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Chapter 1: General Provisions Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) Art. 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. (1089a) Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090) y According to Manresa, law is the source of obligation if the law establishes the obligation and the act is nothing more than a factor for determining the moment when it becomes demandable. Law is not the source if it merely acknowledges the existence of an obligation generated by fact. the are An his be
A quasi-contract is that juridical relation resulting from a lawful, voluntary and unilateral act, and which has for its purpose, the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another. There are 2 kinds: a. Negotiorum gestio - unauthorized management; this takes place when a person voluntarily takes charge of another¶s abandoned business or property without the owner¶s authority b. Solutio indebiti - undue payment; this takes place when something is received when there is no right to demand it, and it was unduly delivered thru mistake
Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a) Governing rules: 1. Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code a. Art 100, RPC ± Every person criminally liable for a felony is also civilly liable EXCEPTIONS ± crimes with no private offended party, crimes against the state (e.g. rebellion, treason, espionage etc.) 2. Chapter 2, Preliminary title, on Human Relations (Civil Code) 3. Title 18 of Book IV of the Civil Code (on damages) What civil liability arising from a crime includes: a. restitution b. reparation of damage caused c. indemnity for consequential damages Effect of acquittal in criminal case: y when acquittal is due to reasonable doubt ± no civil liability y when acquittal is due to exempting circumstances ± there is civil liability y when there is preponderance of evidence ± there is civil liability
[Pelayo v. Lauron: According to law, it is husband¶s obligation to support; parents-in-law not specifically mentioned.] [De la Cruz v. Northern Theatrical Ent.: employer is not required by law to assist employee in litigation, but because they may subsidiarily liable, they may opt to.]
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a) y Neither party may unilaterally evade his obligation in the contract, unless: 1. Contract authorizes it 2. Other party assents Parties may freely enter into any stipulations, provided they are not contrary to law, morals, good customs, public order or public policy.
Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n)
OBLIGATIONS and CONTRACTS / Midterms: Obligations
Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) y It is a fault or act of negligence (or omission of care) which causes damage to another, there being no pre-existing contractual relations between the parties Elements: a. There must be fault or negligence attributable to the person charged b. There must be damage or injury c. There must be a direct relation of cause and effect between the fault or negligence on the one hand and the damage or injury on the other hand (proximate cause)
and/or the active subject, but they may be known someday. Real right ± Right or interest of a person over a specific thing without a definite passive subject whom the right may be enforced. o (Ownership, Possession, Mortgage).
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. y Remedies: o Specific performance o Rescission (Art. 1380) o Resolution (Art. 1191) o Damages (Art. 1170)
Chapter 2: Nature and Effect of Obligations y y Obligation to give ± in re Obligation to do/not to do ± ad rem
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. y It is not necessary that creditor should compel the debtor to make delivery, although he may also ask performance from debtor.
Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a) y In determining the presence of diligence (or absence thereof), take into consideration the circumstance of the persons, of the time, and of the place. Test of Negligence (in relation to Art. 1173) ± Whether the defendant in committing or causing the negligent act, had used reasonable care and vigilance which a man of ordinary prudence would have employed under the same situation, he is not negligent.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a) y y Accessions ± Fruits of a thing or additions to or improvements upon the thing Accessories ± Things joined to or included with the principal thing for the latter¶s embellishment, better use, or completion
Art. 1164. 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. (1095) y y Fruits ± Natural, Civil, Industrial Personal right ± Right of a person to demand from another, as a definite passive subject, the fulfillment of the latter¶s obligation. o In an obligation, it is possible that at first, you don¶t know the passive
Art. 1167. 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. (1098)
action for specific performance or resolution (art 1170. in proper cases) Mora accipiendi ± default on part of the creditor y Effects ± obligation by debtor only when lost by gross negligence or fault. neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. still liable. Fraud in the performance (malice) ± present only during the performance. are liable for damages. (1099a) Art. There must be a demand.] Art. rescission. damages. 1168. 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. (1101) y Kinds of fraud: 1. request. 1192). Mora Solvendi Ex persona ± default in personal obligations y Elements: a. unless demand is not required y Effects ± if lost (even if fortuitous. BJ Marthel Int¶l: Had the time been intended as a controlling factor. evades the normal fulfillment. 1169. the debtor should shoulder the expense o If only the debtor can perform the act/prestation. damages (expenses due to refusal of creditor to accept) However. specific performance Art. Fraud in the perfection of a contract (dolo) ± present at the time of birth of Page 3 . From the moment one of the parties fulfills his obligation. Those who in the performance of their obligations are guilty of fraud. Mora Solvendi Ex re ± default in real obligations 2. and the obligor does what has been forbidden him. Mora solvendi ± default on the part of the debtor. either the creditor himself or another person may do so. an action for specific performance cannot be filed (as regards the right against involuntary servitude as guaranteed by the Constitution): o In cases where a) debtor failed to fulfill the obligation or b) the obligation was done in violation of the agreement and said obligation can be performed by others. it shall also be undone at his expense. it may be decreed by court order that creditor may undo it at debtor¶s expense (1) When the obligation or the law expressly so declare. 1170. the demand by the creditor shall not be necessary in order that delay may exist: ABELARDO/CEBRIAN [Santos Ventura Horcoma Foundation v Santos: Compromise agreement is binding upon execution and not upon court approval. as when the obligor has rendered it beyond his power to perform.OBLIGATIONS and CONTRACTS / Midterms: Obligations y In obligations to do. When the obligation consists in not doing. delay by the other begins. and liquidated ± may be oral or written. or delay. enforceable and already liquidated or determinate in amount b. y Effects ± no more damages (compensated). they should have indicated the date. Not Demand: mere statement of account. action for damages.] [SSS v. or [Lorenzo Shipping Corporation v. The obligation must be due. 2 kinds: 1. In reciprocal obligations. (1100a) Compensation morae ± delay of both debtor and creditor the effect is that it is as if there is no default (but see Art. demandable. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.] (3) When demand would be useless. o Remedy: Damages 2. and those who in any manner contravene the tenor thereof. There must be non-performance c. shall be liable for interest. valid demand: due. Moonwalk Development and Housing Corporation: Demand: there must be indication that the creditor can no longer tolerate the non fulfillment and must demand no less than the compliance with the obligation to do. file for damages o If performance was poorly done. reminder. negligence.
