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Obligations and Contracts

Art. 1156. An obligation is a juridical necessity to give, to do or not to do. Obligation -obligation is a juridical relation whereby a person (creditor) may demand from another (debtor) the observance of a determinate conduct, and, in case of breach, may obtain satisfaction from the assets of the latter. (Arias Ramos) Elements of Obligation: 1. an active subject power to demand prestation [creditor/obligee] precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090) the law cannot exist as a source of obligations, unless the acts to which its principles may be applied exist Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a) Autonomy of will - presupposes that the contract is valid and enforceable; terms of the contract must not be contrary to law, morals, good customs, public policy, or public order if contract does not violate any of the limitations above, it should be given effect, notwithstanding the absence of any legal provision at the time it was entered into which governs it falsification of contract unauthorized insertion of additional stipulations does not avoid the whole contract, which still must be enforced, disregarding only the additional stipulations quantum meruit - "as much as he has deserved" in cases of attorneys contracts, an attorney is not entitled in the absence of express contract, to recover more than a reasonable compensation for his services

2. 3.

passive subject bound to perform the prestation [debtor/obligor]

an object or the prestation conduct necessary to produce the effects of the sale Requisites: a. b. c. it must be possible, physically and juridically it must be determinate or at least determinable it must have the possible equivalent in money pecuniary interest may be for the benefit of third persons, not necessarily the parties pecuniary value is not limited to the object or prestation but extends to the sanctions which corresponds to the juridical duty creditors interest may be sentimental, moral, or ideal it must have an economic value or susceptible of substitution in money in case of non-fulfillment


efficient cause/juridical tie between the two subjects by reason of which the debtor is bound in favor of the creditor to perform the prestation; the vinculum which may be a relation Established by: 1. by law e.g. husband and wife (obligation to support) 2. by bilateral acts e.g. contracts 3. by unilateral acts e.g. crimes and quasi-delicts subjects may be individual persons or juridical persons; must be determinable in some manner, need not be determined in the act constituting the obligation Art. 1157 Obligations arise from: 1. Law; 2. Contracts; 3. Quasi-contracts; 4. Acts or omissions punished by law; and 5. Quasi-delicts not binding obligation Pollicitacio an offer without acceptance is Unilateral promise can also give rise to

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n) Quasi-contract juridical relation which arises from certain lawful, voluntary, and unilatery acts to the end that no one may be unjustly enriched or benefited at the expense of another Acts giving rise to quasi-contract must be: 1. lawful 2. voluntary 3. unilateral

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) RPC, Art. 100 every person criminally liable for a felony is also civilly liable The civil liability springs out of and is dependent upon facts, if true, would constitute a crime

Independent Civil Action - a criminal act is entirely independent of the criminal action hence, the civil action can be filed separately even without any reservation in the criminal action 1. obligations not arising from the act or omission claimed to be criminal

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

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Obligations and Contracts

2. 3. 4. violations of constitutional rights and liberties of individuals defamation, fraud, or physical injuries refusal or failure of members of a local police force to render protection of life or property Determinate/specific this one that is individualized and can be identified or distinguished from others of its kind 3 Incidental or accessory obligations in an obligation to deliver a determinate things: 1. 2. 3. the obligation to preserve the thing with due care the obligation to deliver the fruits the obligation to deliver the accessions and accessories

Arts. 31, 32, 34, 2176 - can be given retroactive effect 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) whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done quasi-delict - no pre-existing contractual relation between the parties in such fault or negligence basis of liability founded upon undisputable principle of equity

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) liability for damages imposed upon the debtor who fails to exercise the diligence of a good father of a family (ordinary diligence) debtor is exempted from liability: due to no fault or negligence of his, but to fortuitous events or force majeure

Negligence failure to observe the protection of the interest of another person, that degree of care, precaution and vigilance which the circumstances justly demands, whereby such other person suffers injury Test of negligence: a. duty on the party of the defendant to protect the plaintiff from the injury which the latter complains b. failure to perform that duty c. an injury to the plaintiff through such failure Two Kinds of Negligence: 1. culpa aquiliana (culpa-extra-contractual) negligence as a source of obligation 2. culpa contractual negligence in the performance of a contract NATURE AND EFFECTS OF OBLIGATION Prestation - 3 Kinds: 1. to give 2. to do 3. not to do Delivery of Generic Objects Generic/indeterminate thing indicated only by its kinds, without being designated and distinguished from others of the same kind

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) Real right rights of ownership and possession -the power belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised Personal right the power belonging to one person to demand another, as a definite passive object, the fulfillment of a prestation to give, to do, or not to do

Non nudis pactis, sed traditione dominia rerum transferentur

the ownership of things is transferred not by mere agreements but by delivery

the creditor does not acquire any real right over the thing except from the time it is delivered to him

in the obligation to deliver a generic thing, the object becomes due and demandable the moment it is delivered, it becomes determinate limited generic when the generic objects are confined to a particular class unless limited, the obligation to deliver a generic or indeterminate thing is not confined to the objects which the debtor may own or possess

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. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same

Delivery of Determinate Thing

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Obligations and Contracts

interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) Remedies of Creditor (when debtor fails to comply with his obligation) 1. an action for specific performance, to obtain compliance of the prestation; 2. an action, in some cases, to rescind or resolve the obligation; 3. an action for damages, exclusively or in addition to either of the first actions No person shall be imprisoned for debt. The debtor in default is not liable for fortuitous events, if he proves that even is he had performed the obligation the loss would have occurred in the same manner. 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) Accessories those things which, destined for the embellishment, use or preservation of another thing or more importance, have for their object the completion of the latter for which they are indispensable or convenient. Accessions include everything produced by a thing, or which is incorporated or attached thereto, either naturally or artificially. Everything that is attached, naturally or artificially, to the principal thing, as well as that which serves to complete it, even it not attached to it, must be delivered with it. The parties may agree to exclude any accession or accessory of the thing. Aside from undoing what is done in violation of the prohibition, he can be held liable for damages In other cases, it is impossible to undo the thing, either physically or legally, or because of the rights of third persons, or for some other reason.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, 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. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a) Delay = default = mora delay in the fulfillment of obligation non-fulfillment with respect of time there can be delay only in positive obligations (to do and to give) but there can be no delay in negative obligations (not to do and not to give)

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)

Kinds of Mora: when the debtor does not comply with an obligation to do, the creditor is entitled to have the thing done in a proper manner, by himself or by a third person, at the expense of the debtor. The law does not authorize the imposition of personal force or coercion upon the debtor to comply with his obligation. The only remedy is indemnification for damages.


mora solvendi - default on the part of the debtor which may either be ex re (obligations to give) or ex persona (obligations to do) imputable to the debtor presupposes a prestation that is due and enforceable there is no mora in natural obligations

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Obligations and Contracts

Requisites a. that the obligation be demandable and already liquidated b. that the debtor delays the performance c. that the creditor requires the performance judicially and extrajudicially Demand

default begins from the moment the creditor demands the performance of an obligation demand may be in any form, provided that it can be proved (incumbent upon the creditor)

Effects: a. when it has for its object a determinate thing, the delay places the risks of the thing on the debtor b. he becomes liable for damages

without such demand, judicial or extrajudicial, the effects of default will not arise Demand is necessary even if a period has been fixed in the obligation Default cannot be adjudged in favor of the creditor, except from the time that judicial or extrajudicial demand for payment is made upon the debtor. Default


mora accipiendi default on the part of the creditor the delay in the performance based on the omission by the creditor of the necessary cooperation, especially acceptance on his part when the debtor tenders payment or performance but the creditor refuses to accept it without just cause it is essential that the prestation offered be precisely the one that is due as to content, time and place

