Obligations.pdf

Introduction to Law 1 Law: Any rule of action or any sense of uniformity - Not only for activities but also the movements/motions o All objects (inanimate/animate) General Divisions 1. Strict legal sense a. Promulgated and enforced by law b. State law 2. Non-legal sense a. Vice-versa b. Divine, natural, moral, physical law

Physical Law: laws of physical science - Course of nature - Certain results follow certain causes State Law: positive, municipal, civil, imperative law - Only law enforced by the state

Physical law operates on all things

Concepts of State Law 1. General sense a. Mass of obligatory rules for the purpose of governing the relations of people in society 2. Specific Sense a. A rule of conduct, just, obligatory, promulgated by legitimate authority, and of common observance and benefit

Divine Law: Concept of sin and salvation - Promulgated by God o Ten commandments o Differs from what one believes - Sanction is rewards/punishments in the life to come

Characteristics of SL 1. Rule of conduct: be done/not be done 2. Obligatory: duty to obey 3. Promulgated by legitimate authority 4. Common observance and benefit: intended by man to serve man; all for the benefit of all

Natural law: internal dictates of reason alone - Moral nature of man o Simply good, bad, or evil o Sense of justice, fairness, and righteousness - Impressed in man at the very moment of being - REASONABLE BASIS of state law

Functions of SL 1. Need for internal order is constant as need for external defense 2. Life without basic laws would be solitary, nasty, brutish, and short 3. No society can last w/o rules of social order binding on its members

State, divine, natural, moral law apply to men as rational beings

Moral Law: Totality of norms of good and right conduct - Collective sense of right and wrong o Good for the welfare of the group - Disregarded: public displeasure, contempt, indignation - Conformity: pleasure, approval, joy - Varies w/ changing times - INFLUENCES/SHAPES state law

Sources of SL 1. Constitution a. Fundamental, supreme, highest law b. Binding on all individual citizens and all agencies c. Laws inconsistent with const. are void 2. Legislation a. Enacted, statute laws b. Laws by LGUs 3. Administrative/ Executive orders

Introduction to Law 2 a. Issued by admin officials under legislative auth. b. Valid only if not contrary to laws 4. Judicial decisions/ Jurisprudence a. Decisions of the Supreme Court i. Doctrine of precedent (stare decisis) 1. Binding on all subordinate courts b. SC may reverse/modify any previous ruling 5. Custom a. Habits through long usage are approved by society as binding rules of conduct 6. Other Sources a. Foreign tribunals, opinions of text writers i. Supplementary and not binding on courts “No judge or court shall decline to render judgement by reason of the silence, obscurity or insufficiency of laws” (Art. 9, Civil Code) Law as means of social control – control of social behavior that affects others Ex. Churches, trade assn., labor unions, etc. You may leave the org. and sanctions are more complex (ex. Expulsion) In law, you cannot leave and sanction is imprisonment or deportation Organs of Social Control I. Regular Courts: Hierarchy of courts 1. SC 2. Court of Appeals 3. Regional Trial Court 4. Metropolitan TC 5. Municipal Circuit TC II. Special Courts 1. Sandiganbayan i. Special anti-graft court 2. Court of Tax Appeals

III.

Quasi-judicial agencies: admin bodies under exec. Branch performing quasi-judicial func. 1. Natl Labor Relations Commission 2. SEC 3. LTFRB etc. Involve the settlement/adjudication of controversies or disputes

Classification of Law I. As to its purpose 1. Substantive Law: i. creating, defining, regulating rights/duties ii. Public/private 2. Adjective: manner/procedure rights may be enforced i. Remedial/procedural law ii. Governed by Rules of Court; promulgated by SC II. As to its subj. matter 1. Public Law: regulates rights/duties arising from relationship of State to people i. Criminal law ii. Intl. Law, Const. law, Admin. law, Criminal procedure 2. Private Law: regulates relationship of individuals w/ one another i. Law on Oblicon ii. Civil law, Commercial law, Civil Procedure 1. Means by which private rights may be enforced Law of Oblicon (RA No. 386) “The law of obligations and contracts is the body of rules which deals w/ the nature and sources of obligs. And the rights and duties arising from agreements and the particular contracts” (Art. 1307) - Took effect on December 7, 1889 - Divided into 4 books Ignorance of law excuses no one from compliance therewith (Art. 3, Civil Code) Everyone is conclusively presumed to know the law.

General Provisions of Obligations 1 Obligation: obligatio: tying/binding - One is bound in favor of another to render something o To give, to do, not to do

Requisites of a Legal Wrong: 1. Legal right 2. Legal oblig 3. Act/omission by the latter

An obligation is a juridical necessity to give, to do or not to do. – Art. 1156

An oblig cannot exist w/o a corresponding right in favor of another, vice-versa

Civil Code definition: oblig in its passive aspect - Merely stresses the duty of the debtor (D) or obligor (He who gives doing and not doing)

Kinds of oblig acc. to subj. matter 1. Real oblig: to give a. Subj matter is a THING 2. Personal oblig: ACT to be done a. Positive personal oblig: to do b. Negative personal oblig: not to do

Juridical necessity: courts of justice may be called in case of non-compliance to enforce fulfillment - D must comply whether he likes it or not o Unless not recognized by law as binding Civil oblig Give to the creditor (C) rights under the law to enforce performance in courts of justice

Natural Oblig Based on equity and natural law

Essential requisites of an oblig 1. Passive subj: D 2. Active subj: C 3. Object/prestation: subj. matter 4. Juridical/legal tie: source of oblig Form of obligs 1. Oral 2. Writing 3. Partly oral/writing Law does not require any form of oblig from contracts for their validity Obligation Right Act/performance Power a law will enforce person has under the law

Wrong Violation of the legal right of another

Obligations arise from: (1) Law; (2) Contracts; (3) Quasi Contracts; (4) Acts or omissions punished by law; (5) Quasi delicts. – Art. 1157 Sources of oblig 1. Law: Imposed by law itself 2. Contracts: from stipulation of parties 3. Quasi-contracts: from lawful, voluntary, unilateral acts a. There is no consent b. No one shall be unjustly enriched/benefited at the expense of another – Art. 2142 4. Delicts (Crimes): from civil liability a. Consequence of a criminal offense 5. Quasi-delicts (Torts) a. From damage caused to another through an act/omission b. Fault/negligence i. no contractual relation Classification of Sources From Law From Private acts Licit acts Illicit acts Law Contracts Delicts Quasi-contracts Quasi-delicts

General Provisions of Obligations 2 Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen’ by the provisions of this Book. – Art 1158 Legal obligs to be demandable; they must be clearly set forth in the law (i.e., Civil Code/special laws) Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith – Art. 1159 Contractual obligs: valid and enforceable - Contract: one binds himself to give something or render some service - Not superior to the law o Invalid if it is contrary to law - May be valid but not enforceable o Unauthorized contracts o Do not comply with statute of frauds o Where both parties are incapable of giving - Breach of contract: a party fails/refuses to comply w/o legal reason/justification - Compliance in good faith: performance with sincerity and honesty is observed Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book. – Art. 1160 Kinds of Quasi-contracts 1. Negotiorum gestio: voluntary mgt. of property w/o the knowledge of another 2. Solutio indebiti: unduly delivered through mistake; no right to receive 3. Other examples a. Milk placed at your door and you should pay if you drink

Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages – Art. 1161 Civil liability from Delicts 1. Criminally liable: Civilly liable for damages 2. Not Criminally liable: Civilly liable a. Fails to pay contractual debt b. Negligent damage to other’s property Scope of Civil liability 1. Restitution a. making good of or giving an equivalent for some injury 2. Reparation for the damage caused 3. Indemnification for consequential damages Obligations derived from Quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws – Art. 1162 Requisites of a quasi-delict 1. Act or omission 2. Fault or negligence 3. Damage caused 4. Direct cause and effect relationship betw act and damage 5. No pre-existing contractual relation Delict w/ criminal intent Purpose is punishment Civil and Criminal Liability No compromised Guilt proven w/o unreasonable doubt