Responsibility arising from negligence in the performance of every kind of obligation is also demandable. The receipt of the principal by the creditor without reservation with respect to the interest. shall apply. When negligence shows bad faith. arson) Art. paragraph 2. Art. shall give rise to the presumption that said interest has been paid. claim damages. Except in cases expressly specified by the law.a. of the time. resolve contract (Art. CA: Legal interest rate: 1. v. 1176. 4. Loan or forbearances in money ± > If with stipulation ± from the time judicially demanded > If without stipulation ± 12% p. or which. Art. the provisions of Articles 1171 and 2201. Castro. shall likewise raise the presumption that such installments have been paid. Claim for damages ± Page 4 Art. it is held that a fortuitous event is humanized by fraud. Force Majeure ± acts of man (not the debtor. no person shall be responsible for those events which could not be foreseen. While the Usury Law has been suspended by said circular and parties to a loan agreement have been given leeway to agree on any interest rate. e. Fortuitous Event ± acts of God 2. debtor must be free of participation in the aggravation of the injury to the creditor y Remedies of persons in fraud under obligations are: a.: They did not do the obligation to transmit the message. (1103) y y Simple negligence may be waived. negligence. Tomol. Fontanar: In both cases. & Commonwealth Insurance Corporation v. (1110a) [Reformina v. though foreseen. Eastern Shipping v. Usurious transactions shall be governed by special laws. from Judicial or extrajudicial demand 2. delay. insist on specific performance (Art.] y There are 2 kinds of fortuitous event: 1. Any waiver of an action for future fraud is void. The receipt of a later installment of a debt without reservation as to prior installments. still stipulated interest rates are illegal if unconscionable. and of the place. Art. 1191) c. of the time and of the place. in either case [Telefast Communication/Phil. Gross negligence may not be waived. performed to secure consent Causal fraud ± substantial o Remedy: Annulment Incidental fraud ± not substantial o Damages (remedy) or when the nature of the obligation requires the assumption of risk. 1233) b. or the contravention of the tenor of the obligation by the debtor (debtor at fault or contributed to the aggravation). 905. Test of Negligence: (in relation to article 1173) ± see page 2. [NPC v. 1174. or when it is otherwise declared by stipulation. ABELARDO/CEBRIAN .g. were inevitable.OBLIGATIONS and CONTRACTS / Midterms: Obligations 3. (1104a) y y Take into consideration the circumstance of the persons. 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 persons. 1172. according to the circumstances. CA. (n) y Usury (defined specifically as interest in excess of a legal rate charged to a borrower for the use of money) has become legally non-existent since the effectivity of Central Bank Circular No. 1173. that which is expected of a good father of a family shall be required. 1171. neither did they inform that they cannot transmit it (amounting to contravention of the tenor of the obligation). Responsibility arising from fraud is demandable in all obligations. the obligation. Wireless.] Art. CA & Juntilla v. (1105a) y Fortuitous event ± independent of human will. Sr. 1175. (1102a) y Past fraud may be waived. Inc. hold-up. must render it impossible for the debtor to fulfill the obligation in the usual manner. but such liability may be regulated by the courts. If the law or contract does not state the diligence which is to be observed in the performance.
specific. The debtor's acts are fraudulent Art. The creditor is prejudiced by the debtor's act which are in favor of 3rd parties and rescission will benefit the creditor d. substitute. equivalent 2. 2236) 3.a. The debtor has performed an act subsequent to the contract.OBLIGATIONS and CONTRACTS / Midterms: Obligations > 6% p. (1113) Art. without prejudice to the effects of the happening of the event. 1180.] Art. Accion pauliana y Requisites: a. or upon a past event unknown to the parties. 1213 Chapter 3: Different Kinds of Obligations Section 1: Pure and Conditional Obligations Art. 1177. it is for the court to fix the period. say. all rights acquired in virtue of an obligation are transmissible. Subject to the laws. (Q: When will your interest earn interest? A: Read Art. after having pursued the property in possession of the debtor to satisfy their claims. paid when funds for the purpose become available) ± the court may fix the period & it is not necessarily on a separate action. There is a credit in favor of plaintiff b. Every obligation which contains a resolutory condition shall also be demandable. debtor's assets are insufficient e. Omega: When they intended that there should be a period within which the debtor should pay his debt. Manila Railroad: In n obligation with a period but left to the will of the debtor (e. As regards the final judgment of the first two cases ± 12% p. The right of account is not purely personal 4. (1112) y y Non-transmissible rights: Prohibited by law: o Those purely personal in character o Partnership ± in that you cannot have yourself replaced by. Accion subrogatoria (Art. is demandable at once. When the debtor binds himself to pay when his means permit him to do so. There is a failure of the debtor to collect his own debt from 3rd persons either through malice or negligence d. The debt is due and demandable c. they may also impugn the acts which the debtor may have done to defraud them.g. The creditors. subject to the provisions of Article 1197. personal obligation): 1. giving advantage to other persons c. Exact performance . (n) [Patente v. Exhaustion of debtor¶s properties still in his possession ± Attach and execute debtor's property which is not exempt (Art. 1171) y Requisites: a. if there has been no stipulation to the contrary. may exercise all the rights and bring all the actions of the latter for the same purpose.] [Tiglao v. Every obligation whose performance does not depend upon a future or uncertain event. the acquisition of rights. the obligation shall be deemed to be one with a period. save those which are inherent in his person. 2212. 1178. from judicial or extrajudicial demand or until the amount is reasonably established 3. Creditor must have right of return against debtor b. (1111) y Remedies of creditors ± generally transmissible (except: law. stipulation. your friend as partner regardless of how much you trust him/her without gaining others¶ consent o Agency ± you cannot have yourself replaced by your friend as agent with the same reasons above without consent of the principal o Commodatum ± you cannot lend to another a thing/object you were lent without obtaining permission from the owner of the thing who lent it to you in the first place o Shares of solidary creditor as per Art. In conditional obligations. 1179. as well as the extinguishment or loss of Page 5 ABELARDO/CEBRIAN . 1181. The creditor has no other legal remedy b.)] Art.a.
it is not a potestative condition if there is no indication that it is depended upon the debtor¶s will and also if there is partial payment for it means that there is intention to be bound. Nevertheless. 1184. Quezon College. and the period to construct shall be a reasonable time depending on circumstance or the courts may determine such period.g. When the fulfillment of the condition depends upon the sole will of the debtor. CA: A contract of sale is what the law defines it taking into consideration its essential elements and not what the contracting parties call it.g. bearing in mind the nature of the obligation. All the fruits of a thing before the happening of the condition involved in the obligation will be the ABELARDO/CEBRIAN Page 6 . when the obligation imposes reciprocal prestations upon the parties. the conditional obligation shall be void. those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them.] [Romero v. Impossible conditions. Province of Tarlac: If the contract is to construct something. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. the condition shall be deemed fulfilled at such time as may have probably been contemplated. De Mistica v. that part thereof which is not affected by the impossible or unlawful condition shall be valid.e. or if it has become evident that the event cannot occur. University v. to construct a building). positive suspensive condition did not happen. until full payment of price).] [Santos v. If no time has been fixed.OBLIGATIONS and CONTRACTS / Midterms: Obligations those already acquired. the obligation would still subsist but the condition will be done away.] Art. Art. shall retroact to the day of the constitution of the obligation.g. 1185. you cannot rescind. the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. as per recitation examples) Art.] A potestative/facultative condition dependent upon the will of the debtor is void if it is a suspensive condition but is not if it is a resolutory condition. contract to sell is subject to a suspensive (e.] Art. If it depends upon chance or upon the will of a third person. (1116a) y In this case. i. 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. 1183. (1114) [Javier v. it is void. CA: Sale of hope/expectancy is deemed subject to the condition that the thing will come to existence. it is subject to a resolutory ± not a suspensive ± condition. the obligation shall take effect in conformity with the provisions of this Code. (1118) Art. once the condition has been fulfilled. for a price certain. if the condition is not to kill your best friend (once again. the obligation becomes simple. unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. shall depend upon the happening of the event which constitutes the condition. (1117) Art. to deliver & to transfer ownership of a specified thing or right to another over which the latter agrees. 1187. If the obligation is divisible. y An example of an impossible condition: killing your best friend (as per recitation examples) The condition not to do an impossible thing shall be considered as not having been agreed upon. CA & Parks v. 1182. pure and immediately demandable as if there¶s no condition involved: e. CA: Contract of sale is perfected at once when a person obligates himself.: ³« matapos akong makapanghuli ng isda´ = example of a potestative/facultative condition. The effects of a conditional obligation to give. Naguiat: a contract of sale is subject to a resolutory condition (e. 1186. (1115) [Vda. If the obligation is unilateral. the debtor shall appropriate the fruits and interests received. (1119) [Visayan Sawmill v. 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.] [Trillana v. Inc.] [Central Phil. CA: If a contract is not perfected.
