Obligations and Contracts Lecture Notes PDF

OBLIGATIONS AND CONTRACTS TITLE 1 **CHAPTER 1. -- GENERAL PROVISIONS ( Arts. 1156 -- 1162)** Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) When we say [juridical necessity]... the obligation is enforceable before the courts of law.... Like let us say, somebod...

OBLIGATIONS AND CONTRACTS TITLE 1 **CHAPTER 1. -- GENERAL PROVISIONS ( Arts. 1156 -- 1162)** Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) When we say [juridical necessity]... the obligation is enforceable before the courts of law.... Like let us say, somebody owes you money, that person did not pay you on due date.. you have the [right], following certain processes to file an action for, let us say collection of money. A [right] is a claim or title to an interest in anything whatsoever that is enforceable by law.^(\ Makati\ Stock\ exchange,\ Inc.\ et\ all\ vs.\ Miguel\ V.\ Campos\ substituted\ by\ Julia\ Ortega\ Vda.\ de\ Campos\ G.R.\ No.\ 138814,\ April\ 16,\ 2009).^ Juridical Necessity gives you the right to sue or file [Civil Action] before a court to redress your grievances. Civil Action is one by which the party sues another for the enforcement or protection of a right or the prevention or redress of a wrong ^(\ Rule\ 1\ Section\ 3,\ 1997\ Rules\ of\ Civil\ Procedure)^. Civil Action gives rise to Civil Obligation. Civil obligation is not the same as [Natural Obligation], or [Moral Obligation] 1. Natural obligations are formerly Civil Obligations which due to prescription are no longer enforceable. 2. Moral obligation are not enforceable from the very beginning but because of human relationship and consideration, they maybe complied. ELEMENTS OF AN OBLIGATION: 1\. [Active subject] (obligee/creditor/plaintiff): one in whose favor the obligation is constituted 2\. [Passive subject] (obligor/debtor/defendant ): one who has the duty of giving, doing or not doing 3\. [Object: prestation]; the conduct which has to be observed by the debtor/obligor REQUISITES 4\. [Cause:] it must have pecuniary value *SOURCES OF OBLIGATION* **Art. 1157**. Obligations arise from: 1. [Law; (OBLIGATION EX LEGE)] =Must be expressly or impliedly set forth and cannot be presumed Example: The obligation to pay our taxes. 2. [Contracts; CONTRACT (OBLIGATION EX CONTRACTU]) a. Must be complied with in good faith b. it is the "law" between parties; c. neither party may unilaterally evade his obligation in the contract, unless: a. Contract authorizes it b\. Other party assents \(3) [QUASI-CONTRACT (OBLIGATION EX QUASI-CONTRACTU)] Juridical relation resulting from lawful, voluntary and unilateral acts, which has for its purpose, the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another. KINDS OF QUASI-CONTRACT 3. [DELICTS (OBLIGATION EX MALEFICIO OR EX DELICTO )] RPC: Art. 100 Every person criminally liable for a felony is also civilly liable. SCOPE OF CIVIL LIABILITY 1\. Restitution 2\. Reparation for damage caused 3\. Indemnity for Consequential damages \(5) [QUASI-DELICT/TORTS (OBLIGATION EX QUASI-DELICTO Or EX QUASI MALEFICIO ) ] It is an act or omission arising from fault or negligence which causes damage to another, there being no pre-existing contractual relations between the parties ELEMENTS: 1\. There must be an act or omission 2\. There must be fault or negligence attributable to the person charged 3\. There must be damage or injury 5\. There is no pre-existing contractual relation between the parties. Usually arises from [NEGLIGENCE]. Negligence 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. (US v. Barrias, 23 Phil. 434 \[1912\]) Corliss v. Manila Railroad -- The law presumes or requires a man to possess ordinary capacity to avoid harming his neighbors unless a clear and manifest incapacity is shown and the law does not hold him liable for unintentional injury unless, possessing such capacity, he might and ought to have foreseen the danger. **CHAPTER 2. -- NATURE & EFFECTS OF OBLIGATIONS** *NATURE OF OBLIGATIONS* 1\. Personal Obligations: obligations to do or not to do; where the subject matter is an act to be done or not to be done a\. Positive -- obligation to do b\. Negative -- obligation not to do 2\. Real Obligations: obligations to give; where the subject matter is a thing which the obligor must deliver to the obligee a\. Determinate or specific -- object is particularly designated or physically segregated from all other things of the same class b\. Generic --object is designated by its class or genus c\. Limited Generic -- generic objects confined to a particular class Ex: An obligation to deliver one of my horses (Tolentino, Volume IV, p. 91; De Leon, 2003 ed., p. 7) *[DUTIES OF DEBTOR IN AN OBLIGATION TO GIVE A DETERMINATE THING (See Arts. 1163, 1164, 1166.) ]* 1. To preserve or take care of the thing due with the diligence of a good father of a family a. [DILIGENCE OF A GOOD FATHER OF A FAMILY] -- ordinary care or that diligence which an average or reasonably prudent person would exercise over his own property NOTE: Rule on Standard of Care That which the law requires; or That stipulated by the parties; or In the absence of the two, diligence of a good father of a family 2. To deliver the fruits of the thing: Right to