises when something is received when there is no right to demand it and it was unduly delivered through mistake. Example: Aiah ordered one (1) dozen of donuts from Mikha’s bakeshop for the sum of P1, 000.00. Aiah paid P1, 000.00. However, by mistake Aiah received two (2) dozen of donuts from Mikha. Ian has the obligation to return one (1) dozen of donuts excess because there was delivery by mistake. 2. Negotiorum gestio (management of another’s property) It is the voluntary management or administration by a person of the abandoned business or property of another without any authority or power from the latter. (Art. 2144, NCC) Example: Alucard, a wealthy landowner suddenly left for abroad leaving his livestock farm unattended. Belmont, a neighbor of Alucard managed the farm thereby incurring expenses. When Alucard returns, he has the obligation to reimburse Belmont for the expenses incurred by him and to pay him for his services. It is bases on the principle that no one shall enrich himself at the expense of another. 9  DELICTS or acts or omissions punished by law as a source of obligations Acts or omissions punished by law is known as Delict or Felony or Crime. While an act or omission is felonious because it is punished by law, the criminal act gives rise to civil liability as it caused damage to another. Civil liability arising from delicts: Restitution – which is the restoration of or returning the object of the crime to the injured party. Reparation – which is the payment by the offender of the value of the object of the crime, when such object cannot be returned to the injured party. Indemnification – the consequential damages which includes the payment of other damages that may have been caused to the injures party. 10 QUASI-DELICTS AS A SOURCE OF OBLIGATIONS  Concept of Quasi-Delict – Quasi-delict is an act or omission by a person which causes damage to another, there being fault of negligence, is obliged to pay for the damage done and there is no pre- existing contractual relation between the parties. (Art. 2176) Example- If Lewis drives his car negligently and because of his negligence hits Max, who is walking on the sidewalk of the street, inflicting upon him physical injuries. Then Lewis becomes liable for damages based on quasi-delict. 11 REQUISITES OF A QUASI-DELICTS There must be an act or omission There must be fault of negligence attributable to the offended; There must be damage or injury caused to another; There is a direct relation of cause and effect between the act or omission and the damage; There is no pre-existing contractual relation between the parties 12  NEGLIGENCE DEFINED – IS THE FAILURE TO OBSERVE FOR THE PROTECTION OF THE INTERESTS OF ANOTHER PERSON, THAT DEGREE OF CARE, PRECAUTION AND VIGILANCE WHICH THE CIRCUMSTANCES JUSTLY DEMAND, WHEREBY SUCH OTHER PERSON SUFFERS INJURY. TEST OF NEGLIGENCE – FOR THE EXISTENCE OF NEGLIGENCE, THE FOLLOWING ARE NECESSARY:  a duty on a party of the defendant to protect the plaintiff from the injury of which the latter complains;  a failure to perform that duty; and  an injury to the plaintiff through such failure. NATURE AND EFFECT OF OBLIGATIONS DEFINITION OF TERMS: Determinate thing – a thing is determinate when it is particularly designated or physically segregated from all others from the same class. (Art. 1460, NCC) Indeterminate or generic thing – A thing is generic when it refers to a class of thing or genus and cannot be designated with particularity. (Art. 1460, NCC) Fortuitous Events – those events which could not be foreseen or which though foreseen were inevitable. (Art. 1174, NCC)  ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care.  ART. 1664. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.  ART. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery.  ART. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned.  If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.  If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. 