Quasi-delict Only negligence Concerns privateintrest Only Civil Liablity Can be compromised Negligence proved by great weight of evidence

Nature and Effect of Obligations 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 stipulation of the parties requires another standard of care – Art. 1163 Specific/Determinate physically segregated others of the same class Cannot be substituted without the consent of C

Generic/Indeterminate class/genus

Can be given any of the same class as long as it is of the same kind

Duties of D in oblig to give a determinate thing 1. Preserve the thing: incidental duty to take care a. Diligence of a good father of a family i. Ordinary care b. Another standard of care i. Common carrier ii. Extraordinary care needed iii. May stipulate if less or more than that of a good father c. If due by a fortuitous event (force majeure) i. D is not liable for his failure d. To insure thing would subsist in the same condition as when it was contracted 2. Deliver the fruits of the thing 3. Deliver the accession and accessories 4. Deliver the thing itself 5. Answer for damages in case of nonfulfillment/breach Duties of D in oblig to give a generic thing 1. Deliver which is of the quality intended by parties a. Consider purpose 2. Liable for damages in case of fraud, negligence, delay, or contravention of the tenor thereof

The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him – Art. 1164 Kinds of fruits 1. Natural Fruits: products of soil, animals 2. Industrial Fruits: produced by lands through cultivation/labor 3. Civil Fruits: by virtue of juridical relation Right of C to the fruits - Entitled from time the oblig to make delivery arises When oblig to deliver fruits arises 1. Perfection of the contract: meeting of the minds 2. If subj. to a suspensive cond./period a. The fulfillment of cond. b. Arrival of the term 3. In contract of sale a. perfection of contract 4. In oblig to give arising from law a. Determined by specific provisions Personal right Right of C to demand from D Definitive active subj Definitive passive subj Enforceable only against a particular person

Real right Right of a person over a specific thing Definitive active subj Directed against the whole world

“He shall acquire no real right over it until the same has been delivered to him,” - When there is no delivery yet o Action of C is…  Specific performance  Rescission of the oblig  NOT RECOVERY

Nature and Effect of Obligations 2 When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Art. 1170, may compel the debtor to make the delivery If the things is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for fortuitous event until he has effected the delivery – Art. 1165 Remedies of C in Real Oblig I. In specific real oblig 1. Specific performance i. w/ right to indemnity for damages 2. Rescission/cancellation i. w/ right to recover damages 3. Payment of damages only i. When it is the only feasible remedy C cannot use violence/force upon D. C must bring the matter to court II.

In generic real oblig 1. Can be performed by a third person 2. Has the right to recover damages in case of breach

Fortuitous event does not exempt D from responsibility when… (refers to determinate things) 1. If D delays 2. If D promises to deliver to same thing to two or more persons The obligation to give a determinate thing includes that of delivering all its accession and accessories, even though they may not have been mentioned. – Art 1166

Accession: fruits of a thing/additions/improvements Accessory: things joined/included for better use/ completion Accession Not necessary to the principal Air-conditioner of a car Stock dividends

Accessory Must go together with the principal Key of a house Bow of a violin

General rule, all accessories and accessions are included in oblig to deliver a determinate thing unless stipulated - Accessory follows the principal If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. – Art. 1167 Remedies of C in Positive Personal oblig I. D fails to comply w/ his oblig to do 1. Oblig performed by C or another at D’s expense 2. Recover damages II. Thing poorly done be undone if it is still possible to undo what was done A personal real oblig to deliver a GENERIC thing can be done by a third person. D can be compelled to deliver a SPECIFIC thing BUT not a SPECIFIC PERFOMANCE - Involuntary servitude is prohibited under our Const. If personal qualifications are determining motive, performance of the same by another is impossible then, INDEMNIFICATION FOR DAMAGES is the only feasible remedy

Nature and Effect of Obligations 3 When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall be undone at his expense – Art. 1168 Remedies of C in Negative personal oblig 1. Undoing of the forbidden thing plus damages D cannot be guilty of delay Those obliged to deliver or to do something incur in delay from time the oblige 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 declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was 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. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins – Art. 1169 Ordinary Delay: failure to perform an oblig on time Legal Delay: default/mora: failure constitutes breach Kinds of Delay/default 1. Mora solvendi: delay of D to fulfill 2. Mora accipiendi: delay of C to accept

3. Compensatio morae: delay in reciprocal oblig Delay is impossible in negative personal oblig (not to do) Requisites of Mora Solvendi (Delay of D) 1. Failure of D to perform on the date 2. Demand by C (judicial/extrajudicial) 3. Failure of D to comply with demand Effects of Delay Mora Solvendi D is guilt of breach Liable to C for interest/damages Determinate: Liable for fortuitous event unless maprove na same lang mangyayari kahit nadelay Generic: compelled to deliver same kind/liable for damages

Mora accipiendi C is guilty of breach Liable to D for damages Bears risk of loss of the things due

Compensatio morae Both are guilty of breach No default on part of both parties

D is not liable for interest from C’s delay (if money) D may deposit/consign the oblig in court and be released

When demand is not necessary to put D in delay 1. When the oblig so provides a. Mere fixing of period is not enough (arrival just makes it demandable) b. Must use “D will be in default” / “I will be liable for damages”

Nature and Effect of Obligations 4 2. When the law so provides a. Taxes 3. When time is of the essence a. Need not state that time is of essence; intent is enough b. Ex. Delivery of balloons for wedding 4. When demand would be useless 5. When there is performance by a party in reciprocal oblig a. If one party is ready to fulfill oblig; delay begins Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. – Art. 1170 Grounds for Liability 1. Fraud (deceit/dolo) a. Intentional evasion b. Implies malice/dishonesty c. Incidental fraud (dolo incidente) i. Committed after the contract d. Causal fraud (dolo causante) i. Vitiates consent before perfection of the contract 2. Negligence (fault/culpa) a. Voluntary act/omission b. No bad faith/malice 3. Delay (mora) 4. Contravention of the terms of the oblig a. Violation of terms and cond. b. Contravention must not be due to force majeure Fraud Negligence Deliberate intention No intention Waiver of liability is not May be allowed allowed Must be clearly proved Is presumed Liab. Cannot be Liab. May be reduced mitigated/reduced acc. to instances

Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. – Art. 1171 Court is not given the power to mitigate/reduce the damages to be awarded - Fraud is evil and serious Fraud may be past/future - Waiver for future fraud is VOID o Makes oblig illusory - Waiver for past fraud is VALID o Considered as an act of generosity/magnanimity on the part of the party who is the victim of fraud o Act of forgiveness o Intention of oblige to give up his right against the obligor 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 is a question which must necessarily depend upon the circumstances of each particular case - Court may inc/dec the damages recoverable Validity of waiver from Negligence 1. Future negligence may be allowed EXCEPT when nature of oblig REQUIRES EXTRAORDINARY DILIGENCE a. Ex. Common carriers 2. When negligence shows bad faith=FRAUD a. Waiver=VOID Kinds of negligence acc. to the source of oblig 1. Contractual negligence (culpa contractual) a. Not a source of oblig b. Just makes D liable for damages 2. Civil negligence (culpa acquiliana) a. Source of an oblig b. From quasi-delict/tort

Nature and Effect of Obligations 5 3. Criminal negligence (culpa criminal) a. From delict/crime b. Aggrieved party may choose i. Criminal action ii. Civil action for damages iii. NOT BOTH for same ACT “When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages awarded” In other words, to be entitled to damages, it is not required that the negligence of the defendant should be the cause of the damage The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171, and 2201, paragraph 2, shall apply. 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 Fault/negligence: failure to observe for the protection of the interests of another person whereby such person suffers injury Factors to be considered in negligence 1. Nature of the obligation 2. Circumstance of the person 3. Circumstance of time 4. Circumstances of the place