its existence is unknown. in case one of the obligors should not comply with what is incumbent upon him. 1164. bring the appropriate actions for the preservation of his rights y Examples: o writ of injunction o annotation of creditor¶s right. y A thing is lost when it ± As for the obligations to do and not to do. with respect to the debtor. even if known. Article 1189 applies here. are laid down in the preceding article shall be applied to the party who is bound to return. 579. being the party bound to return. The creditor may. shall return to each other what they have received. 1191.OBLIGATIONS and CONTRACTS / Midterms: Obligations debtor¶s. the impairment is to be borne by the creditor. or 2. and: 1. cannot be recovered (this is also known as the ³physical impossibility of recovery´) (3) When the thing deteriorates without the fault of the debtor. or disappears in such a way that its existence is unknown or it cannot be recovered. (1121a) Art. may offset damage with improvement (Arts. the obligation is void) (6) If it is improved at the expense of the debtor. or by time. (4) If it deteriorates through the fault of the debtor. in each case. or goes out of commerce. the provisions which. the creditor. 1188. upon the fulfillment of said conditions. the retroactive effect of the condition that has been complied with.g. 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 creditor may choose between the rescission of the obligation and its fulfillment.) In obligations to do and not to do. legal o e. 562. the parties. (2) If the thing is lost through the fault of the debtor. something not outside the commerce of man but eventually became outside (if thing originally was already outside the commerce of man. deterioration or improvement of the thing. the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. 5 ± rights of usufruct) Art. The power to rescind obligations is implied in reciprocal ones. Goes outside the commerce of man. y If the thing is damaged by fault of debtor. y Kinds: physical. y In this case. he shall have no other right than that granted to the usufructuary. he shall be obliged to pay damages.´ (Art. Page 7 ABELARDO/CEBRIAN . the obligation shall be extinguished. In case of the loss. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give. (1123) Art. ³The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. before the fulfillment of the condition. Disappears. it is understood that the thing is lost when it perishes. 1190. 1189. When the conditions have for their purpose the extinguishment of an obligation to give. the following rules shall be observed in case of the improvement. security (if debtor becomes insolvent) o actions to set aside alienations made by debtor to defraud creditor o action against adverse possessors to interrupt the running of prescriptive period o o o Perishes. becomes the debtor in the obligation to return the thing involved. (5) If the thing is improved by its nature. 580) The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. with indemnity for damages in either case. (1120) Art. the improvement shall inure to the benefit of the creditor. the courts shall determine. (1122) y If improvements can be removed without damaging the property: remove y If improvements cannot be removed: usufruct (refer to articles mentioned in No. unless otherwise from the nature and circumstances of the obligation said fruits will also be given to the creditor.
if there Page 8 . De la Cruz Vda. the same shall be deemed extinguished. the party who suffered more may still recover damages. substantial compliance by partial payment prevents exercise of right to rescind. 1186 also applies to reciprocal obligations. SSS: Acceptance of payment after the end of grace period shall be deemed a waiver of the right to rescind (creditor is bound in estoppel). The debtor may decide to pay (he can¶t be compelled to pay before the due date. v. the obligor being unaware of the period or believing that the obligation has become due and demandable.] [Delta Motor Corp. If it cannot be determined which of the parties first violated the contract. 1194. Anything paid or delivered before the arrival of the period. (1124) [Gil v.] [Fabrigas v. Inc. (1126a) y This provision is comparable with the second paragraph of Art.] y In this scenario. 1192. De Manzano: Notice of rescission may be oral or written. may be recovered.] [Ayson-Simon v. (n) Art. 1188 Art. In case of loss. Obligations for whose fulfillment a day certain has been fixed. The court shall decree the rescission claimed. Genuino & Pagtalunan v. Section 2: Obligations with a Period Art. that it may be cancelled for violation of any of its terms and conditions. In case both parties have committed a breach of the obligation. (1127) EXAMPLE: We have here an obligation to ³pay on or before´ a certain date. the latter of which must be notarized if it concerns real estate. (RA 6552: An Act to Provide Protection to Real Estate on Installment Requirements ± grace period of 60 days). deterioration or improvement of the thing before the arrival of the day certain. Ursula Torres Calasanz: If there is only casual breach/slight breach. but terminate upon arrival of the day certain. and each shall bear his own damages. the vendee is entitled to retain the purchase price if the vendor fails to perform any essential obligation of the contract. Whenever in an obligation a period is designated.OBLIGATIONS and CONTRACTS / Midterms: Obligations The injured party may choose between the fulfillment and the rescission of the obligation. CA: Reciprocal obligations are those that arise from the same cause in which each party is both debtor and creditor of the other. and it shall be regulated by the rules of the preceding Section.] [Tayag Company. CA: There is no need for judicial rescission if there is an automatic revocation clause.] [Buenaventura Angeles v. even after he has chosen fulfillment. it is presumed to have been established for the benefit of both the creditor and the debtor. CA & Dyjamco v. the creditor also has the same right (he can demand payment anytime). unilateral cancellation is not warranted. in accordance with Articles 1385 and 1388 and the Mortgage Law. Obligations with a resolutory period take effect at once. the liability of the first infractor shall be equitably tempered by the courts. He may also seek rescission. shall be demandable only when that day comes. although it may not be known when. 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. v. CA: Reciprocal obligations are performed simultaneously. However. A day certain is understood to be that which must necessarily come. with the payment of damages in either case. it would depend on either the debtor¶s or the creditor¶s discretion as to when payment should be made.] [Jison v. the obligation is conditional. if the latter should become impossible. such that the obligation of one is dependent upon the obligation of the other.] Art. Adamos: Prescriptive period = 4 years from the time judgment on prior action for specific performance which has become impossible to execute becomes final. 1196. (n) ABELARDO/CEBRIAN [Osmeña III v. in a contract of sale. 1195. San Francisco Del Monte: An automatic cancellation clause contrary to RA 6552 is void. the rules in Article 1189 shall be observed.] [Areola v. (1125a) Art. If the uncertainty consists in whether the day will come or not. but he may choose to pay before such due date if he wants to). This is understood to be without prejudice to the rights of third persons who have acquired the thing. 1193. CA: Constructive fulfillment under Art. unless there be just cause authorizing the fixing of a period. with the fruits and interests.
1200. the courts may fix the duration thereof. or that which remains if only one subsists. 1205. The same rules shall be applied to obligations to do or not to do in case one. 1199. (3) If all the things are lost through the fault of the debtor. (1134) Art. The creditor cannot be compelled to receive part of one and part of the other undertaking. (3) When by his own acts he has impaired said guaranties or securities after their establishment. or that of the service which last became impossible. Phil. In every case. through the fault of the debtor. 1204. The creditor shall have a right to indemnity for damages when. but from its nature and the circumstances it can be inferred that a period was intended. (5) When the debtor attempts to abscond.OBLIGATIONS and CONTRACTS / Midterms: Obligations is no stipulation. in consideration of which the creditor agreed to the period. some or all of the prestations should become impossible. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared. Once fixed by the courts. the period cannot be changed by them. (4) When the debtor violates any undertaking. 1202. the choice by the creditor shall fall upon the price of any one of them. Damages other than the value of the last thing or service may also be awarded. with a right to damages. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted. has disappeared. and when through a fortuitous event they disappear. 1198. (2) If the loss of one of the things occurs through the fault of the debtor. (1132) Art. 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. 1197. (1131) Art. unless he gives a guaranty or security for the debt. The choice shall produce no effect except from the time it has been communicated. he shall perform the obligation by delivering that which the creditor should choose from among the remainder. Art. all the things which are alternatively the object of the obligation have been lost. (1133) Art. (1136a) Facultative Obligations Page 9 . If the obligation does not fix a period. through the fault of the former. unlawful or which ABELARDO/CEBRIAN could not have been the object of the obligation. [italics added for emphasis] The debtor shall have no right to choose those prestations which are impossible.: If the parties agreed on a ³reasonable time´. the court could not just fix the period ± the court would have to wait for the reasonable time to elapse (it requires a separate court action to fix the period). the creditor may claim any of those subsisting. or the compliance of the obligation has become impossible. the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Section 3: Anternative Obligations Art. 1201. The courts shall also fix the duration of the period when it depends upon the will of the debtor. (1129a) y To abscond is to depart in a sudden and secret manner. Inc. also with indemnity for damages. A person alternatively bound by different prestations shall completely perform one of them. unless he immediately gives new ones equally satisfactory. (n) Art. (1128a) [Araneta v. unless it has been expressly granted to the creditor. When the choice has been expressly given to the creditor. then the presumption is that the period is intended for both parties¶ benefit. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound. the latter may rescind the contract with damages. Sugar Estate Dev¶t. (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (1135a) Art. he becomes insolvent.] Art. 1203. or the price of that which. the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. only one is practicable. The right of choice belongs to the debtor.