16 OBLIGATIONS OF THE DEBTOR TO GIVE A DETERMINATE THING 1. To preserve or take care of the thing with the proper diligence of a good father of a family. It means the ordinary diligence that a prudent man would exercise in taking care of his own property taking into consideration the nature of the obligation, of the time and of the place, like a person who is obliged to deliver a determinate horse to another should, pending its delivery, preserve it by taking care of the same as if the horse is his own. 17 OBLIGATIONS OF THE DEBTOR TO GIVE A DETERMINATE THING 2. To deliver the object or thing when the obligation to deliver arises, including fruits of the thing if any. Kinds of fruits: Natural; industrial or civil. Natural - spontaneous product of the soil; the young and other products of animal. E.g. tress, plants on lands without the intervention of man. Industrial - produced by lands of any kind through cultivation and labor. E.g. sugar cane, vegetables, rice. Civil - derived by virtue of juridical relations. E.g. rents of a building; prices of leases of lands and other similar income. 18 WHEN TO DELIVER FRUITS: From the time of the perfection of the contract (meeting of the minds of the parties) If the obligation is subject to a suspensive condition or period, delivery of the fruits arises upon fulfilment of the condition or arrival of the term, unless there is a contrary stipulation. In contract of sale, delivery of fruits arises from the perfection of the contract where the price has been paid (with or without suspensive condition or period). Obligations arising from law, quasi-contract, delict or quasi-delict, the time of performance is determined by law. 19  Example A binds himself to sell his horse to B for P10,000. No date nor condition is stipulated for delivery of the horse. Later, the horse gave birth to a colt. A has right to the colt, if B has not paid the horse. Before delivery, B does not acquire ownership over it. 20 OBLIGATIONS OF THE DEBTOR TO GIVE A DETERMINATE THING 3. To deliver: Accessions and accessories.  Accession – is the right pertaining to the owner of a thing over its products and whatever is attached thereto either naturally or artificially.  Accretion which refers to the gradual and addition of sediment to the shore by action of water.  Accessories – are those things which are joined or attached to the principal object as ornament or to render it perfect. 21 REMEDIES OF CREDITOR When the obligation is to deliver determinate (specific) thing Demand Demand Demand Demand specific Demand rescission or Demand payment of performance or cancellation with right damages only fulfillment with right to to recover damages recover damages. (Rescission requires the parties to return what they have received) These remedies are alternative, not cumulative. The election of one is a waiver of the other. 22 OBLIGATION TO GIVE AN INDETERMINATE THING To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances Obligation be complied with at the expense of the debtor. To be liable for damages in case of fraud, negligence, delay, in the performance of his obligation, or in contravention of the tenor thereof. No obligation to preserve the thing, to deliver fruits, accessions and accessories. 23 RESPONSIBILITY OF DEBTOR WHO DELAYS OR HAS PROMISED DELIVERY TO TWO CREDITORS Fortuitous event does not exempt debtor from responsibility (Determinate thing) Genus never perishes; debtor has the obligation even if the thing is lost because of a fortuitous event. (Indeterminate thing) 24 OBLIGATION OF THE DEBTOR TO DO Being a personal positive obligation, The creditor has the right to secure the services of third person to perform the obligation at the expense of the debtor under the following instances: When the debtor fails to do the obligation; When the debtor performs the obligation but contrary to the tenor; or When the obligor poorly performs the obligation.   ART. 1168. WHEN THE OBLIGATION CONSISTS IN NOT DOING, AND THE OB LIGOR DOES WHAT HAS BEEN FORBIDDEN HIM, IT SHALL ALSO BE UNDONE AT HIS EXPE NSE, (1099A)  OBLIGATION OF THE DEBTOR NOT TO DO – THIS IS NEGATIVE PERSONAL OBLIGATION WHICH IS CONSISTING OF AN OBLIGATION OF NOT DOING SOMETHING. IF THE DEBTOR DOES WHAT HAS BEEN FORBIDDEN HIM TO DO, THE OBLIGEE CAN ASK THE DEBTOR TO HAVE IT UNDONE. IF IT IS IMPOSSIBLE TO UNDO WHAT WAS DONE, THE REMEDY OF THE INJURED PARTY IS FOR AN ACTION OF DAMAGES. EXAMPLE- A BOUGHT A LAND FROM B. IT WAS STIPULATED THAT A WOULD NOT CONS TRUCT A FENCE IN A CERTAIN PORTION OF HIS LAND ADJOINING THAT LAND SOLD BY B. SHOULD A CONS TRUCT A FENCE IN VIOLATION OF THE AGREEMENT, B. CAN BRING AN ACTION TO HAVE THE FENCE REMOV E AT THE EXPENSE OF A. 26  ART. 1170. THOSE WHO IN THE PERFORMANCE OF THEIR OBLIGATIONS ARE GUILTY OF FRAUD, NEGLIGENCE, OR DELAY, AND THOSE WHO IN ANY MANNER CONTRAVENE THE TENOR THEREOF, ARE LIABLE FOR DAMAGES. 