Damages is to place the innocent party in the same position he would have occupied if oblig was performed Kinds of diligence required 1. Agreed upon by the parties 2. Required by the law a. Extraordinary diligence i. Common carriers 3. Expected of a good father of a family Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. – Art. 1174 Fortuitous event: cannot be foreseen; inevitable - Independent of the will of D - Acts of Man: war, fire, robber, murder - Acts of God: earthquake, flood, rain etc. Kinds of fortuitous events 1. Ordinary: common, can be foreseen a. rain 2. Extra-ordinary: uncommon a. Earthquake, fire, war, pestilence Requisites of a fortuitous event 1. Independent of the human will 2. Could not be foreseen; inevitable if foreseen 3. Renders D impossible to comply 4. D must be free from any participation of negligence Absence of 1 prevents D from exemption to liability Mere inability/poverty is not an excuse Difficulty to foresee is not an excuse MUST BE IMPOSSIBLE TO AVOID

Nature and Effect of Obligations 6 Not liable for fortuitous events EXCEPT WHEN 1. Expressly specified by law a. D is guilt of fraud, negligence, delay, or contravention of the tenor of oblig b. D has promised to deliver the same thing to 2 or more persons w/ diff interests c. Oblig to deliver a specific thing arises from a crime d. The thing to be delivered is generic 2. Declared by stipulation 3. Nature of the oblig requires the assumption of risk a. Insurance Usurious transactions shall be governed by special laws. – Art. 1175 Simple loan/mutuum: contract where one delivers to another, money/consumable thing, upon the cond. that the same amount of same kind, and qual is paid Usury: contracting for receiving interest in excess of the amount allowed by law Requisites to recover interest 1. Expressly stipulated 2. Must be in WRITING 3. Interest must be lawful Stipulation of usurious interest is VOID 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. – Art. 1176 Presumption: inference of a fact from its usual connection which is known and proved

Kinds of Presumption 1. Conclusive: cannot be contradicted 2. Disputable: can be contradicted upon presentation of proof When Presumption do not apply: 1. With reservation as the interest 2. Receipt w/o indication of particular installment paid a. Not enough na dated lang 3. Receipt for a part of the principal 4. Payment of taxes a. No presumption that prev. taxes have been paid 5. Non-payment proven a. Presumption cannot prevail over a proven fact The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the 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. – Art. 1177 Remedies available to C for satisfaction of their claims 1. Exact fulfillment w/ right to damages 2. Pursue the leviable property of D 3. Exercise all rights and bring all actions of D a. Right to collect from D to D 4. Ask the court to rescind/impugn acts/contracts which D may have done to defraud them Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. – Art 1178 All rights are transmissible except when: 1. Prohibited by law (contract of partnership, agency, commodatum)

Nature and Effect of Obligations 7 2. Prohibited by stipulation of the parties In case of death, 1. Goes to estate first 2. Only then would the kin be subjected to pay Rights are transmissible because instead of looking at it as an obligation to obligation; the nature is deconstructed and then incapsulates the essence where it starts and needs to be finished as a result of the set of obligations associated with the person.

Pure and Conditional Obligations 1 Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. – Art. 1179 Pure Oblig - Not subj to any cond. and no specific date Conditional Oblig - Subj. to the fulfillment of a cond. Characteristics of a cond. 1. Future and uncertain 2. Past but unknown 3. Must not be impossible Principal kinds of oblig 1. Suspensive cond. - Demandability until the happening of the uncertain event which constitutes the cond. - Fulfilled; oblig arises - Mere hope 2. Resolutory cond. - Fulfillment will extinguish an oblig. - Possibility of termination An oblig is demandable at once when…. 1. Pure (Art 1179, par.1) 2. Subj to a Resolutory cond. (par.2) 3. Subj to a resolutory period (Art 1193 par.3) a. A day certain is understood to be that which must necessarily come, although it may not be known when. Past event cannot be said to be a cond. Unless knowledge acquired in the future of a past event is unknown to the parties.

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, subject to the provisions of Article 1197. – Art. 1180 Period: Future and certain event Duration of period depend on debtor when… 1. Debtor promises to pay when his means permit him to do so a. Court shall affix time if parties cannot agree 2. Other cases: a. Little by little b. As soon as possible c. From time to time d. At any time I have the money e. In partial payments f. When I am in a position to pay In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. – Art. 1181 Acquisition of Rights Suspensive cond. Resolutory cond. If cond. does not take Happening of event place an it is certain produces that it will not be fulfilled extinguishment of then no cond. oblig rights already acquired would seem to have existed When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. – Art. 1182

Pure and Conditional Obligations 2 Classifications of Conditions I. As to effect: a. Suspensive: rises b. Resolutory: extinguishes II. As to form a. Express: clearly stated b. Implied: inferred III. As to possibility a. Possible b. Impossible i. Physically: nature of things ii. Legally: contrary to law, morals, good customs, public order/policy Effects of Impossible cond. Cond. Oblig is VOID PURE AND VALID If cond. oblig depends Cond. is NEGATIVE on the impossible cond. “not to do” Cond. may not be given an impossible thing AFFECTED oblig is VOID If divisible IV.

Only cond. is VOID If oblig is preexisting

As to cause/origin a. Potestative: sole will of one partner

If Suspensive Sole will of debtor Easily demandable Pwedeng di gawin cond. to not be liable No burden/juridical tie to debtor

Sole will of creditor Cond. can be void if preexisting cond. exists VALID

VOID REMEMBER: Art. 1156. An obligation is a juridical necessity to give, to do or not to do

Sole will of debtor Debtor is naturally interested in its fulfillment VALID *same position as creditor during suspensive b. Casual: will of third person VALID c. Mixed: partly chance and third pers. Partly will of debtor Partly will of third Debtor may still not VALID comply Same treatment as sole will of debtor VOID Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. – Art. 1183 The condition not to do an impossible thing shall be considered as not having been agreed upon. Impossibility already existed ART.1183 VOID

Impossibility rises after creation of oblig. Art. 1266 If no fault of obligor then debtor released

The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. – Art. 1266

Pure and Conditional Obligations 3

The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. – Art. 1184 The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. – Art. 1185 If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. Positive (Suspensive) cond. Happening of an event at a determinate time

Negative cond.

Extinguished when: - Time expires (w/o event taking place) - No question event will not take place

Effective and Binding when: - Time expires (w/o event taking place) - No question event will not take place

Event will not happen at a determinate time

Art. 1184 Art 1185 *if no time is fixed, circumstance shall be considered The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. – Art. 1186

Constructive fulfillment of … Suspensive cond. Resolutory cond. 1. Cond. is Same applies with suspensive respect to debtor who is bound to return what 2. Obligor he has received upon prevents the fulfillment of a cond. fulfillment 3. he acts voluntarily Art 1190 *Not required to act with malice/fraud as long as purpose is to prevent When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. – Art. 1190 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. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. – Art. 1187 In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

Pure and Conditional Obligations 4 Retroactive effects of fulfillment of Suspensive cond. In oblig to give In oblig to do/not do Oblig is DEMANDABLE NO FIXED RULE upon fulfillment of cond. Courts are empowered by sound discretion Oblig will then retroact If intention is… to the date of Extinguish: retroact constitution Gratis (favor): not

Retroactive effects as to fruits/interests in oblig to give In Reciprocal oblig In Unilateral oblig No retroactivity Usually no retroactivity (gratuitous) Deemed to have been mutually compensated Fruits belong to debtor unless intention is diff

obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. – Art. 1188

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. – Art. 1189

Rights of creditor May go to court to prevent the alienation/concealment of the property the debtor is bound to deliver

Rights of debtor Recover payments made by mistake Solutio indebiti No one shall enrich himself at the expense of another

When the conditions have been imposed with the intention of suspending the efficacy of an

Art. 1189 applies only if: 1. Oblig is a REAL oblig. 2. Obj. is specific/determinate thing 3. Obj is subj. to susp. cond. 4. Cond. is fulfilled 5. There is a loss/deterioration/improvement of the thing during the pendency of the condition V.