or F) ± for the purposes of this example. and R P1000 each. let¶s say the creditors collected from A ± the debtor should pay the whole P8000 (and. fault.OBLIGATIONS and CONTRACTS / Midterms: Obligations Art. Debtor may pay any of the solidary creditors Passive solidarity ± solidarity on the part of debtors or obligors Effects: y b. The loss or deterioration of the thing intended as a substitute. S. and R are the creditors. through the negligence of the obligor.E. Cahayon in his ever-wonderful book. A would not pay 4 times just because all four creditors collected from him: that¶s how solidary obligations work). S. a. y Active solidarity ± solidarity on the part of the creditors or obligees Effects: 1. the obligor is liable for the loss of the substitute on account of his delay. EXAMPLE: In the same scenario as above. the obligation is called facultative. c.W. 1206. Interruption in payment by one does not benefit or prejudice the other Vices of one debtor to creditor has no effect on the others Insolvency of one debtor does not affect other debtors An apt quote to describe a joint obligation is ³to each his own´ ± a joint debtor is liable only to the extent of his share of the debt. CA: other synonym: ³individually and jointly´] Solidarity is provided by law: y Parents. accomplices and accessories y Art. E. y Solidary ± Solidarity must be expressed in stipulation or provided by law or by nature of obligation. Death of 1 solidary creditor transmits share to heirs (but collectively) 2. Essentials of Business Law). As regards solidary obligations. y ABELARDO/CEBRIAN Page 10 . There is a solidary liability only when the obligation expressly so states. 1194: liability of joint tortfeasors Art. 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. are solidarily liable y Under the RPC: liability of principals. does not render him liable. The debtors owe the creditors a total of P8000. Demand on one produces delay only with respect to the debt b. misfortune. W. d. NLRC: Solidarity is not implied. of course. the act. A. misfortune or benefit of one is the act. Effects: a. 1207. but the obligor may render another in substitution. Each creditor represents the other in the act of recovery of payment 3. entire compliance with the prestation. EXAMPLE: Q. for the acts & omissions of minor children. But once the substitution has been made. benefit of all (as taken from the words of Atty. negligence or fraud. D. (1137a) y Joint ± The presumption when 2 or more creditors or 2 or more debtors concur in one and the same obligation is that said obligation is joint.] Synonyms of ³solidary´: y Mancomunada solidaria y De mancomun e insolidum y In solidum y Juntos or separadamente y Joint & severally y Invidually & collectively y « each to pay the whole value« y ³I promise to pay´ (signed by 2+ debtors) y Collectively y [Ronquillo v. it must be expressed. fault. and F are joint debtors. Credit is divided equally between creditors as among themselves 4. or when the law or the nature of the obligation requires solidarity. This way. D. if any of the creditors collect the debt from any of the solidary debtors (A. When only one prestation has been agreed upon. (n) Section 4: Joint and Solidary Obligations [IMIDC v. each of the joint debtors owes Q.
remission made after payment is made ± co-debtor still entitled to reimbursement f. 1211. (1139) Art. Art. bailees in commodatum Effects: a. (n) Art. later on collect from any d. insolvency of one ± others are liable for share pro-rata c. and the debt can be enforced only by proceeding against all the debtors. He will be answerable. 174) c. 2009 edition. (1140) y ³The solidarity of the debtors is not affected even if different terms and conditions are assumed or made applicable to them. 1209. accomplices. effect of insolvency or death of codebtor ± still liable for whole amount g.OBLIGATIONS and CONTRACTS / Midterms: Obligations 1. or the part of the debtors and the creditors Conventional solidarity ± agreed upon by the parties Legal solidarity ± solidarity imposed by law Instances where law imposes solidary obligation: 1. 1208. or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. d. Each debtor may be requested to pay whole obligation with right to recover from co-debtors Interruption of prescription to one creditor affects all Interest from delay on 1 debtor is borne by all c. loss due to fortuitous event after default ± there is liability (because of default) NOTE: Computations to determine the extent liability as regards joint and solidary obligations are discussed on Appendix A (p. If payment made before debt is due: no interest can be charged. 3. the credits or debts being considered distinct from one another. for all prestations which fall due although chargeable to the other debtors. 1210. the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors. obligations arising from quasicontracts 3. but not Page 11 ABELARDO/CEBRIAN . 1212. If the division is impossible. Enforcement can be made against any one of the solidary debtors although it can happen that a particular obligation chargeable to a particular debtor is not yet due. 26). fault of any debtor ± everyone is responsible ± price. if different terms & conditions ± collect only what is due. the essence of solidarity remains. the others shall not be liable for his share. Thus. the right of the creditors may be prejudiced only by their collective acts. complete/ personal defense ± total or partial ( up to amount of share only ) if not personal to him Effect of loss or impossibility of the prestation: a. liability of principals. e.´ (Pineda. Enforcement of the terms and conditions may be made at different times. Each one of the solidary creditors may do whatever may be useful to the others. if with fault ± there is liability (also for damage and interest) Art. Obligations and Contracts. obligations arising from tort 2. y y y Mixed solidarity ± solidarity on the part of the obligors and obligees. p. and accessories of a felony 5. The indivisibility of an obligation does not necessarily give rise to solidarity. otherwise ± interest can be charged b. no reimbursement if payment is made after prescription or became illegal e. if without fault ± no liability b. legal provisions regarding obligation of devisees and legatees 4. Nor does solidarity of itself imply indivisibility. If from the law. damage & interest h. subject to the Rules of Court governing the multiplicity of suits. nonetheless. 2. The obligations which have matured can be enforced while those still undue will have to be awaited. (1138a) Art. If one of the latter should be insolvent.
(n) Art. in actions filed by the creditor. without prejudice to the provisions of Article 1219. (1141a) Art. shall be liable to the others for the share in the obligation corresponding to them. in case the debt had been totally paid by anyone of them before the remission was effected. 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. compensation. With respect to those which personally belong to the others. 1213. 1222. 1217. 27). Qua: If a solidary debtor pays only his proportionate share. 1214. (n) Art. 1217. (1145a) NOTE: As regards the third paragraph of Art. (n) Art. (1142a) Art. (1149) Art. but if any demand. A solidary creditor cannot assign his rights without the consent of the others. such share shall be borne by all his co-debtors. The remission of the whole obligation.] He who made the payment may claim from his codebtors only the share which corresponds to each. v. 1216. 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. If there was fault on the part of any one of them. he may avail himself thereof only as regards that part of the debt for which the latter are responsible. so long as the debt has not been fully collected. Novation. Country Bankers: Suretyship is different from solidary liability. in proportion to the debt of each. judicial or extrajudicial. or pertain to his own share. When one of the solidary debtors cannot. (1148a) Section 5: Divisible and Indivisible Obligations Art. (1147a) Art. 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. does not entitle him to reimbursement from his co-debtors. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. 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. confusion or remission of the debt. If the payment is made before the debt is due. The creditor who may have executed any of these acts. made by any of the solidary creditors or with any of the solidary debtors.] [Diamond Builders v. If through a fortuitous event.OBLIGATIONS and CONTRACTS / Midterms: Obligations anything which may be prejudicial to the latter. The debtor may pay any one of the solidary creditors. all shall be responsible to the creditor. Payment made by one of the solidary debtors extinguishes the obligation. obtained by one of the solidary debtors. (1143) Art. because of his insolvency. 1215. A solidary debtor may. reimburse his share to the debtor paying the obligation. 1223. the creditor may choose which offer to accept. The debtors who may have been ready to fulfill their Page 12 ABELARDO/CEBRIAN . as well as he who collects the debt. shall extinguish the obligation. 1218. the provisions of the preceding paragraph shall apply. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. he is not entitled for reimbursement (it is not novation). with the interest for the payment already made. no interest for the intervening period may be demanded. avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him. see Appendix 2 (p. payment should be made to him. without prejudice to their action against the guilty or negligent debtor. 1221. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. has been made by one of them. If two or more solidary debtors offer to pay. 1224. 1219. 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. 1220. for the price and the payment of damages and interest. (1144a) Art. Art. [Republic Glass Corp. (1146a) Art.
