up 2008 civil law (obligations and contracs)

8/10/2019 UP 2008 Civil Law (Obligations and Contracs)

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OBLIGATIONS & CONTRACTS CIVIL LAW

1 U P L AW U P B A R O P S 2 0 0 8 Page12 of325

Obligations and Contracts

TABLE OF CONTENTS

Title 1.Obligations 121

I. General Provisions 121

II. Effect of Obligations 122

III. Different Kinds of Obligations 128

IV. Extinguishment of Obligations 141

Title 2.Contracts 148

I. General Provisions 148

II. Essential Requisites of a Contract 149

III. Form of Contracts 155

IV. Reformation of Instruments 157

V. Interpretation of Contracts 158

VI. Rescissible Contracts 159

VII. Voidable Contracts 161VIII. Unenforceable Contracts 162

IX. Void or Inexistent Contracts 163

Title 3.Natural Obligations 166

Title 4.Estoppel 166


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TITLE I: OBLIGATIONS

Chapter I: General Provisions

I. Concept

Definition

Art. 1156, NCCAn obligation is a juridical necessity to give, todo or not to do.

The legal relation established between one

party and another, whereby the latter isbound to the fulfillment of a prestation whichthe former may demand of him. (Manresa)

ElementsActive subject (obligee/ creditor)

- the one in whose favor the obligation is

constituted- the person who is entitled to demand

Passive subject (obligor / debtor)- the one bound to the fulfillment- the person who has the duty of giving,

doing or not doing

Prestation(object)- the conduct which has to be observed by

the debtor/obligor- duties of the obligor

Requisites:

1. it must be Licit2. it must be Possible, physically and

judicially3. it must be Determinate or

determinable; and4. it must have aPossible equivalent in

money

Vinculum juris(efficient cause; juridical or legal tie) that which binds or connects the parties to

the obligation. This can be easily known

by knowing the sources of obligations. (deLeon

Distinction between natural and civilobligations

Civil

Obligations(Art. 1156)

Natural Obligations

(Art. 1423)

Based on

positive law

Based on equity and

natural law

Give a right of

action to

compel theirperformance

Do not grant a right

of action to enforce

their performance;but after voluntaryfulfillment by the

obligor, they

authorize theretention of what

has been delivered

or rendered byreason thereof

II. Sources (Art. 1157)

Law

ContractsQuasi-contracts

Delicts

Quasi-delicts

LAW

General RuleObligations 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 whathas not been foreseen, by the provisions of

this Book. (Article 1158)

*Those imposed by the law itself.

CONTRACTS

DefinitionA contract is a meeting of minds between two

persons whereby one binds himself, withrespect to the other, to give something or to

render some service (1305)

General Rule

The contracting parties may establishsuch stipulations, clauses, terms and

conditions as they may deem convenient,provided they are not contrary to Law,

Morals, Good customs, Public order andPublic policy (1306)

Contracts as force of law betweenparties obligations arising from contracts have the

force of law between the contracting

parties and should be complied with ingood faith (1159)

QUASI-CONTRACTS(LoVe yoU)

Definition

It is the juridical relation resulting from lawful,voluntary, and unilateral acts by virtue of

which the parties become bound to each other

to the end that no one shall be unjustlyenriched or benefited at the expense ofanother (2142)

Lawful Distinguishing it from

crimesVoluntary Differentiating it from

quasi-delict, which arebased on fault and

negligence

Unilateral Distinguishing it fromcontract which is basedon agreement


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Obligations derived from quasi-contracts shallbe subject to the provisions of Chapter 1, Title

XVII of this Book (1160)

Kinds of quasi-contracts

1. Negotiorum gestio (unauthorizedmanagement)

2. Solutio Indebiti (undue payment)

1. Negotiorum Gestio

This takes place when a person voluntarilytakes charge of anothers abandonedbusiness or property without the owners

authority (Article 2144)

This juridical relation does not arise in

either of these instances:

a. When the property or business

is not neglected or abandonedb. If in fact the manager has been

tacitly authorized by the owner

2. Solutio IndebitiThis takes place when something is

received when there is no right to demandit, and it was unduly delivered thru

mistake (2154)

DELICTS (Obligations Ex Delicto)

Governing RulesPertinent provisions of the RPC and other

penal laws subject to Art 2177 Civil Code

Art. 100, RPCEvery person criminally liable for a felony is

also civilly liable

Chapter 2, Preliminary title, on Human

Relations (Civil Code)

Title 18 of Book IV of the Civil Code - on

damages

What civil liability arising from a crimeincludesRestitution

Reparation of damage causedIndemnity for consequential damages

QUASI-DELICTS

DefinitionAn act or omission with fault or negligence

causing damage to another; not a crime nor

contract

Article 2176, New Civil Code

Whoever by act or omission causes damage toanother, there being fault or negligence, isobliged to pay for the damage done. Such

fault or negligence, if there is no pre-existingcontractual relation between the parties, is

called a quasi-delict and is governed by the

provisions of this Chapter.

Governing Rules Obligations derived from quasi-delicts shall

be governed by the provisions of Chapter2, Title XVII of this Book, and by special

laws (1162)

Title XVIII on damages Articles 19-36 on human relations

Chapter II: Effect of Obligations

I. KINDS OF PRESTATION

1. Obligation toGive2. Obligation toDo

3. ObligationNot to do

OBLIGATION TO GIVE:

Specific/

determinatething

Generic thing (1246)

It is identified byits individuality;

hence, it cannotbe substituted

with another

although theintendedsubstitute is of

the same kind

and quality.

It is identified onlyby its specie. The

debtor can giveanything of the same

class as long as it is

of the same kind.

Creditor cannot

demand a thing of

superior quality;neither can the

debtor deliver a

thing of inferiorquality.

*Limited Generic thing when the generic

objects are confined to a particular class, e.g.,an obligation to deliver one of my horses

(Tolentino)

Specific/ Determinate Thing

Duties of the obligor:

1. To preserve or take care of the thing due

(1163)*Standard of care:

that of a good father of a familyunless the law or stipulation requires

another standard of care

2. To deliver the thing itself (1244)

3. To deliver the fruits of the thing (Art.

1164, par. 1)*When does the right to the fruits begin to

exist?From the time the duty to deliver arises:

when there is no term/condition


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from the perfection of thecontract

when there is a term/condition

from the moment the term orcondition arises

4. To deliver the accessions and accessories

of the thing (Art. 1166)*Accessories- those joined to or included with

the principal for the latters better use,

perfection or enjoyment

*Accessions additions to or improvements

upon a thing

5. To pay for damages in case of breach

(1170)

Generic Thing

Duties of the obligor:

1. To deliver a thing which is of the quality

intended by the parties taking intoconsideration the purpose of the obligation

and other circumstances (1246)

2. To be liable for damages in casa of fraud,

negligence, or delay, in the performanceof his obligation, or contravention of thetenor itself (1170)

Personal Right Real RightBefore delivery After delivery

Jus ad rem/ jus inpersonam aright enforceable

only against a

definite passivesubject, thedebtor

jus in re a rightenforceableagainst the world.

Right pertaining to

the person todemand from

another, as adefinite passivesubject, the

fulfillment of aprestation to give,

to do or not to do

Right pertaining to

a person over aspecific thing,

without a passivesubject individuallydetermined against

whom such rightmay be personally

enforced

Rights of a Creditor

Specific Generic

To compel

specificperformance

To ask for

performance of theobligation

To recoverdamages in case

of breach of theobligation,

exclusive or inaddition to

specific

performance

To ask that theobligation be

complied with atthe expense of the

debtor

Entitlement to To recover

fruits, interests

from the time theobligation todeliver arises.

damages in case of

breach ofobligation

OBLIGATION TO DO:

To do it (1167)

To shoulder the cost if someone else does

it (1167) To undo what has been poorly done

(1167)

To pay damages (1170-1172, 2201-2202)

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 itis in contravention of the obligation.

Furthermore, it may be decreed that what hasbeen poorly done be undone. (1167)

*The creditor may demand that the obligation

be performed by the debtor himself or by athird person at the expense of the debtor.However, in cases where the personal

qualifications of the debtor are taken intoaccount, the only remedy of the creditor is anaction for damages. In the Balane notes,there is no action for compliance for an

obligation to do because such would beinvoluntary servitude which is prohibited by

the constitution.

