Law On Obligations PDF

OBLIGATIONS DEFINITION An obligation is a juridical necessity to give, to do or not to do. (Art. 1156) KINDS OF OBLIGATIONS AS TO ENFORCEABILITY Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive...

OBLIGATIONS DEFINITION An obligation is a juridical necessity to give, to do or not to do. (Art. 1156) KINDS OF OBLIGATIONS AS TO ENFORCEABILITY Obligations are civil or natural. 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. Some natural obligations are set forth in the following articles. (Art. 1423) KINDS OF OBLIGATIONS AS TO ENFORCEABILITY Examples of Natural Obligations: 1. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. (Art. 1425) 2. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. (Art. 1428) 3. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. (Art. 1429) ESSENTIAL ELEMENTS OF AN OBLIGATION 1. Active subject (creditor) - obligee 2. Passive subject (debtor) - obligor 3. Prestation/Object – subject matter of the obligation. 4. Vinculum/Efficient Cause/Juridical Tie – the reason why the obligation exists, the source of the obligation. SOURCES OF OBLIGATIONS Obligations arise from: 1. Law; 2. Contracts; 3. Quasi-contracts; 4. Acts or omissions punished by law; and 5. Quasi-delicts. SOURCES OF OBLIGATION; LAW 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 Civil Code. (Art. 1158) SOURCES OF OBLIGATION; CONTRACTS Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (Art. 1159) SOURCES OF OBLIGATION; QUASI- CONTRACTS 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 another. (Art. 2142) Voluntary and Unilateral: "The act is voluntary because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. SOURCES OF OBLIGATION; QUASI- CONTRACTS 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 another. (Art. 2142) Voluntary and Unilateral: "The act is voluntary because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. SOURCES OF OBLIGATION; QUASI- CONTRACTS Examples of Quasi-Contracts: 1. Negotiorum Gestio - Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. This juridical relation does not arise in either of these instances: a. When the property or business is not neglected or abandoned; b. If in fact the manager has been tacitly authorized by the owner. (Art. 2144) SOURCES OF OBLIGATION; QUASI- CONTRACTS Examples of Quasi-Contracts: 2. Solutio Indebiti - If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. (Art. 2154) Requisites: a. That he who paid was not under obligation to do so; and b. That payment was made by reason of an essential mistake of fact. (Andres s. Mantrust) SOURCES OF OBLIGATION; QUASI- CONTRACTS Examples of Quasi-Contracts: 3. When funeral expenses are borne by a third person, without the knowledge of those relatives who were obliged to give support to the deceased, said relatives shall reimburse the third person, should the latter claim reimbursement. (Art. 2165) SOURCES OF OBLIGATION; DELICT Every person criminally liable for a felony is also civilly liable. (Art. 100, Revised Penal Code) The civil liability established in Articles 100, 101, 102, and 103 of this Code includes: 1. Restitution; 2. Reparation of the damage caused; 3. Indemnification for consequential damages. (Art. 104, Revised Penal Code) SOURCES OF OBLIGATION; DELICT Acquittal of accused: 1. Acquittal because the accused did not do the act complained of – no civil liability 2. Acquittal due to reasonable doubt – there can still be civil liability. SOURCES OF OBLIGATION; QUASI- DELICT Whoever by act or omission causes damage 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. (Art. 2176) Requisites: 1. There must be an act or omission; 2. There must be fault or negligence; 3. There must be damage caused; 4. There must be a direct relation of cause and effect between the act or omission and the damage. SOURCES OF OBLIGATION; QUASI- DELICT Double recovery not allowed: Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant. (Art. 2177) KINDS OF CIVIL OBLIGATIONS: AS TO PERFECTION AND EXTINGUISHMENT 1. Pure Obligations - an obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties and is demandable at once. 2. 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. 