As to mode a. Positive: perf. of act b. Negative: omission

Pure and Conditional Obligations 5 VI.

VII.

As to numbers a. Conjunctive: all cond. should be fulfilled b. Disjunctive: one or some fulfilled As to divisibility a. Divisible: open to partial perf. b. Indivisible: cannot be

Kinds of Loss 1. Physical Loss a. Thing perishes 2. Legal Loss a. goes out of commerce b. becomes illegal 3. Civil Loss a. Disappears and existence is unknown b. Cannot be recovered Rules in case of Loss LOSS w/o debtor’s LOSS w/ DF fault Oblig is extinguished Demand damages Art 1174 Not liable for a fortuitous event Deterio w/o DF Suffer for yourself

Improvement by nature/time Benefit goes to you

Deterio w/ DF Rescission Fulfillment of oblig w/damages Improvement at expense of debtor Fruits enjoyed by debtor Usufructuary-right to enjoy the use and fruits of a thing belonging to another (temporary only)

When the conditions have for their purpose the extinguishment of an obligation to give, the parties,

upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. – Art. 1190 Effects of fulfilling resolutory cond. In oblig to give In oblig to do/not do Return to status quo Depends on the court Oblig of mutual restitution is absolute If thing to be returned is legally with third pers. Then remedy is restitution against third In oblig to give susp. cond., retroactivity admits exceptions accdg to if oblig is unilateral or bilateral The fulfillment of a resolutory cond. converts the creditor into debtor, vice versa 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.

Pure and Conditional Obligations 6

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. – Art. 1191 Kinds of oblig acc. to the person obliged 1. Unilateral: only 1 party is obliged to comply 2. Bilateral: debtors and creditors to both each other a. Reciprocal b. Non-reciprocal: perf. is not dependent upon the simultaneous perf. by the other Remedies for reciprocal 1. Fulfillment of specific perf w/ damages 2. Rescission w/ damages a. Must check if reason is for i. Damage/lesion ii. Contract cancellation Court may grant guilty party term for perf only when… 1. Guilty party is willing to comply but needs time and not because he refuses Limitations of Rescission… 1. Must resort to court 2. Power of court to fix period 3. If the subj matter of oblig is w/ third pers (who acted in good faith) a. Then rescission not available 4. There should be substantial violation of contract 5. Right to rescind may be waived

Rescission without judicial decree 1. Automatic rescission is expressly stipulated 2. Contract is still executory a. No perf yet by both parties b. One is ready and willing i. Can rescind Both are guilty of breach when…. 1. First infractor known… a. One violated and also other b. Liability of first should be reduced 2. First infractor cannot be determined a. Contract EXTINGUISHED b. Bear own damages

Obligations with a Period 1 Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. – Art. 1193 Oblig with a period - Effects are subjected to the expiration/arrival of said period Period: Future and certain event - Upon arrival will give rise/terminate an oblig - Must necessarily come - May not be known (death of a person)

Fulfillment Time

Period Certain Only refers to future

Influence on oblig

Merely fixes time

Effect when left to debtor’s will Retroactivity of effects (unless stipulated)

Empowers court to fix duration No retroactive effect

Condition Uncertain May be unknown past to both Causes an oblig to exist/cease Invalidates the obligation Has retroactive effect

Kinds of Period I. Acc to effect a. Suspensive b. Resolutory II. Acc to source a. Legal i. When for by laws b. Conventional/voluntary i. When agreed by parties c. Judicial i. When fixed by court III. Acc to definiteness a. Definite i. When fixed/know when to come b. Indefinite i. Not fixed/not known Where the period is NOT FIXED but a PERIOD is INTENDED, courts usually fix In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be observed. – Art. 1194 Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. – Art. 1195 Art 1195 only applies to oblig TO GIVE *Creditor cannot unjustly enrich himself by retaining the thing received before the arrival of the period Debtor/obligor can recover fruits/interests if premature delivery/performance can be prove that he is unaware of the period NOT YET BEING DUE Obligor cannot recover what he has not done (therefore Art 1195 does not apply obligs to do/not to do)

Obligations with a Period 2 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, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. – Art. 1196

If the oblig does not state a period and no period is intended, the court is not authorized to fix a period

Before the expiration of the period, debtor may not fulfill oblig and neither should creditor demand without consent with each other (rebuttable though)

Court cannot fix another period if there is already a period agreed upon

Exception apply if it is stipulated that there is intention to benefit one of them 1. Term is for benefit of debtor alone a. Cannot be ordered to pay early but can 2. Term is for the benefit of creditor alone a. Can demand early but not forced to accept payment early Computation of term/period 1. Legal Periods (Administrative Code of 1987) a. “Year”=12 calendar months b. “month”=thirty days; unless a specific calendar month is referred c. “day”=24 hrs d. “night”=sunset to sunrise If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. – Art. 1197

Legal Effect upon will of debtor 1. Period=perf w/ respect to time that is left to the will of the debtor is only affected 2. If condition is upon will of debtor then oblig is VOID because FULFILLMENT na yun

The debtor shall lose every 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

Alternative Obligations 1 A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. – Art. 1199 Kinds of oblig acc to obj 1. Simple oblig: 1 prestation 2. Compound oblig: 2 or more prestation a. Conjunctive: several pres; all due b. Distributive: 2 or more pres due i. Alternative: several due; 1 OK na 1. Choice of Debtor ii. Facultative: only 1 due; may substitute another The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. – Art. 1200 Generally, debtor may choice unless stated otherwise or by a third person Limitations: 1. Cannot be (otherwise VOID prest.): a. Impossible b. Unlawful c. Not object of oblig Oblig is NOT INVALIDATED Rights limited NOT EXTINGUISHED 2. No more right of choice when ONLY 1 is practicable (oblig becomes simple) 3. Cannot choose part of another prest and another

The choice shall produce no effect except from the time it has been communicated. – Art. 1201 Effects of notice No choice made and Choice made and communicated communicated Remains alternative irrevocable Same if choice binigay kay creditor Who made the choice should PROVE 1. Orally or writing a. Expressly or implied The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable – Art. 1202 If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. – Art. 1203 Rescission: oblig to return things obj of contract w/ fruits and price w/ interest Debtor will rescind To rescind Make a choice Recover damages Oblig is extinguished Not liable for damage Debtor not bound to rescind The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.

Alternative Obligations 2

Damages other than the value of the last thing or service may also be awarded. – Art. 1204 Right of choice w/ creditor: Art 1203, 1204 Right of choice w/debtor: Art 1205 Effects of loss of obj of oblig Fault of debtor Some of obj All of obj Not liable kasi may Creditor can indemnify options pa for damages Exception to Art 1170

If fortuitous then oblig is extinguished

Indemnity: fixed taking value of last thing/service lost If disagreement: creditor needs to prove what was last (value) lost When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) 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. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. – Art. 1205 Before creditor makes selection, debtor cannot incur in delay In case of loss before creditor chooses Lost through Lost through DF fortuitous event Choose among the Choose from other or remainder price of item 1 All with damages All lost through DF All lost through FE Right to demand Oblig is extinguished payment of price of any w/damages Applies to personal obligs When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. – Art. 1206 Loss of Principal Through Otherwise FE Oblig Debtor exting liable for damages

Alternative Obligations 3 Effect of loss of facultative Before substitution After substitution Debtor not liable Liable for damages - Depends if w or w/o DF

Joint and Solidary Obligations 1 The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. – Art. 1207 1