the fruits of the thing from the time the obligation to deliver it arises *WHEN OBLIGATION TO DELIVER ARISES* GENERAL RULE: From the time of the perfection of the contract (i.e. meeting of the minds between the parties) EXCEPTIONS a\. when the parties made a stipulation as regards the right of the creditor to the fruits of the thing b\. when the obligation is subject to a suspensive condition or period; arises upon fulfillment of the condition or arrival of the period *PERSONAL V. REAL RIGHT* 3. To deliver its accessions and accessories Accessions -- additions to or improvements upon a thing. Ex: air conditioner in a car. Accessories -- things joined to, or included with the principal thing for its better use, embellishment or completion. Ex:key of a house; frame of a picture (De Leon, 2003 ed., pp. 37-38) 4. To deliver the thing itself 5. To pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor of the obligation. *[DUTIES OF DEBTOR IN AN OBLIGATION TO GIVE A GENERIC THING ]* 1\. To deliver the thing which is neither of superior nor of inferior quality 2\. To pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor of the obligation. *[REMEDIES OF THE CREDITOR IN CASE OF NON-PERFORMANCE (See Arts 1165 -- 1168) ]* 1\. Specific Performance: Performance by the debtor of the prestation itself 2\. Substitute Performance: someone else performs or something else is performed at the expense of debtor 3\. Equivalent Performance *[BREACH OF OBLIGATIONS (See Arts. 1170 -- 1174) ]* 1. Voluntary -- debtor in the performance of the obligation is guilty of: a. ***[FRAUD (Dolo) ]*** i. It is the deliberate or intentional evasion of the normal fulfillment of an obligation. (8 Manresa 72) O'leary Macondray & Co., 45 Phil. 812 \[1924\[-- ii. It implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment made in good faith. It is synonymous to bad faith TYPES OF FRAUD 1. *Causal Fraud (Dolo* Causante): fraud employed in the execution of the contract 2. Incidental Fraud (Dolo Incidente): fraud in performance of obligation already existing because of a contract. The law presumes or requires a man to possess ordinary capacity to avoid harming his neighbors unless a clear and manifest incapacity is shown and the law does not hold him liable for unintentional injury unless, possessing such capacity, he might and ought to have foreseen the danger. Causal Fraud (Art. 1338) Incidental Fraud (Art. 1344) ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------- Present during the perfection of a contract Present during the performance of a pre-existing obligation Purpose is to secure the consent of another to enter into the contract Purpose is to evade the normal fulfillment of the obligation Results in the breach of an obligation Purpose is to secure the consent of the other party but the fraud was not the principal inducement in making the contract Results in vitiation of consent; voidable contract Does not result in the vitiation of consent Gives rise to a right in favor of the creditor to recover damages Gives rise to a right of an innocent party to annul the contract Gives rise to a right of an innocent party to claim for damages NOTE: Future fraud cannot be waived. However, the law does not prohibit renunciation of the action for damages on the ground of fraud already committed. REMEDIES OF DEFRAUDED PARTY Insist on specific performance (Art 1233) Resolve contract (Art 1191) Claim damages, in either case ***[b.) NEGLIGENCE (CULPA)]*** KINDS OF NEGLIGENCE 1\. Quasi-Delict (Culpa aquiliana /culpa extra contractual)- source of obligation. Negligence is substantive and independent, There may or may not be a pre-existing contractual obligation 2\. Contractual Negligence (Culpa Contractual)- negligence in the performance of a contract. Negligence merely an incident of performance of an obligation There is a pre-existing contractual relation Source of the obligation is the negligence itself Source of the obligation is the breach of the contractual obligation NOTE: Negligence can be waived except in cases where the nature of the obligation or public policy requires another standard of care. EXCEPTIONS: Nature of Obligation of a Common carrier FRAUD V. NEGLIGENCE *[In Fraud, ]* -there is deliberate intention to cause damage. -Liability cannot be mitigated -Waiver for future fraud is void *[In Negligence, ]* -There is no deliberate intention to cause damage. -Liability may be mitigated. -Waiver for future negligence may be allowed in certain cases Negligence must be proved Proof of existing of the contract and its breach is prima facie sufficient to warrant recovery Diligence in the selection and supervision of the employees is a defense Diligence in the selection and supervision of the employees is not available as a defense *EFFECTS OF CONTRIBUTORY NEGLIGENCE OF THE CREDITOR GENERAL RULE:* Reduces or mitigates the damages which he can recover EXCEPTION: If the negligent act or omission of the creditor is the proximate cause of the event which led to the damage or injury complained of, he cannot recover. ***[C. DELAY (MORA) ]*** 1\. Ordinary Delay -- failure to perform an obligation on time *[REQUISITES OF DELAY ]* 1\. Obligation must be due, demandable and