3. Obligations with a term - obligations whose fulfillment a day certain has been fixed or those which 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 KINDS OF CIVIL OBLIGATIONS: AS TO PERFECTION AND EXTINGUISHMENT Obligations which are immediately demandable: 1. Pure obligations 2. Obligations with a resolutory condition 3. Obligations with a resolutory term CONDITIONAL OBLIGATIONS Kinds of Conditions as to when the Suspensive happening of which gives rise obligation should be to the obligation performed Resolutory happening of which extinguishes the rights already existing as to whom or Potestative depends on the will of the where it depends party to the juridical relation Casual depends on chance Mixed partly depends on will of the party and partly on chance CONDITIONAL OBLIGATIONS Kinds of Conditions as to capacity to be performed Divisible can be performed in parts in parts Indivisible cannot be performed in parts as to number of obligations Conjunctive all must be performed are to be performed when Alternative only one must be performed there are several of them as to nature Positive act Negative omission as to how made known to the Express stated other party Implied merely inferred as to whether the obligation Possible can be fulfilled can be fulfilled Impossible cannot be fulfilled either physically or legally CONDITIONAL OBLIGATIONS POTESTATIVE CONDITIONS: are those which depend upon the sole will of one of the parties. It renders the obligation void if it is: 1. Suspensive 2. Dependent upon the debtor Thus, if the condition is resolutory, even if it depends upon the sole will of the debtor, the obligation remains to be valid. CONDITIONAL OBLIGATIONS CONSTRUCTIVE FULFILLMENT: The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (Art. 1186) CONDITIONAL OBLIGATIONS IMPOSSIBLE CONDITIONS: render the obligation as void, if they are positive. Thus, negative conditions which are impossible, can either be treated as always fulfilled. Kinds of Impossibility: 1. Physically impossible – those which are incapable of being done physically; or 2. Legally impossible – those that are contrary to law, good customs, public policy. CONDITIONAL OBLIGATIONS EFFECT OF HAPPENING OF THE CONDITION: 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. (Art. 1187) Retroactivity does not apply: 1. Fruits 2. Period of Prescription CONDITIONAL OBLIGATIONS CONDITION TREATED AS A PERIOD: When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period. (Art. 1180) CONDITIONAL OBLIGATIONS CONDITIONS WITH A DEADLINE: The condition that some event happen at a determinate time shall extinguish the obligation as soon as: 1. the time expires or 2. if it has become indubitable that the event will not take place. (Art. 1184) CONDITIONAL OBLIGATIONS RULES AS TO LOSS, DETERIORATION OR IMPROVEMENT: in case of obligations to give a specific or determinate thing is subject to a suspensive condition, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: Without debtor’s Extinguished LOSS fault With debtor’s fault Damages Without debtor’s Impairment is borne by the fault creditor DETERIORATION With debtor’s fault Creditor may choose: 1. Exact Fulfillment plus damages 2. Rescission plus damages CONDITIONAL OBLIGATIONS RULES AS TO LOSS, DETERIORATION OR IMPROVEMENT: By nature or time Improvement is for the benefit of the creditor IMPROVEMENT At the expense of the He has no better right than debtor that of a usufructuary OBLIGATIONS WITH A TERM/PERIOD A period is a certain length of time which determines the effectivity or the extinguishment of the obligation. Unlike a condition, a period is certain to arrive or must necessarily come even though it may not be known when. OBLIGATIONS WITH A TERM/PERIOD KINDS OF PERIODS: Definite With a specific date Indefinite Based on an event certain to happen though period may be unknown Legal Imposed by law Voluntary Agreed upon by the parties Judicial Fixed by courts Ex die Period with suspensive effect In diem Period with resolutory effect OBLIGATIONS WITH A TERM/PERIOD WHEN MAY COURTS FIX THE PERIOD: 1. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. (Art. 1911, par. 3) 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. (Art. 1197, par. 1) 3. The courts shall also fix the duration of the period when it depends upon the will of the debtor. (Art. 1197, par. 2) OBLIGATIONS WITH A TERM/PERIOD BENEFIT OF THE PERIOD: GENERAL RULE: 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, EXCEPTION: from the tenor of the obligation or other circumstances it should appear that the period has been established in favor of one or of the other. (Art. 1196) Consequences of general rule: 1. The debtor cannot be made to pay before the period; 2. The creditor cannot be made to accept payment before the period. OBLIGATIONS WITH A TERM/PERIOD DEBTOR LOSES THE RIGHT TO MAKE USE OF THE PERIOD: 1. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; 2. When he does not furnish to the creditor the guaranties or securities which he has promised; 3. When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; 4. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; 5. When the debtor attempts to abscond. (Art. 1198) KINDS OF CIVIL OBLIGATIONS: AS TO PLURALITY OF PRESTATION 1. CONJUNCTIVE: when two or more prestations are due and requires fulfillment of all for the extinguishment of the obligation. 2. ALTERNATIVE: when two or more prestations are due and the fulfillment of one extinguishes the obligation. 3. FACULTATIVE: with two or more prestations, but only one is demandable and the debtor has the right to substitute. ALTERNATIVE OBLIGATIONS RULES: 1. Where several objects are due, the fulfillment of one is sufficient. 2. Right of Choice: generally, it belongs to the debtor, except: a. When expreslly granted to the creditor b. When the right of choice is given to a third party. 3. The debtor’s right of choice is limited in such a way that he cannot choose any prestation which is impossible or unlawful. 4. The choice, to take effect, must be communicated. The communication of the choice made is technically called “concentration.” 5. The choice cannot be part of one and part of another. ALTERNATIVE OBLIGATIONS RULES: 6. When from all the choices, only one is practicable, the debtor shall lose the right of choice. Logically, the obligation would be to deliver that which remains. 7. If through the creditor’s acts, the debtor cannot make a choice, the debtor may rescind the contract with damages. 8. If the choice is with the debtor and when through his fault, all prestations are lost or has become impossible, he shall be liable to the creditor for the value of the last thing which disappeared. ALTERNATIVE OBLIGATIONS RULES: 9. If the choice is with the creditor and until a choice is communicated: a. If one of the things is lost through a fortuitous event, the creditor can choose from the remaining; b. If the loss of one of the things occurs through the fault of the debtor, the creditor may: i. Claim any of those subsisting, or ii. The price of that which was lost plus damagages; c. 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. FACULTATIVE OBLIGATIONS 1. If the loss happened BEFORE substitution, and a. the prestation lost is the SUBSTITUTE: not extinguished; b. the prestation lost is the PRINCIPAL: extinguished. 2. If the loss happened AFTER substitution, and a. The prestation lost is SUBSTITUTE: extinguished. b. The prestation lost is PRINCIPAL: not extinguished. KINDS OF CIVIL OBLIGATIONS: AS TO OBLIGATIONS OF MULTIPLE PARTIES 1. SOLIDARY: is one in which the each of the debtors is liable for the entire obligation or each of the creditors is entitled to demand the whole obligation. 2. JOINT: one in which each of the debtors is liable only for a proportionate part of the debt or each creditor is entitled only to a proportionate part of the credit. 3. DISJUNTIVE: there are 2 or more creditors and 2 or more debtors but they are named disjunctively as debtors and creditors in the alternative and usually uses the words “or”. SOLIDARY OBLIGATIONS WHEN CONSIDERED SOLIDARY: 1. When the obligation expressly so states (stipulated); 2. When the law requires solidarity: example: a. When two or more heirs take possession of the estate, they are solidarily liable for the loss or destruction of a thing devised or bequeathed. (Art. 927) b. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. (Art. 1911) c. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. (Art. 1945) SOLIDARY OBLIGATIONS WHEN CONSIDERED SOLIDARY: d. The responsibility of two or more payees, when there has been payment of what is not due, is solidary. (Art. 2157) e. The responsibility of two or more persons who are liable for quasi-delict is solidary. (Art. 2194) 3. When the nature of the obligation requires solidarity. SOLIDARY OBLIGATIONS RULES ON THE ENFORCEMENT OF SOLIDARY OBLIGATIONS: 1. 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. 2. 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: a. 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. SOLIDARY OBLIGATIONS RULES ON THE ENFORCEMENT OF SOLIDARY OBLIGATIONS: b. 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. c. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. SOLIDARY OBLIGATIONS RULES ON THE ENFORCEMENT OF SOLIDARY OBLIGATIONS: 3. 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 4. 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. SOLIDARY OBLIGATIONS RULES ON THE ENFORCEMENT OF SOLIDARY OBLIGATIONS: 5. 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. 6. 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. SOLIDARY OBLIGATIONS RULES ON THE ENFORCEMENT OF SOLIDARY OBLIGATIONS: 7. 