TranscriptionOBLIGATIONS AND CONTRACTSAtty. Valencia

Nov. 5, 2015

OBLIGATION- is the juridical necessity to give, to do and not to do.

4 Elements of Obligation1. Active Subject2. Passive Subject3. Object/ Prestation4. Juridical Time/ Vinculum

Ex: “X obliged himself to pay P100,000 to Y by virtue of a contract of loan signed by X.”Y= creditorX= debtorTo pay the sum of P100,000= object/prestation (Real Obligation)Contract of X and Y= Juridical Tie

1. Active Subject -The person who can demand the fulfilment of the obligation

- creditor / obligeeo who usually takes the initiative in the

fulfilment of the obligation

2. Passive subject -The person who can be compelled to comply the obligation

-debtor/ obligoro The debtor is passive because he even

want to forget the obligation or simply wait for the creditor to demand the obligation

3. Object or prestation - e.g. to pay a sum of money- Subject/ Prestation is classified into

two:1. Real Obligation =to give2. Personal Obligation

=to do or not to do

Real Obligation classified into two:

1. Specific/ determinate thing2. Generic/ indeterminate thing

o Specific/ determinate thing -the object is identified and separated from a class

o Generic/ indeterminate thing -there is a law as to how a generic thing be complied with. The law provides that the debtor or the obligor cannot deliver an object which is of inferior quality. Neither can the creditor also demand an object which is of a superior quality.

Personal Obligation -a capacity (to do/not to do)1. Negative =not to do2. Positive =to do

Juridical Necessity - non-fulfilment of the obligation will give the creditor the right to go to court and demand for fulfilment or damages.

-It can be enforced by going to court- There are civil obligations

4. Juridical Tie/ Vinculum-the tie that binds the debtor and creditor-we relate this to the “sources of the obligation”

The 5 Sources of Obligation1) Law 2) Contract 3) Quasi-Contract

4) Delict 5) Quasi-delict

I. Law

e.g. The rights and obligations of spouses, that the spouses have obligation for mutual support. So if the husband abandons the wife and the wife needs support, the wife can file an action in court demanding support from the husband. The basis of the obligation is the LAW. It does not require any agreement or contract between the spouses. It is not necessary because the law already provides.

e.g. When the wife is admitted in the hospital to deliver a child and the hospital now demands payment for the bill. The hospital demanded the payment to the parents-in-law because they were the one who brought the wife to the hospital. The parents-in-law are not obliged to pay because under the law, it is the husband where the hospital can demand payment.

“Obligations derived from law should not be presumed”- If the creditor files an action and he

raises a law, then he has to POINT OUT A SPECIFIC PROVISION OF LAW, CLEARLY STATING HIS RIGHT.

Question:

Can an employee demand a reimbursement from his employer for the expenses he has incurred in the performance of his duties?

-NO, because there is no law requiring an employer to provide legal assistance to the employee.

Can an employee file an action in court or in the Dept of Labor to demand an employer that he should be given sick leave and vacation leave?

-NO, because there is no provision in the Labor Code giving the employee such rights. The Labor Code only provides the employees a 5-day service incentive leave.-However, there is a principle in Labor Code that once a the benefit has been granted, then that cannot anymore be taken away. So if the employer has been already given sick leave and vacation leave, then there is a principle of non-diminution of benefits.

II. Contracts -A meeting of the minds, where a person binds himself with respect to the other to give something or to render some service. -There has to be agreement

Elements of Contracts1) Consent2) Object3) Consideration

-most of the obligations are derived from contract

“A contract is the law between contracting parties and must be complied with good faith”

The moment the parties have entered into the contract, the terms and conditions of the contract becomes the law between them. It means the parties are obliged to comply with its terms and conditions.

Question: Is the LAW inferior of that of CONTRACT?-NO, because if you enter into a contract, the provisions of law become part of the contract.

(e.g. contract of marriage)

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-there is also a clause which states that, “the contracting parties may establish terms and conditions as it may deem convenient provided they are to contrary to law, morals, good customs, public order, public policy.”

-You have the freedom to stipulate or agree whatever you like. But the contract may only be binding if the terms and conditions are not contrary to law, morals....”