liquidated; 2\. Debtor fails to perform his positive obligation on the date agreed upon; 3\. A demand (not merely a reminder or notice), judicial or extra-judicial, made by the creditor upon the debtor to fulfill, perform or comply with his obligation otherwise, he will be in default; and 4\. Failure of the debtor to comply with such demand. KINDS OF DELAY 1. Mora Solvendi-- default on the part of the [debtor:] a. Mora Solvendi Ex re -- default in real obligations b. Mora Solvendi Ex persona -- default in personal obligations REQUISITES: a\. The obligation must be due, enforceable and already liquidated or determinate in amount; b\. There must be non-performance; and c\. There must be a demand, unless demand is not required. GENERAL RULE: *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.* EXCEPTIONS (no demand necessary) a\. When the obligation or the law expressly so declare; or b\. 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 c\. When demand would be useless, as when the obligor has rendered it beyond his power to perform EFFECTS: a\. Debtor is guilty of breach of the obligation b\. Liability: 1.) If obligation to pay money- must pay interest. 2.) If no extra-judicial demand, interest runs from the filing of the complaint. In other obligations, pay damages. c. Obligations to deliver a determinate thing, liable for **[fortuitous events]**. If debtor can prove that loss would have resulted even if he had not been in default, the court may equitably mitigate the damages (Art. 2215\[4\]) d. Resolution (Art 1170, in proper cases) 2. Mora Accipiendi -- default on part of [creditor] when he unjustifiably refuses to accept the performance of the obligation. REQUISITES: a\. Offer of performance by the debtor b\. Offer must be to comply with the prestation as it should be performed c\. Creditor refuses the performance without just cause EFFECTS: a\. Responsibility of debtor is limited to fraud and gross negligence b\. Debtor is exempted from risk of loss of thing; creditor bears risk of loss c\. Expenses by debtor for preservation of thing after delay is chargeable to creditor d\. If obligation bears interest, debtor does not have to pay from time of delay e\. Creditor liable for damages f\. Debtor may relieve himself of obligation by consigning the thing 3. Compensatio morae -- *[both parties]* are in default (in reciprocal obligations); there is no actionable default on the part of both parties REQUIREMENTS: (Nakpil and Sons vs. CA): 2\. The event must be either unforeseeable or unavoidable [RULE ON FORTUITOUS EVENT: ] GENERAL RULE: No liability for fortuitous event EXCEPTIONS: 2\. When expressly declared by stipulation or contract 3\. When nature of obligation requires assumption of risk 4\. When the obligor is in default or has promised to deliver the same thing to two or more persons who do not have the same interest (Art. 1165\[3\]) [EFFECT OF FORTUITOUS EVENT ] Determinate Obligation Obligation is extinguished Art. 1176 The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. PRINCIPLE IN ARTICLE 1176 Art. 1177 The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Art. 1178 Subject to the laws, [all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary]. (1112) Art. 1191. The power to rescind obligations is implied in [reciprocal ones], in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124) Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. *[REMEDIES AVAILABLE TO CREDITORS FOR THE SATISFACTION OF THEIR CLAIMS ]* 1\. Exact fulfillment of the obligation by specific or substitute performance with a right to damages in either case; 2\. In case of reciprocal obligations, petition the court to resolve the contract; 3\. Pursue the leviable (not exempt from attachment under the law) property of the debtor; 4\. Accion directa (Arts. 1729 and 1652):Right of the lessor to go directly to sublessee for unpaid rents of the lessee. Right of the laborers or persons who furnish materials for a piece of work undertaken by a contractor to go directly to the owner for any unpaid claims due to the contractor 5\. Accion subrogatoria -- to be subrogated to all the rights and actions of the debtor save those which are inherent in his person REQUISITES: d\. The debtor\'s assets are insufficient to satisfy his claims; and 6\. Accion Pauliana -- asking the court to rescind or to impugn all the acts which the debtor may have done to defraud the creditors (Arts. 1380-1389) REQUISITES: a\. There is a credit in favor of plaintiff b\. The debtor has performed an act subsequent to the contract, giving advantage to other persons c\. The creditor is prejudiced by the debtor\'s act which are in favor of 3rd parties and rescission will benefit the creditor d\. The creditor has no other legal remedy e\. The debtor\'s acts are fraudulent **CHAPTER 3. - DIFFERENT KINDS OF OBLIGATIONS** **See Arts. 1179 -- 1230** PRIMARY CLASSIFICATION OF OBLIGATIONS UNDER THE CIVIL CODE 1. Demandability a\. pure, b\. conditional c\. with a period 2\. Plurality of object a\. simple b\. alternative c\. facultative 3\. Plurality of subject a\. Simple b\. Joint c\. solidary 4\. Performance a\. Divisible b\. indivisible 5\. Sanctions for breach a\. with a penal clause b\. without