OBLIGATION NOT TO DO:

Not to do what should not be done To shoulder the cost to undo what should

not have been done (1168)

To pay damages (1170, 2201-2202)

*If undoing is not possible, either physicallyor legally, or because of rights acquired by

third persons who acted in good faith, or forsome other reason, his remedy is an actionfor damages caused by the debtors violation

of his obligation. (Manresa)

II. BREACH OF OBLIGATION

Voluntary- the debtor, in the performance ofthe obligation is guilty of fraud, negligence,delay or contravention of the tenor of the

obligation

Involuntary debtor is unable to comply

with his obligation because of a fortuitousevent

A. MODES OF BREACH (1170)

1. Fraud2. Negligence

3. Delay

4. Contravention the tenor thereof


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FRAUD

It is the deliberate or intentional evasion of

the normal fulfillment of an obligation.(Manresa)

It implies some kind of malice or dishonesty

and it cannot cover cases of mistake anderrors in judgment made in good faith. It is

synonymous to bad faith. (Oleary v.

Macondray & Co., Inc., G.R. No. 21383,March 25, 1924)

*Responsibility arising from fraud is

demandable in all obligations (fraud in theperformance)

*Waiver of action for future fraud is void forbeing contrary to law and public policy (Art.

1171) because the advance renunciation ofthe creditor would practically leave the

obligation without effect.

*Past fraud can be renounced. The fraudreferred to is fraud in Article 1170, which is

the malice or bad faith in the performance ofthe obligation.

Kinds of Fraud

Fraud in thePerformance

(Art. 1170)

Fraud in the Execution

CausalFraud

(dolocausante)(Art. 1338)

IncidentalFraud (dolo

incidente)(Art. 1344)

Presentduring the

performanceof a pre-

existing

obligation

Presentduring the

perfectionof a

contract

Presentduring the

perfectionof a

contract

Purpose is

to evade thenormalfulfillment

of theobligation

Purpose is

to securetheconsent of

another toenter intothecontract

Purpose is

to securethe consentof the other

party butthe fraudwas not theprincipal

inducementin makingthe contract

Results inthe breach

of an

obligation

Results invitiation of

consent;

voidablecontract

Does notresult in the

vitiation of

consent

Gives rise toa right in

favor of thecreditor torecover

damages

Gives riseto a right

of aninnocentparty to

annul the

contract

Gives riseto a right of

an innocentparty toclaim for

damages

NEGLIGENCE (fault or culpa)

It is the absence of due diligence.

It is any voluntary act or omission, there

being no malice, which prevents the normalfulfillment of an obligation. (1173, 1174)

Distinction between fraud and negligence

Fraud Negligence

There is

deliberateintention tocause

damage.

There is no deliberate

intention to causedamage.

Liabilitycannot bemitigated.

Liability may bemitigated.

Waiver forfuture fraud is

void.

Waiver for futurenegligence may be

allowed in certain

cases:a) gross can never

be excused inadvance; against

public policyb) simple may be

excused in certain

cases

Diligence Required

1. That agreed upon by the parties2. In the absence of stipulation, that required

by law in the particular case

3. If both the contract and law are silent,diligence of a good father of a family

*Deligence of a Good Father of a Family:

That reasonable diligence which anordinary prudent person would have hadunder the same circumstances.

Test of Negligence

Did the defendant in doing the alleged

negligent act use the reasonable care andcaution which an ordinary and prudent personwould have used in the same situation? If

not, then he is guilty of negligence.

(Mandarin Villa, Inc. v. CA, 257 SCRA538, 1996)

The rule for measuring degree of care andvigilance is dependent upon the circumstancesin which a person finds himself situated.

(Cusi v. Phil. National Railways, 90 SCRA357, 1979)

Kinds of Culpa

1. Culpa Aquiliana (quasi-delict) wrong ornegligence committed independent of

contract and without criminal intent


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2. Culpa Contractual wrong or negligencein the performance of an obligation

3. Culpa Criminal wrong or negligence inthe commission of a crime

DELAY(mora)

It is the non-fulfillment of an obligation with

respect to time.

1st GENERAL RULE: Delay occurs from thetime of creditors judicial or extrajudicial

demand

Exception: Demand is not necessary to

incur in delay when:

obligation or law expressly declares time is a controlling motive

demand would be useless

2nd GENERAL RULE: In reciprocal obligations,delay happens from the moment one party

fulfills his undertaking. (1169) If neither partyperforms his undertaking, neither incurs delay

Kinds of delay

1. Mora solvendi2. Mora accipiendi3. Compensatio morae the delay of the

obligors in reciprocal obligations

1. Mora Solvendi

There is a delay on the part of the debtor tofulfill his obligation (to give or to do)

a) Mora Solvendi Ex re default in real

obligationsb) Mora Solvendi Ex persona default in

personal obligations

Requisites:

The obligation must be liquidated, due anddemandable.

The debtor is guilty of non-performance. There was demand made judicially or

extra-judicially.

Effects when these elements are present:The creditor may ask for damages/ the debtor

is liable for damages

The debtor is liable even if the loss is due tofortuitous events.

The debtor shall bear the risk of loss.

Instance when there is no default or morasolvendi:

a) In negative obligations, because one can

never be late in not doing or not givingsomething

b) In natural obligations, because the

performance is optional or voluntary onthe part of the debtor.

2. Mora Accipiendi

There is a delay on the part of the creditor to

accept the performance of the obligation

Requisites:1. Offer of performance by the debtor who

has the required capacity.2. Offer must be to comply with the

prestation as it should be performed.

3. Creditor refuses the performance withoutjust cause.

Effects when these elements are present:

1. The responsibility of debtor is reduced tofraud and gross negligence.

2. The debtor is exempted from risk of loss

of thing or the creditor bears risk of loss.3. The expenses incurred by the debtor for

the preservation of the thing after themora shall be chargeable to the creditor.

4. If the obligation bears interest, the debtordoes not have to pay from time of delay.

5. The creditor is liable for damages.6. The debtor may relieve himself of

obligation by consigning the thing.

3. Compensatio Morae

It is the delay of the parties or the obligors inreciprocal obligations. The effect is that it is as

if there is no default.

Rules on Mora, Delay or Default

Unilateral

Obligations

Reciprocal

Obligations

General Rule:No demand nodelay. The mere

expiration of the

period fixed by theparties is notenough in order

that the debtormay incur in delay.

One party incurs indelay from the

moment the other

party fulfills hisobligation, whilehe himself does

not comply or isnot ready tocomply in a proper

manner with what

is incumbent uponhim. The generalrule is that

fulfillment by both

parties should besimultaneous.

Exception:

when theobligation or law

expresslydeclares

when time is of theessence in thecontract

when the demandwould be useless

when the debtoracknowledged

When differentdates for the

performance ofobligation is fixed

by the parties.


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that he is in

default

It is not enoughthat there is aspecific date of

performance, thewords withoutthe need of

demand should

appear in the faceof the instrument.

The demand is stillnecessaryonlywhenthe

respectiveobligations are tobe performed on

separate dates.

If neither partycomplies with the

prestation, thedefault on onecompensates the

default of another.

*Delay in payment of money is indemnifiedthrough interest unless a gratuitous mutuum

or simple loan. If no stipulated interest,default interest is (6%) six percent. (2209)

*If obligation consists in payment of a sum of

money, and debtor incurs in delay, the

indemnity for damages, there being nostipulation to the contrary, shall be the

payment of the interest agreed upon, and in

the absence of stipulation, the legal interest,which is six percent per annum. (2209)

*When there is delay, the injured party may

ask for damages. But this benefit arising from

Mora, default or delay may cease upon:- Renunciation of the creditor- Prescription of action- Extension of time for the fulfillment of

the obligation

Bragaza v. CAA contract was entered into for delivery ofmaterials on Dec. 22, 1990 in time for the

aggrieved partys wife who expressly wishedthat she be buried before Christmas day, andwhere, despite knowing this timetable and

having been paid for the materials, thesupplier failed to make the delivery despitepleas and earnest follow-ups by the widower.Supreme Court ruled that time was of the

essence of such contract and the suppliershould be liable for the delay and breach.

N.B. Example of incurring delay without

judicial or extrajudicial demand. (#2)Time isof the essence. Contract was entered into inview of burial before Christmas.

Agcaoili v. GSIS

The parties entered into a contract of sale of agovernment housing unit on the condition that

Agcaoili should occupy the same within threedays from the receipt of notice. Failure toimmediately occupy contractually allowed

GSIS to terminate the contract. Agcaoli uponreceipt of notice, immediately went to theplace and found a house in a state of incompleteness that civilized occupation was

not possible. He made the first monthlyinstallment but refused to make further

payments until and unless GSIS completed

the housing unit. GSIS cancelled the awardand required Agcaoili to vacate the premises.