27 SOURCES OF LIABILITY FOR DAMAGES: 1. Fraud (dolo) – is the intentional or deliberate evasion of the normal fulfillment of an obligation. The fraud referred to is incidental fraud (not causal fraud), that is, fraud incident to the performance of a pre-existing obligation. 2. Negligence (culpa) – consists in the omission by the obligor of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time and of the place. (Art. 1173, NCC) 28 DISTINGUISH FRAUD (DOLO) FROM NEGLIGENCE (CULPA) 1. Dolo – there is deliberate intent to cause damage or injury. Culpa – there is no deliberate intent to cause damage. 2. Dolo – waiver of liability of future fraud is void (Art 1171). Culpa – waiver may in some cases be allowed. 3. Dolo – fraud must be clearly proved. Culpa – presumed from breach of contractual obligation. 4. Dolo – liability cannot mitigated by the courts. Culpa – may be reduced according to circumstances. 29 KINDS OF NEGLIGENCE 1. Culpa contractual – negligence in contracts resulting in their breach. Negligence in the fulfilment of a pre-existing contractual obligation Example: P is a passenger in a taxi. There is a contract of carriage between P and the owner of the taxi company. In consideration of the fare to be paid, the owner of the taxi company through the driver, agrees to safely bring P to his destination. 30 KINDS OF NEGLIGENCE 2. Culpa Aquiliana (Tort / Quasi-Delict) Quasi-delict is an act or omission by a person which causes damage to another, there being fault of negligence, is obliged to pay for the damage done and there is no pre-existing contractual relation between the parties. (Art. 2176) Example: If Pedro drives his car negligently and because of his negligence hits Jose, who is walking on the sidewalk of the street, inflicting upon him physical injuries. Then Pedro becomes liable for damages based on quasi-delict. 31 KINDS OF NEGLIGENCE 3. Culpa criminal – negligence punished by law (criminal negligence) – Revised Penal Code (imprisonment) Example: (cannot recover more than once) A Taxi passenger who became a victim of a vehicular accident may sue the taxi operator under their contract of carriage (culpa contractual). Sue the driver of the vehicle which collided with the taxi, since they don’t have pre-existing contractual obligation (Culpa aquiliana) The negligent drivers may also be criminally prosecuted for criminal negligence (culpa criminal) 32 FAULT OR NEGLIGENCE omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, time and place failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury. 33 KINDS OF DILIGENCE 1. That agreed upon by the parties, orally or in writing 2. As required by law: ordinary diligence – that diligence expected of a good father of a family; reasonable care which an ordinary prudent person would observe when confronted with a similar situation; applied when the contract and law is silent extraordinary diligence – highest degree of care because of the nature of the obligation (protect life, interest, potential harm); e.g. common carriers, banks, pharmacies 34  ART. 1174. EXCEPT IN CASES EXPRESSLY SPECIFIED BY THE LAW, OR WHEN IT IS OTHERWISE DECLARED BY STIPULATION, OR WHEN THE NATURE OF THE OBLIGATION REQUIRES THE ASSUMPTION OF RISK, NO PERSON SHALL BE RESPONSIBLE FOR THOSE EVENTS WHICH COULD NOT BE FORESEEN, OR WHICH, THOUGH FORESEEN, WERE INEVITABLE. 35  FORTUITOUS EVENT – IS AN EVENT WHICH CANNOT BE FORESEEN, OR WHICH, THOUGH FORESEEN, IS INEVITABLE. 1. ACT OF GOD (FORCE MAJEURE)– CAUSED BY NATURE SUCH AS VOLCANIC ERUPTION, EARTHQUAKE, LIGHTNING, ETC. IS NOW SIMILAR 2. ACT OF MAN – CAUSED BY HUMANS, SUCH AS CONFLAGRATION, WAR, ROBBERY, ETC. 36 AS A GENERAL RULE, NO PERSON SHALL BE HELD RESPONSIBLE FOR FORTU ITOUS EVENTS  Example – Gaya obliged herself to deliver a determine car to Tito on Dec. 30, 1998. Before the arrival of the period, the car was struck by lightning and was totally destroyed. Gaya cannot be held responsible for the destruction of the car, hence her obligation to deliver is extinguished. Exceptions (when the person is responsible despite the fortuitous event). When the law expressly so provides, such as: o The debtor is guilty of fraud, negligence or in contravention of the tenor of the obligation. (Art 1170) o The debtor has proved to deliver the same thing to two or more persons who do not have the same interest. ( Art. 1165) o The thing to delivered is generic. o The debtor is guilty of default or delay. ( Art. 1169) o The debtor is guilty of contributory negligence. When declared by stipulation; When the nature of obligation requires the assumption of risk. An example of this is a contract of insurance. 