a penal clause *PURE AND CONDITIONAL OBLIGATIONS (See Arts. 1179 -- 1190)* PURE -- one whose effectivity or extinguishment does not depend upon the fulfillment or non-fulfillment of a condition or upon the expiration of a period and is demandable at once CONDITIONAL -- one whose effectivity is subordinated to the fulfillment or non-fulfillment of a future AND uncertain event or upon a past event unknown to the parties What is a Condition? *CONDITION* - Future and uncertain event or a past event unknown to the parties 1. Suspensive -- happening of condition gives rise to obligation Effects: a\. Effectivity retroacts to the day of the constitution of the obligation b\. No retroactivity with reference to fruits or interest and prescription c\. Creditor may preserve rights d\. Debtor -- recovery of payment by mistake or even w/o mistake RULES ON LOSS, DETERIORATION, AND IMPROVEMENTS DURING PENDENCY OF A SUSPENSIVE CONDITION (Art. 1189) *Improvement* 1. If by nature or by time- inures to the benefit of the debtor 2. If at the expense of the debtor-debtor's right is only that of a usufructuary *Deterioration/Loss* 1. Without the fault of the debtor - Obligation is extinguished 2. With the fault of the debtor- Debtor obliged to pay damages Creditor may choose between rescission or its fulfillment with damages in either case REQUISITES FOR THE APPLICATION OF ARTICLE 1189 a\. The obligation must be a real obligation b\. The object is a specific or determinate thing c\. The obligation is subject to a suspensive condition d\. The condition is fulfilled e\. There is loss, deterioration or improvement of the thing during the pendency of the happening of the condition 2\. Resolutory -- happening of condition extinguishes obligation EFFECTS: a\. No retroactive effect b\. Obligation extinguished c\. Restore to each other what was received plus interest/fruits 3\. Potestative -- dependent on sole will of 1 party; if on part of debtor and suspensive it is void 4\. Casual -- dependent on chance or hazard 5\. Mixed -- chance, or any of parties 6\. With term IMPOSSIBLE AND ILLEGAL CONDITIONS GENERAL RULE: They shall annul the obligation which depends upon them EXCEPTIONS: a\. pre-existing obligation b\. if obligation is divisible c\. in simple or remuneratory donations d\. testamentary dispositions e\. conditions not to do an impossible thing OBLIGATIONS WITH A PERIOD WITH A PERIOD -- An obligation which depends on a future and certain event (See Arts 1193, 1196) *WHEN STIPULATION SAYS "PAYABLE WHEN ABLE" -- IT IS WITH A PERIOD,* REMEDY: 1\. Agreement among parties 2\. Court shall fix period of payment when parties unable to agree KINDS: 1\. Resolutory ( in diem ) -- demandable at once but terminates upon arrival of the day certain Day certain -- that which must necessarily come, although it may not be known when 2\. Suspensive ( ex die ) --obligation becomes demandable on the day stipulated +-----------------------------------+-----------------------------------+ | Term (Period) | Condition | +===================================+===================================+ | Interval of time which is future | Fact or event which is future or | | and certain | uncertain or a past event unknown | | | to the parties | +-----------------------------------+-----------------------------------+ | Time w/c must necessarily come | Future and uncertain fact or | | although it may not be known when | event which may or may not happen | +-----------------------------------+-----------------------------------+ | Exerts an influence upon the time | Exerts an influence upon the very | | of demandability or | existence of the obligation | | extinguishment of an obligation | itself | +-----------------------------------+-----------------------------------+ | Does not have any retroactive | Has retroactive effect contrary | | effect unless there is an | | | agreement to the contrary | When it is left exclusively to | | | the will of the debtor, the | | When it is left exclusively to | obligation is void | | the will of the debtor, the | | | existence of the obligation is | | | affected | | +-----------------------------------+-----------------------------------+ WHEN COURTS MAY FIX PERIOD: 1\. If the obligation does not fix a period, but from its nature and circumstances it can be inferred that a period was intended by the parties 2\. If the duration of the period depends upon the will of the debtor 3\. In case of reciprocal obligations, when there is a just cause for fixing a period 4\. If the debtor binds himself when his means permit him to do so PERIOD FOR WHOSE BENEFIT ESTABLISHED GENERAL RULE: When a period is designated for the performance or fulfillment of an obligation, it is presumed to have been established for the benefit of both creditor and debtor. EXCEPTION: When it appears from the tenor of the obligation or other circumstances that the period has been established in favor of one or the other. 