(n) Art. Cahayon) Characteristics: 1. (1153a) (italics added for emphasis) y As regards the debtor: right to exempt oneself from performance by paying the penalty instead should be expressly reserved to him As regards the creditor: right to demand both fulfillment and satisfaction of penalty could be implied. obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. The nullity of the principal obligation carries with it that of the penal clause. the penalty may also be reduced by the courts if it is iniquitous or unconscionable. The debtor cannot exempt himself from the performance of the obligation by paying the penalty. to substitute as indemnity for damages or interest 3. 1227.takes place of damage. to ensure performance of an obligation 2. When the obligation has for its object the execution of a certain number of days of work. divisibility or indivisibility shall be determined by the character of the prestation in each particular case. to penalize the debtor (as provided by the ever-wonderful book of Atty. (1151a) Section 6: Obligations with a Penal Clause y y Penal clause ± accessory undertaking to assume greater liability in case of breach Is it the same as liquidated damages? o GENERAL RULE: there is no difference. or analogous things which by their nature are susceptible of partial performance. The nullity of the penal clause does not carry with it that of the principal obligation. Nevertheless. cases: a. as long as it is clear that the right has been given to him y y y Art. 1225. principal cannot be demanded o EXCEPTION ± Penalty is joint or cumulative 2. the performance thereof should become impossible without his fault. However. If there is partial/irregular performance b. For the purposes of the preceding articles. Even if there has been no performance. the accomplishment of work by metrical units.OBLIGATIONS and CONTRACTS / Midterms: Obligations 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. damage can only be demanded in the ff. damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. see the ever-wonderful Jurado reviewer) Purpose: 1. 1228. Subsidiary ± o GENERAL RULE ± only penalty can be demanded. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a) Art. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Refusal to pay penalty c. 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. In obligations not to do. the penalty may be enforced. an obligation is indivisible if so provided by law or intended by the parties. the penalty in its punitive aspect is different from liquidated damages (for more information. the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance. 1229. (1154a) Art. Stipulation ± granting right b. 1226. if there is no stipulation to the contrary. However. Exclusive . 1230. save in the case where this right has been expressly reserved for him. even though the object or service may be physically divisible. if after the creditor has decided to require the fulfillment of the obligation. In obligations with a penal clause. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (1150) Art. (1155) Page 13 ABELARDO/CEBRIAN . if the penalty provided is iniquitous/unconscionable Art. With dolo (not of creditor) y Causes for reduction of penalty: a. it shall be divisible. however.
6) o Happening of fortuitous events (Art. there is subrogation y b. If the obligation has been substantially performed in good faith.the benefit is total so performance is total Anyone in possession of the credit ± but will apply only if debt has not been previously garnished Art. (n) Art. concur: y It must have redounded to the obligee's benefit and only to the extent of such benefit y It falls under Art. (n) Art. except that if he paid without the knowledge or against the will of the debtor. 1174) Section 1: Payment or Performance The following are the requisites for valid payment/performance: A. Payment means not only the delivery of money but also the performance. With respect to prestation itself: a. identity b. or anyone interested in the fulfillment of the obligation. (3) By the condonation or remission of the debt. if performance is done also with debtor's consent. 1234. Whoever pays for another may demand from the debtor what he has paid. except if the 3rd person intended it to be a donation o Third person pays/performs with consent of creditor but not with debtor's consent ± the repayment is only to the extent that the payment has been beneficial to debtor Payee o Payee ± creditor or obligee or successor in interest of transferee. he takes the place of the debtor. fulfillment of a resolutory condition. the obligation is deemed fully complied with. (1157) Art.must be made by proper party to proper party a. (4) By the confusion or merger of the rights of creditor and debtor. can be anyone as long as it is with the creditor's consent o Third person pays/performs ± only the creditor's consent. 13 . (n) Art. are governed elsewhere in this Code. and prescription. (5) By compensation. (1158a) ABELARDO/CEBRIAN Page 14 . and without expressing any protest or objection. 1231 is by no means exhaustive as there are other means of extinguishing an obligation. par. 1232. With respect to parties . unless there is a stipulation to the contrary. When the obligee accepts the performance. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation. 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. in any other manner. or agent o Payee can also be third person . rescission. 1231. (2) By the loss of the thing due. 1233. he can be the debtor himself or his heirs or assigns or his agent.OBLIGATIONS and CONTRACTS / Midterms: Obligations Chapter 4: Extinguishment of Obligations General Provisions Art. integrity or completeness c. Obligations are extinguished: (1) By payment or performance. the obligor may recover as though there had been a strict and complete fulfillment. indivisibility B. of an obligation. 1241. he can recover only insofar as the payment has been beneficial to the debtor. knowing its incompleteness or irregularity. Payor o Payor ± the one performing. (1156a) y The enumeration in Art.if any of the ff. a few of them are: o By death of the debtor when obligation is purely personal o Waiver or renunciation by the creditor (Art. as the case may be. Other causes of extinguishment of obligations. less damages suffered by the obligee. c. 1235. such as annulment. 1236. (6) By novation.
(3) If by the creditor's conduct. except in cases specified by law. (n) Art. In obligations to do or not to do. other codes. Minority. alienage. and in special laws. (1164) Art. A married woman. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter. although the latter may be of the same value as. lien or encumbrance. prodigality and civil interdiction are mere restrictions on capacity to act. (1166a) y 4 special forms of payment: 1. (1165) Art. is qualified for all acts of civil life. penalty. (32a) Art. payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. 1240. which requires the debtor's consent. CA: Payment made to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence. the state of being a deafmute. The debtor of a thing cannot compel the creditor to receive a different one. (1159a) Art. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation. or any person authorized to receive it. the debtor has been led to believe that the third person had authority to receive the payment. and do not exempt the incapacitated person from certain obligations. 1237. an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. prodigality. or his successor in interest. (2) If the creditor ratifies the payment to the third person. such as easements. guaranty. CA: Payment should be made to the person in whose favor the obligation has been constituted. 1238. o from property relations. 1244. (n) Art. The consequences of these circumstances are governed in this Code. 1239. or any person authorized to receive it. even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a third person. In obligations to give. Tender of payment and consignation ABELARDO/CEBRIAN Page 15 . Application of payment 3. Dation in payment 2. cannot compel the creditor to subrogate him in his rights. (1163a) Art. Capacity to act is not limited on account of religious belief or political opinion. y Articles in the Civil Code regarding capacity: o Art.] Art. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent (due diligence). or insofar as the payment has been beneficial to him. modify or limit capacity to act: age. But the payment is in any case valid as to the creditor who has accepted it.] [Culaba v. Payment shall be made to the person in whose favor the obligation has been constituted. or more valuable than that which is due. the Rules of Court. 1242. 38." (1160a) y Free disposal means that it is not subjected to any claim. as when the latter arise from his acts or Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. twenty-one years of age or over. absence. 1243. (1162a) [BPI v.OBLIGATIONS and CONTRACTS / Midterms: Obligations Art. such as those arising from a mortgage. family relations. or penalty. Payment made in good faith to any person in possession of the credit shall release the debtor. 1241. The following circumstances. insanity or imbecility. the third person acquires the creditor's rights. or his successor-in-interest. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered. insanity. imbecility. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment. 39. insolvency and trusteeship. Cession 4. without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations. among others. the state of being a deaf-mute.