Extra-judicial demand default begins from the date of such extra-judicial demand No particular date on the extrajudicial demand default must commence from the filing of the complaint Nature of demand: must refer to prestation that is due and not to another Demand Not Required: 1. where there is express stipulation to that effect 2. where the law so provides (#1&2 it is not sufficient that the law or the obligation fixes a date of performance; it must further state expressly that after the period lapses, default will commence) 3. 4. when the period is the controlling motive or the principal inducement for the creation of the obligation where demand would be useless a. when the impossibility is caused by some act or fault of the debtor b. when the impossibility is caused by fortuitous event, but the debtor has bound himself to be liable in cases of such events

Effects; a. b. the responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence the debtor is exempted from the risks of loss of the thing, which automatically pass to the creditor all expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor if the obligation bears interest, the debtor does not have to pay the same from the moment of the mora the creditor becomes liable for the damages the debtor may relieve himself of the obligation by the consignation of the thing compensation morae default of both parties in reciprocal obligations the parties in a bilateral contract can regulate the order in which they shall comply with their reciprocal obligations - if the parties do not determine the order of fulfillment of their obligations, the fulfillment must be reciprocal and simultaneous neither the party incurs default if the other does not comply, is not ready to comply in a proper manner with what is incumbent upon him

d. e. f.


in case of doubt, doubt is resolved in favor of the debtor Cessation of the Effects of Mora Benefits arising from default or delay may cease upon: 1. renunciation by the creditor express or implied 2. prescription there is implied renunciation, when after delay has been incurred, the creditor grants the extension of time to the debtor or agrees to a novation of the obligation.

General Rule: fulfillment by the parties should be simultaneous. Where both are in default, their respective liability shall be offset equitably. Delinquency commences when one of the contracting parties fulfills his obligation and becomes invested with power to determine the contract because failure on the opf the other carry out the agreement.

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Obligations and Contracts

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) Fraud defined as the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. Damage/damages = include any and all damages that a human being may suffer in any and all manifestations of his life: physical or material, moral or psychological, mental or spiritual, financial, economic, social, political and religious. Breach of contractual obligation entitles the other party to damages even if no penalty for such breach is provided in the contract. In the matter of damages, the plaintiff is entitled to the value of the use of his property from the time it was take to the time of restoration. The responsibility for damages arising from non-fulfillment of a contractual obligation cannot be divided nor can it be extended to persons who have nothing to do with the obligation. Payment of Money Damages may be recovered under this article when the obligation is to do something other than the payment of money.

intentional obligations.

Fraud referred to is the deliberate and evasion of the normal fulfillment of

Any voluntary and willful intent, which prevents the normal realization from such act = fraud As ground for damages in this article, it implies some kind of malice or dishonesty and it cannot cover cases of mistakes and errors of judgment made in good faith. Test: the element of intent, and not the degree of actual harm done

Fault or negligence is known as culpa contractual in this article; culpa aquilian or extra contractual in Article 2176 But whether contractual or non-contractual, the negligence of the defendant should be the proximate cause of the damage to the plaintiff if the liability is to attach. Delay Every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby. in any manner contravene the tenor of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance It is not enough that there is nonperformance or delay to hold the debtor liable for damages; such non-performance or delay must be imputable to him.

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a) Fraud = malice or bad faith in the performance of an existing obligation, not the fraud or deceit used to procure a contract Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103) Kinds of culpa 1. culpa contractual the court is given a discretion to mitigate liability according to the circumstances of the case fault or negligence in the performance of an already existing obligation


The delay or contravention of the obligation must either be malicious or negligent to actionable; if due to fortuitous events, such contravention cannot ordinarily give rise to damages. Excuse of Non-performance

culpa aquiliana not involving a breach of existing obligation, an employer may exculpate or exempt himself from liability by proving that the had exercised due diligence to prevent the damage source and creator of obligations

When the failure of the debtor to perform is due to fortuitous events or force majeure, he cannot be held liable for damages, unless there is an express agreement to the contrary or the law otherwise provides in particular cases. Recoverable Damages

Liability of Employer the employee cannot be sentenced to pay damages, because the responsibility for his acts is in his principal the liability arising from the non-fulfillment of a contractual obligation cannot be divided, nor can it be

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Obligations and Contracts

extended to persons who have nothing to do with the obligation the owner is the party directly responsible for the fulfillment of the contract (non-responsibility of the driver to the injured party) Stipulations on Liability for Negligence 1. Graduating the responsibility of the debtor, by determining the degree of negligence required which may be more or less than the standard fixed by law. 2. Imposing a liability for fault or negligence, where the law does not impose it. risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a) Caso fortuito or fortuitous event an event which takes place by accident and could not have been foreseen - an unexpected event or act of God which could never be foreseen nor resisted (e.g. floods, torrents, shipwrecks, etc. - independent of the will of the obligor 2 General Causes: 1. 2. by nature act of man prohibitions, etc. armed invasion, governmental

Exemptions from Liability 2 Kinds 1. 2. a party to a contract is relieved from the effects of his fault or negligence by a third person (e.g. insurance) one party to a contract renounces in advance the right to enforce liability arising from the fault or negligence of the other stipulations exempting from liability for gross negligence amounts to a fraud validity of stipulation exempting from liability for simple negligence can be accepted as a general principle

in order that acts of man may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted. Fortuitous events include unavoidable accidents, even if there has been an intervention of human element, provided fault or negligence cannot be imputed to the debtor. Both fortuitous event and force majeure refer to causes independent of the will of the obligor. Characteristics of Fortuitous Event:

Art. 1173. 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, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a) Degree of Diligence Required when neither the law nor the obligation itself states the degree of diligence required of the obligor or debtor that which would be observed by a good father of a family bonos paterfamilias a person of ordinary or average diligence anyone who uses diligence below this standard is guilty of negligence there is no fixed standard of diligence applicable to each and every obligation Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of


the of the unforeseen and unexpected occurrence or the failure of the debtor to comply with his obligation, must be independent of the human will It must be impossible to foresee the event which constitute caso fortuito, or if it can be foreseen, it must be impossible to avoid the occurrence must be such to render it impossible for the debtor to fulfill his obligation in a normal manner the obligor must be free from any participation in the aggravation of the injury resulting to the creditor




Defense: the accident must be due to natural causes and absolutely without human intervention General Rule: The debtor who is unable to fulfill his obligation because of fortuitous event or force majeure cannot be held liable for damages of non-performance. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have occasioned. The parties may expressly stipulate in their contract that the debtor shall be liable to the creditor, even if the performance is rendered impossible by fortuitous event or force majeure.