1. PERIOD FOR THE BENEFIT OF THE CREDITOR. Creditor may demand the fulfillment of the obligation at any time but the debtor cannot compel him to accept before the expiration of the period 2. PERIOD FOR THE BENEFIT OF THE DEBTOR. Debtor may oppose any premature demand of the creditor but he may renounce the benefit of the period by performing his obligation in advance (Manresa) WHEN DEBTOR LOSES RIGHT TO PERIOD: 1. Insolvency of debtor, unless security provided 2. Did not deliver security promised 3. Impaired security through his own acts or through fortuitous event unless he gives new securities equally satisfactory 4. Violates undertaking in consideration of extension of period Attempts to abscond ALTERNATIVE OBLIGATIONS (See Arts. 1199 -- 1206) *a.) FACULTATIVE* - only one prestation has been agreed upon but another may be given in substitution *EFFECT OF LOSS OR DETERIORA0TION THRU NEGLIGENCE, DELAY OR FRAUD OF OBLIGOR:* 1. Of thing intended as substitute - no liability 2. Of the substitute after substitution is made -- with liability b.) *ALTERNATIVE* -- bound by different prestations but only one is due RIGHT OF CHOICE IN ALTERNATIVE OBLIGATIONS.As a general rule the right of choice belongs to debtor EFFECT OF LOSS OF OBJECTS OF ALTERNATIVE OBLIGATIONS 1. If the right of choice belongs to the debtor a. If through a fortuitous event all were lost, debtor cannot be held liable for damages b. If 1 or more but not all of the things are lost or one or some but not all of the prestations cannot be performed due to fortuitous event or fault of the debtor, creditor cannot hold the debtor liable for damages because the debtor can still comply with his obligation c. If all things, except one, were lost, the debtor must comply by performing that which remain d. If all were lost by fault of the debtor the later is liable for the value of the last thing or service which became impossible 2. If right of choice belongs to the creditor e. If 1 of the things is lost through a fortuitous event, the debtor shall perform the obligation by delivering that which the creditor should choose from among the remainder or that which remains if only 1 subsists f. If the loss of 1 of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting or the price of that which, through the fault of the former, has disappeared with a right to damages g. If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any 1 of them, also with indemnity for damages. REQUISITES FOR MAKING THE CHOICE: 1\. Made properly so that creditor or his agent will actually know 2\. Made with full knowledge that a selection is indeed being made 3\. Made voluntarily and freely 4\. Made in due time -- before or upon maturity 5\. Made to all proper persons 6\. Made w/o conditions unless agreed by the creditor 7\. May be waived, expressly or impliedly ALTERNATIVE vs. FACULTATIVE ALTERNATIVE FACULTATIVE ALTERNATIVE FACULTATIVE -------------------------------------------------------------------------- -------------------------------------------------------------------------- a\) Various things are due but the giving principally of one is a\) Only one thing is due but a substitute may be given to render sufficient payment/fulfillment easy b\) If one of prestations is illegal, others may be valid but obligation b\) If principal obligations is void and there is no necessity of giving remains the substitute; nullity of P carries with it nullity of S c\) If it is impossible to give all except one, the last one must still c\) If it is impossible to give the principal, the substitute does not be given have to be given; if it is impossible to give the substitute, the principal must still be given d\) Right to choose may be given either to debtor or creditor d\) The right of choice is given only to the debtor JOINT AND SOLIDARY OBLIGATIONS (See Arts. 1207 -- 1222) [JOINT] -- presumption when two or more creditors or two or more debtors concur in one and the same obligation EXCEPTIONS TO THE PRESUMPTION 1\. when expressly stated that there is solidarity 2\. when the law requires solidarity 3\. when the nature of the obligation requires solidarity 4\. when a charge or condition is imposed upon heirs or legatees and the testament expressly makes the charge or condition in solidum (Manresa) 5\. when a solidary responsibility is imputed by a final judgment upon several defendants (Gutierrez v. Gutierrez) EFFECTS OF JOINT LIABILITY 1\. Demand on one produces delay only with respect to the debt 2\. Interruption in payment by one does not benefit or prejudice the other 3\. Vices of one debtor to creditor has no effect on the others 4\. Insolvency of one debtor does not affect other debtors *JOINT DIVISIBLE OBLIGATIONS* 1\. Each creditor can demand for the payment of his proportionate share of the credit, while each debtor can be held liable only for the payment of his proportionate share of the debt 2\. A joint creditor cannot act in representation of the other creditors while a joint debtor cannot be compelled to answer for the acts or liability of the other debtors *JOINT INDIVISIBLE OBLIGATIONS* 1\. If there are 2 or more debtors, the fulfillment of or compliance with the obligation requires the concurrence of all the debtors, although each for his own share. The obligation can be enforced only by proceeding against all of the debtors. 