(Hence it does not necessarily mean total extinguishment. The purpose of the obligation and other circumstances shall be taken into consideration. Inc. 1250 applies only to contractual obligations. warranties against eviction o o up to P1000 for P1 coins above ± that is. the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment. Neither may the debtor be required to make partial payments. (n) NOTE: Art. 1249. Neither can the debtor deliver a thing of inferior quality. y ABELARDO/CEBRIAN Page 16 .) EXCEPTION: Agreement of the parties (expressed or implied or by their silence that it is for total extinguishment) ± contemporaneous and subsequent acts shall be principally considered. the extrajudicial expenses required by the payment shall be for the account of the debtor. A check is not legal tender. unless there is an agreement to the contrary. (1167a) Art. when the debt is in part liquidated and in part unliquidated. In case an extraordinary inflation or deflation of the currency stipulated should supervene. shall be governed by the law of sales. However. Paredes: Checks are considered only as payment only when they have been cashed or through the creditor's fault has been impaired. (1170) [Tibajia v. it will be held to operate as actual payment of debt for which the check was given (in the first case. However. NIA: In the past. Inc. then in the currency which is legal tender in the Philippines. 5c. 1248. The payment of debts in money shall be made in the currency stipulated. Dation in payment. foreign currency was not deemed as legal tender even if such was stipulated. (1168a) Art. the creditor did not encash the check for 10 years. 1 of RA 529 ± ³obligations x x x shall be discharged upon payment of any coin or currency´ (considered as legal tender for public and private purposes). and if it is not possible to deliver such currency. When the obligation consists in the delivery of an indeterminate or generic thing. 1247. y Legal tender ± such currency that which may be used for the payment of all debts. the action derived from the original obligation shall be held in the abeyance. Unless it is otherwise stipulated. except if there are foreign bodies involved. 1250. As regards the Padilla case: RA 8183 ± all monetary obligations shall be settled in the Philippine currency which is the legal tender in the Philippines. warranties against hidden defects b. or when through the fault of the creditor they have been impaired. In the meantime.] Art. P1. the value of the currency at the time of the establishment of the obligation shall be the basis of payment. acceptance of check implies an undertaking of due diligence in presenting it for payment. or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed. CA: Sec. 10c.] [Hydro Resources v.OBLIGATIONS and CONTRACTS / Midterms: Obligations Art.] Art. whereby property is alienated to the creditor in satisfaction of a debt in money. 1246. Unless there is an express stipulation to that effect. 1c. the creditor cannot be compelled partially to receive the prestations in which the obligation consists. 3 of RA 265 ± checks are not legal tender. (1169a) Art. P5. 2 implied warranties: a. & Padilla v. Valencia & Co.] [Papa v. whose quality and circumstances have not been stated. Sec. v. the Rules of Court shall govern.. 25c (as per BSP Circular No. whether public or private Coins are considered as legal tender: The delivery of promissory notes payable to order. and if he for whom it is received sustains loss by want of such diligence. presumption is that it was encashed). P10 up to P100 for coins below P1 ± that is. 1245. the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (n) y y Dation is governed by the law on sales. IAC: GENERAL RULE ± Dacion extinguishes the obligation to the extent of the value of the thing delivered. With regard to judicial costs. 537) [Caltex. the creditor cannot demand a thing of superior quality.
the additional expenses shall be borne by him. unless there is stipulation to the contrary. application shall not be made as to debts which are not yet due. When the payment cannot be applied in accordance with the preceding rules. creditors may not accept payment by cession from him. This cession. Nawasa & Almeda v Bathala Marketing: Extraordinary inflation is defined as the decrease of increase in the purchasing power of Philippine currency which is unusual or beyond common fluctuation in the value of said currency and such increase or decrease could not have been reasonably foreseen or manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. 1253.] Art. More than 1 debt b. 1252. among those due. The debtor may cede or assign his property to his creditors in payment of his debts. If he also was able to get a certificate of discharge. Legal ± governed by the insolvency law 2. extinguish up to amount of net proceeds (unless with contrary stipulation) Kinds: 1. 1254. or if application cannot be inferred from other circumstances.OBLIGATIONS and CONTRACTS / Midterms: Obligations [Filipino Pipe and Foundry Corporation v. his debt may be totally extinguished. payment of the principal shall not be deemed to have been made until the interests have been covered. or in default of agreement. unless there is a cause for invalidating the contract. If the debt produces interest. to which of them the same must be applied. (1173) Art. His remedy is to have himself declared as insolvent according to our insolvency law. Debtor is released up to the amount of the net proceeds of the sale. shall be deemed to have been satisfied. If the debtor accepts from the creditor a receipt in which an application of the payment is made. the payment shall be applied to all of them ABELARDO/CEBRIAN proportionately. Abandonment of all debtor¶s property not exempt from execution e. 1251. If the debts due are of the same nature and burden. He who has various debts of the same kind in favor of one and the same creditor. Creditors will collect credits in the order of preference agreed upon. Payment shall be made in the place designated in the obligation. More than 1 creditor c. Acceptance or consent on the part of the creditors Effects: a. The agreements which. (1175a) y Cession/Assignment in favor of creditors ± the process by which debtor transfer all the properties not subject to execution in favor of creditors is that the latter may sell them and thus. the payment shall be made wherever the thing might be at the moment the obligation was constituted. (1171a) Subsection 1: Application of Payments Art. If the debtor changes his domicile in bad faith or after he has incurred in delay. in the order ordinarily established by law If debtor is only insolvent in fact. There being no express stipulation and if the undertaking is to deliver a determinate thing. 1255. Creditors do not become the owner. Unless the parties so stipulate. shall only release the debtor from responsibility for the net proceeds of the thing assigned. may declare at the time of making the payment. unless there is a stipulation to the contrary c. y y y y y Page 17 . (1172a) Art. Complete or partial insolvency of debtor d. apply the proceeds to their credits. on the effect of the cession. In any other case the place of payment shall be the domicile of the debtor. What is considered normal (universal trend and worldwide occurrence) is not an extraordinary inflation/deflation. the former cannot complain of the same. and after that he may enforce cession already. These provisions are without prejudice to venue under the Rules of Court. are made between the debtor and his creditors shall be governed by special laws. Voluntary ± agreement of creditors Requisites for voluntary assignment: a. the debt which is most onerous to the debtor. they are merely assignees with authority to sell b. Subsection 2: Payment by Cession (1174a) Art. or when the application of payment is made by the party for whose benefit the term has been constituted.