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Obligations and Contracts

Another exemption to the general rule is when the nature of the obligation requires the assumption of risk. not applicable to the payment of taxes because the tax of one year is independent of the taxes for other years

Qui sentit commodum sentire debet it incommodum (if a person, for convenience or profit, creates risks for the public which formerly did not exist, although morally his fault or negligence may not be the cause of the damages resulting therefrom, nevertheless he should be liable for the damages) Applies to all kinds of public service The liability, however, should be limited to risks and events that are typical of the business concerned; it cannot extend to dangers which are not typical of the business

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Rights of Creditors In order to satisfy their claims against their debtors: 1. to levy by attachment and execution upon all the property of the debtor except such as are exempt by law from execution to exercise all rights and actions of the debtor, except such as are inherently personal to him to ask for the rescission of the contracts made by the debtor in fraud of their rights

The debtor is also released from liability when the non-performance of the obligation is due to the act of the creditor himself. Art. 1175. Usurious transactions shall be governed by special laws. (n) Interest - the income produced by money in relation to its amount to the time that it cannot be utilized by its owner. May be: 1. Moratory those paid in contractual obligations to pay a sum of money, either as the price for the use of the money, or as a the stipulated advanced determination of the damages due to the delay in the fulfillment of the obligation Compensatory interests on obligations which have an extra-contractual or delictual origin

2. 3.

the property of the debtor is subject to liability of his obligations Requisites in the Exercise of the Debtors Rights (by the creditor) 1. the creditor has an interest in the right or action not only because of his credit but because of the insolvency of the debtor 2. malicious or negligent inaction of the debtor in the exercise of his right or action of seriousness as to the endanger the claim of the creditor 3. the credit of the debto against a third person is certain, demandable and liquidated 4. the debtors rights against the third person must be patrimonial, or susceptible of being transformed to patrimonial value for the benefit of the creditor accion subrogatoria (subrogatory action) the action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover for the patrimony of the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit needs previous approval of the court entitled only to so much as is needed to satisfy his credit the balance, if there be any, pertains to the creditor


Usury contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels it is the taking of more interest for the use of money, goods or chattels or credits than the law allows

Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a)

based on Art. 1253 in which if a debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered

Personal Rights of Debtor (which cannot be exercised by the creditor)

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Obligations and Contracts

1. the right to existence, thereby exempting from the reach of creditors whatever he may be receiving as support rights or relations of a public character rights of an honorary character rights consisting of powers which have not been uses. Including: a. b. c. 5. 6. 7. the power to administer, such as when the debtor fails to have some property leased the creditor cannot give it in lease for him the power to carry out an agency or deposity which are purely personal acts the power to accept an offer to a contract transferee would be considered in lawful possession of the same as well as of the credit unless the contrary is shown. Chapter 3 Different Kinds of Obligations 1. pure 2. conditional 3. with a term 4. alternative 5. joint or mancommunada 6. solidary or in solidum 7. divisible 8. indivisible 9. with a penal clause

2. 3. 4.

non patrimonial rights, such as the action to establish the debtors status as a legitimate or illegitimate child patrimonial rights not subject to execution, such as the right to a government gratuity or pension patrimonial rights inherent in the person of the debtor, such as the right to revoke a donation by reason of ingratitude and the right to demand the exclusion of an unworthy heir

Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) Pure obligation when the obligation contains no term or condition whatever upon which depends the fulfillment of the obligation contracted by the debtor immediately demandable and there is nothing to exempt the debtor from compliance therewith

Rescission of Fraudulent Act as a last recourse, creditors have the right to set aside or revoke the acts which the debtor may have done to defraud them accion pauliana the action to revoke or rescind such acts all acts of the debtor which reduce his patrimony in fraud of his creditors, whether by gratuitous or onerous title, can be revoked by this action - includes alienation of property, payment of debts which are not due, renunciation of rights the debtors renunciation of a prescription which has already been acquired is also included creditors are protected not only by the debtors voluntary acts but also from judicial acts payments of pre-existing obligation already due whether natural or civil cannot be impugned by an accion pauliana

a demand note is strictly pure obligation and consequently in the absence of other restrictions, payment thereof is immediately demandable when the period originally given has been cancelled by mutual agreement of the parties, or the non fulfillment of a condition resolves the period stipulated, the obligation must be considered pure immediate demandability of pure obligations should not lead to absurd interpretations or requirements impossible of instantaneous compliance Conditional Obligation is one condition. which is subject to a

Condition every future and uncertain event upon which an obligation or provision is made to depend futurity and uncertainty must concur as characteristics of the event an event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered with a term (e.g. death of a person) the condition must be imposed by the will of a party and must not be a necessary legal requisite of the act the event, although uncertain, must be possible

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112) an instrument evincing a credit may be transferred or assigned by the creditor to another, and the

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a past event cannot be future and uncertain and cannot constitute a condition what can be a condition is the future knowledge or proof of a past even unknown to the parties, but not the event itself. Classification of Conditions 1. 2. 3. 4. 5. 6. 7. suspensive and resolutory potestative, casual or mixed divisible and indivisible conjunctive and alternative positive and negative express and implied possible and impossible Resolutory condition resolutory condition extinguishes rights and obligations already existing; the obligations and rights already exist but under the threat of extinction upon the happening of the resolutory condition aka subsequent if the condition does not happen

Suspensive conditional creditor loses all hope of becoming the real creditor Resolutory absolute creditors rights become

fulfillment of the condition is indivisible, hence partial fulfillment of the condition does not give rise to the existence of part of the obligation indivisibility of the condition passes to the heirs of the debtors: hence, some heirs cannot demand partial performance of the obligation by offering to fulfill the part of the condition corresponding to them Plurality of conditions if several conditions are imposed on the same obligation, the necessity of complying with all or one depends upon the intention of the parties if the conditions imposed are imposed in the alternative or disjunctively fulfillment of one is sufficient if conjunctively all of them must be complied with

Art. 1182 When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115) Potestative condition one which depends upon the will of the contracting parties; one which is in the power of one of the parties to realize or prevent Casual condition depends exclusively upon chance or other factors, and not upon the will of the contracting parties; also includes condition which is depended upon the will of the third person Mixed condition depends upon the will of one of the contracting parties and other circumstances, including the will of a third person Kinds of Potestative Condition 1. simple potestative condition which presupposes not only a manifestation of will but also the realization of an external act [e.g. if you sell your house] does not prevent the formation of a valid obligation depends on the voluntary act of the debtor and also to contingencies over which it has no control 2. purely potestative condition which depends solely and exclusively upon the will [e.g. if I like it] destroys the efficacy of the legal tie Effect Potestative Condition

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. (n) the creditor should file an action to fix a period for the payment of the obligation an immediate action to enforce the obligation, without a period having been previously fixed by the court would be premature Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114) Suspensive condition if the suspensive condition happens, the obligation arises, if the condition does not happen, the obligation does not come into existence aka condition precedent or antecedent contract cannot be perfected unless the condition is complied with

when the potestative condition depends exclusively upon the will of the debtor the obligation is void! When it depends partly on the will of the debtor and partly upon chance or the will of a third person (mixed) conditional obligation is valid When it depends on the exclusive will of the creditor valid Applicable only when the condition is suspensive and cannot apply to resolutory condition

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Obligations and Contracts

A condition that is both potestative (or facultative) and resolutory may be valid, even though the condition is made to depend upon the will of the obligor [check cases pp 152-153] When no period has been fixed, the rule in the second paragraph of article 1185 is applicable Art. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118)

Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a) Impossible conditions may be physical or juridical Physically impossible contrary to the law of nature Juridically impossible contrary to law, morals, good customs, and public policy Impossible or illicit conditions annul the obligations dependent upon them only when the conditions are positive and suspensive; if negative considered to have not been written (then the obligation is converted in pure and simple one) Applies only to contracts Time of impossibility in order that an impossible condition may annul the obligation, the impossibility must exist at the time of the creation of the obligation Supervening impossibility affect the existence of an obligation does not