2\. If there are 2 or more creditors, the concurrence or collective act of all the creditors, although each for his own share, is also necessary for the enforcement of the obligation EFFECT OF BREACH If one of the joint debtors fails to comply with his undertaking, the obligation can no longer be fulfilled or performed. Consequently, it is converted into one of indemnity for damages. Innocent joint debtor shall not contribute to the indemnity beyond their corresponding share of the obligation. INDIVISIBILITY SOLIDARITY ------------------------------------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------- Refers to the prestation which constitutes the object of the obligation Refers to the legal tie and consequently to the subjects or parties of the obligation Plurality of subjects is not required Plurality of subjects is indispensable In case of breach, obligation is converted into 1 of indemnity for damages because of the breach, indivisibility of the obligation is terminated debtors remains When there is liability on the part of the debtors because of the breach, the solidarilty among debtors remains [SOLIDARY] -- must be expressed in stipulation or provided by law or by nature of obligation 1. Active -- on the part of creditor or oblige a. EFFECTS: i. Death of 1 solidary creditor transmits share to heirs (but collectively) ii. Each creditor represents the other in the act of recovery of payment iii. Credit is divided equally between creditors as among themselves iv. Debtor may pay any of the solidary creditors 2. Passive -- on the part of debtors or obligors b. EFFECTS: v. Each debtor may be requested to pay whole obligation with right to recover from co-debtors vi. Interruption of prescription to one creditor affects all vii. Interest from delay on 1 debtor is borne by all 4\. Conventional -- agreed upon by the parties 5\. Legal -- imposed by law EFFECT OF LOSS OR IMPOSSIBILITY OF THE PRESTATION: 1\. If without fault -- no liability 2\. If with fault -- there is liability (also for damage and interest) 3\. Loss due to fortuitous event after default -- there is liability (because of default) *DIVISIBLE AND INDIVISIBLE OBLIGATIONS (See Arts. 1223 -- 1225)* 1. DIVISIBLE - obligation that is capable of partial performance Execution of certain no of days work Expressed by metrical units Nature of obligation -- susceptible of partial fulfillment 2. INDIVISIBLE -- one not capable of partial performance *OBLIGATIONS WITH A PENAL CLAUSE (See Arts. 1226 -- 1230)* WITH PENAL CLAUSE -- One to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach CAUSES FOR REDUCTION OF PENALTY: 1\. Partial/irregular performance 2\. Penalty provided is iniquitous/ unconscionable **CHAPTER 4.** **EXTINGUISHMENT OF OBLIGATIONS See Arts. 1232 -- 1304)** MODES OF EXTINGUISHMENT OF OBLIGATION (Art. 1231): 1\. Payment or performance 2\. Loss of the thing due 3\. Condonation or remission of debt 4\. Confusion or merger of rights 5\. Compensation 6\. Novation 7\. Annulment 8\. Rescission 9\. Fulfillment of resolutory condition 1. **PAYMENT OR PERFORMANCE** - delivery of money and performance, in any other manner of the obligation REQUISITES FOR VALID PAYMENT/PERFORMANCE 1\. With respect to prestation itself a\. Identity b\. Integrity or completeness c\. Indivisibility 2\. With respect to parties - must be made by proper party to proper party a\. Payor iii. Anyone in possession of the credit - but will apply only if debt has not been previously garnished PAYMENT MADE TO AN INCAPACITATED PERSON, VALID IF 1\. Incapacitated person kept the thing delivered, or 2\. Insofar as the payment has been beneficial to him PAYMENT TO 3RD PARTY NOT AUTHORIZED, VALID IF PROVED AND ONLY TO THE EXTENT OF BENEFIT; PRESUMED IF 1\. After payment, 3rd person acquires the creditor's rights 2\. Creditor ratifies payment to 3rd person 3\. By creditor's conduct, debtor has been led to make the payment (estoppel) PAYMENT MADE IN GOOD FAITH TO A PERSON IN POSSESSION OF CREDIT SHALL RELEASE DEBTOR; REQUISITES: 1\. Payment by debtor must be made in good faith 2\. Creditor must be in possession of the credit and not merely the evidence of indebtedness NOTE: With respect to time and place of payment - must be according to the obligation WHERE PAYMENT SHOULD BE MADE 1\. In the place designated in the obligation 2\. If there is no express stipulation and the undertaking is to deliver a specific thing -- at the place where the thing might be at the moment the obligation was constituted 3. In other case -- in the place of the domicile of the debtor Time of payment - time stipulated Effect of payment -- extinguish obligation Except: order to retain debt *SUBSTANTIAL PERFORMANCE* Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. Attempt in Good Faith to perform without willful or intentional departure Deviation is slight Omission/Defect is technical or unimportant Must not be so material that intention of parties is not attained *EFFECT OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH* Obligor may recover as though there has been strict and complete fulfillment, less damages suffered by the oblige Right to rescind cannot be used for slight breach *SPECIAL RULES/FORMS OF PAYMENT* 1. [APPLICATION OF PAYMENTS] -- the designation of the debt which payment shall be made, out of 2 or more debts owing the same creditor: stipulation or application of party