Held: GSIS had no right to rescind sale. In

reciprocal obligations, neither party incurs indelay if the other does not comply or is not

ready to comply in a proper manner with what

is incumbent upon him. (1169, par. 6)

CONTRAVENTION TO THE TENOR OF THE

OBLIGATION

This is the violation of the terms and

conditions stipulated in the obligation. Andsuch contravention must not be due to a

fortuitous event or force majeure.

In general, every debtor who fails in theperformance of his obligation is bound to

indemnify for the losses and damages causedthereby.

The phrase in any manner contravenes the

tenor means any illicit act, which impairs the

strict and faithful fulfillment of the obligation,or every kind of defective performance.

It is therefore immaterial whether or not the

actor is in bad faith or negligent, what isrequired is that it is his fault or the act done

contravenes their agreement.

B. FORTUITOUS EVENTS

DEFINITION

Events which could not be foreseen, or which

though foreseen are inevitable. (Article 1174)

Act of God

An act of God is defined as an accident, due

directly and exclusively to natural causeswithout human intervention, which by noamount of foresight, pains or care, reasonably

to have been expected, could have beenprevented.(Nakpil v. CA)

Act of Man

In contrast, force majeure is a superior orirresistible force, which is essentially an act of

man, such as wars, strikes, riots, acts of

robbers, pirates, and brigands.

*In our law, acts of man and acts of God are

identical in so far as they exempt an obligorfrom liability because the events happenedindependent of the will of the obligor.

(Republic v. Stevedoring Corp., 21 SCRA279, 1967 and UST v. Descals, 38 Phil.287, 1918)


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Kinds of Fortuitous Events

1. Ordinary those which are common and

which the contracting parties could easilyforesee.

2. Extraordinary those which are

uncommon and which the contractingparties could not have reasonably

foreseen. (see 1680)

General Rule

Except in cases expressly specified by law, or

when it is otherwise declared by stipulation, orwhen the nature of the obligations requires

assumption of risk, no person shall be

responsible for those events which, could notbe foreseen, or which though foreseeable, are

inevitable.

*When a debtor is unable to fulfill hisobligation because of fortuitous events or

force majeure, his obligation to comply isextinguished subject to the following

exceptions:

cases expressly specified by law (i.e.,

552(2), 1165, 1268, 1942, 2147,2148, 2159)

declared by stipulation

nature of the obligation requires the

assumption of risk (1174) when the obligor is in default or has

promised to deliver the same thing to

two or more persons who do not havethe same interests. (1165(3))

Requisites for exemption

1. cause of event or debtors failure

independent of human will

2. impossible to foresee or avoid3. impossible for debtor to fulfill his

obligation in a normal manner4. debtor free from participation in the

aggravation of the injury to the creditor(Nakpil v. CA andLasam v. Smith)

*It must be the ONLY and SOLE cause, notmerely a proximate cause.

Effect of Concurrent Fault

One who negligently creates a dangeroussituation cannot escape liability for the natural

and probable consequences thereof although

an act of God intervened to precipitate theloss. There must be no fraud, negligence,

delay or violation or contravention in any

manner of the tenor of the obligation. (Nakpilv. CA)

When the effect is found to be in part theresult of the participation of man, whetherdue to his active intervention or neglect or

failure to act, the whole occurrence is thenhumanized and removed from the rules

applicable to the acts of God. (NAPOCOR v.

CA, 211 SCRA 162, 1992)

Herbosa v. CA374 SCRA 578 (2002)

PVE, a subsidiary of SD, Inc., was not able tocover the wedding celebration of EH and RH

allegedly due to the gross negligence of the

crew and the lack of supervision from PVEsgeneral manager. Held: PVE or SD, Inc.cannot take refuge under Article 1280 of the

New Civil Code. The defense that they

exercised due care in the selection andsupervision of their employees can only be

availed of when the liability arises from culpa

aquiliana and not from culpa contractual.

C. REMEDIES OF CREDITORS

GENERAL RULE

Rights acquired by virtue of an obligation aretransmissible in character.

Exception

a) when they are not transmissible by theirvery nature (Personal obligation)

b) when there is Stipulation of the parties

that they are not transmissible

c) when they are not transmissible byoperation ofLaw

Rights of Creditor against Debtor (E-PAA,electronic paa/foot or e-foot)

1. Exact fulfillment to demand fulfillment of

the obligation or specific performance either specific, substitute or equivalent

performance

2. Pursue the leviable to attach theproperties of the debtor, except those

exempt by law, from execution.3. Accion subrogatoria

4. Accion Pauliana

Accion Subrogatoria

Definition

Novation via change of creditor (1291, par.

3);

This involves the right of the creditor to

exercise all of the rights and bring all of the

actions which the debtor may have againstthird persons.

Requisites

1. Creditor must have the right of return

against debtor2. The debt is due and demandable


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3. There is a failure of the debtor to collecthis own debt from 3rd persons either

through malice or negligence

4. The debtor's assets are insufficient5. The right of account is not purely personal

Accion Pauliana

Definition

Rescission, which involves the right of thecreditor to attack or impugn by means of arescissory action any act of the debtor which

is in fraud and to the prejudice of his rights as

creditor.

Requisites

1. There is a credit in favor of plaintiff

2. The debtor has performed an actsubsequent to the contract, giving

advantage to other persons3. The creditor has no other legal remedy

4. The debtor's acts are fraudulent5. The creditor is prejudiced by the debtor's

act which are in favor of 3rd parties andrescission will benefit the creditor

Chapter III: Different Kinds

of Obligations

PRIMARY CLASSIFICATION(PaPA, JustDont Preach)

1. Pure and conditional obligations (1179-1192)

2. Obligations with aPeriod (1193-1198)

3. Alternative obligations (1199-1206)

4. Joint and solidary obligations (1207-1222)5. Divisible and indivisible obligations (1223-

1225)

6. Obligations with a Penal clause (1226-1230)

SECONDARY CLASSIFICATION

(U R D PoLiCe)

1. Unilateral and bilateral

2. Real and personal3. Determinate and indeterminate4. Positive and negative

5. Legal and conventional

6. Civil and natural

Classification according to SanchezRoman:

1. Juridical quality and efficaciousness

2. By parties or subject

3. By the object of the obligation orprestation

4. By their juridical perfection and

extinguishment

Juridical quality and efficaciousnessa. Civil obligations

b. Natural obligations

c. Mixed according to natural and civillaw

By the parties or subject

a. Unilateral or Bilateralb. Individual or Collective

c. Joint or Solidary

By the object of the obligation or prestationa. Specific or Generic

b. Positive or Negative

c. Real or Personald. Possible or Impossible

e. Divisible or Indivisible

f. Principal or Accessoryg. Simple or Compound

If compound:Conjunctive (demandable at the same

time)Distributive (alternative or facultative)

By their juridical perfection or fulfillment

a. Pure or Conditionalb. With a Period

I. PURE AND CONDITIONAL OBLIGATIONS

PURE OBLIGATION

The effectivity or extinguishment is not

subject to any condition and no specific dateis mentioned for its fulfillment and is,

therefore, immediately demandable. (1179,par. 1)

CONDITIONAL OBLIGATION

The consequences are subject in one way or

another to the fulfillment of a condition.

Condition

It is a future and uncertain event, upon thehappening of which, the effectivity orextinguishment of an obligation (or rights)

subject to it depends.

Term

A day certain is understood to be that whichmust necessarily come, although it may notbe known when.

*Difference between conditional and those

with a term: There is uncertainty or certaintyof day or time.

If the uncertainty consists in whether the daywill come or not, the obligation is conditional,

and it shall be regulated by the rules of the

preceding section. (1193)


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Pay v. Viuda de PalancaThe debtor issued a promissory note to the

creditor to pay a sum of money payable upon

receipt of a particular sum of money from theestate of a certain deceased person upon

demand. The case for collection on the notewas filed 15 years after its execution. The

Supreme Court ruled that, since theprescriptive period for filing the action was 10

years and considering that the promissory

notes payment constituted a pure obligationand therefore demandable at once, the actionto collect could no longer prosper. It was

deemed pure since satisfaction of credit could

be realized either through the debtor suedreceiving the cash payment from the estate of

the deceased or upon demand.