-LAW is therefore superior.

III. Quasi- Contract -The concept of quasi-contract is based on the principle that “no one shall unjust himself at the breach of another”

-There is really no contract at all because there is no meeting of the minds.

-It is a relation between a debtor and a creditor which results from a lawful, voluntary and unilateral act on the part of one person that it results to a situation where one will enrich himself at the expense of another.

e.g.o Negotiurum gesture o Solutio Indebiti /Undue payment

IV. Delicts/ Crimes -acts or omissions punished by law-crime

“a person who is criminally liable is also civilly liable”

Civil liabilities arising from commission of the crime1) Restitution2) Reparation3) Indemnification for damage causes

So if one is convicted by a crime of debt, aside from imprisonment the court will require restitution/ reparation/ damages.

V. Quasi-Delicts/ Negligence -torts and damages-no commission of crime because when you talk of crime there is a voluntary act. Here, the source of obligation arises from the act of negligence.

If asked what are the Two (2) Sources of Obligation:1) Law2) Contracts

Because they 3 are already provided for by LAW.

Nov. 7, 2015

We divided our course into Part 1 for Obligations and Part 2 for Contracts.

So if you are to differentiate Obligations from Contracts. Obligation is broader term than Contract because the latter is just one of the sources of Obligation.

CONTRACT

-it requires a meeting of the minds between two person wherein by one binds himself with respect to the other to give something or to render some service.-it results to Obligation-even though it is presumed to be the Law of both parties and must be complied with good faith, it does not make the Law inferior to Contract. Because if you have a Contract, all provisions of the Law relating to the Contract will become partTerms and Conditions (in a Contract)

-is what considered as the Law between the parties

There are limitations between the power of the party to stipulate. They are only binding if they are not contrary to Law, Public Policy, Public Order, Morals and Good Custom.

Quasi-Delict-it is not intentional-the reason why a person is liable under quasi delict is when he is guilty of negligence.- If such act or omission on the part of a person where Negligence can be attributed to him and if it results to damage and injury to another, then he can be held liable.-under the law it is an act of fault and negligence or it could be an act or omission which causes damage to another then being no pre-existing contractual obligations between the parties, because if there is contractual obligation between the parties, the source of obligation will be Contract.

-If for example one passenger of a taxi and he suffers an injury by reason of negligence of the driver. Now there are different causes of actions available to the passenger. One basis of an action of a passenger is based on Contract. It can be based on Contract because there is Contract between a passenger and the operator if the taxi. So if the passenger who suffered an injury who’d like to file an action, a case against the operator of the taxi then his cause of action is breach o contract. This is because the contract there is between the passenger and the operator of the taxi.-But if the taxi which is previously given by the driver bumps someone as he runs over a pedestrian and thus causing injury, the liability of the driver there is quasi delict. This is because there is no contract between the driver and the injured party. There is no pre-existing contractual obligation but by reason of fault or act of negligence that caused damage and injury to the person. So if there is injury sustained by the person (pedestrian) then he has a cause of action against the driver.

Negligence-According to Civil Code, it is the omission of that diligence which is required by the circumstances of a person, time and place.-According to Supreme Court, negligence is the failure to observe for the perfection of difference of another person, that degree of care, precaution and vigilance which the circumstances demands and such other person suffers injury. -The test of determination so he cannot be considered guilty of negligence= THE TEST OF DILIGENCE (prudent in actions)

CHAPTER 2 NATURE AND EFFECTS OF OBLIGATIONS

Real Obligation- Obligation to give. Object could be a “Specific” or “Generic” thing.

Art. 1163-the provision of this article refers to an obligation specific or determinate thing.

In a case with an obligation with a period, for example, I obliged myself to deliver my car to X on December 21, 2015. That is an obligation with a period. But the obligation is not demandable yet. If I obliged myself to deliver my car today, but the creditor can only demand the payment on December 21, 2015 since it is an obligation with a period. And so between now and December 21, how can be the creditor be assured that that specific thing that I obliged to deliver will really be delivered because you know, many things can happen between now and December 21. So to ensure that the interests of creditor will be protection, there you have Article 1163.

Art 1163 says: “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.”