If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. – Art. 1208 2

Kinds of oblig acc to no. of parties 1. Individual oblig: 1 obligor; 1 obligee 2. Collective oblig: 2 or more of both Joint oblig Whole oblig fulfilled PROPORTIONALY Solvency of 1 shall not make other liable

Solidary oblig Each debtor is bound to render (creditor to demand) ENTIRE COMPLIANCE

Other words for joint obligations: 1. Mancomunada 2. Mancomunadamente 3. Pro rata 4. Proportionately 5. “we promise to pay” a. Signed by 2 or more

Concurrence: happening of the same event twice multiplicity of suits: more than 1 lawsuit regarding same occurrence 1

2

Solidarity liability when 1. Oblig expressly states so 2. Law requires solidarity 3. Nature of oblig requires solidarity Exists when imposed in final judgment against several defendants 3

Other ways to indicate solidarity 1. Each of debtors is compelled to pay entire oblig 2. Proceeded against for the full amt of oblig 3. Jointly and/or severally 4. Solidaria 5. In solidum 6. Together and/or separately 7. Individually and/or collectively 8. Juntos o seperadamente 9. “I promise to pay” a. Signed by two or more Kinds of Solidarity I. Acc to parties bound a. Passive solidarity: on part of debtor b. Active solidarity: on part of creditor c. Mixed solidarity: on part of creditors and debtors Agreement betw each as to the extent of the share of each to one another II. Acc to source a. Conventional solidarity: solidarity agreed upon by the parties b. Legal solidarity: imposed by the law c. Real solidarity: imposed by the nature of the oblig Intent or purpose of the law is to have the oblig satisfied in full but the law itself does not expressly require solidarity

3

Solidarity: unity/agreement among individuals w/common interest

Presumption is Joint because if solidary… - Create unusual rights and liab - Responsibility inc for debtor - Rights inc for creditor If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. – Art. 1209 Joint indivisible oblig: oblig is joint because party is proportionately liable but subj matter is not physically divisible - Joint as to liabilities but indivisible as to compliance The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. – Art. 1210 Indivisibility Refers to prestation Only debtor guilty of breach is liable for damages Can exist with 1 creditor and 1 debtor Others not liable in case of insolvency

Solidarity Juridical or legal tie All debtors are liable

At least 2 debtors and 2 creditors Others are proportionately liable

Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions – Art. 1211 Kinds of solidary oblig acc to legal tie 1. Uniform: bound by same stipulations 2. Non-uniform (varied): not subj to same Creditor may bring his action in toto against solidary debtors upon the fulfillment of the cond where the creditor will have the right to demand the payment (less any prepayments made)

Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. – Art. 1212 If so he shall be responsible to others for damages and oblig is extinguished A solidary creditor cannot assign his rights without the consent of the others – Art. 1213 Kasi baka di mapagkakatiwalaaan or of the same interest yung third pers and baka di ibigay pera kapag nakuha na If co-creditor yung proxy edi G lang no need consent 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. – Art. 1214 If may nagdemand na sa kanya magbayad dun ibibigay otherwise oblig not yet extinguished kahit pa di ipamigay ng pinag abutan sa co-creditors Applicable also for mixed solidarity Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219. 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. – Art. 1215

Causes of extinguishment of oblig 1. Novation 2. Compensation 3. Confusion 4. Remission When executed makes creditor liable to others considering the act he has done When joint oblig however, di affected others, ung nagkasala lang 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. – Art. 1216 Not applicable to joint oblig. Anyone of the solidary debtors can be made to pay as all as DI PA BAYAD NG BUO, pili nalang siya kanino siya maniningil Di karin pwede tumanggi if pinili ka kasi choice yun ni creditor Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. – Art. 1217

Effect of payment ng Solidary debtor Paid by 1 solidary D Offer paid by 2 SD Extinguishes oblig Solidary creditor can choose Paying solidary debtor can demand for reimbursement (PAGBAYARIN) now becomes a joint oblig among co-debtors (naghahatian na sila ng bayarin) If may insolvency paghahatian share nung isa (pro rata) Reimbursing of payment ng Solidary debtor Before due date After debt is due w/o interest w/interest for paym made 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. – Art. 1218 Cannot get reimbursement when… 1. Oblig already prescribed 2. Oblig became illegal Therefore, oblig is extinguished. Prescription: one acquires ownership and other rights through the lapse of time under following conditions: Dapat within … ff actions must be: Brought w/in Commenced Instituted 10 years w/in 6 yrs w/in 4 yrs Upon written Upon oral Upon an injury contract contract to the rights of plaintiff Upon an oblig Upon a quasicreated by law contract Upon a quasidelict Upon a judgement Limitations may be superseded by a contract betw parties

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. – Art. 1219 4

Loss w/o fault and delay Oblig is extinguished

Loss w/o fault w/delay All liable for price and damages

Loss w/solidary D fault All liable for price and damages and interest

Without prejudice sa nagkasala (guilty debtor)

Effect of remission of share after paym Paym then remission Remission then Paym No effect Solutio indebiti arises No more oblig to remit If may insolvency, maghahatian kayo kasi creditor has no right to alter/modify obligs and rights among themselves *to forestall fraud and para di ka na magbayad if you’ll just suffer any loss or damage The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. – Art. 1220 Di ka naman kasi nagbayad so bat may kukunin ka?? Unless may case of novation, compensation, confusion.

4

Remission=cancellation of a debt, charge, penalty

If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. – Art. 1221 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. – Art. 1222 Defenses available to solidary debtor 1. From nature of the oblig a. complete defense b. Ex. Fraud, prescription, remission, illegality, absence of consideration, res judicata, non-performance of a suspensive condition 2. Personal to, or pertains to share of debtor sued a. Partial defense 3. Personal to other solidary debtors

Divisible and Indivisible Obligations 1 The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. – Art. 1223 May refer to oblig/prestation which is to “deliver a thing” or “render some service” Divisible oblig: capable of partial fulfillment Indivisible oblig: not capable Test for distinction: 1. Purpose of oblig/intention to parties a. May be physically divisible but oblig is indivisible b. If physically indivisible, oblig is ALWAYS indivisible (ABSOLUTE) c. Indivisible if 1 creditor and 1 debtor Kinds of Division: 1. Qualitative (qual>quan) 2. Quantitative 3. Ideal/Intellectual a. Exists only in the minds of parties Kinds of indivisibility 1. Legal a. Law declares 2. Conventional a. By will of parties 3. Natural a. Nature itself does not allow division A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. – Art. 1224

Non-compliance=one for damages (no rescission/perf allowed) For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. – Art. 1225 Indivisible Obligations: 1. To give definite things 2. Obligs not susceptible of partial perf 3. Provided by law to be indivisible even if physically div 4. Obligs intended by parties to be indivisible Divisible obligs: 1. Obligs execution is no. of days’ work 2. Obligs accomplished by metrical units 3. Obligs naturally susceptible of partial perf In negative obligs (not to do) depends on the case Generally, obligs “to do” or “not to do” are generally indivisible unless stated in Art 1225.

Obligations with a Penal Cause 1 In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. – Art. 1226 Principal oblig: one can stand by itself Accessory oblig: cannot stand alone Penal clause: an oblig to assume greater liability in case of breach Purpose of Penal Clause 1. Creates an effective deterrent (reparation) a. Consequences to be as onerous as possible 2. Substitute a penalty for the indemnity for damages or to punish D for the nonfulfillment (punishment) Penal clause Constitutes an oblig May be demandable in case of unperformed oblig

Condition Does not Never demandable

Kinds of penal clause I. As to its origin 1. Legal: provided by law 2. Conventional: by stipulation of parties II. As to its purpose 1. Compensatory: penalty takes place of damages 2. Punitive: imposed as punishment

III.