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. 8. 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. JOINT OBLIGATIONS RULES ON THE ENFORCEMENT OF JOINT OBLIGATIONS: 1. The debts/credits are independent of each other; 2. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or rights of the others; 3. The demand by one creditor upon one debtor, produces the effects of default only with respect to the creditor who demanded & the debtor on whom the demand was made, but not with respect to the others; JOINT OBLIGATIONS RULES ON THE ENFORCEMENT OF JOINT OBLIGATIONS: 3. The interruption of prescription by the judicial demand of one creditor upon a debtor does not benefit the other creditors nor interrupt the prescription as to other debtors. On the same principle, a partial payment or acknowledgement made by one of several joint debtors does not stop the running of the statute of limitations as to the others; 4. The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand anything from his co-creditors KINDS OF CIVIL OBLIGATIONS: AS TO PERFORMANCE OF PRESTATION 1. DIVISIBLE: when the prestation is capable of partial performance. 2. INDIVISIBLE: when the prestation is not capable of partial performance. KINDS OF CIVIL OBLIGATIONS: AS TO PERFORMANCE OF PRESTATION RULES AS TO ENFORCEMENT: 1. Indivisibility does not connote solidarity 2. In a joint indivisible obligation: a. the right of the creditors may be prejudiced only by their collective acts b. the debt can be enforced only by proceeding against all the debtors. c. If one of the debtors should be insolvent, the others shall not be liable for his share. KINDS OF CIVIL OBLIGATIONS: AS TO PERFORMANCE OF PRESTATION RULES AS TO ENFORCEMENT: d. If one of the debtors did not comply with his undertaking, the obligation is converted into a monetary one, and i. The debtor(s) who did not comply will be liable for his share and damages; ii. The debtor(s) who were ready to comply will be liable only for his share. 3. In solidary indivisible obligations, the creditor(s) can require performance of the whole prestation from any of the debtors. KINDS OF CIVIL OBLIGATIONS: AS TO PERFORMANCE OF PRESTATION PRESUMPTIONS: DIVISIBLE INDIVISIBLE The object of the obliation is the Obligation to give definite things execution of a certain number of days of work When the object is the Those not susceptible of partial accomplishment of work by metrical performance units When the object of the obligation is If capable of partial performance but the accomplishment of work the law or the intention of the susceptible of partial performance. parties treats it as indivisible. When the purpose of the obligation is to pay a certain amount in installments OBLIGATIONS WITH A PENAL CLAUSE GENERAL RULE: the penalty shall substitute the indemnity for damages and payment of interests in case of non-compliance. EXCEPTIONS: 1. If there is stipulation to the contrary; 2. If the debtor refuses to pay the penalty; 3. If the debtor is guilty of fraud in the fulfilment of the obligation. OBLIGATIONS WITH A PENAL CLAUSE RULES AS TO ENFORCEMENT: 1. 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. 2. 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. (Art. 1227) 3. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (Art. 1228) OBLIGATIONS WITH A PENAL CLAUSE RULES AS TO ENFORCEMENT: 4. The penalty can be reduced: a. When the principal obligation has been partly or irregularly complied with. b. When the same is iniquitous or unconscionable. (Art. 1229) 5. The nullity of the penal clause does not carry with it that of the principal obligation. 6. The nullity of the principal obligation carries with it that of the penal clause. (Art. 1230) OTHER CLASSES OF OBLIGATIONS As to subject matter Real – obligation to give Personal – obligation to do or not to do As to affirmativeness Positive – obligation to give or to do Negative – obligation not to do or not to give As to persons obliged Unilateral – where only one of the parties is bound Bilateral – where both parties are bound NATURE AND EFFECTS OF OBLIGATIONS OBLIGATIONS TO GIVE 1. 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. 2. 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 3. Remedies available to the creditor in case of non-performance: a. Specific/Determinate Thing – Specific Performance b. Generic – Substitute Performance OBLIGATIONS TO GIVE 4. 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. 5. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. 6. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. 7. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. OBLIGATIONS TO DO Remedy available: if an obligation to do was not complied with (it was poorly done), the obligation can be performed by the creditor himself or by some other person at the expense of the debtor or ask for damages, or both. Note that, specific performance is not available in obligations to do, since this would violate the Constitutional prohibition on involuntary servitude. OBLIGATIONS NOT TO DO Remedy available: In obligations not to do and the obligor does it, the creditor may have it undone at the expense of the debtor RESCISSION AS A REMEDY TWO KINDS: 1. Rescission under Art. 1191, which should’ve been properly termed as “resolution”, in reciprocal obligations where one party is not ready to perform his part. 2. Rescission under Art. 1301/1303 in case of rescissible contracts, like when there is lesion suffered by a ward or absentee. DAMAGES Kinds of Damages (MENTAL): 1. Moral – for mental and physical anguish 2. Exemplary – corrective or to set an example 3. Nominal – to vindicate a right when no other kind of damages may be recovered 4. Temperate – when the exact amount of damages can not be determined 5. Actual – actual losses incurred. This is the only type of damage that would require proof. 6. Liquidated – predetermined beforehand. SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS FRAUD KINDS OF FRAUD 1. Dolo causante – or fraud in obtaining consent, is applicable only to contracts where consent is necessary and thus affects the validity of the contract, making it voidable. Under this kind of fraud, the party would not have entered into the contract were it not for the fraud; annulment is the remedy of the party who’s consent was obtained through fraud. 2. Dolo incidente – or fraud in the performance of the obligation and applicable to obligations arising from any source. This kind, however, does not affect the validity of the contract and makes the party guilty of fraud liable for damages. FRAUD Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (Art. 1171) In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (Art. 1344) NEGLIGENCE 1. Negligence obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. 2. 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. (Art. 1173) 3. 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. (Art. 1172) NEGLIGENCE Kinds of Negligence as to EXTENT: 1. Simple Negligence – failure to comply with the diligence required; 2. Gross Negligence – amounts to bad faith and may thus be the source of moral damages. Kinds of Negligence as to SOURCE: 1. Culpa Contractual – contractual negligence – or that which results in a breach of contract. 2. Culpa Aquiliana – civil negligence or quasi-delict 3. Culpa Criminal – criminal negligence – or that which results in the commission of a crime or a delict. DELAY Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. 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 declare; 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 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. (Art. 1169) DELAY KINDS OF DELAY 1. Mora Solvendi – delay on the part of the debtor, which may either be: a. Mora solvendi ex re: in real obligations b. Mora solvendi ex persona: in personal obligations 2. Mora Accipiendi – delay on the part of the creditor; 3. Compensatio Morae – delay on the part of both parties. ANY MANNER IN CONTRAVENTION OF THE OBLIGATION In general, every debtor who fails in performance of his obligations is bound to indemnify for the losses and damages caused thereby. The phrase "any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind or defective performance. (Arrieta vs. NARIC) FORTUITOUS EVENTS Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. FORTUITOUS EVENTS General Rule: is that no personal shall be responsible for those events which could not be foresee, or which, though foreseen, were inevitable. Exceptions: 1. Declared by stipulation; 2. When the nature of the obligation requires the assumption of risk 3. Expressly specified by law. 4. When negligence, delay or fraud concurred with the fortuitous event. MODES OF EXTINGUISHMENT OF OBLIGATIONS MODES OF EXTINGUISHMENT OF OBLIGATIONS 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 modes of extinguishment of obligations include Annulment, Rescission, Fulfillment of a resolutory condition, and Prescription. PAYMENT OR PERFORMANCE PAYMENT OR PERFORMANCE A debt is not 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. How made: 1. If debt is a monetary obligation, by delivery of the money. 2. If the debt is delivery of a thing or things, by delivery of the thing or things. 