given benefit of period -- OK; to be valid: must be debtor's choice or w/ consent of debtor REQUISITES FOR THE APPLICATION OF PAYMENT: a\. Various debts of the same kind b\. Same debtor c\. Same creditor d\. All debts must be due EXCEPTION: there may be application of payment even if all debts are not yet due if: a\. Parties so stipulate b\. When application of payment is made by the party for whose benefit the term has been constituted c\. Payment is not enough to extinguish all debts HOW APPLICATION IS MADE: a\. Debtor makes the designation b\. If not, creditor makes it by so stating in the receipt that he issues -- unless there is cause for invalidating the contract c\. If neither the debtor nor creditor has made the application or if the application is not valid, then application, is made by operation of law WHO MAKES APPLICATION OF DEBTS GENERAL RULE: Debtor EXCEPTION: Creditor c\. In case no application is made: 2. [DACION EN PAGO ] -- mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor property for the satisfaction of monetary debt; extinguish up to amount of property unless w/ contrary stipulation; IDENTITY CONDITIONS FOR A VALID DACION: a\. If creditor consents, for a sale presupposes the consent of both parties b\. If dacion will not prejudice the other creditors c\. If debtor is not judicially declared insolvent NOTE: DACION is governed by the law on sales 3\. [CESSION or ASSIGNMENT CESSION/ASSIGNMENT IN FAVOR OF CREDITORS] -- the process by which debtor transfer all the properties not subject to execution in favor of creditors is that the latter may sell them and thus, apply the proceeds to their credits; extinguish up to amount of net proceeds ( unless w/ contrary stipulation ) KINDS OF ASSIGNMENT: a\. Legal -- governed by the insolvency law b\. Voluntary -- agreement of creditors REQUISITES OF VOLUNTARY ASSIGNMENT: a\. More than one debt b\. More than one creditor c\. Complete or partial insolvency of debtor d\. Abandonment of all debtor's property not exempt from execution e\. Acceptance or consent on the part of the creditors EFFECTS OF ASSIGNMENT: a\. Creditors do not become the owner; they are merely assignees with authority to sell b\. Debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the contrary c\. Creditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order ordinarily established by law DATION IN PAYMENT VS. CESSION IN PAYMENT DATION IN PAYMENT CESSION IN PAYMENT ------------------------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ One creditor One creditor Not necessarily in state of financial difficulty Debtor must b partially or relatively insolvent Thing delivered is considered as equivalent of performance Universality of property of debtor is what is ceded Payment extinguishes obligation to the extent of the value of the thing delivered as agreed upon, proved or implied from the conduct of the creditor Merely releases debtor for net proceeds of things ceded of, assigned, unless there is a contrary intention 3. [TENDER OF PAYMENT & CONSIGNATION] -- a. the act of offering the creditor what is due him together with a demand that the creditor accept the same (When creditor refuses w/o just cause to accept payment, he becomes in mora accepiendi and debtor is released from responsibility if he consigns the thing or sum due) b. CONSIGNATION -- the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment; generally requires prior tender of payment REQUISITES OF VALID CONSIGNATION: a\. Existence of valid debt b\. Consignation was made because of some legal cause - previous valid tender was unjustly refused or circumstances making previous tender exempt c\. Prior Notice of Consignation had been given to the person interested in performance of obligation (1st notice) d\. Actual deposit/Consignation with proper judicial authorities e. Subsequent notice of Consignation (2nd notice) EFFECTS: EXTINGUISHMENT OF OBLIGATION a\. Debtor may ask judge to order cancellation of obligation b\. Running of interest is suspended CONSIGNATION W/O PRIOR TENDER -- allowed in: a\. Creditor absent or unknown/ does not appear at the place of payment\ b. Incapacitated to receive payment at the time it is due c\. Refuses to issue receipt w/o just cause d\. 2 or more creditor claiming the same right to collect e\. Title of obligation has been lost 4. [LOSS OF THE THING DUE LOSS OF THE THING DUE] -- partial or total/ includes impossibility of performance *OBLIGATION TO DELIVER A SPECIFIC THING* GENERAL RULE: Extinguished EXCEPTIONS: a\. Debtor is at fault b\. Debtor is made liable for fortuitous event because of a provision of law, contractual stipulation or the nature of the obligation requires assumption of risk on part of debtor *OBLIGATION TO DELIVER A GENERIC THING* GENERAL RULE: Not extinguished EXCEPTIONS: a. When loss is significant -- may be enough to extinguish obligation b. When loss insignificant -- not enough to extinguish obligation WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR Presumption: Loss due to debtor's fault (disputable) Exception: natural calamity, earthquake, flood, storm 5. [REBUS SIC STANTIBUS] - agreement is valid only if the same conditions prevailing at time of contracting continue to