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119) Constructive fulfillment refers to a condition which although not exclusively within the will of the debtor, may in some way be prevented by the debtor from happening - a party to a contract may not be excused from performing his promise by the non-occurrence of an event which he himself prevented - if in preventing the fulfillment of the condition the debtor acts pursuant to a right, the condition will not be deemed as fulfilled - there is constructive fulfillment only if the act of the debtor had in fact prevented compliance with the condition 2 Requisites: 1. intent of the obligor to prevent fulfillment of the condition any act imputable to the debtor, whether done with or without fraud or malice 2. actual prevention or compliance

If the condition was impossible when the obligation was constituted, the obligation remains void even if such condition subsequently becomes possible unless the parties later agree again [check pp 157] Illogical conditions has similar effect of an impossible condition Divisible obligation that part not affected by the impossible or unlawful condition shall be valid Negative condition obligation is regarded as a pure and simple one Art. 1184. 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. (1117)

Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120)

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Obligations and Contracts

Between the moment of the creation of the conditional obligation and the fulfillment of the suspensive condition, the creditor cannot enforce the obligation; his right during that period is a mere expectancy. 5. 6. 7. the proper public documents for registration so as to affect third persons to register the deeds of sale or mortgages evidencing the contract to set aside fraudulent alienations made by the debtor to interrupt the period of prescription, by actions against adverse possessors of the things which are the objects of the obligation

Effects of the obligation retroact to the moment when such obligation was constituted or created. [condition is only accidental and not an essential element of the obligation]

if the conditional obligation has for its object the delivery of a determinate thing, the debtor cannot, before the happening of the suspensive condition, make contracts disposing of or alienating or encumbering the thing or otherwise creating a real right over the thing incompatible with the right of the creditor. Because of retroactivity of the obligation, the creditor retains a superior right Delivery transfers ownership or real rights over the thing Increase in value which the thing may acquire before the happening of the suspensive condition inures to the benefit of the creditor If the things is lost by fortuitous event before the happening of the condition, the debtor suffers the loss because he is still the owner When the obligation to give is reciprocal, the fruits and interest pending the happening of the condition are deemed to mutually compensate each other [the fruits and interests are considered as equivalent to and are made to offset each other] Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) Pending the happening of the suspensive condition the creditor has only an expectancy and cannot compel the debtor to perform, acts or event may take place which might render his right illusory

the debtor who paid before the happening of the condition to recover only what he paid by mistake and provided the action to recover is brought before the condition happens if the payment was made with knowledge of the condition there is an implied waiver of the condition and whatever has been paid cannot be recovered Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

Action for preservation of the creditors rights may have for their objects: 1. to prevent the loss or deterioration of the things which are the objects of the obligation by enjoining or restraining acts of alienation or destruction by the debtor himself or by third person to prevent the concealment of the debtors properties which constitute the guaranty in case of nonperformance of the obligation to demand security if the debtor becomes insolvent to compel the acknowledgment of the debtors signature on a private document or the execution of

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) - applies only to obligations to deliver a determinate or specific thing A thing is lost: 1. when it perishes 2. when it goes out of the commerce of man

2. 3. 4.

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Obligations and Contracts

3. when it disappears if the loss is due to the fault of the debtor, becomes liable for damages to the creditor upon fulfillment of the condition; if the debtor is without fault, obligation is extinguished, unless there is stipulation to contrary he the the the Rights of third persons

Deterioration of thing deterioration is any reduction or impairment in the substance of value of a thing which does not amount to loss if the deterioration is not imputable to the debtor, he is not liable for any damages for such deterioration and the creditor must accept the thing in its impaired condition

if delivered and ownership is transferred by the possessor to the third person, and later the condition happens, the party entitled to restitution cannot sue the third person directly for the recovery of the thing no real right that can be enforced against third persons in good faith Loss, Deterioration, Improvement if the thing is lost before the happening of the resolutory condition, the loss must be borne by the owner at the time of the loss Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

Improvement anything added to, incorporated in, or attached to the thing that is due if caused by the nature of things inures to the benefit of the creditor if at the expense of the debtor debtor has the right of a usufructuary (can be removed by the debtor without damage to the thing due; if cannot be removed must be delivered together with the thing to the creditor

Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123) the rights of the creditors are immediately vested; but such rights are always in the danger of being extinguished by the happening of the resolutory condition if the condition does not happen, those rights are consolidated and they become absolute in character if the condition happens, such rights are extinguished and the obligation is treated as if it did not exist; each party is bound to return to the other what he has received, so that they may be returned to their original condition before the creation of the obligation

Reciprocal obligations in which each party is a debtor and a creditor on the other; the obligation of one is dependent upon the obligation of the other; they are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other Implied or tacit resolutory condition - a condition imposed exclusively by law, even if there is no corresponding agreement between the parties

when one party has performed his part of the contract, the other party incurs in delay The party who has performed or is ready and willing to perform may rescind the obligation if the other does not perform or is not ready and willing to perform Power to rescind is given to the injured party When one party fails to comply with his obligation under a contract, the other party has the right to: 1. demand performance; 2. ask for the resolution of the contract Where both parties have committed a breach of obligation and it cannot be determined who was the first infractor, the contract shall be deemed extinguished and each shall bear his/its own damages

Janis Louis H. Esparcia


Obligations and Contracts

Declaration of Rescission Rescission may take place by the declaration of the injured party; the rescission is a power, which does not require the previous declaration of rescission by the courts. Only those elements of damages can be admitted which are compatible with the conception of specific performance Resolution of a contract: purchaser is entitled to indemnity for damages While the right to rescind is implied, the contracting parties may waive the same The parties to a bilateral contract may validly stipulate that if one of them does not comply with his obligation, the contract shall automatically be resolved. Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n) Where both parties are in default, their respective liability for damages shall be offset equitably SECTION 2. - Obligations with a Period Rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. Effect of Rescission Extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect Equivalent to invalidating and unmaking the juridical tie, leaving things in their nature before the celebration of the contract Rescission has the effect of abrogating the contract in all parts It is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as practicable in his original situation Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. (1125a) Term or period is a space of time which, exerting influence on obligations as a consequence of their juridical act, suspends their demandability or determines their extinguishment

Injured party may cancel contract without judicial intervention The extrajudicial declaration of the creditor, electing rescission, produces legal effect. Once one of the parties fails to comply with his obligation, the other is relieved from complying with his, and he may therefore by his own declaration elect to rescind by not performing his own undertaking. Supreme Court held: the mere failure of one party to perform his undertaking does not ipso jure produce the resolution of the contract; the other party entitled to resolve should apply to the court for a decree of rescission or resolution

Alternative Remedies: 1. 2. ask for specific performance of the obligation OR ask for the rescission of the contract which has been breached Alternative remedies so the injured party cannot have both Prescriptive period: 4 years form the final judgment on specific performance So long as there has not judgment declaring rescission, the creditor who has asked for it may change his mind and demand specific performance or vice-versa

Damages Recoverable As distinguished from condition

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Obligations and Contracts

A s to fulfillment A s to influence on obligation A Condition Uncertain event Gives rise to an obligation or extinguishes one already existing May refer to a past event unknown to the parties Condition which depends upon the sole will of the debtor annuls the obligation Term/Period Must necessarily come Has no effect upon the existence of obligations, but only their demandability or performance Always refer to the future Period left to the debtors will merely empowers the court to fix such period

Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be observed. (n) Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a) o o applies only to obligations to give allows for the recovery of the thing or money itself, plus the fruits and interests (understood as those accruing from the moment of payment to the date of recovery) if the action to recover is not brought by the debtor before the date of maturity, then the right to recover the thing or money will cease allows debtor to recover fruits and interests in all cases where he paid under mistake as to the period construed in relation to the provisions on solution indebiti or payment of what is not due

s to time

A s to will of the debtor

Requisites of a Period o 1. 2. 3. future certain possible o o

Kinds of Terms: 1. 2. suspensive ex die one that must lapse before the performance of the obligation can be demanded resolutory in diem the period after which the performance must terminate

Fruits and Interests cannot be recovered in the following cases: 1. when the obligation is reciprocal and there has been premature performance on both sides when the obligation is a loan on which the debtor is bound to pay with interest when the period is exclusively for the benefit of the creditor, because the debtor paying in advance loses nothing

Classified according to source: 1. 2. 3. legal fixed by law voluntary stipulated by the parties judicial allowed by the courts

2. 3.