it would have been the same. Consignation shall be made by depositing the things due at the disposal of judicial authority. 1259. (1176a) [Roman Catholic Archbishop of Malolos v IAC: Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding the latter to accept the same. An obligation which consists in the delivery of a determinate thing shall be extinguished Page 18 . (1180) Art. (1178) Art. 1256. (5) When the title of the obligation has been lost. the sheriff got the payment in check issued to him in his name and absconded (it was argued that it should have been payment in cash because checks are not legal tender. before whom the tender of payment shall be proved. The expenses of consignation. the consignation having been made. If the creditor to whom tender of payment has been made refuses without just cause to accept it. 1258. The proper persons to whom payment must be made are: 1) Creditor/obligee/active subject ABELARDO/CEBRIAN 2) agent having authority (assigned by the creditor) 3) those authorized by law In this case. in a proper case. The co-debtors. If. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. the debtor may withdraw the thing or the sum deposited. or before a judicial declaration that the consignation has been properly made. because the sheriff absconded either way). when properly made. 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. and the announcement of the consignation in other cases. (1178) Art. The court held that this is a bad practice. PAL issued it in Reyes' name. without just cause. 1257. In this case. The consignation having been made.] [PAL v. but it was said in the dissent that had it been in cash or in check in the name of the absconding sheriff. Reyes: The requisites of a valid consignation are the following: 1) Existence of valid debt 2) Consignation was made because of some legal cause ± previous valid tender was unjustly refused or circumstances making previous tender exempt 3) Prior notice of consignation had been given to the person interested in performance of obligation (1st notice) 4) Actual deposit/consignation with proper judicial authorities 5) Subsequent notice of consignation (2nd notice) The approval of the court or the obligee's acceptance is not necessary where the obligor has performed all acts necessary to a valid consignation. the interested parties shall also be notified thereof. tender of payment presupposes that the obligor is not only able.OBLIGATIONS and CONTRACTS / Midterms: Obligations Subsection 3: Tender of Payment and Consignation Art. guarantors and sureties shall be released. it must first be announced to the persons interested in the fulfillment of the obligation. (2) When he is incapacitated to receive the payment at the time it is due. (4) When two or more persons claim the same right to collect. they ruled that the correct and prudent thing to do is to issue it in the creditor's name. allowing the obligation to remain in force.] [Rayos v. In order that the consignation of the thing due may release the obligor. (1181a) Section 2: Loss of the Thing Due Art. he refuses to give a receipt.] Art. Once the consignation has been duly made. shall be charged against the creditor. 1260. 1261. ready. 1262. When tender of payment is not valid the subsequent consignation did not operate to discharge the former from his obligation to the latter. and willing but moreso in the act of performing his obligation. (1177) Art. PAL issued a check to the absconding deputy sheriff Emilio Reyes. he shall lose every preference which he may have over the thing. the debtor may ask the judge to order the cancellation of the obligation. (3) When. the creditor should authorize the debtor to withdraw the same. the debtor shall be released from responsibility by the consignation of the thing or sum due. Before the creditor has accepted the consignation. CA: In this case.
1268. 1264. (1185) Art. flood. Condonation or remission is essentially gratuitous. the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. 1266. (1187) ABELARDO/CEBRIAN Page 19 . 1263. It is only in extremely unusual change that equity shall come to the succor of the debtor. When by law or stipulation. and requires the acceptance by the obligor. and without prejudice to the provisions of article 1165. When the debt of a thing certain and determinate proceeds from a criminal offense. (n) Art. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. 1269. unless the thing having been offered by him to the person who should receive it. It may be made expressly or impliedly. the partial loss of the object of the obligation is so important as to extinguish the obligation. (1186) Section 3: Condonation or Remission of the Debt y Donation. p. It must be y y noted that the parties have assumed the risk of unfavorable developments. the loss or destruction of anything of the same kind does not extinguish the obligation. In an obligation to deliver a generic thing. the obligor is liable even for fortuitous events. monetary obligation Art. When the service has become so difficult as to be manifestly beyond the contemplation of the parties. this doctrine is applied to a certain point as regards Art. (n) y GENERAL RULE ± Genus nunquam perit ± genus never perishes y EXCEPTION ± Delimited Generic (if the thing has already been segregated). but not impossible (because if it is impossible. under the circumstances. To do so. the loss of the thing does not extinguish the obligation.´ (Pineda. Obligations and Contracts. the latter refused without justification to accept it. whatever may be the cause for the loss. 2000 edition. 1265. (1182a) Art. 264) Rule: Obligor may be released in whole or in part Requisites: o The event or change could not have been foreseen at the time of the execution of the contract o The performance is extremely difficult. Whenever the thing is lost in the possession of the debtor. (1183a) Art. the contracts must also cease. 1267. rules as to form: o Written (public instrument) ± if concerns real property o Written (private document) ± movable property whose value exceeds P5000 o Oral if movable and with value less than P5000 o The consideration is the liberality of the creditor y Art. storm. it is extinguished by impossibility) o The event was not due to the act of any of the parties o The contract is for a future prestation Art. Express condonation shall. (1184a) Art. unless there is proof to the contrary. or other natural calamity. furthermore. and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. One and the other kind shall be subject to the rules which govern inofficious donations. 1270. the debtor shall not be exempted from the payment of its price. Consequently. they must be vigilant to protect themselves against that risk. This presumption does not apply in case of earthquake. 1267 ³This doctrine cannot be applied absolutely in contractual relations. comply with the forms of donation. the obligor may also be released therefrom. The obligation having been extinguished by the loss of the thing. will undermine the stability of contracts because when the conditions would cease to exist.OBLIGATIONS and CONTRACTS / Midterms: Obligations if it should be lost or destroyed without the fault of the debtor. it shall be presumed that the loss was due to his fault. (n) y Rebus sic stantibus ± doctrine in international law allowing for treaties to become inapplicable because of a fundamental change of circumstances. The courts shall determine whether. in whole or in part. and before he has incurred in delay.
made voluntarily by the creditor to the debtor. 1274. (1195) y Kinds of compensation: a. in their own right. 1276. but the waiver of the latter shall leave the former in force. Facultative compensation ± one party has choice of claiming/opposing ± one who has benefit of period may choose to compensate o not all requisites are present o depositum. taxes d. the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. are creditors and debtors of each other. even if not equal debts ± only up to concurring amount b. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. all requirements must concur except liquidation e. 1272. (1193) Art. Confusion does not extinguish a joint obligation except as regards the share corresponding Art. The delivery of a private document evidencing a credit. Partial compensation ± when 2 debts are not of the same amount y Section 4: Confusion or Merger of Rights Art. (1189) Art. 1279 concur ± even if unknown to parties & if payable in diff places. Conventional compensation ± agreement of parties is enough. or of a third person who owns the thing. 1277. needs pleading & proof. claim for future support. Legal compensation ± by operation of law. unless the contrary is proved. if reason for confusion ceases. Total compensation ± when 2 debts are of the same amount f. Whenever the private document in which the debt appears is found in the possession of the debtor. (1192a) Art. 1278. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged. (1190) Art. y As to private documents only. implies the renunciation of the action which the former had against the latter.OBLIGATIONS and CONTRACTS / Midterms: Obligations Art. 1279. the obligation is revived Section 5: Compensation If in order to nullify this waiver it should be claimed to be inofficious. criminal offense. (1194) y REQUISITES: o It must take place between principal debtor & principal creditor only o Merger must be clear & definite o The obligation involved must be same & identical ± one obligation only o Revocable. indemnity for expense of exchanges. Judicial compensation ± set off. Compensation shall take place when two persons. Confusion which takes place in the person of any of the latter does not extinguish the obligation. as long as the 5 requisites in Art. and that he be at the same time a principal creditor of the other. it shall be presumed that the creditor delivered it voluntarily. 1273. The renunciation of the principal debt shall extinguish the accessory obligations. upon order of the court. public documents ordinarily have copies to the creditor or debtor in whom the two characters concur. 1275. it is required that you deliver the property unlike in mortgage where it is not required) Accessory follows the principal and not the other way around Art. (1191a) y Only the accessory obligation is extinguished (the reason being that in a pledge. is found in the possession of the debtor. forget other requirement as long as both consented c. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. 1271. it is necessary: (1) That each one of the obligors be bound principally. In order that compensation may be proper. (1188) Art. ABELARDO/CEBRIAN Page 20 . after its delivery to the creditor. commodatum.