exist at the time of performance; Obligor may be released in whole or in part based on this ground. REQUISITES: a\. The event or change could not have been foreseen at the time of the execution of the contract b\. The performance is extremely difficult, but not impossible (because if it is impossible, it is extinguished by impossibility) c\. The event was not due to the act of any of the parties d\. The contract is for a future prestation [6. CONDONATION ] CONDONATION/REMISSION OF THE DEBT -- 1. gratuitous abandonment of debt; right to claim; 2. donation; rules of donation applies; express or implied REQUISITES: a\. There must be an agreement b\. There must be a subject matter (object of the remission, otherwise there would be nothing to condone) c\. Cause of consideration must be liberality (Essentially gratuitous, an act of liberality ) d\. Parties must be capacitated and must consent; requires acceptance by obligor; implied in mortis causa and expressed inter vivos e\. Formalities of a donation are required in the case of an express remission f\. Revocable -- subject to rule on inofficious donation ( excessive, legitime is impaired ) and ingratitude and condition not followed g\. Obligation remitted must have been demandable at the time of remission h. Waivers or remission are not to be presumed generally REQUISITES OF IMPLIED CONDONATION 1\. Voluntary delivery -- presumption; when evidence of indebtedness is w/ debtor -- presumed voluntarily delivery by creditor; rebuttable 2\. Effect of delivery of evidence of indebtedness is conclusion that debt is condoned -- already conclusion; voluntary delivery of private document a\. If in hands of joint debtor -- only his share is condoned b\. If in hands of solidary debtor - whole debt is condoned c\. Tacit -- voluntary destruction of instrument by creditor; made to prescribe w/o demanding 6. [CONFUSION OR MERGER CONFUSION OR MERGER OF RIGHTS]-- character of debtor and creditor is merged in same person with respect to same obligation REQUISITES: a\. It must take place between principal debtor and principal creditor only b\. Merger must be clear and definite c\. The obligation involved must be same and identical -- one obligation only d\. Revocable, if reason for confusion ceases, the obligation is revived 7. [COMPENSATION] -- Set off; it is a mode of extinguishment to the concurrent amount the obligation of persons who are in their own right reciprocally debtors or creditors REQUISITES: a\. Both parties must be mutually creditors and debtors - in their own right and as principals b\. Both debts must consist in sum of money or if consumable , of the same kind or quality c\. Both debts are due d\. Both debts are liquidated and demandable (determined) e\. Neither debt must be retained in a controversy commenced by 3rd person and communicated w/ debtor (neither debt is garnished) KINDS OF COMPENSATION a\. Legal -- by operation of law; as long as 5 requisites concur- even if unknown to parties and if payable in diff places; indemnity for expense of exchanges; even if not equal debts -- only up to concurring amount b\. Conventional -- agreement of parties is enough, forget other requirement as long as both consented c. Facultative -- one party has choice of claiming/opposing one who has benefit of period may choose to compensate: d. Judicial -- set off; upon order of the court; needs pleading and proof; all requirements must concur except liquidation e. Total -- when 2 debts are of the same amount f. f\. Partial -- when 2 debts are not of the same amount EFFECT OF ASSIGNMENT OF CREDIT TO 3RD PERSON; CAN THERE STILL BE COMPENSATION a\. If made after compensation took place -- no effect; compensation already perfected b\. If made before compensation took place -- depends 8. [NOVATION] extinguishment of obligation by creating/ substituting a new one in its place 1. Changing object or principal conditions 2. Substituting person of debtor 3. Subrogating 3rd person in right of creditor REQUISITES: a\. Valid obligation b\. Intent to extinguish old obligation -- expressed or implied: completely/substantially incompatible old and new obligation on every point c. Capacity and consent of parties to the new obligation d\. Valid new obligation EFFECTS OF NOVATION: a. Extinguishment of principal carries accessory, a. except: i. Stipulation to contrary ii. Stipulation pour autrui unless beneficiary consents iii. Modificatory novation only; obliged to w/c is less onerous iv. Old obligation is void b. Old obligation subsists if new obligation is void or voidable but annulled already (except: intention of parties) If old obligation has condition b. If Resolutory and it occurred -- old obligation already extinguished; no new obligation since nothing to novate c. If Suspensive and it never occurred --as if no obligation; also nothing to novate d. If old obligation has condition, must be compatible with the new obligation; if new is w/o condition -- deemed attached to new e. If new obligation has condition v. If resolutory: valid vi. If suspensive and did not materialize: old obligation is enforced KINDS OF NOVATION: a\. REAL/OBJECTIVE -- change object, cause/consideration or principal condition b\. PERSONAL/SUBJECTIVE END