May also be classified as: 1. 2. 3. 4. original period of grace definite indefinite debtor has the burden of proving his ignorance of the period if the payment before the period was made voluntarily with knowledge of the period, the payment cannot be recovered (tacitly waived the term)

Effect of period: obligations with a term are demandable only when the day fixed for their performance arrives

period for prescription must also be counted only from such date of maturity and not from the date of the obligation once the date stipulated arrives, the obligation can be enforced Suspension of Period in case of fortuitous events or force majeure, the contract shall be deemed suspended during said period [only relieves the parties from fulfillment of their respective obligations during that time]

Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127)

If the period is for the benefit of: 1. 2. both parties the creditor cannot demand payment and the debtor cannot make an effective tender and consignation of payment before the period stipulated creditor only he may demand performance at any time, but the debtor cannot compel him to accept payment before the period expires

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Obligations and Contracts

3. debtor only he may oppose a premature demand for payment, but may validly pay at any time before the period expires Art. 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. (1129a)

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a) whenever a period is fixed pursuant to its provisions, the court does not amend or modify the obligation concerned, but merely enforces or carries out an implied stipulation in the contract

Court may fix a period in the following cases: 1. 2. 3. 4. when the term of the lease has been left to the will of the lessee when the terms of a donation imposing certain conditional do not fix time for the performance of the conditions where a building contract did not fix a definite period within which the engineer was to complete the construction of the house covered of the contract when the vendor is given the right to redeem but no term was specified for the redemption

o o

in cases provided in this article, the obligation becomes due and demandable even if the period has not yet expired the degree of insolvency that would justify immediate enforcement of the obligation is a matter that should be left to the courts

Art. 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131) On the basis of plurality of objects, obligations may be classified into: 1. conjunctive alternative several objects being due, the fulfillment of one is sufficient, determined by the choice of the debtor who generally has the right of election; the loss of one of the things due does not extinguish the obligation facultative only one thing is due, but the debtor has reserved the right to substitute it with another; the loss of that which is due as the object of the obligation will extinguish the obligation

the mere failure of the parties to fix a period, however, will not justify the court in fixing one; thus, it is not incumbent upon courts to fix the period during which the contracts of employment or services shall last the only action that can be maintained on obligations falling under this article is an action to ask the court to fix a term within which the obligor must comply with his obligation once the period has been fixed by the court it becomes part of the contract, and it cannot be subsequently changed or extended by the court without the consent of both parties



Janis Louis H. Esparcia


Obligations and Contracts

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132) In alternative obligations the debtor has the right to choose the method of meeting the obligation unless the creditor expressly reserved the right to himseld The right to choose may be granted to the creditor; grant must be expressed

Limits on election The right to choose is indivisible the debtor cannot choose part of one prestation and part of another The debtor cannot choose unlawful or impossible undertakings. The presence of such undertakings does not annul the obligation, which subsists, even as an alternative one if there are other lawful and possible objects. Neither can the debtor select prestation which could not have been the object of the obligation.

Form of Action o when the debtor has the right to choose, the plaintiffs action must be in the alternative form, demanding either X or Y object, at the election of the debtor if the creditor demands only one of the objects, he asks more than what he is entitled to demand, the judgment must also be in alternative form.

o o

Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133) the notice of selection or choice may in any form provided it is sufficient to make the other party know that the election has been made; may be made: 1) orally 2) in writing 3) tacitly 4) by any other unequivocal means When the debtor, to whom the right to choose pertains, performs one of the prestations with the intent to discharge the obligation, he is released, because the selection made may be implied in the fact of performance Tacit declaration of the selection in the following: performance of the debtor who has the right to choose acceptance of a prestation by the creditor when he has the right of selection

1. 2.

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Obligations and Contracts

3. when the creditor sues for the performance of one of the prestations choose), there is no declaration of the selection, nor a binding performance of the obligatiob. There is a payment of what is not due, and the debtor can recover the same in accordance with the provision of the law on quasi-contracts. Delay in Making Choice

the law does not require the other party to consent to the choice made by the party entitled to choose. A mere declaration of the choice, communicated to the other party is sufficient; it a unilateral declaration of will

The right to choose is not lost by the mere fact that the party entitled to choose delays in making his selection. Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134) If all the prestations, except one, are impossible or unlawful, it follows that the debtor can choose and perform only that one. The obligation ceases to be alternative and is converted into a simple obligation to perform the only feasible and practicable prestation. The impossibility of the other prestations must not be due to the creditors acts. (arts. 1203 shall apply in such cases) Applies only when the debtor has the right to choose Where the creditor is granted the right to choose, article 1205 when only one prestation remains practicable, either due to fortuitous event or due to the fault of the debtor Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n) Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded. (1135a) Applies to cases in which the debtor has the right to choose

Exception: when the debtor has chosen a prestation which could not have been the object of the obligation; the creditors consent would bring about a novation of the obligation Plurality of subjects When there are various debtors or creditors, and the obligation is joint, the consent of the all is necessary to make the selection effective, because none of them can extinguish the entire obligation. If the obligation is solidary, and there is no stipulation to the contrary, the choice by one will be binding personally upon him but not as to others Condition or Term The selection made by one party cannot be subjected by him to a condition or a term unless the other party consents thereto. Effect of Choice to limit the obligation to the object or prestation selected, with all the consequences which the law provides. The obligation is converted into a simple prestation. Once the selection has been communicated, it becomes irrevocable. To allow a change in the selection after it has been communicated to the other party, is to expose the latter to damages arising from the preparation he may make on the assumption that the prestation selected is the one to be performed. Election once made is binding on the person who makes it, and he will not thereafter be permitted to renounce his choice and take another alternative which was at first open to him. Error as to Obligation When the debtor performs one of the prestations, believing that he has a simple obligation (an ignorance of the alternatives and the right to

If only some of the prestations are rendered impossible, the fault of the debtor does not make him liable for damages (because he can still comply with the obligation by performing any of the prestations remaining (if there are still several or there is only one still possible)

He will become liable for damages under the terms of this article when all the prestations become impossible through his fault.