37 SOURCES OF LIABILITY FOR DAMAGES: 3. Delay (Mora) – like when there has been judicial or extra-judicial demand and the debtor does not comply his obligation, delay will occur. 4. In contravention of the tenor of the obligation – refers to the violation of the terms and conditions or defects in the performance of the obligation, like when a landlord fails to maintain a legal and peaceful possession of a tenant being leased by the latter because the landlord was not the owner and the real owner wants to occupy the land, there is contravention of the tenor of the obligation. 38  ART. 1169. THOSE OBLIGE 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 DECLARES; OR 2) WHEN FROM THE NATURE AND THE CIRCUMSTANCES OF THE OBLIGATION IT APPEARS THAT THE DESIGNATION OF THE TIME WHEN THE THING IS TO BE DELIVERED OR THE SERVICE IS TO BE RENDERED WAS 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 IN A PROPER MANNER WITH WHAT IS INCUMBENT UPON HIM. FROM THE MOMENT ONE OF THE PARTIES FULFILLS HIS OBLIGATION, DELAY BY THE OTHER BEGIN. DELAY OR DEFAULT ( MORA ) means a legal delay or default and it consists of failure to discharge or perform an obligation on time which failure, constitutes a breach of the obligation. Kinds of delay  Mora solvendi – delay on the part of the debtor to fulfill his obligation (give or to do)  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 40 EFFECTS OF MORA SOLVENDI The debtor is guilty of breach of obligation Debtor is liable for interest or damages Liable even in case of fortuitous event (determinate thing). However, liability can be mitigated if he can prove that the loss would have resulted just the same even if he had not been in default. Liable also in obligation to deliver indeterminate or generic thing. EFFECTS OF MORA ACCIPIENDI Creditor guilty of breach of obligation Liable for damages Creditor bears the risk of loss of the thing due Debtor not liable for interest Debtor may release himself by the consignation or deposit in court of the thing due. EFFECTS OF COMPENSATIO MORAE Remember: reciprocal obligations – two person are creditor and debtor of each other. The performance of one is conditioned upon the simultaneous fulfilment on the part of the other. the delay of the debtor cancels the delay of the creditor and vice versa. each shall bear his own damages. OTHER SOURCES OF LIABILITY FOR DAMAGES: Loss of the thing with the fault of debtor. Deterioration with the fault of debtor. (Art. 1189) 44 KINDS OF DAMAGES 1. Moral damages – include physical sufferings, mental anguish, fright, serious anxiety, besmirched reputation, wounded feeling, moral shock, social humiliation and similar injury. 2. Exemplary damages – imposed by way of example or correction for the public good.  Like in quasi-delicts, if the defendant acted with gross negligence. (Art. 2231, NCC) 45 KINDS OF DAMAGES 3. Actual or compensatory damages – except as provided by law, or a stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. (Art. 2199, NCC)  Damages may be recovered:  For loss or impairment of earning capacity in cases of temporary or permanent personal injury;  For injury, to the plaintiff’s business standing or commercial credit.  For loss of earning capacity due to death [(80 – Age at Death) x 2/3 x 50% of annual gross income] 4. Temperate or moderate damages – are more than nominal but less than compensatory damages may be recovered when the courts finds that its amount cannot, from the nature of the case, be proved with certainty. Pecuniary loss means loss of money, or of something by which money or something of money value may be acquired. 5. Nominal damages – are adjudicated in order that a right of the plaintiff, which has been violated by the defendant, may be vindicated or recognized and not for the purpose of indemnifying the plaintiff for any loss suffered by him. (Art. 2221, NCC) 6. Liquidated damages – are those agreed upon by parties to a contract to be paid in case of breach thereof. (Art. 2226, NCC) 46 DIFFERENT KINDS OF OBLIGATIONS DIFFERENT KINDS OF OBLIGATIONS 1. Pure and conditional obligations (Arts. 1179-1192); 2. Obligations with a period (Arts. 1193-1198); 3. Alternative (Arts. 1199-1205) and facultative obligations (Art. 1206); 4. Joint and solidary obligations (Arts. 1207-1222); 5. Divisible and indivisible obligations (Arts. 1223-1225); and 6. Obligations with a penal clause. (Arts. 1226-1230) 48 PURE OBLIGATION ART. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. Pure obligation is one without a condition or term for its fulfillment and therefore demandable at once. CONDITIONAL OBLIGATION ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Conditional obligation is one whose consequences are subject in one way or another to the fulfillment of a condition. KINDS OF CONDITIONS 1. Suspensive condition (condition precedent or condition antecedent) - one the fulfillment of which will give rise to an obligation (or right). The obligation is suspended until the happening of the condition. 2. Resolutory condition (condition subsequent) - one the fulfillment of which will extinguish an obligation (or right) already existing. Here, obligee’s right is immediately vested but will be extinguished if the condition take place. 3. Potestative condition – a condition suspensive in nature and which depends upon the sole will of one of the contracting parties. 4. Casual condition – one that depends upon the sole will of the debtor. (VOID) 5. Positive condition – a condition that some event happen at a determinate time. 6. Negative condition – one that some event will not happen at a determinate time. 7. Impossible condition – contrary to good customs, public policy, or law. 51 SUSPENSIVE CONDITION Rules in case of improvement, loss, or deterioration 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; 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. 52 POTESTATIVE CONDITION Rules 1. If it is a potestative suspensive condition (I pay if I sell my car), since the fulfillment depends upon the will of the debtor, both condition and obligation are VOID. 2. If it is a potestative resolutory condition (I will continue to give you support if you shall not come within 50 meters from my house), since the fulfillment depends upon the will of the debtor, the condition and the obligation are VALID. 3. If potestative but the fulfillment depends upon the will of the creditor (I will deliver 100 sack of rice upon your demand), the condition and obligation are VALID. 53 POSITIVE AND NEGATIVE CONDITION Rules 1. Positive Condition: the condition that some event will happen at a determinate time shall extinguish the obligation: As soon as the time expires E.g. X will buy Y’s land if he can obtain title within a year. If the year expire without the land being titled, then the obl igation of X is extinguished If it has become indubitable that the event will not take place E.g. X will buy Y’s land if he can obtain title within a year. If the land cannot be titled since it is within public domain, then the obligation of X is extinguished. 2. Negative Condition: 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 E.g. I will give you a land if you remain childless until you reach 25 years old. If at the age of 25, you remain childless, then you get a land form me. It has become evident that the event cannot occur E.g. I will give you a land if you remain childless until you reach 25 years old. If you are infertile, you can get the land. 54 IMPOSSIBLE/UNLAWFUL CONDITION Rules 1. Impossible conditions shall annul the obligation which depends upon them. 2. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. 3. The condition not to do an impossible thing shall be considered as not having been agreed upon. 55 OBLIGATION WITH A PERIOD Art. 1193. Obligations for whose fulfillment a day certain has been fixed shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when (definite period). When the debtor binds himself to pay when his means permit him to do so, it is deemed an obligation with a period. Indefinite period (not certain if it will come or not) is a condition. OBLIGATIONS WITH PERIOD Kinds of period/term 1. Suspensive period (ex die) — The obligation begins only from a day certain upon the arrival of the period (Art. 1193, par. 1) 2. Resolutory period (in diem) — The obligation is valid up to a day certain and terminates upon the arrival of the period. (par. 2.) Rules on period: 1. 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. 2. 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. 3. Designation of a period is for the benefit of both parties, except established for one of the parties alone. 