3. If the debt is doing of a personal undertaking, by the performance of said personal undertaking. 4. If the debt is not doing something, by refraining from doing the action. PAYMENT OR PERFORMANCE RULES AS TO THE PAYOR: 1. Payment made by a third person who has an interest in the fulfillment of the obligation or when the debtor consents to the payment made by the third person. Effects: a. The creditor can be compelled to receive payment b. The third party payor may demand reimbursement for the full amount c. Results in subrogation. As such, the 3rd party payor may exercise rights belonging to the creditor, such as going against the guarantor or foreclosure of mortgage. PAYMENT OR PERFORMANCE RULES AS TO THE PAYOR: 2. Payment made by a third person who has NO interest in the fulfillment of the obligation or pays without the knowledge or consent of the debtor. Effects: a. The creditor cannot be compelled to receive payment. b. If payment was made, 3rd party payor can only demand reimbursement upto the extent that has been beneficial to the debtor. c. No subrogation. 3. 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. PAYMENT OR PERFORMANCE RULES AS TO THE PAYOR: 4. 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 PAYMENT OR PERFORMANCE RULES AS TO THE PAYEE: 1. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. 2. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. PAYMENT OR PERFORMANCE RULES AS TO THE PAYEE: 3. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: a. If after the payment, the third person acquires the creditor's rights; b. If the creditor ratifies the payment to the third person; c. If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. PAYMENT OR PERFORMANCE RULES AS TO THE THING TO BE PAID OR DELIVERED: 1. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. 2. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. 3. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. PAYMENT OR PERFORMANCE RULES AS TO THE THING TO BE PAID OR DELIVERED: 4. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. Legal tender in the Philippines consists of notes and coins issued by the Bangko Sentral ng Pilipinas subject to the following limit: a. Notes (P20, P50, P100, P200, P500, P1,000) – no limit; b. Coins P1 and above – P1,000 c. Coins below P1 – P100 PAYMENT OR PERFORMANCE RULES AS TO THE THING TO BE PAID OR DELIVERED: 4. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. 5. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. PAYMENT OR PERFORMANCE PLACE, DATE AND TIME OF PAYMENT OR PERFORMANCE: 1. Payment shall be made in the place designated in the obligation. 2. If there was no stipulation and the obligation consists in the delivery of a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. 3. In any other case the place of payment shall be the domicile of the debtor. 4. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. SPECIAL FORMS OF PAYMENT DATION IN PAYMENT 1. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. 2. There has to be delivery of the thing and prior acceptance and a consequent transfer of ownership to consider it a dation in payment. A mere promise to deliver a thing in lieu of the originally constituted subject amounts to a novation. 3. Extent of extinguishment: General rule: to the extent of the value of the thing delivered as agreed upon or as may be proved. Exception: if the parties consider the thing as equivalent to the obligation through an express or implied agreement or by silence. APPLICATION OF PAYMENTS 1. Application of Payment: is the designation of the debt which is being paid by a debtor who has several obligations of the same kind in favor of the creditor to whom payment is made. 2. Requisites: a. There is only one debtor; b. There are several debts; c. The debts are of the same kind; d. There is only one and the same creditor. 3. As a general rule, all the debts must be due and demandable. EXCEPTION: when there is mutual agreement or when the consent of the party for whose benefit the term was constituted was obtained. APPLICATION OF PAYMENTS Right to apply payment: generally, the debtor has the right to apply the payment at the time of making the payment, subject to the following LIMITATIONS: 1. Creditor cannot be compelled to accept partial payment. (Art. 1248); 2. Debtor cannot apply payment to principal if interest has not been paid. (Art. 1253) 3. The debt must be liquidated, except when the parties agree otherwise; 4. Cannot be made when the period has not arrived and such period was constituted in favour of the creditor, except with the consent of the creditor (Art. 1252); 5. When there is agreement as to which debt must be paid first. APPLICATION OF PAYMENTS Creditor can make the application if the debtor fails to choose and the creditor indicates in the receipt to which debt the payment will apply. APPLICATION OF PAYMENTS If debtor and creditor did not designate: 1. If the debts are of different nature and burden – to that debt which is most onerous to the debtor; 2. If the debts are of the same nature and burden – applied proportionately PAYMENT BY CESSION 1. The debtor may cede or assign his property to his creditors in payment of his debts. 2. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. 3. The above covers voluntary cession. In judicial cession, which is covered by Insolvency Laws, more specifically, liquidation, all debts/obligations are extinguished. TENDER OF PAYMENT AND CONSIGNATION 1. Tender of Payment is the manifestation made by the debtor to the creditor of his desire to comply with his obligation, with the offer of immediate performance. It is a PREPARATORY ACT to consignation and in itself DOES NOT extinguish the obligation. 2. Consignation is the deposit of the object of the obligation in a competent court in accordance with rules prescribed by law, AFTER the tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible. It extinguishes the obligation. TENDER OF PAYMENT AND CONSIGNATION 3. Instances where consignation can be made even without tender of payment: a. When the creditor is absent or unknown, or does not appear at the place of payment; b. When he is incapacitated to receive the payment at the time it is due; c. When, without just cause, he refuses to give a receipt; d. When two or more persons claim the same right to collect; e. When the title of the obligation has been lost. TENDER OF PAYMENT AND CONSIGNATION 4. Withdrawal of the thing deposited: a. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. b. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. LOSS OF THE THING OR IMPOSSIBILITY OF PERFORMANCE LOSS Loss: means when the thing goes out of commerce, perishes or disappears in such a way that its existence is unknown or that it cannot be recovered. General Rule: loss of the thing subject of the obligation to give extinguishes the obligation, except: 1. If the debtor is already in delay 2. If there was stipulation that the debtor is liable even for fortuitous events 3. If the law provides for the debtor’s liability LOSS Generic Thing – In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. Except: 1. When the thing goes out of commerce or by legal impossibility; 2. Limited Generic: In such cases where the generic thing belongs to a particular group of thing and the loss pertains to the whole group and NOT ONLY to the thing itself, then the obligation is extinguished LOSS Partial Loss: The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. LOSS Presumptions of fault: Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. IMPOSSIBILITY OF PERFORMANCE To extinguish the obligation, the impossibility should have taken place DURING the existence of the obligation. If the impossibility arose BEFORE the existence of the obligation, the obligation is void. IMPOSSIBILITY OF PERFORMANCE KINDS OF IMPOSSIBILITY: 1. As to nature: Physical (by reason of its nature); and Legal (through some subsequent law); 2. As to whom impossibility refers: a. Objective – impossibility of the act or service itself without considering the person of the debtor; b. Subjective - impossibility refers to the fact that the act or service can no longer be done by the debtor but may still be performed by another person 1. As to extent: Partial or Total; 2. As to period of impossibility: Permanent or Temporary. IMPOSSIBILITY OF PERFORMANCE DIFFICULTY OF PERFORMANCE: When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. IMPOSSIBILITY OF PERFORMANCE The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. CONDONATION OR REMISSION OF DEBT CONDONATION or REMISSION Condonation/Remission is an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of an obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers. It is essentially gratuitous in character, if the creditor received a consideration other than mere liberality on his part, it is not condonation. CONDONATION or REMISSION KINDS OF CONDONATION AS TO FORM: 1. Express – when made formally and should comply with the formal requisites of a donation. a. Acceptance is necessary to become effective; b. Movable property donated: i. An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated. ii. If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing, otherwise, the donation shall be void. c. Immovable property must be in a public document. 