Classification of Conditions

1. As to effecta. Suspensive

b. Resolutory

2. As to forma. Express the condition is clearly

stated

b. Implied the condition is merelyinferred

3. As to possibility

a. Possibleb. Impossible

4. As to cause or origina. Potestativeb. Casual

c. Mixed

5. As to mode

a. Positive the condition consists in the

performance of an act (1184)b. Negative the condition consists in the

omission of an act

6. As to numbersa. Conjunctive there are several

conditions and all must be fulfilled

b. Disjunctive there are severalconditions and only one or some ofthem must be fulfilled

7. As to divisibilitya. Divisible the condition is susceptible

of partial performance

b. Indivisible the condition is not

susceptible of partial performance

Suspensive and Resolutory (1179)

SUSPENSIVE CONDITION(Condition precedent or condition antecedent)

It suspends the acquisition of rights until theconditions are fulfilled; that is, until the

happening of the uncertain event whichconstitutes the condition.

RESOLUTORY CONDITION(Condition subsequent)

It causes the extinguishment or loss of rights

already acquired upon the fulfillment of thecondition, that is, the happening of the event

which constitutes the condition. In other

words, the fulfillment of which will extinguishan obligation (or right) already existing.

Suspensive Resolutory

When it is fulfilled,

the obligation

arises.

The obligation is

extinguished.

When it takesplace,

the tie of law(juridical or legaltie) does notappear

The tie of law is

consolidated

Until it takes place,

the existence ofthe obligation is a

mere hope

Its effects flow,

but over it, hoversthe possibility of

termination

Effect:The acquisition of

rights

The loss(termination) of

rights alreadyacquired

(Manresa)

Potestative, Casual and Mixed (1182)

POTESTATIVE CONDITION

(facultative condition)

It is a condition which is suspensive in natureand which depends upon the sole will of one

of the contracting parties.

Suspensive

condition

Resolutory

condition

Depends upon thewill of the debtor

The condition andobligation are voidbecause the

validity and

compliance areleft to the will of

the debtor and it

cannot, therefore,be legallydemanded as it

will cause the

debtor not tofulfill the

condition toescape liability.

Except when the

obligation is a pre-

existing one;hence, only the

The condition andobligation are stillvalid because the

debtor is interested

in the fulfillment ofa condition which

causes the

extinguishment orloss of rightsalready acquired

by the creditor.


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condition is void.

Depends upon the

will of the creditorThe condition andobligation are

valid because thecreditor isinterested in the

fulfillment of the

obligation as itwill benefit him.

CASUAL CONDITION

The condition depends upon chance or the will

of a third person.

MIXED CONDITION

The condition depends partly on the will of aparty and partly on chance or the will of a 3rd

person.

The obligation is valid if the suspensivecondition depends partly upon chance and

partly upon the will of a third person. (Naga

Telephone, Co., Inc. v. CA, 230 SCRA 351,1994)

Possible and Impossible Conditions

(1183)

*Applies to suspensive conditions.

POSSIBLE CONDITIONS

The condition is capable of fulfillment, legallyand physically.

IMPOSSIBLE CONDITIONS

The condition is not capable of fulfillment,

legally or physically.

Two Kinds

1. Physically impossible conditions those, inthe nature of things, cannot exist orcannot be undone.

2. Legally impossible conditions those

which are contrary to law, morals, goodcustoms, public order and public policy.

General Rule

They shall annul the obligation which dependsupon them

Exceptions

1. pre-existing obligation2. divisible obligations3. simple or remuneratory donations4. testamentary dispositions

5. in case of conditions not to do animpossible thing

Effect

It renders the conditional obligation void sincethe obligor knows that his obligation cannot

be fulfilled; thus, showing that he has nointention to comply with his obligation.

Effects of Impossible and Illegal Conditions

If the condition is:

1. To do an impossible or illegal thing, the

condition and the obligation are void.2. Negative (not to do an illegal thing), the

condition and the obligation are valid.

3. Negative (not to do the impossible thing),disregard the condition, however, the

obligation remains.

Positive and Negative Conditions

POSITIVE CONDITION(suspensive)

The obligation is extinguished:

a) as soon as the time expires without theevent taking place

b) as soon as it has become indubitable that

the event will not take place although the

time specified has not yet expired (1184)

NEGATIVE CONDITION

(suspensive)

The obligation becomes effective:

a) from the moment the time indicated haselapsed without the event taking place; or

b) from the moment it has become evident

that the event cannot occur, although thetime indicated has not yet elapsed (1185)

Constructive Fulfillment (1186)

For Suspensive Conditions

Requisites

1. The condition is suspensive;

2. The obligor actually prevents the

fulfillment of the condition; and3. He acts voluntarily.

For Resolutory Condition

This also applies to a resolutory condition

when the debtor is bound to return what he

has received upon fulfillment of the condition.

Effects of Suspensive Conditions

1. Before the condition is fulfilled, thedemandability and acquisition or effectivity


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of the rights arising from the obligation issuspended.

2. After the condition has been fulfilled, the

obligation arises or becomes effective.3. The effects of a conditional obligation to

give, once the condition has been fulfilledshall retroact to the day the obligation was

constituted.

*The law allows retroactivity because the

condition is not an essential requisite of anobligation.

1. When the obligation imposes reciprocal

prestations upon the parties, the fruits andinterests shall be deemed to have been

mutually compensated (this assumes a

simultaneous performance of prestations).

*The fruits are mutually compensated forconvenience.

2. In a unilateral obligation, the debtor shall

appropriate the fruits and interestsreceived unless the intention constituting

such was different.3. In obligations to do or not to do, the court

shall determine the retroactive effect of

the condition that has been complied with.

Rights Pending Fulfillment of a Suspensive

Condition

Of the creditor Of the debtor

He may take orbring appropriateactions for the

preservation of hisright, as the debtormay render

nugatory the

obligation upon thehappening of thecondition.

He is entitled torecover what hehas paid by

mistake prior tothe happening ogthe suspensive

condition.

Loss, Deterioration or ImprovementPending the Happening of the Condition

(1189)

Requisites for 1189 to apply

6. The obligation is a real obligation;7. The object is a specific or determinate

thing;

8. The condition is subject to a suspensivecondition;

9. The condition is fulfilled; and10. There is loss, deterioration, or

improvement of the thing during thependency of the the condition.

LOSS

Kinds of loss

1. Physical loss (the thing perishes)2. Legal loss (the thing goes out of

commerce)

3. Civil loss (the thing disappears and theexistence is unknown or unrecoverable as

a matter of fact or of law)

Rules

1. When the thing is lost without the debtors

fault, the obligation is extinguished.2. When the thing is lost with the debtors

fault, the debtor pays for damages.

DETERIORATION

Rules

1. When the thing deteriorates without the

debtors fault, the creditor will suffer thedeterioration of impairment.

2. When the thing deteriorates with thedebtors fault, the creditor may choose

between:a. Rescission (cancellation) of the

obligation with indemnity for damages,or

b. Fulfillment of the obligation also with

damages

IMPROVEMENT

Rules

1. When the thing is improved by nature or

by time, the improvement shall inure tothe benefit of the creditor.

2. When the thing is improved at the expense

of the debtor, the debtor shall have no

other right than that granted to ausufructuary.

Effect of the Fulfillment of Resolutory

Conditions (1190)

1. Extinguishment of the obligation2. Mutual restitution (the parties restore to

each other what they have received

including the fruits and interest)3. Art. 1189 applies to whoever has the duty

to return in case of loss, deterioration or

improvement of the thing

4. If the obligation is to do or not to do, thecourts determine the retroactivity of thefulfillment of the condition as stated in

1187

Kinds of Obligation according to the

Person Obliged

UNILATERAL OBLIGATION

It is when only one party is obliged to complywith a prestation.


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BILATERAL OBLIGATION

It is when both parties are mutually bound to

each other making them both the debtors andcreditors of each other.

It may be:

reciprocal, or non-reciprocal

Reciprocal Obligations

Those which arise from the same cause and in

which each party is debtor and creditor of the

other.

Implied Condition

There must be compliance by the other with

the duties incumbent upon him as party to thedebt.

In reciprocal obligations, a party cannot

demand unless he complies or is ready tocomply with obligations (inferred from 1169).

*This is subject to same rules on interim

obligations and interim remedies.

Non-Reciprocal Obligations

Those which do not impose simultaneous and

correlative performance on both parties. Theperformance of one party does not depend

upon the simultaneous performance of

another.

Remedies in Reciprocal Obligations

RESCISSION IN ARTICLE 1191

The power to rescind means the right to

cancel or to resolve the contract in case ofnon-fulfillment of the obligation on the part of

one of the parties.

It is the breach of faith committed by theperson who is supposed to comply withobligation. It is not the rescission in 1380

which involves damage or lesion, or injury tothe economic interest of a person.