If the assignment is made without the knowledge of the debtor. 1283.OBLIGATIONS and CONTRACTS / Midterms: Obligations (2) That both debts consist in a sum of money. y With [knowledge and] consent: o GENERAL RULE ± no compensation (with respect to his debts and credits with the Principal Creditor) o EXCEPTION ± when the debtor expressly reserved his right to compensation. 1284. 1287. y Art. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1196) [International Corp Bank v IAC & Silahis Marketing Corp v IAC: If the requisites of legal compensation as enumerated in Art. they be of the same kind. If one of the parties to a suit over an obligation has a claim for damages against the other. 1286.] [Francia v IAC: Rules ± tax cannot be subject to setoff or compensation. there is a total compensation.] Art. they may be compensated against each ABELARDO/CEBRIAN Art. (4) That they be liquidated and demandable. 1281. (1197) y This is because a guarantor is subsidiarily liable whereby he may be compelled to pay only when the debtor cannot pay. other before they are judicially rescinded or avoided. 1279 are present. Notwithstanding the provisions of the preceding article. and also of the same quality if the latter has been stated. (n) Art. When the two debts are of the same amount. the main reason being that it is a duty. disputed claim arising from breach of contract. 1282. the former may set it off by proving his right to said damages and the amount thereof. Other reasons in the case mentioned are that the collection of tax cannot await the results of a lawsuit against the government. This is as opposed to a surety who is solidarily liable with the debtor. When one or both debts are rescissible or voidable. If the creditor communicated the cession to him but the debtor did not consent thereto. that he reserved his right to the compensation. y With knowledge but without consent: o Debtor may set up compensation but only to those credits that became due prior to the assignment. compensation by operation of law takes effect even without the parties' consent. unless the assignor was notified by the debtor at the time he gave his consent. and that the tax was due to the city government but the expropriation was affected by the national government (not principal debtor and creditor of each other). commenced by third persons and communicated in due time to the debtor. but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a) Art. The parties may agree upon the compensation of debts which are not yet due. Page 21 . The debtor who has consented to the assignment of rights made by a creditor in favor of a third person. (n) Art. the guarantor may set up compensation as regards what the creditor may owe the principal debtor. (n) Art. (1198a) y Without knowledge and consent: o Debtor may set up compensation to those credits that became due prior to his knowledge and also those made later until he had knowledge of such assignment. the latter may set up the compensation of debts previous to the cession. Compensation may be total or partial. or if the things due are consumable. even though the debts may be payable at different places. 1280. (5) That over neither of them there be any retention or controversy. compensation cannot extend to unliquidated. (3) That the two debts be due. (n) Art. 1285. Compensation takes place by operation of law. cannot set up against the assignee the compensation which would pertain to him against the assignor. but not of subsequent ones. Compensation is not proper when the claim of the person asserting the set-off against the other is not clear nor liquidated.
without prejudice to the provisions of paragraph 2 of Article 301. only the offended party may set up compensation Good luck in the midterm exams! EXAMPLE: Sarah was raped by a person (hereinafter ³the offender´) whom she owes P50000. and the offender would say. 1289. ABELARDO/CEBRIAN Page 22 . and extinguishes both debts to the concurrent amount. o In case of obligations arising from penal offense. if Sarah was exceedingly annoyed with the offender to the point where she¶d rather die than see his face ever again. Of course. ³Let¶s just compensate. awarding her P50000 in damages. the rules on the application of payments shall apply to the order of the compensation. o In case of commodatum. (1200a) Art. she won the rape case against said offender. the one entitled to support may set up compensation. When all the requisites mentioned in Article 1279 are present. 1290. even though the creditors and debtors are not aware of the compensation. If a person should have against him several debts which are susceptible of compensation. (1201) Art.´ would you agree? The makers of this reviewer think that not agreeing with such an arrangement is the better ± and expected ± opinion. (n) Art. she can set up compensation (on the grounds of her aversion to the notion of seeing him ever again). compensation takes effect by operation of law. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (1202a) y Facultative compensation: when only one of the parties have the right to set up compensation. o In case of deposit.OBLIGATIONS and CONTRACTS / Midterms: Obligations Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title. the owner of the thing (he/she who lent said thing to another person) may set up compensation o In cases of support. 1288. If you were Sarah. and subsequently. the depositor (owner of the thing deposited) may set up compensation.
PROBLEM 1: Active solidarity: creditors are solidary. hence knowing that we move on with the compulsory division: 8000 / 4 = 2000 ABELARDO/CEBRIAN Page 23 . we should first determine who amongst the two parties are joint. Next. the creditors are joint ± there are 4 creditors. we count ± in this case. P8000) and analyze the problem. and R are solidary creditors. the only difference being that we divide the total debt by the number of jointly liable persons: 8000 / 2 = 4000 If all parties are solidary. to prepare you for such a scenario. then close your eyes and thank God (or any supernatural being you subscribe your faith to. W. E. 11-12. there are 2 debtors. D and F) and 4 creditors (Q. debtors are joint. more or less depending on your professor handled discussions on the subject). W. Now. If the debtors are jointly liable. In the problem above. We take the P8000 debt. here are a couple of problems that will teach you how to easily determine a debtor¶s liability as regards joint and solidary obligations. A and S owe a total of P8000 to the creditors. If a solidary obligation is concerned. there are 4 debtors (A. the debtors are jointly liable. 11 was reached. debtors are solidary. and R are joint creditors. In this case. W.OBLIGATIONS and CONTRACTS / Midterms: Obligations Appendix A There is a chance that you would encounter problem-solving questions like this in the exam (ranging from slim to sure-fire. S. add the number of debtors to the number of debtors. and divide it by the total number of persons: 8000 / 8 = 1000 That is how the answer at the example in p. In the example on p. it¶s either the debtors or the creditors who are solidary and the other party in either case is joint. Q. A and S are solidary debtors. E and R) ± using said examples. QUESTION: How much should A pay Q when Q demands from him? ANSWER: P4000 SOLUTION: Get the total amount of the debt (in this case. Q. E. we proceed with the same step as earlier. we have 8 persons involved all in all. In this case. A and S are joint debtors. Therefore. A and S owe a total of P8000 to the creditors. for that matter) because you won¶t break a sweat on this one: 8000 PROBLEM 2: Passive solidarity: creditors are joint. QUESTION: How much should A pay Q when Q demands from him? ANSWER: P2000 SOLUTION: We apply the second technique mentioned in Problem 1 and first determine who amongst the parties are joint.
OBLIGATIONS and CONTRACTS / Midterms: Obligations Appendix B The thing with provisions like Article 1217 is that when explanatory examples are given in legal texts. This section intends to address this predicament. when actually it¶s all a matter of context. FIN ABELARDO/CEBRIAN Page 24 . Their share in the debt is: A = P60 B = P40 C = P40 Upon demand of Q to A. A paid P140 to Q. In the course of events. the shares involved are always equal. thereby extinguishing the obligation to Q and giving rise to the right of A to claim reimbursement from B and C. Yes. (Don¶t believe a word of it? Try looking at some book ± any book ± on Obligations and Contracts and you¶ll see for youself. which is A¶s share of the debt. QUESTION: How much may A collect from B? Some would answer P40. respectively: 40% of 40 = 16 Now. B. we add what we got to A¶s share (which is 60): 16 + 60 = 76 The point is. Some took the provision into consideration but applied it the wrong way. when the law says ³proportionately´ or ³pro rata´. answering P60. The answer is actually« ANSWER: 76 How come? Here¶s why: C¶s share (him being insolvent) will be proportionately divided between A and B. And since A and B would have to be 60%-40%. C became insolvent. PROBLEM: A. equality does not necessarily follow. that¶s wrong.) This tends to mislead the average reader into associating proportionate division with equal division. That is the worst answer. and C are solidary debtors of Q in the amount of P140.
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