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Obligations and Contracts

Effect of Fortuitous Event

If all obligation becomes impossible, leaving only one prestation obligation is extinguished (debtor not liable for damages) Debtor is liable but the basis of damages will be the value of the last prestation which became impossible through his fault. Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a) When the creditor has the right to choose, his selection takes effect from the moment it is communicated to the debtor. Selection by the creditor made expressly or tacitly Effect of Creditors delay when the creditor fails to make a selection in cases where he has the right to choose, the debtor will not incur in delay in the performance of the obligation, even if there is a definite period fixed for performance.
As to nullity

Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n)

Distinguished from alternative

Alternative There are various prestations all of which constitute parts of the obligation Facultative Only the principal prestation constitutes the obligation, the accessory being only a means to facilitate payment Creditor can demand only the principal prestation

As to contents of the obligation

Creditor demands all the prestations, leaving the debtor to choose Nullity of one prestation does not invalidate the obligation in respect to those which have no vice

Exception: when the obligation becomes a simple one by the exercise of the creditor to choose there will be delay on the part of the debtor. If the debtor does not make his selection before the period fixed, the debtors duty to perform does not arise because the particular prestation to be performed has not been determined.

As to choice As to effect of loss

The right to choose may be given to the creditor Only the impossibility of all the prestations due without fault of the debtor extinguishes the obligation

Nullity of the principal prestation (such as when the object is unlawful or outside the commerce of man), invalidates the obligation and the creditor cannot demand the substitute even when this is valid Only the debtor can choose the substitute prestation The impossibility of the principal prestation is sufficient to extinguish the obligation, even if substitute is possible

Loss of substitute

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Obligations and Contracts

if the substitute prestation becomes impossible due to the fault or negligence of the debtor, the obligation is not affected, and he cannot be held liable for damages as a matter of principle: there should always be liability for bad faith When substitution becomes effective from the time the debtor communicates to the creditor that he elects to perform the substitute prestation

SECTION 4. - Joint and Solidary Obligations Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a) Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a) Joint obligation one in which each of the solidary debtors are liable only for a proportionate part of the debt, and each creditor is entitled only to a proportionate part of the credit. Each creditor can recover only his share of the obligation, and each debtor can be made to pay only his part Mancomunada, mancomunada simple, pro rata we promise to pay (by 2 or more signers and no other words used to indicate the character of the liability)

Solidary obligation is one in which the debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. Each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full. Mancomunada solidaria, joint and several, in solidum justos o separadamente I promise to pay (followed by the signatures of 2 or more persons) Individually and collectively

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Obligations and Contracts

Individually liable Individual and jointly liable debtor cannot refuse to pay the creditor who makes the demand by alleging that the he chooses to pay the other creditor

Joint character presumed when two persons are liable under a contract or under a judgment, and no words appear in the contract of the judgment to make each liable for the entire obligation, the presumption is that their obligation is joint or mancomunada, and each debtor is liable only for a proportionate part of the obligation. Effect of joint liability 1. the demand by one creditor upon one debtor, produces the effects of default only with respect to the creditor who demanded and the debtor on whom the demand was made but not with respect to the others 2. the interruption of prescription by the judicial demand of one creditor upon a debtor, does not benefit the other creditors nor interrupt the prescription as to other debtors 3. the vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or rights of others 4. the insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand anything from his co-creditors 5. in joint divisible obligations, the defense of res judicata is not extended from one debtor to another When solidarity exists

in case of doubt, solidarity should be favored, as it is more conducive to the fulfillment of the obligation

Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139) Joint indivisible obligation when there are several debtors, but the prestation is indivisible (e.g. delivery of a house), the obligation is joint, unless the solidarity has been stipulated. Its fulfillment requires the concurrence of all the debtors, although each for his part On the side of the creditors, collective action is expressly required for acts which may be prejudicial

2. 3. 4. 5.

when there is an express stipulation in the contract that the obligation is solidary, or words having the same effect as used when a charge or condition is imposed upon heir or legatees, and the testament expressly makes the charge or condition as in solidum when the law expressly provides for solidarity of the obligation of several obligors [check pp 220] when a solidary responsibility is imposed by a final judgment upon several defendants when the nature of the obligation requires solidarity

Plurality of creditors if there are several creditors and only one debtor, the obligation can be performed only by delivering the object to all the creditors jointly. A debtor who delivers the thing to one creditor only, becomes liable for damages because of non-performance to other creditors, unless they have authorized the formers to receive payment for all of them If only one or some of the creditors demand the prestation, the debtor may legally refuse to deliver to them; he can insist that all creditors together receive the thing and if any of them refuses to join the others, he may deposit the thing in court by way of consignation

an obligation is presumed to be joint unless solidarity has been agreed upon solidarity liability : articles 19-22, civil code Disjunctive obligations When there are two creditors designated disjunctively:

1. 2.

application of the rules of alternative obligation entitles the debtor to choose the creditor whom he would pay application of the rules of solidarity entitles either one of the creditors to demand full payment, and the

Interruption of Prescription an act which would ordinarily interrupt prescription, effected by one creditor or against one of the debtors is not valid and has no effect; as long as the obligation is joint, the act of one creditor cannot have any effect as to another creditor, because the credit of each one is

Janis Louis H. Esparcia


Obligations and Contracts

separate from the credits of others. [the act of one is ineffective] Plurality of debtors where the plurality of subjects is among the debtors, the indivisible obligation can be performed by them only by acting together. If any of the debtors is not willing to perform, the prestation is converted into an indemnification of damages. Passive Solidarity essence is that each debtor can be made to answer for the others, with the right on the debtor-payor to recover from the others their respective shares Effects: 1. 2. 3. each debtor can be required to pay the entire obligation; but after payment, he can recover from the co-debtors their respective shares the debtor who is required to pay may set up by way of compensation his own claim against the creditor (effect the same as payment0 the total remission of the debt in favor of a debtor releases all the debtors; but when this share affects only the share of one debtor, the other creditors are still liable for the balance of the obligation all the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of only one of them, or by fortuitous event after one of the debtors has incurred in delay the interruption of prescription as to one debtor affects all the others; but the renunciation by one debtor of prescription already had does not prejudice the others because the extinguishment of the obligation by prescription extinguishes also the mutual representation among the solidary debtors the interests due by reason of the delay of one of the debtors are borne by all of them

The obligation not to do when there are several debtors, is a joint indivisible obligation. Partial performance is equivalent to a total nonperformance

4. Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n) Indivisibility refers to the prestation which is not capable of partial performance, while solidarity refers to the legal tie or vinculum defining the extent of liability When there are various creditors or debtors, the obligation is joint even if performance is indivisible. Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140) Kinds of solidarity: 1. 2. 3. active one that exists among the creditors passive one that exists among the debtors mixed both on the part of the creditor and debtor



Terms and condtions:

legal bonds in solidarity may be uniform (debtors are bound by the same conditions and clauses) or varied (where the obligors, although liable for the same prestation, are nevertheless not subject to same terms and conditions) [check pp 229] Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a) each solidary creditor may interrupt prescription, constitute the debtor in default of bring suit so that the obligation may produce interest Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n) the solidary creditor is an agent of the others; hence,he cannot assign that agency to a third person without the consent of the other creditors. Mutual agency, which is the essence of active solidarity implies mutual confidence The law implies that since assignments cannot be made, it produces no effect whatsoever; the cocreditors and the debtors are not bound thereby, and the assignee cannot be regarded as a solidary creditor

Active Solidarity essence consists in the authority of each creditor to claim and enforce the rights of all, with the resulting obligation of paying everyone that belongs to him; there is mutual representation (hence, mutual agency) Effects: 1. 2. 3. 4. 5. 6. since it is a reciprocal agency, the death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together each creditor represents the others in the act of receiving payment, and in all other acts which tend to secure the credit or make it more advantageous. one creditor does not represent the others in such acts as novation, compensation, remission. the credit and its benefits are divided equally among the creditors, unless there is an agreement among them to divide differently the debtor may pay to any solidary creditor, but if a judicial demand is made on him, he must pay only to the plaintiff each creditor may renounce his right even against the will of the debtor, and the latter need not thereafter pay the obligation to the former

Janis Louis H. Esparcia


Obligations and Contracts

Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)

the solidary creditor are tacitly mutual representatives of each other for demanding payment. The equality of the rights of the solidary creditors by virtue of this mutual representation lasts only until one of them goes ahead of the others and sues the debtor. When one creditor makes a judicial demand, the tacit representation is by the other creditors is considered revoked, and during the pendency of the action, the creditors who did not sue lose their representation of others. Extra-judicial demand Extra judicial demand has the same effect as judicial demand in terminating the mutual representation among solidary creditors and concentrating the agency in the creditor who made the demand.