57 ALTERNATIVE OBLIGATION An alternative obligation is one where out of the two or more prestations which may be given, only one is due. The right of choice belongs to the debtor/obligor but (limitations) Debtor cannot choose part of one and part of the other. Debtor cannot choose prestations which are impossible, unlawful or that which could not have been an object of obligation. Debtor cannot choose if only one is practicable. Debtor cannot choose if it is expressly granted to the creditor. When the obligation is expressly granted to the creditor, the following rule applies before communication of choice: If loss without debtor’s fault (e.g fortuitous event), no damages If with fault, creditor may choose including the value of that lost plus damages. ALTERNATIVE OBLIGATION Rescission plus damages may be availed of if the creditor prevents the debtor from making a choice. (Art. 1203) Once the choice has been communicated (to debtor or creditor as the case may be) the obligation becomes simple obligation. Damages may be availed of if things subject to alternative obligations are lost through the fault of the debtor. X will deliver a desk, a phone or a watch. When all of them were lost due to his fault, Y may recover the value of the thing plus damages. If the phone and watch were lost due to his fault, and X communicates that he will deliver the desk but the same was later lost through fortuitous event, then X’s obligation is extinguished because it becomes simple obligation to give a definite thing. FACULTATIVE OBLIGATION It is one where only one prestation has been agreed upon but the obligor may render another in substitution. EFFECT OF LOSS Prestation Debtor Participation Effect on obligation OF THING DUE Before Principal Without fault (F.E.) Extinguished substitution With fault Debtor liable for damages Substitute With or without fault Debtor not liable After Principal With or without fault Debtor not liable substitution Substitute Without fault Extinguished With fault Debtor liable for damages ALTERNATIVE V. FACULTATIVE Alternative Facultative Number of prestations several prestations are due only one thing is due but but compliance with one is substitute is given sufficient Right of choice Debtor, creditor Debtor only Loss through fortuitous loss of one or loss of the thing due event more of the alternatives extinguishes through a fortuitous event the obligation does not extinguish the obligation Nullity of prestation nullity of a prestation nullity of the does not invalidate the others prestation agreed upon invalidates the obligation JOINT AND SOLIDARY OBLIGATIONS 1. Individual obligation – one where there is only one (1) obligor or one (1) obligee; and 2. Collective obligation – one where there are two (2) or more debtors and/or two (2) or more creditors. It may be joint or solidary Joint Obligations – to each of his own Faye and Princess are joint debtors of Judy to amount of P1,000,000, Judy can demand only P500,000 from Faye, and only P500,000 from Princess. Solidary Obligations – one for all, all for one Andy and Ben are solidary debtors of Cielo to the amount of P1,000,000. Cielo can demand the whole P1,000,000 from Andy. Andy in turn, after paying Cielo, can ask reimbursement from Ben to the amount of P500,000. OTHER WORDS USED JOINT LIABILITY: mancomunada; mancomunadamente; pro rata; proportionately; "we promise to pay" signed by two (2) or more persons. SOLIDARY LIABILITY: jointly and/or severally; solidaria; in solidum; together and/or separately; individually and/or collectively; juntos o separadamente; "I promise to pay" signed by two (2) or more persons 63 JOINT OBLIGATION IS THE DEFAULT Solidary liability is not lightly inferred. Under Article 1207, there is solidary liability only when: (1) the obligation expressly so states; or (2) the law requires solidarity; or (3) the nature of the obligation requires solidarity. Solidary liability also exists when it is imposed in a final judgment against several defendants. 64 SOLIDARY OBLIGATIONS Rules 1. 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. 2. A solidary creditor cannot assign his rights without the consent of the others. 3. 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. 4. 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. 65 SOLIDARY OBLIGATIONS Rules 1. 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. 2. A solidary creditor cannot assign his rights without the consent of the others. 3. 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. 4. 