As to its demandability/effect 1. Subsidiary/alternative: only the penalty can be enforced 2. Joint/cumulative: both principal and penal clause can be observed

Proof of actual damages suffered by C is not necessary in order that the penalty may be enforced C can recover damages in addition to penalty when… 1. Stipulated by parties 2. D refuses to pay penalty, where C can recover legal interest 3. D is guilty of fraud, where C may recover damages caused by fraud Penalty is demandable only if there is a breach of the obligation and it is not contrary to law, morals, good customs, public order, and policy Penalty may be reduced in case there is partial/irregular fulfillment The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. – Art. 1227 If D is allowed to pay the penalty, this would be an oblig with an alternative The remedies are alternative and not cumulative nor successive

Obligations with a Penal Cause 2 If D has fraud, C may recover the penalty plus damages for non-fulfillment Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. – Art. 1228 Fixing a penalty is to avoid the difficulties involved in litigations C cannot recover more than the stipulated penalty (fixed) even if he proves that the amount of damages exceeds the penalty If penalty is not fixed, proof of damages must be proven The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. – Art. 1229 Penalty can be reduced by the courts when… 1. Partial or irregular performance 2. Penalty agreed upon is iniquitous or unconscionable The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it the nullity of the penal clause. – Art. 1230 Principal is Void Penal clause is also void But if void because of D, who acted in bad faith, penalty may still be enforced

Penal clause is Void Principal remains valid and demandable

Extinguishment of Obligations General Provisions 1 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 causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. – Art. 1231 Other causes of extinguishment of obligations 1. Death of a party in an oblig requiring personal service 2. Mutual desistance or withdrawal a. Since mutual agreement can create contracts; b. Mutual disagreements can cause extinguishment 3. Arrival of resolutory cond. 4. Compromise 5. Impossibility of fulfillment 6. Happening of a fortuitous event 7. Renunciation/waiver of rights 8. Change of civil status

Payment or Performance 1 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation – Art. 1232 Ordinary parlance: delivery of money Legal: not only the delivery of money but also the giving of a thing, doing of an act, or not doing of an act In law, payment and performance are synonymous 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. 1233 Integrity of prestation: Partial/irregular performance will not produce the extinguishment of an oblig as a general rule Identity of prestation: the very prestation due must be delivered/performed 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. 1234 Recovery is allowed in case of substantial performance in good faith - Obligee (C) is benefited - Obligor (D) should be allowed to recover as if there had been strict and complete fulfillment Requisites for Recovery in substantial performance 1. Substantial performance 2. D must be in good faith If only first, then subj. to rescission/cancellation If second, allows only a proportionate reduction - Doctrine of substantial performance

Good faith is always presumed in the absence of proof 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. – Art. 1235 Recovery is allowed when incomplete/irregular performance is waived 1. Incomplete payment may properly be rejected by C 2. In accepted, the whole oblig is extinguished Requisites of 1235 1. C knows the perf is incomplete/irregular 2. C accepts without protest/objection The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. – Art. 1236 Who pays Debtor Heir Assigned Third person

Who gets paid Creditor Heirs Successor in interest Authorized persons

C should not be compelled to accept payment from a third person whom he may dislike/distrust

Payment or Performance 2 Payment to a third person w/o knowledge of D w/ knowledge of D Recover only up to the Shall have rights of extent/amt of the debt reimbursement and beneficial to D subrogation to what he has paid Acquire all the rights of C Whoever pays on behalf of the debtor without the knowledge or against the will of the latter cannot compel the creditor to subrogate him in his rights, such as those arising from mortgage, guaranty, or penalty. – Art. 1237 Thirds person pays in behalf of D w/ consent of D w/o consent of D Entitled to subrogation Cannot compel C to subrogate him If C permits, then there would be legal subrogation Subrogation Payer is put in the shoes of C - Acquires right to be reimbursed - All other rights which C can exercise (ex. Against guarantors) There is no real extinction of oblig, only change in C

Reimbursement Merely the bare right to be refunded

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. – Art. 1238 w/o consent of D Donator may recover from D

w/ consent of D D is not liable and oblig is extinguished

Oblig of D to C is extinguished D cannot legally refuse to pay Donator and insist on paying C 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, without prejudice to the provisions of article 1427 under the Title on “Natural Obligations” – Art. 1239 Free disposal of the thing due: not subj to any claim by TP Capacity to alienate: not incapacitated to enter in contracts If does not have the free disposal of the things due and capacity to alienate is invalid; thing paid can be recovered - Unless if fungible thing is delivered; then there is no right to recover in case it has been spent/consumed in good faith Payment shall be made to the person in whose favor the obligation has been constitute, or his successor in interest, or any person authorized to receive it. – Art. 1240

Payment or Performance 3 Payment to any other person in not valid unless provided by Art. 1241 Payment to the wrong party is not an excuse Payment in good faith to any person in possession of the credit is valid even if di authorized to receive “any person authorized to receive it” - Not only authorized by C - Also authorized by law 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 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 to be proven in the following cases: (1) If after the payment, the third person acquires the creditor’s rights (2) If the creditor ratifies the payment to the third person; (3) If by the creditor’s conduct, the debtor has been led to believe that the third person had authority to receive the payment. – Art. 1241 Payment to an incapacitated person is not valid unless the person kept the thing paid/delivered Proof of such benefit is incumbent upon the debtor who paid Payment to a wrong party is invalid except insofar as it has redounded to the benefit of C C is benefited by payment of D to a TP is not presumed - Absence of proof shall not deprive C the right to demand payment

Benefit to C need not to be proven by D when… 1. Subrogation of the payer in the creditor’s rights 2. Ratification by the creditor 3. Estoppel on the part of the creditor Benefit to C in these cases is presumed Payment made in good faith to any person in possession of the credit shall release the debtor. – Art. 1242 Must be: 1. In possession of credit ITSELF a. Not merely the document/instrument evidencing credit 2. Payer must act in good faith, in his honest belief he is making a valid payment 3. Good faith is presumed Payment made to the credit by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. – Art. 1243 When… 1. In an action against D who is the C of E 2. May be ordered to retain the debt of E to D until C in the main litigation is resolved 3. C may hold E liable to the debt of D a. Oblig of C and D is extinguished b. D is now liable to E 4. Any payment made by E to D is invalid 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. 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. – Art. 1244

Payment or Performance 4 Thing diff (oblig to deliver a specific thing) from what is due cannot be offered or demanded against the will of C or D The act (personal positive/negative obligs) cannot be substituted against the obligee’s will Prestation may be substituted only when… 1. In facultative obligs a. D is given the right to render another in substitution 2. Allowed by stipulation w/ consent of C Dation in payment whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the laws of sale. – Art. 1245 Special forms of Payment 1. Dation in payment 2. Application of payments a. In strict sense, not actually a form of payment 3. Payment by cession 4. Tender of payment and consignation Dation: ownership of a thing as an accepted equivalent of performance - Piano as payment for debt 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. The purpose of the obligation and other circumstances shall be taken into consideration. – Art. 1246 Rule of medium quality - Principle of equity - In case of disagreement, the law steps in - May be waived if C accepts the inferior and D delivers a superior

Deliver a generic Purpose of the oblig shall be considered to determine quality and kind

Deliver a specific Very thing must be delivered

Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. – Art. 1247 Debtor pays for extrajudicial expenses unless stipulated otherwise - Does not apply to expenses b C in going to D’s domicile The costs of an action shall, as a rule be paid by the losing party - Court may allow equitable division - No costs are allowed against the govt. unless provided by law Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. – Art. 1248 Partial performance is allowed when… 1. Expressly stipulated 2. Debt is in part liquidated and in part unliquidated 3. Different prestations are subj. to diff terms/ conditions