Characteristics

1. It only exists in reciprocal obligations.2. It can be demanded only if the plaintiff is

ready, willing and able to comply with his

own obligation and the other is not.(Seva v. Berwia, 48 Phil. 581)

General Rule

Judicial approval is necessary for rescission,

except:a. When the object is not yet delivered

b. When, even if there has been delivery, thecontract states that either party can

rescind the same or take possession of the

property upon non-fulfillment of theobligation by the other party.

By one party: (1191)

1. Implied in reciprocal obligations, when the

other does not comply

2. Power to rescind plus damages3. Compel fulfillment and then rescind if such

becomes impossible

4. The Court decrees rescission unless just

cause for authorizing a period5. Must be without prejudice to third persons

who have acquired the thing, in

accordance with articles 1385 and 1388and the Mortgage Law.

By both parties: (1192)

In case both parties have committed a breach

of the obligation, the liability of the firstinfractor shall be equitably tempered by the

courts. If it cannot be determined which ofthe parties first violated the contract, the

same shall be deemed extinguished, and each

shall bear his own damages.

1. Rule against the first infractor, as

tempered by courts

2. If first infractor cannot be determined,obligation extinguished

*Rescission should be done judicially unlessstipulated in the contract. Rescission will onlybe granted if breach of the obligation is

substantial and not mere occasional

malfunction of the machine without even anallegation of loss of income. (Philippine

Amusement Enterprises, Inc. v.

Natividad)

*Injured party has the power to rescindbut only through the courts in proper

proceedings.(Ocejo v. International BankingCorp.)

UP v. de los AngelesThe parties stipulated rescission of loggingagreements without the need for any judicial

pronouncement.

N.B. Judicial pronouncement of rescission wasunnecessary as it was clearly expressed in

their contract. No law prohibits parties from

entering agreements wherein violation of theterms of contract would cause cancellation

even without court intervention. Rescission on

account of infractions by the other party byone of the parties must be made known tothat other party who in turn can seek for

judicial remedy should he feel that rescissionis unjustified.


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Obligations Rendered Void By CertainConditions

Annulling conditions:

a. Potestative only if suspensive conditionis solely upon the will of the debtor (1182)

b. Impossible Conditions (1183)c. those contrary to law, good customs,

morals, public order or public policy

(1183)d. Not to do an impossible thing not agreed

upon (1183, par. 2)

Lao Lim v. CAThe stipulation that the lessee has the right to

renew contract of lease as long as he needs

the premises and he can pay for the same isinvalid. It would leave the lessee, Dy, the sole

power to determine whether the lease shouldcontinue or not. The lease contract is deemed

extinguished at the end of a year, subject torenewal by means of a new agreement but

since the lessor did not want to renew, thereis no more lease.

Romero v. CA

This case shows that one cannot rescind a

contract on account of ones own failure tofulfill an obligation.

Ducusin v. CA

Only that which is dependent on the sole willof the debtor is invalid. No one is supposed to

have sole power. In this case, since the

condition is dependent on the will of thirdpersons, the condition was held to be valid.

II. OBLIGATIONS WITH A TERM

Those whose consequences are subjected in

one way or another to the expiration of a

period or term. (Manresa, Lirag Textiles,Inc. v. CA, 63 SCRA 374, 1975)

PERIOD or TERM

It is a future and certain event upon the

arrival of which the obligation (or right)

subject to it either arises or is terminated.

*The demandability is suspended by the term,

not the acquisition of the right or theeffectivity of the obligation.

*Fortuitous events do interrupt the running of

the period.

Distinguishing a period from a condition

Period/ Term Condition

As to fulfillment

Certain event Uncertain event

As to timeRefers only to the

May also refer to apast event

future unknown to parties

As to influence onthe obligation Merely fixes

the time for theefficaciousnessof the

obligation.

If suspensive,it cannotprevent the

birth of theobligation indue time.

If resolutory, it

does not annul,even in fiction,the fact of its

existence.

It causes an

obligation to ariseor be terminated.

As to effect, whenleft to the debtorswill

Depends upon

the will of thedebtor

empowers the

court to fix itsduration

Depends upon thesole will of the

debtor, thus,

invalidates theobligation

As to retroactivityof effects

Unless

stipulated, thearrival of aperiod has no

retroactiveeffect.

The happening of

the condition hasretroactive effect.

Classifications of Term/ Period

1. According to effecta. suspensive period (ex die) obligation

becomes demandable only upon the

arrival of a certain day

b. resolutory period (in diem) obligationis valid up to a day certain and

terminated upon the arrival of period.

2. According to sourcea. legal period provided for by law

b. conventional/ voluntary period

agreed to by the partiesc. judicial period fixed by the court

3. According to definitenessa. definite period fixed or the coming of

which is known

b. indefinite period not fixed or thecoming of which is not known (usually,the law empowers the courts to fix the

period)


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1. When after contracting the obligation, thedebtor suffers from insolvency, unless he

gives guaranties or securities for the debt

2. When the debtor does not furnishpromised guaranties or securities he

promised3. When by his own act, the debtor has

impaired established guaranties orsecurities and when through a fortuitous

event they disappear, unless he gives new

ones equally satisfactory when the debtorviolates any undertaking in considerationof which the creditor agreed to the period

4. When the debtor attempts to abscond.

*IN ALL THE CASES ABOVE, DESPITE THE FACT

THAT THE PERIOD HAS NOT YET LAPSED, THEOBLIGATION SHALL BECOME IMMEDIATELY

PAYABLE OR DEMANDABLE.

*THE WORD INSOLVENT DOES NOT REQUIRE A

JUDICIAL DECREE OF INSOLVENCY. IT SHOULD BEUNDERSTOOD IN ITS ORDINARY MEANING WHICH

MAY EMBRACE DIFFERENT DEGREES OF FINANCIAL

EMBARRASSMENT. THE INSOLVENCY MUST HAVE

OCCURRED AFTER THE OBLIGATION WAS

CONSTITUTED.

Gaite v. FonacierPayment of obligation was secured by twosurety bonds: one from a mining company

and its stockholders and the other from a

bonding company. The obligor was obliged topay the indebtedness from the time it

received the proceeds of the sale of iron ore,

the Supreme Court ruled that the obligor inthis case lost its right to the period. Failure torenew an expired surety with the bonding

company constituted an impairment of the

securities or guaranties. Thus, Fonacier losthis right to the period, i.e. time to sell the iron

ore, unless he immediately gives new ones

equally satisfactory.

III. ALTERNATIVE OBLIGATIONS

Kinds of Obligation according to Object

1. Simple obligation one where there is

only one prestation2. Compound obligation one where there

are two or more prestations

a. Conjunctive obligation one wherethere are several prestations and all ofthem are due

b. Distributive obligation one where one

of two or more of the prestations is

due

*A distributive obligation may be alternative (1199), or facultative (1206)

ALTERNATIVE OBLIGATION

It is one wherein various prestations are due

but the performance of one of them issufficiently determined by the choice which,

as a general rule, belongs to the debtor.(Manresa)

FACULTATIVE OBLIGATION

It one where only one prestation has been

agreed upon but the obligor may renderanother in substitution.

Distinguising Alternative and Facultative

Obligations

Alternative Facultative

Number ofprestations

Severalprestations aredue but

compliance with

one is sufficient

Only one

prestation is duealthough thedebtor is allowed

to substitute

another

Right of choiceMay be given to

the creditor or to

a third person

The right to make

the substitution is

given only to thedebtor

Loss through afortuitous event

The loss of one or

more of thealternatives doesnot extinguish

the obligation

The loss of the

thing dueextinguishes theobligation.

Loss throughfault of debtora) Does not

render the debtor

liableb) Where thechoice belongs to

the creditor, the

loss of onealternative gives

rise to liability

a) The debtor is

liable

b) The loss of thesubstitute before

the substitution

does not renderthe debtor liable

Nullity ofprestationa) The nullity of

one prestation

does notinvalidate theothers

b) the debtor orcreditor should

choose fromamong theremainder

a) The nullity ofthe prestation

agreed upon

invalidates theobligationb) the debtor is not

bound to choosethe substitute


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Right of Choice

General Rule

The right of choice belongs to the debtor.

Except:

When expressly granted to the creditor, or

When expressly granted to a third person

*A right of choice becomes a simple obligationwhen a person who has a right of choice has

communicated his choice and that one choice

is the only practicable one (i.e., the othersmay have become illegal or impossible).