Demand by several creditors if all or several solidary creditors demand payment separately, the debtor should pay to the one who first notified him. If the creditors demand at the same time or collectively, the debtor preserves his right to choose and may pay anyone of those demanding payment

Mixed solidarity when one creditor makes a demand upon one of the debtors, the latter cannot pay to any other creditor but one who made the demand Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) The debtor who effects the novation cannot, by himself, bind the others to a new debt without their consent

Novation - the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party GR: the mere extension of time for payment given by the creditor to a solidary debtor does not release others from the obligation.

Janis Louis H. Esparcia


Obligations and Contracts

Dation in payment: the delivery of a specific object as a substitute for the performance of the obligation. If it is not immediately effected, but it is in the form of a promise, it amounts to a novation. Distinctions: 1. 2. 3. a solidary debtor is liable not only for his co-debtors obligation but also for his own (both a principal debtor and a surety) a solidary debtors responsibility for his co-debtor is primary, not subsidiary an extension of time given by the creditor to a debtor would not release a solidary co-debtor but would release a solidary guarantor or surety

Merger and compensation: when the merger and compensation is partial, and there is doubt as to what part of the debt it should be applied, the rules on application of payments shall apply.

Remission: when one creditor makes a remission, it extinguishes the obligation in the amount and to the extent in which it is made; but the co-creditor who made the remission becomes liable to his co-creditors for his share. [check pp 239] Effects of the acts - considered from 2 aspects:



the relation between the creditors and debtors any of the acts will extinguish the obligation, so that no creditor may thereafter sue any debtor (except in novation, where there may be no change or only partial change of the parties); as among creditors the act of any one of them in extinguishing the obligation with respect to the debtor or debtors does not prejudice the rights of the other creditors to recover their respective shares from the creditor who effected the acts the relations among debtors themselves - the codebtor as to whom the obligation was extinguished cannot recover from his other co-debtors more than their respective shares in whatever he may have given up or lost as the consideration for the extinguishment of the obligation

article applies only to solidary obligations, not to joint ones the solidary debtors may be sued simultaneously in one suit or successively in different actions the judgment adverse to a solidary creditor can be set up against the other co-creditors in subsequent actions unless it is founded on a cause personal to the plaintiff in the first action Exception: the co-creditors are not affected if the judgment is based on a cause personal to the plaintiff If the one of the solidary debtors is insolvent, the other debtors can still be sued until the debt is paid


judgment against one debtor cannot be enforced against the others; a new action must be filed against the latter

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a) Passive Solidarity and Suretyship Similarities: 1. 2. a solidary debtor, like a surety, stands for some person both debtor and surety, after payment may require that they reimbursed

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

Janis Louis H. Esparcia


Obligations and Contracts

Payment by one of the solidary debtors and his subsequent release from liability results in the release from liability of the other debtors to the creditor. When a solidary co-debtor pays the entire obligation there is no real case of subrogation, because the original obligation is extinguished and a new one is created. If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded his share of the obligation. When a solidary debtor pays the entire obligation, the resulting obligation of the co-debtors to reimburse him becomes joint. If one cannot pay because of insolvency, and cannot pay his share in the reimbursement, the others (including the one who paid) shall bear such share proportionately. Art. 1218. 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. (n) After the obligation has prescribed or has become illegal, it is no longer due, and none of the solidary debtors can be compelled by the creditor to pay. If one of the debtors actually pay such an obligation, he does not thereby revive the as the codebtors; hence they cannot be made to pay anything to the debtor who has paid. Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a) Applies to a case where a co-debtor has already paid the obligation in full when the remission of the part affecting another debtor is made. To exempt the co-debtor whose part is thus subsequently remitted will give way to fraud. After one solidary debtor has paid the entire obligation, it is extinguished, and there is nothing more to remit, even partially. After the creditor has made a remission of the share of one solidary debtor, the credit will be limited to the balance [check pp 246] Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n) Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the Defenses inherent in obligation [those connected with the obligation and are derived from its nature; constitute a total defense] 1. 2. the non-existence of the obligation because of illicit cause or object, or absolute simulation nullity due to defect in capacity or consent of all debtors, such as minority, fraud or violence payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a) Effects provided for in the article is limited to the case of non-performance because of the loss of a thing or impossibility of the prestation that is due. If the loss or impossibility is due to fortuitous event, without fault or delay on the part of any debtor, then the obligation is extinguished; no debtor can be held liable for damages. If the loss or impossibility is due to the fault of any solidary debtor, or due to fortuitous event after a debtor has incurred in delay, the obligation is converted into an obligation to pay indemnity, consisting of the price, damages and interest. If the thing is not lost or the prestation has not become impossible, but there is delay, fraud, fault or negligence, or some other breach of the obligation, the creditor may also recover indemnity of damages from any of the solidary debtors. When there is loss or impossibility of performance the guilty debtor bears the entire burden of the indemnity Where there is no loss or impossibility of performance even the debtors who are free from delay must bear a part of the price of thing, but the guilty debtor shoulders the damages exclusively. Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a)

Defenses of solidary debtor: 1. defenses derived from the nature of the obligation defenses personal to the debtor-defendant 3. defenses personal to the other solidary debtors

Janis Louis H. Esparcia


Obligations and Contracts

3. 4. 5. 6. unenforceability because of lack of proper proof under the statute of frauds non-performance of suspensive condition or nonarrival of period affecting the entire obligation extinguishment of the obligation all other means of defense which may invalidate the original contract from which the right of action of the creditor against the debtor arises (res judicata, prescription, etc.] Solidarity
Refers to the vinculum and therefore principally to the subjects of the obligation Requires plurality of subjects Solidarity remains even when there has been non-performance and the debtors become liable for damages Death of the debtor terminates the solidarity which is not transmitted to the heirs

Refers to the prestation or the object of the obligation Not required When the indivisible obligation is converted into one to pay damages, the reason of the indivisibility ceases to exist, and each debtor becomes liable for his part of the indemnity Affects the heirs of the debtor in that they remain bound to perform the same prestation

Defenses personal to the creditor may be partial or total such as minority, insanity, fraud, violence or intimidation SECTION 5. - Divisible and Indivisible Obligations Art. 1223. 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. (1149) Divisibility of things a thing is considered indivisible when, if divided into parts, its value is diminished disproportionately. May be qualititative (the thing is not entirely homogeneous, such as inheritance) or quantitative (parts in themselves may be separated) or ideal (when parts are not separated in a material way, but they are assigned to several persons to the undivided portions pertaining to them such as co-ownership) Divisible obligation one which is susceptible of partial performance; the debtor can legally perform the obligation by parts and the creditor cannot demand a single performance of the entire obligation. Indivisible obligation when it cannot be validly performed in parts. Divisibility or indivisibility - refers to the performance of the prestation and not to the thing which is the object thereof.

Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. The divisibility of the object does not necessarily determine the divisibility of the obligation. The test of divisibility of an obligation is whether or not it is susceptible of partial performance. The obligation may be indivisible by reason of the provisions of the law, of the express will of the parties, or of their presumed will, shown by the relation of the distinct parts of its objects, each of which may be a necessary complement of the others, or by the purpose of the obligation which requires the realization of all the parts. Factors considered to determine whether an obligation is divisible or not: 1. 2. 3. 4. the will or intention of the parties, which may be expressed or presumed the objective or purpose of the stipulated prestation the nature of the thing the provisions of the law affecting the prestation

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150) In case of non-performance by any of the debtors, the obligation is converted into a liability for losses and damages. If one of the debtors is insolvent or fails to pay his share, the others will not be liable for his share. Damages can be recovered from the debtor who failed to perform. The entire liability for other damages is shouldered by the defaulting debtor. Solidarity and Indivisibility: Distinctions

in indivisible obligations, partial performance is equivalent to non-performance, exceptions: 1. where the obligation has been substantially performed in good faith, the debtor may recover as if there had been complete performance, minus the damages suffered by the creditor (art. 1234) when the creditor accepts performance, knowing its incompleteness and without protest


divisible and indivisible obligations are not necessarily identical to severable and entire contracts; whether a contract is entire or severable depends in general upon the consideration to be paid, not on its object.

Janis Louis H. Esparcia


Obligations and Contracts

If consideration is single entire If consideration is expressly or by implication apportioned severable If the contract is severable and one part is illegal the part which is illegal is void and cannot be enforced, but that part which is legal is enforceable when the penalty stipulated is not contrary to law, morals, or public order, it must be enforced against the party liable. Damages besides penalty (where damages and interest may be recovered): 1. 2. 3. when there is express provision to that effect when the debtor refuses to pay the penalty when the debtor is guilty of fraud in the non-fulfillment of the obligation

SECTION 6. - Obligations with a Penal Clause Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a) Penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance. Generally sum of money but it can also be any other thing stipulated by the parties (including an act or abstention) Double function: 1. 2. to provide for liquidated damages to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach

enforcement of the penalty can be demanded by the creditor only when the non-performance is due to fault or fraud of the debtor. Non-performance gives rise to the presumption of fault Debtor has burden of proving an excuse due to force majeure or to the acts of the creditor himself. The principal obligation may be joint, and yet the penalty may either be joint or solidary, depending upon the agreement of the parties. Distinguished from conditional obligations Conditional obligations
There is no obligation before the suspensive condition happens; it is the fulfillment of the condition which gives to the obligation Principal obligation is dependent upon an uncertain event

Obligation with a penal clause

there is already an existing obligation from the very beginning (the principal obligation) It is the accessory obligatin (penalty) which is dependent upon non-performance of the principal obligation

may be: 1. subsidiary or alternative non-performance, only the penalty is asked joint or cumulative both the principal undertaking and the penalty may be demanded


Distinguished from alternative obligations Alternative obligations

Two or more obligations are due, but fulfillment of one of them is sufficient The impossibility of one of the obligations, without fault of the debtor, still leaves the other subsisting The debtor can choose which prestation to fulfill

purpose: 1. 2. punishment the question of indemnity for damages is not resolved but remains subsisting reparation the matter of damages is generally resolved, and it represents the estimate of the damages that a party might suffer from nonperformance of obligation

Obligation with a penal clause

There is only one prestation and it is only when this is not performed that the penal clause is enforceable Impossibility of the principal obligation extinguishes also the penalty The debtor cannot choose to pay the penalty to relieve himself of the principal obligation, unless that right is expressly granted to him

the mere non-performance of the principal obligation gives rise to the right to penalty there is no difference between a penalty and liquidated damages; treated as the same legally the creditor cannot recover more than the penalty stipulated, even if he proves that the damages suffered by him exceed in amount of such penalty

Distinguished from facultative obligations

Janis Louis H. Esparcia


Obligations and Contracts

Facultative obligations
Power of the debtor to make substitution is absolute Creditor can never demand both prestations

Obligation with a penal clause

Payment of the penalty in lieu of the principal obligation can be made only by express stipulation Such may be granted to the creditor

as a rule: the creditor cannot demand performance of the principal obligation and the penalty at the same time Exception: 1. 2. the creditor may enforce both the principal obligation and the penalty when this right is clearly granted to him where the creditor has demanded fulfillment of the principal obligation but it cannot be performed; in this case, he may then demand penalty

Compared with guaranty (guaranty is a contract by virtue of which a third person, called the guarantor, binds himself to fulfill the obligation of the principal debtor in case the latter fails to do so) Similarities: 1. 2. both intended to insure the performance of the principal obligations both accessory and subsidiary obligations

Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n) Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a) Partial or irregular performance refers to the extent or quality of fulfillment; irregular, to the form the power of the judge to reduce penalty refers only to penalties prescribed in the contract; it does not cover taxes that are due the amount of the penalty is not determined by the injury suffered by the creditor, but by what has been agreed upon by the parties who are free to determine such amount when the penalty is contrary to morals or good customs, it may even be entirely voided the interest of the creditor includes which are intangible and not subject to concrete proof, such as the sentimental value which he attaches to the performance of the obligation the penalty may be reduced in instances where it is out of proportion to the actual damage cause by the non-performance or improper performance of the contract the penalty is not enforceable when the principal obligation becomes impossible due to fortuitous event, or when the creditor prevents the debtor from performing the principal obligation purpose of the penalty: 1. to compensate for damage to guarantee performance of the contract]

Differences Guaranty
Object of the obligations of the principal debtor and the guarantor is the same The principal debtor cannot be a guarantor of the same obligation Guaranty subsists even when the principal obligation is voidable or unenforceable or is a natural one

Obligation with a penal clause

The obligation to pay the penalty is different from the principal obligation Principal obligation and the penalty can be assumed by the same person Penalty is extinguished by the nullity of the principal obligation, except when the penal clause is assumed by a third person

if the penal clause is assumed by a third person, the same principle will apply as the case of a guaranty

Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a) Right of Debtor as a rule, the debtor cannot avoid performance of the principal obligation by offering to pay the penalty


Exception: the right to substitute the penalty for the principal obligation may be expressly granted by the creditor to the debtor Right of Creditor

Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause. (1155)

Janis Louis H. Esparcia


Obligations and Contracts

general rule: the nullity of the principal obligation also nullifies the penal clause which is only an accessory to the principal obligation Exceptions (the penal clause subsists even if the principal obligation cannot be enforced): 1. when the penalty is undertaken by third person precisely for an obligation which is unenforceable, voidable, or natural, in which case it assumes the form of a guaranty which is valid under article 2052 when the nullity of the principal obligation itself gives rise to liability of the debtor for damages (such as when the vendor knew that the thing was inexistent at the time of the contract so the vendor becomes liable for damages


Nullity of Penal Clause: the penal clause may be void because it is contrary to law, morals, good customs, public order, or public policy the principal obligations subsist if valid in case of non-performance, the damages shall be determined by the same rules as if no penalty had been stipulated

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Janis Louis H. Esparcia