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. 66 SOLIDARY OBLIGATIONS Rules 5. 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. 6. 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. 67 DIVISIBLE AND INDIVISIBLE OBLIGATIONS 1. Divisible obligation – those which have as their object a prestation which is susceptible of partial performance without the essence of the obligation being changed 2. Indivisible obligation – those which have as their object a prestation which is not susceptible of partial performance, because otherwise the essence of the obligation will be changed DIVISIBLE AND INDIVISIBLE OBLIGATIONS Rules 1. In case of breach of a joint indivisible obligation. It is converted into an indemnity for damages. The joint debtor who failed or refused to comply his obligation shall bear the burden of paying all the damages to the creditor or joint creditor. 2. For those joint debtors who may have been ready to comply with their obligation shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or the value of the service in which the obligation consists. 69 OBLIGATIONS WITH A PENAL CLAUSE A penal clause is an accessory undertaking attached to an obligation to assume greater liability on the part of the obligor in case of breach of the obligation. 1. Ensure performance 2. Substitute the indemnity for damages and the payment of interests in case of noncompliance 3. Punish the debtor for the non-fulfillment of his obligation. OBLIGATIONS WITH A PENAL CLAUSE Rules 1. 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. 2. 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. 71 OBLIGATIONS WITH A PENAL CLAUSE Rules 3. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. 4. 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. 5. 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. 72 EXTINGUISHMENT OF OBLIGATION  1. By payment or performance 2. By the loss of the thing due 3. By the condonation or remission ARTICLE 1231. of debt OBLIGATIONS ARE 4. By confusion or merger of rights of the creditor and debtor EXTINGUISHED: 5. By compensation 6. By novation 7. Annulment 8. Rescission 9. Fulfillment of resolutory condition 10. Prescription PAYMENT OR PERFORMANCE Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Persons who may pay obligation debtor, himself or his legal representative Any third person GR: Creditor not bound to accept payment or performance by a third person EXCEPTION: Stipulation to the contrary 75 TO WHOM PAYMENT MUST BE MADE Payment shall be made, as a general rule, to: 1. The person in whose favor the obligation has been constituted 2. His successor in interest 3. Any person authorized to receive it. Payment made to unauthorized person is invalid, EXCEPT: 1. Payment made to a third person provided that it has redounded to the benefit of the creditor 2. Payment to the possessor of credit provided that it was made in good faith. RULE IN MONETARY OBLIGATIONS 1. Payment shall be made in stipulated currency. 2. If it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. 3. The delivery of promissory notes payable to order or bill of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired MEANING OF LEGAL TENDER Legal Tender- refers to such currency which may be used for the payment of all debts, whether public or private. Under our law, the legal tender of the Philippines would be all notes and coins issued by the Bangko Sentral. BSP Circular No. 1162, series of 2022: the PHP1, PHP5, PHP10, and PHP20 coins can be used as payments for amounts up to PHP2,000. coins with lower denominations can be used as payments for amounts not higher than PHP200. above rules are on a per transaction basis above rules do not apply if mutually agreed to transact using quantities of coins above said limits PLACE OF PAYMENT If there is no express designation or stipulation in the obligation with respect to the place where payment shall be made, the following rules are applicable: 1. If the obligation is to deliver a determinate thing, the payment shall be made at the place where the thing might be at the time the obligation was constituted. 