(1202)

Limitations on the Debtors Right of Choice

1. The debtor cannot choose those

prestations which are impossible, unlawfulor which could not have been the object of

the obligation. (1200)2. The debtor has no more right of choice

when among the prestations whereby he isalternatively bound, only one is

practicable.

3. The debtor cannot choose the part of oneprestation and part of another.

The Right of Choice belongs to the Debtor

As a general rule, in alternative obligations,

the right of choice belongs to the debtor.

However, the debtor may expressly give theright of choice to the creditor.

Rules in Alternative Obligations

Debtors

choice

Creditors

choice

Due to a Fortuitous Event

All Extinguish Extinguish

Some Deliver any ofthe remaining Deliver any ofthe remaining

One Deliver Deliver

Debtors Fault

All Value of thelast thing lost

and damages

Value of any ofthe things and

damages

Some Deliver any of

the remaining,

no damages

Value of the

thing lost,

damages orany of theremaining

One Deliver, no

damagesLoss of Last Thing

Extinguish Value of any of

the things lostdue to the

creditors fault

and damages

Rules in Facultative Obligations

BeforeSubstitution

After Substitution

Loss of the Principal

Fortuitous Event

The obligation isextinguished

The debtor is not

liable whatever maybe the cause

Fault of DebtorThe debtor is

liable for

damages

Loss of the Substitute

The debtor is not

liable whetherthe loss is due to

the fault of thedebtor or to a

fortuitous event.

Fortuitous Event

The obligation isextinguished

Fault of DebtorThe debtor is liable

for damages

IV. JOINT AND SOLIDARY OBLIGATIONS

JOINT OBLIGATIONS

Obligacion Mancomunada

It is an obligation where the whole liability isto be paid or fulfilled proportionately by the

different debtors; and/or is to be demandedproportionately by the different creditors.

SOLIDARY OBLIGATION

Obligacion Solidaria

It is an obligation where each one of the

debtors is bound to render, and/ or each oneof the creditors has a right to demandcompliance with the prestation. (1207)

*In a joint obligation, each debtor shallbe liable only for his part of the debtpresumed to be equal with the other debtors.

The above provision is consistent with the rulethat a joint obligation is presumed in case ofplurality of debtors or creditors for solidary

obligation exists only when the law soprovides, when expressly stipulated by theparties or when called for by the nature of theobligation. (Jurado) (see 1208)

General Rule

By default, collective obligations are presumed

to be joint if there is concurrence of two ormore debtors and/ or creditors.

Solidarity exists only

1. When Stipulated by the parties using such

words like jointly and severally, in

solidum, I promise to pay in a notesigned by two or more debtors, or similarwords.(conventional solidarity)

2. When solidary liability is provided by Law,hence, civil liability arising from crimes,


18/48



negotiorum gestio, commodatum or quasi-delict shall be solidary. (legal solidarity)

3. When the Nature of the obligation requiressolidarity.

4. When a charge or condition is imposed

upon heirs or legatees, and the Testamentexpressly makes the charge or condition

in solidum.

5. When a solidary responsibility is imputedby a Final judgment upon several

defendants.

Some Features of Joint Liability

1. Insolvency of one debtor does not makethe others liable.

2. Vitiated consent on the part of one debtordoes not affect the others.

3. Demand made to one of the debtors is nota demand to all because the debt of one is

distinct from the others.

*In a given contract, wherein a partysigns as a surety but the agreement states

joint and several liabilities, there is a solidary

obligation. (Jaucian v. Querol)

Kinds of Solidarity (PAMela Anderson)

1. Passive Solidarity2. Active Solidarity

3. Mixed Solidarity solidarity among

creditors and debtors

Passive

Solidarity

Active

Solidarity

Solidarity

of debtors

Solidarity of

creditors

Any one ofthe debtors canbe made liable for

the fulfillment ofthe entireobligation, withthe consequent

right to demandfrom the otherstheir

corresponding

shares in theliability.

Any one of the creditors maydemand fulfillment

of the entireobligation.

It is in the

nature of a

mutual guaranty.

Its essential

feature is that of

mutual

representation.

Joint Indivisibility

A joint indivisible obligation is one inwhich the object or prestation is indivisible,

not susceptible of division; while the tie

between the parties is joint, that is, liable onlyto a proportionate share. (1209)

*In a joint indivisible obligation, theliabilities of the debtors or the rights of the

creditors are joint, but they are indivisible asto compliance. (1224) The concurrence of all

the creditors is necessary for demandingcompliance due to the indivisibility of the

obligation. The same is inversely true as

regards the debtors. The concurrence of allthe creditors is also necessary for acts whichare prejudicial. But an act beneficial to all like

interruption of prescription may be performed

by one of the creditors.

Indivisible obligations are not necessarily

solidary (1210)

Indivisibility Solidarity

Refers to theprestation

Refers to the legalor juridical tiebinding the parties

Only the debtor

who is guilty ofbreach of

obligation is

liable fordamages, therebyterminating the

agency.

All of the debtors

are liable for thebreach of

obligation

committed by anyone of the debtrs.

Can exist even ifthere is only one

debtor or onecreditor

Can only existwhen there is at

least two debtorsor creditors

The others are

not liable in caseof insolvency ofone debtor

The others are

proportionatelyliable in case of insolvency of one

debtor

Characteristics

1. Demand must be made to all the jointdebtors.2. The creditor must proceed against all the

joint debtors, because the compliance of

the obligation is possible only if all of the

joint debtors would act together.3. If one of the debtors is insolvent, the

other(s) shall not be liable for his share.

4. If one of the debtors cannot comply, theobligation is converted into monetaryconsideration. One who is ready and

willing to comply will pay his proportionate

share, and the other not willing shall pay

his share plus damages when his financialcondition improves.

5. If there is more than one creditor, deliverymust be made to all, unless one isauthorized to receive for the others.


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RULES1. GIVES RISE TO INDEMNITY FOR DAMAGES:

NON-COMPLIANCE WITH UNDERTAKING

(1224)2. DEBTORS READY TO FULFILL SHALL NOT BE

LIABLE(1224)

*AS ALREADY STATED, IN A JOINT INDIVISIBLEOBLIGATION, A SUIT FOR SPECIFIC PERFORMANCE

MUST BE DIRECTED AGAINST ALL THE DEBTORS

AND IF ANY ONE OF THEM IS NOT WILLING TO

FULFILL, THE ACTION SHALL BE CONVERTED INTOONE FOR DAMAGES WHERE THE DEBTORS SHALL BE

LIABLE FOR THEIR RESPECTIVE SHARES WHILE THE

UNWILLING DEBTOR SHALL PAY HIS SHARE PLUS

DAMAGES FOR HE ALONE SHALL BE LIABLE FOR

DAMAGES, THE OTHER DEBTORS BEING WILLINGTO DELIVER.

3. Prejudiced only by collective acts of ALLcreditors / enforced against ALL debtors

(1209)

*Article 1209 contemplates anobligation which is joint as to the parties but

indivisible as to compliance. The concurrenceof all the creditors is necessary for demanding

compliance due to the indivisibility of the

obligation. The same is inversely true asregards the debtors. The concurrence of allthe creditors is also necessary for acts which

are prejudicial. But an act beneficial to all like

interruption of prescription may be performedby one of the creditor.

Inchausti & Co. v. YuloSix brothers and sisters admitted solidaryliability. Gregorio Yulo was sued for

payment of entire indebtedness.

However, solidary debtors Francisco,Manuel and Carmen entered into a

compromise agreement with plaintiff.

Gregorio was ordered to pay the part ofthe reduced indebtedness, only insofar as

such is demandable. Greg Yulo wassolidarily liable, he benefited from the

remission, but not the extension of theperiod for payment, thus there waspartial demandability.

Debtor/ Passive Solidarity Distinguished

From Suretyship

By guaranty a person, called the guarantor,binds himself to the creditor to fulfill the

obligation of the principal debtor in case the

latter should fail to do so. A solidary guarantyis suretyship.

Suretyship

If a person binds himself solidarily with the

principal debtor, the provisions of Section 4,Chapter 3, Title I of this Book shall be

observed. In such case the contract is calleda suretyship. (2047)

Distinguishing Suretyship fromSolidarity

1. A surety does not have an actual loan of

his own, solidary debtor is also liable forhis own debt in addition to that of others.

2. After paying the debt, a surety has right to

collect from principal debtor, while asolidary debtor has right to collect fromsolidary co-debtor.

3. Most importantly, an extension of time

would benefit the surety and such wouldnot benefit solidary co-debtors who did not

know or consent to an extension of time.