Payment or Performance 5 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. 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. In the meantime, the action derived from the original obligation shall be held in abeyance. – Art. 1249 Legal tender: currency offered by D in right amount - C must accept in payment of debt in money - 0.25, 1, 5, 10 ≤ 100 - 1, 5, 10 ≤ 1000 Right of creditor when payment through instruments 1. May accept w/o producing effect of payment a. Demandability of oblig is suspended 2. C must cash the instrument a. If dishonored, can bring action of non-payment Effect on oblig when paid through instruments 1. Not extinguished until a. Cashed b. Unless impaired by the fault of C 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 oblig shall be the bases of payment, unless there is an agreement to the contrary. – Art. 1250 Inflation: sharp sudden increase of money/credit/both: drop in value of money

Deflation: reduction in volume/circulation of money - Decline in general price level The purchasing value at the time shall be the basis of payment unless stipulated. - Ex. Debt is 5,000 at the time, deflation occurs becomes 10,000 (10k is to paid unless stipulated) Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. – Art. 1251 Payment shall be made… 1. Place designated in stipulation 2. Place at the perfection of contract 3. Domicile of D if no stipulation a. C bears expenses in going to D to accept payment

Payment or Performance 6 Domicile place of a person’s habitual residence

Residence only an element of domicile

requires bodily presence and intent to make a place a domicile

requires bodily presence as inhabitant in a given place

He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall be not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. – Art. 1252 Application of payments: designation of debt to which payment will be applied Requisites of application of payments 1. 1 D and 1 C 2. 2 or more debts 3. Debts must be of the same kind 4. Debt paid by D must be due 5. Payment must not be sufficient to cover all debts Application of payment to debts not due cannot be made unless… 1. There is a stipulation 2. Made by C or D whose benefit the period has been constituted

Rules of application of payment 1. D has the first choice a. Must indicate which debt is being paid 2. Irrevocable unless C consents to change 3. If D does not apply, C designates 4. If C does not designate, most onerous shall be satisfied 5. If debts are of same nature/burden, payment shall be applied proportionately to all If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. – Art. 1253 Interest must be in writing – Art. 1956 Art. 1253 is mandatory. Payment should be applied first to interest before principal unless stipulated or waived by C When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. – Art. 1254 A debt is more onerous when 1. Interest-bearing over non-interest bearing 2. Sole D over solidary D 3. Secured debts by mortgage over unsecured 4. One w/ higher interest rate 5. Oblig w/ penal clause over w/o penal clause If cannot be determined, then applied to them proportionately The debtor may cede or assign his property to his creditors in payment of his debts. This

Payment or Performance 7 cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceed of the thing assigned. The agreements which, on the effect of cession, are made between the debtor and creditors shall be governed by special laws. – Art. 1255 Payment by cession: assignment of property to Cs in order for C to sell and apply proceeds to satisfy debt Requisites of payment by cession 1. 2 or more Cs 2. D must be (partially) insolvent 3. Must involve all properties of D 4. Cession must be accepted by Cs D is still liable if there is a balance Dation

1C Does not presuppose insolvency Does not involve all properties C becomes owner of the thing

Cession Several Cs D is insolvent Involves all properties

C only acquires right to sell and apply proceeds to debt proportionately An act of novation Not an act of novation Substitute forms of payment/performance If the creditor to whom tender of payment has been refused without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he id incapacitated to receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. – Art. 1256 Tender of payment: act of D offering to C the thing/amt due Consignation: depositing the thing/amt due to proper court when C does not desire or cannot receive it Requisites of a valid consignation 1. Existence of valid debt due 2. Tender of payment by D and unjust refusal of C to accept 3. Previous notice of consignation to interested persons 4. Consignation of the thing/sum due 5. Subsequent notice of consignation made to interested parties D does not incur default by failing to make a fruitless tender after notification from C that the money will not be received Requisites for valid tender of payment 1. Tender must comply with rules on payment a. Tender itself does not produce legally payment unless completed by consignation 2. Unconditional and for the whole oblig due 3. Must be actually made a. Mere desire/intention to pay is not enough In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation

Payment or Performance 8

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. – Art. 1257 In absence of prior notice to interested parties, payment shall be void

D may withdraw the sum or thing deposited when… 1. Before C has accepted the consignation 2. Before a judicial declaration that the consignation has been properly made a. He is still the owner, not the court

Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

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. – Art. 1261

The consignation having been made, the interested parties shall also be notified thereof. – Art. 1258

Solidary debtors (guarantors) are released only from their solidary liability - Not from their shares of the oblig

Second notice is to enable withdrawal of the thing or sum deposited The expenses of consignation, when properly made, shall be charged against the creditor. – Art. 1259 Consignation is properly made when… 1. C accepts the thing w/o objection 2. C questions the validity of consignation but court declares it has been made properly 3. C neither accepts/questions the validity of consignation and the court cancels the oblig Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation. 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 sum deposited, allowing the obligation to remain in force. – Art. 1260

Loss of the Thing Due 1 An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. Where by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. – Art. 1262 Thing is lost when: 1. It perishes 2. Goes out of commerce 3. Disappears in such a way that its existence is unknown Loss of a determinate thing = impossibility of perf. Loss of a thing will extinguish oblig to give when… 1. Oblig is to deliver specific/determinate 2. Loss w/o fault of D 3. D is not guilty of delay Loss of a thing WILL NOT extinguish oblig when… 1. Law so provides 2. Stipulation 3. Nature of oblig requires assumption of risk 4. Oblig to deliver a specific thing arises from crime In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. – Art. 1263 A generic thing never perishes (genus nunquam perit) 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. – Art. 1264

Partial loss when 1. Only a portion is lost/destroyed 2. Suffers depreciation/ deterioration The court will decide whether the partial loss is such as to be equivalent to complete or total loss 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, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. – Art. 1265 The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the debtor. – Art. 1266 Impossibility of the perf. will result in the extinction of the oblig Impossibility must take place after the const. of the oblig - If impossible from the beginning then VOID Kinds of impossibility 1. Physical a. Ex. D dies 2. Legal 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. – Art. 1267 Court is authorized to release D in whole or in part Applicable not only to personal oblig (to do) but also real oblig (to give)

Loss of the Thing Due 2 When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. – Art 1268 Even if it is a fortuitous event, D is still liable - Ex. D stole from C, D must return the thing to C but then it got destroyed - It must be paid for 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. – Art. 1269 C has the right to proceed against the TP who is the reason for the loss - Oblig of D to C is extinguished - C can run after TP

Condonation or Remission of Debt 1 Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly. One and other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. – Art. 1270 Condonation/remission: gratuitous abandonment of C’s right against D Requisites of condonation/remission 1. Gratuitous 2. Accepted by D 3. Parties must have capacity 4. Not inofficious 5. Made expressly, must comply with forms of donations Kinds of remission: I. As to its extent 1. Complete: covers entire oblig 2. Partial: does not cover entire II. As to its form 1. Express: either verbally/writing 2. Implied: inferred III. As to its date of effectivity 1. Inter vivos: take effect during lifetime 2. Mortis causa: upon death of donor i. Will No one can give more than that which he can give by will Legitimate: property that cannot be disposed because law has reserved it for certain heirs (compulsory heirs)

The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implied the renunciation of the action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtues of payment of debt. – Art. 1271 If C delivers the documenting evidencing credit to C, then it is presumed that he is renouncing his rights against D, unless rebuttable by contrary evidence If the oblig is joint: remission pertains only to share of D possessing the document If solidary, for the whole oblig Presumption does not apply to public documents as they are easily obtainable Remission becomes null and void upon proof that it is inofficious 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 – Art. 1272 Presumption of voluntary delivery = Presumption of payment - Only when it is known that there is no payment should there be presumption of remission The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. – Art. 1273

Condonation or Remission of Debt 2 It is presumed that the accessory obligation of pledge has been remitted when the thing is pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. – Art. 1274 If the thing pledged is later found in the hands of D or TP, only the accessory oblig of pledge is presumed remitted, not the oblig itself

Confusion or Merger of Rights 1 The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. – Art. 1275 Confusion/merger: meeting in 1 person of qualities of C and D in same oblig A person cannot claim payment from himself Requisites of confusion 1. Betw principal debt and C 2. Must be complete 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. – Art. 1276 Merger betw Principal D and C Extinguishes oblig as well as accessory oblig