2. In any other case, the payment shall be made at the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. APPLICATION OF PAYMENT Application of payment- designation of the debt to which the payment must be applied when the debtor has several obligations of the same kind in favor of the same creditor. Requisites 1. There must be only one debtor and only one creditor 2. There must be two or more debts of the same kind; 3. All of the debts must be due; 4. The amount paid by the debtor must not be sufficient to cover the total amount of all debts. LEGAL APPLICATION OF PAYMENT When payment cannot be applied in accordance with 1252 or the application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. PAYMENT BY CESSION VS. DATION IN PAYMENT Cession or assignment – special form of payment whereby the Dation in payment- as the debtor abandons all of his transmission of ownership of a property for the benefit of his thing by the creditor as accepted creditors in order that from the equivalent of the performance of proceeds thereof the latter may obligation. obtain payment of their credits. DISTINGUISHMENT OF PAYMENT BY CESSION AND DATION IN PAYMENT Category Payment by Cession Dation in Payment As to number of parties Plurality of creditors May be only one creditor As to financial condition of Debtor is in a state of Debtor is not necessarily in parties partial or relative insolvency a state of financial difficulty As to object The payment extinguishes Release the debtor for the the obligation to the extent net proceed of the things of the value of the thing ceded or assigned. delivered. TENDER OF PAYMENT AND CONSIGNATION Consignation- refers to the Tender of payment- deposit of the object of the manifestation made by the obligation in a competent court debtor to the creditor of his in accordance with the rules decision to comply immediately prescribed by law after refusal with his obligation. or inability of the creditor to accept the tender of payment. REQUISITES OF CONSIGNATION 1. That there is a debt due 2. That the consignation has been made either because the creditor to whom tender of payment was made refused to accept the payment without just cause, or because any of the causes stated by law for effective consignation without previous tender of payment exists. 3. The previous notice of the consignation had been given to the persons interested in the fulfillment of the obligation; 4. That the thing or amount due had been placed at the disposal of judicial authority. LOSS OF THE THING DUE Loss of the thing due – means that the thing which constitutes the object of the obligation perishes or goes out of commerce of man or disappears in such a way that its existence is unknown, or it cannot be recovered. CONDONATION OR REMISSION OF THE DEBT Remission is act of liberality by virtue of which the oblige, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or in that part or aspect of the same to which the remission refers. REQUISITES OF CONDONATION OR REMISSION OF THE DEBT 1. It must be gratuitous ; 2. It must be accepted by the obligor; 3. The obligation must be demandable. CONFUSION OR MERGER OF RIGHTS Confusion – merger of the characters of creditor and debtor in one and the same person by virtues of which the obligation is extinguished. REQUISITES OF CONFUSION OR MERGER OF RIGHTS 1. The merger of the characters of the creditor and debtor must be in the same person; 2. That it must take place in the person of either the principal creditor or principal debtor; 3. That it must be complete and definite. COMPENSATION Compensation as mode of extinguishing in their concurrent amount those obligations of persons who in their own right are creditors and debtors of each other. REQUISITE OF COMPENSATION 1. That each one of the obligors be bound principally, and the he be at the same time a principal creditor of the other; 2. That both debts consists in a sum of money, or if the things dues are consumable, they be of the same kind, and also of the same quality if the latter has been stated; 3. The two debts be dues; 4. That they be liquidated and demandable. 5. That over neither of them there be any retention or controversy, commenced by the third person and communicated in due time to the creditor. NOVATION Novation is the substitution or change of an obligation by another, resulting in its extinguishment or modification, either by : 1. changing its object 2. principal conditions 3. by substituting another in place of the debtor 4. subrogating a third person in the rights of the creditor. REQUISITES OF NOVATION 1. A previous valid obligation. 2. Agreement of the parties to the new obligation. 3. Extinguishment of the old obligation. 4. Validity of the new obligation.  THANK YOU www.linkedin.com/ibpayoyolaw/ https://www.facebook.com/payoyolawoffice