(Villa v. Garcia Bosque) (Jurado)

Rights of solidary creditor/s

1. Do only what is useful to others, nothing

prejudicial to co-creditors. (1212)2. There is no assignment without the

consent of others (1213)

*The consent of the other co-solidary

creditors is necessary because they may nottrust the new creditor who would thereby beentitled to collect the entire debt. (Jurado)

3. Anyone has right to receive the payment;but the first one to demand receives the

payment. (1214)

*Payment made by the debtor to anyone of the solidary creditors extinguishes the

obligation. If one of the solidary creditors

demands payment of the debt, he has theright to do so and payment must be made to

him. (Jurado)

Quiombing v. CAOnly one of the solidary creditors filed

a suit for collection against the solidarydebtors. The debtors moved for the dismissalof the suit on the ground that the other

solidary creditors should have been includedin the case. The Supreme Court rejected thedismissal of the suit invoking Art. 1212 and

stated that recovery of the contract price was

surely a useful act and can be done even byone solidary creditor. Furthermore, thequestion as to who should sue was a personal

issue among the solidary creditors.

N.B. As to who sues for recovery of

the obligation should not matter to the

debtors as they are wholly obligated to eitherone of the solidary creditors.

4. Action against and payment by solidarydebtor.


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a. Proceed against anyone, some, or all ofthem simultaneously (1216)

b. Demand against one: not obstacle for

demand against another, unless paid(1216)

Effect of Loss or Impossibility

1. Without any fault of any of the debtors:

Extinguishment (1221)2. With fault of any of the debtors: all are

responsible but co-debtors have a right

against negligent debtor

3. Due to a fortuitous event, but with delay:all are responsible with right of action

against the negligent debtor

Rules of Payment in Solidary Obligations

1. The creditor may proceed against any one

of the solidary debtors or some or all ofthem as long as the debt has not been

fully collected. (1316)2. Payment made by one of the solidary

debtors extinguishes the obligation.(1217)

3. If two or more debtors offer to pay, the

creditor may choose which offer to accept.(1217)

4. The paying debtor may ask for

reimbursement with interest from his co-

debtors. (1217)5. The share of the insolvent debtor shall be

borne by all his co-debtors, pro-rata.

(1217)6. There shall be no reimbursement if the

solidary debtor paid AFTER the obligation

has prescribed or has become illegal.

(1218)

Rights of Solidary Debtor

1. Set-up all defenses

2. Right of action against solidary co-debtors

Set-up Defenses (1222)

a. Defenses derived from the nature of

the obligation available to all debtorsas a defense to compliance with theentire obligation;

b. Defenses personal to the debtor like

minority, insanity, civil interdiction,etc. not available to the other debtorsso as to free the latter from their

liability for their own shares in the

obligation;c. Defenses that pertain to his co-

debtor(s), like the existence of a period

or condition available only as regardsthe share of such co-debtor(s) forsolidarity may exist even if the debtors

are bound under different periods orconditions.

Imperial Insurance, Inc. v. DavidHusband and wife bound themselves

solidarily in favor of obligee for a sum of

money and when the husband died, theobligee demanded payment from the wife who

resisted payment, claiming that the obligeesclaim is barred by its failure to file a claim in

the intestate proceeding of the deceasedhusband. The Supreme Court ruled that the

obligee can properly claim from the wife as

the nature of the obligation is solidary.N.B. If obligation were solidary, the

entire obligation is demandable from anyone

of the solidary obligors.

Right of action against solidary co-debtors

The payor of the obligation may claim

from each co-debtor his share of the debt withinterest, unless paid before debt is due or

demandable (with no interest). (1217)

V. DIVISIBLE & INDIVISIBLE

OBLIGATIONS

The indivisibility of an obligation does not

necessarily give rise to solidarity. Nor doessolidarity of itself imply indivisibility. (1210)

DIVISIBLE OBLIGATIONS

Those obligations whose objects are capable

of partial performance in their delivery or

performance.

INDIVISIBLE OBLIGATIONS

Those obligations whose objects are notcapable of partial fulfillment in delivery or

performance.

Test for Distinction

The determining factor is the purpose of theobligation or the intention of the parties and

NOT the possibility or impossibility of partial

prestation. (1225)

Presumptions

1. INDIVISIBLE: DEFINITE THINGS, NOT PARTIALPERFORMANCE

2. DIVISIBLE: PARTIAL PERFORMANCE; BY DAYSOF WORK, METRICAL UNITS, OR ANALOGOUS

THINGS

3. PHYSICALLY DIVISIBLE: SUBJECT TO LAW OR

WHAT IS INTENDED BY THE PARTIES

4. NOT TO DO: DETERMINED BY CHARACTER OFPRESTATION


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KINDS OFINDIVISIBILITY OF ANOBLIGATION

a. LEGAL INDIVISIBILITY - BY LAW, AS WHENTAXES ARE TO BE PAID IN FULL BECAUSE THE

LAW DOES NOT PERMIT PAYING THE SAME BY

INSTALLMENTS

b. CONVENTIONAL INDIVISIBILITY - BY

STIPULATION OF THE PARTIES OR INTENTION

BY THEM TO TREAT THE THINGS AS

INDIVISIBLE EVEN IF THEY ARE ACTUALLY

DIVISIBLE

c. NATURAL INDIVISIBILITY - BY THE NATUREOF THE OBLIGATION

Quantum MeruitPrinciple

Divisible Obligation

If only partially performed, the obligorcan enforce his right in proportion to the

services performed.

Indivisible Obligation

If obligor fails to perform the workcompletely, he cannot recover on this

principle because in indivisible obligations,partial performance is equivalent to non-

performance.

This principle allows recovery of thereasonable value of the work done regardless

of any agreement as to the value. It entitles

the party to as much as he reasonablydeserves as distinguished from quantum

valebant or to as much as what is reasonably

worth. The sellement of claim under thisprinciple requires application of judgment anddiscretion and cannot be adjusted by simple

arithmetical process. (F.F. Manocop v. CA,

GR 122196, Jan. 15, 1997)

VI. OBLIGATIONS WITH A PENAL CLAUSE

In an obligation with a penal clause, the

penalty shall substitute the indemnity fordamages and the payment of interest in caseof non-compliance, if there is no stipulation tothe contrary. A penal clause is an accessory

undertaking to assume greater liability in case

of breach.

Principal and Accessory Obligations

PRINCIPAL OBLIGATION

That which can stand by itself and does not

depend upon other obligations for its validity

and existence.

ACCESSORY OBLIGATION

That which contains an accessory undertaking

to pay a previously stipulated indemnity in

case of breach of the principal prestationintended primarily to induce its fulfillment.

Purposes of Penalty

1. Funcion coercitiva or de garantia - to

ensure performance of the obligation2. Funcion liquidatoria - to substitute a

penalty for the indemnity of damages andthe payment of interest in case of non-

compliance.3. Funcion estrictamente penal - to punish

the debtor for the non-fulfillment of his

obligation.

Penalty as a Substitute for Damages

General Rule

The penalty fixed by the parties is a

compensation or substitute for damages incase of breach.

Exceptions

1. When there is a stipulation to the contrary2. When the debtor is sued for refusal to pay

the agreed penalty3. When the debtor is guilty of fraud

Distinguishing a Penal Clause from a

Condition

Penal Clause Condition

There isobligation through

an accessory

No obligationthrough an

accessoryMay become

demandable indefault of anunperformed

obligation and

sometimes jointlywith it

Is never

demandable

(Manresa)

Kinds of Penal Clause

As to originLegal penal clause provided by lawConventional penal clause provided for

by stipulation of the parties

As to its purposeCompensatory penal clause the penalty

takes the place of damagesPunitive penal clause the penalty is

imposed merely as a punishment forbreach

As to its dependability or effect

Subsidiary or alternative penal clause only the penalty can be enforced

Joint or cumulative penal clause both the

principal obligation and the penalclause can be enforced (Manresa)


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Effect of Nullity of the Penal Clause

If only the penal clause is void, the principal

obligation remains valid and demandable.(1230)

Nullity of the Principal Obligation

If the principal is void, the penal clause is also

void because the penal clause cannot stand

along without the principal obligation to whichit is subordinated.

However, if the nullity of the principal

obligation is due to the debtors fault whoacted in bad faith, and by reason of which the

creditor suffered damages on equitable

grounds, the penalty may be enforced.

Chapter IV: Extinguishment ofObligations

Classification of the Modes ofExtinguishment of Obligations

1. Novation2. Compensation3. Merger or confusion4. Remission or condonation

5. Payment or performance6. Loss of the thing due

7. Prescription8. Rescission9. Fulfillment of the Resolutory condition10. Annulment

I. PAYMENT OR PERFORMANCE

The delivery of money, the delivery of the

thing (other than money), the doing of an act,or not doing of an act.