Merger of guarantor Extinguishes accessory not the principal oblig

Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. – Art. 1277 Confusion in joint Only to the share of D or C na nagmerge

Confusion on solidary Merger in the person of 1 of solidary Ds shall extinguish ENTIRE oblig He who makes payment may reimburse from codebtors for their share

Compensation 1 Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. – Art. 1278 Compensation: 2 persons are C and D of each other Object of compensation: - Prevent unnecessary litigation and payments - Simplified payment Compensation 1 C and 1 D of each other 2 obligs Indirect payment

Confusion 1 person who is C and D Only 1 oblig Impossibility of payment

Kinds of compensation I. By its effect/extent 1. Total: both obligs same amt 2. Partial: balance remains II. By its cause/origin 1. Legal: operation of law 2. Voluntary: agreement of parties 3. Judicial: order of court/litigation 4. Facultative: set up only by 1 party In order that compensation may be proper, it is necessary: (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, of if the things due are consumable, they may 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. – Art. 1279 Requisites of legal compensation 1. Principal C and D of each other 2. Both debts consist in a sum of money/consumable things of the same kind and quality, unless both agree 3. Two debts are due OR demandable a. If debt is subj to a suspensive cond. compensation cannot take place 4. Two debts are liquidated 5. No retention or controversy by a TP a. No compensation where there is a waiver Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. – Art. 1280 Guarantor is given the right to setup compensation because extinguishment of principal oblig carries with it the extinguishment of the accessory oblig (guaranty) Compensation may be total or partial. When the two debts are of the same amount, there is total compensation. – Art. 1281 The parties may agree upon the compensation of debts which are not yet due. – Art. 1282 Voluntary/conventional compensation takes place by agreement - Sufficient that the contract of parties is valid If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. – Art. 1283 Judicial compensation: when so declared by final judgement of a court

Compensation 2 When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. – Art. 1284 Rescissible and voidable obligs are valid until judicially rescinded or avoided The effect of annulment is retroactive and same as if there had been no compensation The debtor who has consented to the assignment of rights made by the 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. 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. 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. – Art 1285 Compensation before assignment - Can only assign the right applicable as a defense of compensation - If given the consent before assignment, previous defense of compensation is lost Compensation has taken place after assignment 1. Assignment w/ consent of D a. A owes B, B owes A, B assigns C b. A cannot set up against C c. Liable to C for whole but may collect from B

2. Assignment w/ knowledge, w/o consent of D a. A owes B Nov 1 b. B owes A Nov 10 c. A owes B Nov 15 d. A assigns C Nov 12 e. B can only set up compensation before Nov 12 3. Assignment w/o knowledge of D a. In this case the crucial time is when acquired knowledge of the assignment and not the date of the assignment will determine when he can raise the defense of compensation; otherwise he cannot The indemnity of expenses of monetary exchange and expenses of transportation shall be paid by who raises the defense of compensation Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or od a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of article 301. – Art. 1287 Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. – Art. 1288 When legal compensation is not allowed 1. One of the debts arises from a depositum a. Nagsangla ako ng singsing tas Nawala nung tindera b. Pwede niya kong kasuhan, ako rin pwede ko siyang kasuhan 2. One of the debts arises from commodatum a. Commodatum: gratuitous contract whereby one of the parties delivers to another something not

Compensation 3 consumable so the latter may use the same for a certain time and return it b. Pinahiram ko sayo kaya dapat ibalik mo 3. One of the debts arises from a claim for support due by gratuitous title a. Support compromises everything that is indispensable for sustenance, dwelling, etc. in keeping with the financial capacity of the family b. Right to receive support cannot be compensated with what the recipient owes the obligor i. Because it is essential to the life of the recipient 4. One of the debts consists in civil liability arising from a penal offense If a person should have against him several debts which are susceptible of compensation, the rules of application of payments shall apply to the order of the compensation. – Art. 1289 When all the requisites mentioned in article 1279 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. – Art. 1290 Consent of parties not required in legal compensation when… 1. Compensation takes place automatically by mere operation of law 2. Full legal capacity of parties not required a. Not needed to be in i. Legal age ii. If Muslim: puberty

Novation 1 Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. – Art. 1291 Novation: total/partial extinction of an oblig through creation of new one that substitutes it Novation: 1. Modifies/extinguishes an existing oblig 2. Substitutes a new one in place Kinds of novation I. Acc to origin 1. Legal: operation by law 2. Conventional: agreement of parties II. Acc to how it was constituted 1. Express: declared in unequivocal terms 2. Implied: when old and new are incompatible III. Acc to extent or effect 1. Total/extinctive: old oblig completely extinguished 2. Partial/modificatory: merely modified old IV. Acc to subject 1. Real/objective: object/principal cond. 2. Personal/subjective: D is substituted or TP in the rights of C 3. Mixed In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. – Art. 1292

Requisites of novation: 1. Previous valid oblig 2. Capacity and intention to modify/extinguish 3. Modification/extinguishment 4. Creation of a new valid oblig Novation is never presumed; must be clearly and unmistakably established Burden of showing novation is on part of the party who claims its existence Kinds of Personal novation 1. Substitution: D is substituted 2. Subrogation: TP in the rights of C Kinds of substitution Expromision Delegacion TP in his own initiative C accepts a TP w/o knowledge/will of D All parties must agree w/ consent of C New D right to New D right to beneficial reimbursement and reimbursement subrogation Must release D otherwise no expromision

If C releases D then there is delegacion

If the substitution is without the knowledge or against the will of the debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall not give rise to any liability on the part of the original debtor. – Art. 1294 The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when he delegated his debt. – Art 1295

Novation 2

Effect of insolvency of New D Expromision Delegacion Non-fulfillment of ND Shall not revive action will not revive action of against OD unless C against OD - Insolvency was already existing and of public knowledge - Insolvency was known by D to be existing The exceptions are intended to prevent fraud on part of OD When the principal obligation is extinguished in consequence of novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. – Art. 1296 Accessory oblig of a TP remains in force unless the TP gives consent to the novation 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. – Art. 1297 New oblig must be valid; no novation if oblig is VOID - Cannot extinguish the first If new oblig is only voidable, novation can take place until it is annulled - Novation seem as not have taken in place - Original oblig can be enforced The novation is void if the original obligation is void, except when annulment may be claimed only by the debtor, or when ratification validates acts which are voidable. – Art. 1298

A void oblig cannot be novated because there is nothing to novate - If voidable, it is valid until annulled in court If the original obligation was subject to a suspensive/regulatory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. – Art. 1299 If suspensive not complied with No oblig arises

If resolutory is complied with Old oblig is extinguished

Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. – Art. 1300 Subrogation: substitution of 1 in place of C - Given all rights of C and right to employ all remedies to enforce payment Kinds of Subrogation 1. Conventional: by agreement of original parties a. must be clearly established for it to take place 2. Legal: by operation of law a. Not presumed Conventional subrogation of a third person requires the consent of the original parties and of the third person. – Art. 1301 Consent of all required in conventional subrogation: 1. Consent of D 2. Consent of old C 3. Consent of new C

Novation 3 It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) 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. – Art. 1302 Cases of Legal subrogation: 1. When C pays another C who is preferred 2. When TP w/o interest in the oblig pays with D’s approval 3. When a TP w/interest in the oblig pays even w/o D’s knowledge a. In case of confusion, the guaranty is extinguished but the principal oblig still takes place In all cases, subrogation is produced from payment Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. – Art. 1303 Legal subrogation transfers to new C the credit and all rights and actions old C can exercise against D or TPs unless otherwise stipulated

A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. – Art. 1304

C who is partially paid by New C remains a C to the extent of the balance of the debt In case of insolvency of D, C is given preferential right against new C for the remainder.