2. Implied – when it can be inferred from the acts of the parties. CONDONATION or REMISSION KINDS OF CONDONATION AS TO EXTENT: 1. Total - when the whole obligation is extinguished. 2. Partial – which may be as to the amount; as to the accessory obligation; or as to a certain amount of debt (in case of solidarity). KINDS OF CONDONATION AS TO MANNER/EFFECTIVITY: 1. Inter vivos – during the lifetime of the creditor. 2. Mortis causa – will take effect upon death which must be in done through a will CONDONATION or REMISSION PRIVATE DOCUMENTS/PLEDGE: 1. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. 2. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. 3. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. 4. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing CONFUSION/MERGER OF RIGHTS MERGER OR CONFUSION Merger/Confusion: the meeting in one person of the qualities of the creditor and debtor with respect to the same obligation. Requisites: 1. Must take place between the credit and the principal debtor; 2. Must involve the very same obligation; 3. Must be total. Guarantors: Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation COMPENSATION COMPENSATION Compensation: a mode of extinguishment to the concurrent amount, the obligations of those persons who in their own right, are reciprocally creditors and debtors of each other. COMPENSATION KINDS OF COMPENSATION AS TO EXTENT: 1. Total – when the two obligations are of the same amount. 2. Partial – when the amounts are not equal. This is total as to the debt with lower amount. KINDS OF COMPENSATION AS TO ORIGIN/CAUSE: 1. Legal – takes effect by operation of law because all the requisites are present; 2. Facultative – can be claimed by one of the parties. 3. Conventional – when the parties agree to compensate their mutual obligations even if some of the requisite are lacking. 4. Judicial – decreed by the court in a case where there is a counterclaim COMPENSATION REQUISITES OF LEGAL COMPENSATION 1. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; 2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; 3. That the two debts be due; 4. That they be liquidated and demandable; 5. That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor COMPENSATION OTHER RULES AS TO COMPENSATION: 1. The guarantor may set up compensation as regards what the creditor may owe the principal debtor. 2. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. 3. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. COMPENSATION OTHER RULES AS TO COMPENSATION: 4. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. 5. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. 6. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment COMPENSATION OTHER RULES AS TO COMPENSATION: 7. When compensation is not proper: a. Depositum – as to the depositary; b. Bail – as to the bailee; c. Support – as to the one giving support, EXCEPT: support in arrears and those contractual in nature; d. Civil liability arising from a penal offense 8. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. 9. When all the requisites are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. NOVATION NOVATION KINDS OF NOVATION AS TO NATURE: 1. Objective - Changing their object or principal conditions; 2. Passive Subjective - Substituting the person of the debtor; 3. Active Subjective - Subrogating a third person in the rights of the creditor ACTIVE NOVATION; SUBROGATION TWO WAYS: 1. By agreement or express consent of the parties 2. By law or implied: a. When a creditor pays another creditor who is preferred, even without the debtor's knowledge; b. When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; c. When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share ACTIVE NOVATION; SUBROGATION EFFECT: Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.  PASSIVE NOVATION; SUBSTITUTION Reimbursement Insolvency of new debtor without the Only to the extent Old debtor is no longer knowledge or the debtor was liable EXPROMISION consent of the benefited debtor. with consent or Full amount Old debtor is still liable with knowledge if: of the original 1. the insolvency was debtor but already existing without any and of public DELEGACION objections. knowledge, or 2. known to the debtor. NOVATION OTHER RULES: 1. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. 2. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. 3. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. 4. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. END