Elements

The elements of payment are analyzed into:1. persons- who may pay to whom payment

may be made2. thing or object in which the payment must

consist

3. the cause thereof

4. the mode or form thereof5. the place and time in which it must be

made

6. the imputation of expenses occasioned byit

7. the special parts which may modify the

same and the effects they generallyproduce

Requisites for Valid Payment

With respect to prestation itself:(1) identity

(2) integrity or completeness

(3) indivisibility

With respect to parties

This must be made by the proper party to the

proper party

(1) Payor

(a)Payor - the one performing, he can bethe debtor himself or his heirs or

assigns or his agent, or anyone

interested in the fulfillment of theobligation; can be anyone as long as itis with the creditor's consent

(b)3RD person pays/performs - only thecreditor's consent;

If performance is done also withdebtor's consent - he takes the place

of the debtor. There is subrogationexcept if the 3rd person intended it to

be a donation

(c) 3rd person pays/performs with consentof creditor but not with debtor's

consent, the repayment is only to theextent that the payment has been

beneficial to debtor

(2) Payee

(a)payee - creditor or obligee or successor

in interest of transferee, or agent

(b)3rdperson- if any of the ff. concur:

i. it must have redounded to theobligee's benefit and only to the

extent of such benefit

ii. it falls under art 1241, par 1,2,3 -

the benefit is total so, performance

is total

(c) anyone in possession of the credit- butwill apply only if debt has not been

previously garnished

Payment made to an Incapacitated Person

It is valid when:1. The incapacitated person kept the thing

delivered, or

2. Insofar as the payment has been beneficialto him

Payment to a 3rd party not authorized, valid ifproved & only to the extent of benefit

Presumed if:1. After payment, 3rd person acquires the

creditors rights

2. Creditor ratifies payment to 3rd person3. By creditors conduct, debtor has been led

to make the payment (estoppel)


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Payment made in good faith to a person inpossession of credit shall release debtor

Requisites:1. Payment by debtor must be made in good

faith2. Creditor must be in possession of the

credit & not merely the evidence ofindebtedness

With respect to time and place ofpayment

Where payment should be made

1. In the place designated in the obligation

2. If there is no express stipulation and theundertaking is to deliver a specific thing

at the place where the thing might be atthe moment the obligation was constituted

3. In other cases in the place of the

domicile of the debtor

Time of paymentThis is the time stipulated by the parties.

Effect of paymentThe obligation is extinguished.

Except in an order to retain the debt.

Substantial Performance

1. Attempt in Good Faith to perform withoutwillful or intentional departure

2. Deviation is slight

3. Omission/Defect is technical orunimportant

4. Must not be so material that intention of

parties is not attained

Effect of Substantial performance in good faith

1. Obligor may recover as though there hasbeen strict and complete fulfillment, lessdamages suffered by the obligee

2. Right to rescind cannot be used for slightbreach

Currency

Stipulated(1249)

Philippine legal tenderThe payment of debts in money shall be made

in the currency stipulated, and if it is not

possible to deliver such currency, then in thecurrency which is legal tender in thePhilippines. (1249)

Mercantile documents, payable to order:only when cashed or impaired by

creditor.

The delivery of promissory notes payable toorder, or bills of exchange or other mercantile

documents shall produce the effect ofpayment only when they have been cashed,

or when through the fault of the creditor theyhave been impaired. (1249)

*Impairment contemplates an issuance by athird party, otherwise, creditor can just askfrom creditor again but without interest as

there was no delay. (Jurado, Balane)

During encashment: action in abeyance.

In the meantime, the action derived from the

original obligation shall be held in theabeyance. (1170)

Extraordinary inflation/ deflation

Stipulation(1250)

Currency value at time of agreement.In case an extraordinary inflation or deflation

of the currency stipulated should supervene,

the value of the currency at the time of theestablishment of the obligation shall be thebasis of payment, unless there is an

agreement to the contrary. (1250)

Expenses:

Unless it is otherwise stipulated, the

extrajudicial expenses required by thepayment shall be for the account of thedebtor. With regard to judicial costs, the

Rules of Court shall govern. (1247)

Special Rules/Forms Of Payment

Application of Payments the designation

of the debt which payment shall be made, outof 2 or more debts owing the same creditor:

1. May be made according to the stipulationof the parties or application of party given

benefit of period;2. For the application to be valid, it must be

debtors choice or w/ consent of debtor

Requisites for the Application of payment1. Various debts of the same kind2. Same debtor

3. Same creditor

4. All debts must be due

Exception: there may be application of

payment even if all debts are not yet dueif:a) parties so stipulate

b) when application of payment is madeby the party for whose benefit the termhas been constituted


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5. Payment is not enough to extinguish alldebts

How the application is made:1. Debtor makes the designation

2. If not, creditor makes it by so statingin the receipt that he issues, unless

there is cause for invalidating thecontract

3. If neither the debtor nor creditor has

made the application or if theapplication is not valid , thenapplication, is made by operation of

law

Who makes the application:

General Rule: Debtor

Exception:Creditor

a) Debtor without protest accepts receiptin which creditor specified expressly

and unmistakably the obligation towhich such payment was to be applied

*The debtor in this case renounced the

right of choice

b) When monthly statements were made

by the bank specifying the applicationand the debtor signed said statementsapproving the status of her account as

thus sent to her monthly by the bank

In case no application has been made

1. Apply payment to the most onerous2. If debts are of the same nature and

burden, application shall be made to all

proportionately

Dacion en Pago

The mode of extinguishing an obligationwhereby the debtor alienates in favor of the

creditor property for the satisfaction ofmonetary debt; extinguish up to amount of

property unless w/ contrary stipulation;

A special form of payment because 1 element

of payment is missing: IDENTITY.

*Governed by the law on sales

Conditions for a valid dacion:

1) If creditor consents, for a sale

presupposes the consent of both

parties

2) If dacion will not prejudice the other

creditors

3) If debtor is not judicially declared

insolvent

Cession/Assignment in Favor of creditorsThe process by which debtor transfer all the

properties not subject to execution in favor of

creditors is that the latter may sell them andthus, apply the proceeds to their credits;

extinguish up to amount of net proceeds (unless w/ contrary stipulation )

Kinds

1. Legal governed by the insolvency law2. Voluntary agreement of creditors

Requisites for voluntary assignment

a) More than 1 debt

b) More than 1 creditor

c) Complete or partial insolvency of debtord) Abandonment of all debtors property not

exempt from executione) Acceptance or consent on the part of the

creditors

Effects

a) Creditors do not become the owner; theyare merely assignees with authority to sell

b) Debtor is released up to the amount of thenet proceeds of the sale, unless there is astipulation to the contrary

c) Creditors will collect credits in the order ofpreference agreed upon, or in default of

agreement, in the order ordinarily

established by law

Consignation

Tender -the act of offering the creditor whatis due him together with a demand that the

creditor accept the same (When creditor

refuses w/o just cause to accept payment, hebecomes in mora accepiendi & debtor is

released from responsibility if he consigns thething or sum due)

Consignation the act of depositing thething due with the court or judicial authorities

whenever the creditor cannot accept orrefuses to accept payment; generally requiresprior tender of payment

Requisites of valid consignation:

1. Existence of valid debt

2. Consignation was made because of some

legal cause - previous valid tender wasunjustly refused or under circumstances

making previous tender exempt.

3. Prior Notice of Consignation had beengiven to the person interested inperformance of obligation (1st notice)

4. Actual deposit/Consignation with properjudicial authorities


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5. Subsequent notice of Consignation (2nd

notice)

Effects: Extinguishment of obligation

(1) Debtor may ask judge to ordercancellation of obligation

(2) Running of interest is suspended(3) Before creditor accepts or before judge

declares consignation has been properly

made, obligation remains (debtor bearsrisk of loss at the meantime, afteracceptance by creditor or after judge

declares that consignation has been

properly made risk of loss is shifted tocreditor)

Consignation w/o prior tender

This is allowed when:

a. creditor absent or unknown/ does notappear at the place of payment

b. incapacitated to receive payment at thetime it is due

c. refuses to issue receipt w/o just caused. 2 or more creditor claiming the same right

to collect

e. title of obligation has been lost

II. LOSS OF THE THING DUE

This is partial or total which includes theimpossibility of performance.

CONCEPT

Meaning o

up 2008 civil law (obligations and contracs)

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