So in other words while this specific thing is still in the possession of the debtor, he is already obliged under the law to take care of that thing. So what is the standard of care that should be observed, it is ORDINARY DILIGENCE.

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The diligence of a father in the family is what is referred as ORDINARY DILIGENCE. The debtor is required to observe such diligence so that when the moment the period arises or the condition happens, he will still be able to deliver an object in the same condition at the time when he obliged himself to deliver.

The general rule is that, if the obligation did not say what degree of diligence is required, the debtor has to observe ordinary diligence. But there are two exceptions:

1. Unless the law provides 2. Unless the stipulation of the parties requires.

So it is possible that the law will require “extra-ordinary diligence” such as that of a contract of a common carrier which the law expressly requires “extra-ordinary diligence”.

Extra- ordinary diligence – using the utmost diligence of a very cautious person.

-In terms of Generic thing- the creditor is protected in the sense that if the debtor is obliged to deliver a car and the car is destroyed, he can still be compelled to deliver another car because genus does not perish.

Article 1164

-also refers to deliver a specific thing. -When you have an obligation which is constituted today, but the fulfilment of the obligation is on a later date because it is an obligation with a period or an obligation subject to a suspensive condition. But when the obligation does not have a term or does not impose a condition then that is what we call a Pure Obligation which is demandable immediately by the creditor.

-If it is an obligation that the fulfilment is on a later day, what will now happen with respect to the fruits of the thing during the pendency or prior to the time the obligation to deliver arises?

The creditor has the rights to the thing from the time the date to deliver arises. However, he shall acquire no real right over it until the same is delivered to him. It means the creditor is entitled to the fruits of the thing upon the moment to deliver arises.

-So when will the obligation to deliver arise? And from what point in time the creditor can legally demand from the debtor the fulfilment of the obligation?

-It depends on what kind of obligation is constituted.

-If it is a pure obligation where there is no term and no condition= immediately demandable. -If it is an obligation with a period= upon the arrival of the period.-If it is an obligation with a condition= upon the happening of the condition.

-In an obligation without a period, before the delivery, the creditor has a Personal Right to the fruits.

Personal Right- it is a right he can enforce upon a particular person. He can enforce that right against the debtor

But if the obligation is subject to a period that a delivery is on for example Dec. 31, 2014. And if a puppy is born on December 1, 2014, does the creditor has a right over the puppy? The answer is NO because the law says the creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. So in this kind of obligation with a period, when will the obligation to deliver arise? So on Dec 1, the debtor is the owner of the puppy. But when subsequent to December 31, let us say January 1, it is now the creditor. But what kind of right does the creditor have? It is only a personal right. He can enforce it only to debtor, which means to say that when debtor sold the puppy to another person, does the creditor demand that puppy from Z? No because what the creditor acquired only is a personal right and he can only it against the debtor. So if the creditor cannot anymore give him the puppy, the debtor is liable. Again as what the rule said, the creditor can only acquire a REAL RIGHT until the same has been delivered to him.

Real Right- enforceable against the whole world. That means he can enforce that right against anybody.

So delivery of an object results to transfer of OWNERSHIP. But prior to the delivery, then the right of the creditor can only be enforced against the debtor because he only has a personal right. And prior to the time the obligation to deliver arises, the creditor has no right.

ObliCon November 9, 2015

We divided the course into obligations and contracts.

The term obligation is broader than contract because contract is just one of the sources of obligations.

So if you have a contract it results to an obligation.

An obligation does not necessarily require a “meeting of the minds”; the other sources of obligation which are law, quasi-contract, quasi-delict, and crime, do not require consent of the parties.

While the contract, a source of obligation, always presupposes a meeting of the minds. That is why we said that there are 3 essential elements of a contract and these are:

1. Consent2. Object3. Cause or consideration

When we classify contracts according to whether the law has given a specific name to it, we classify contracts as Nominate Contracts and Innominate Contracts; so you would notice if you look into the provisions of the Civil Code there are provisions on specific kinds of contracts. So what we are discussing here are just the general principles of contracts; but in other chapters of the civil code, you have contracts which are given specific names, such as:

Contract of sale Contract of partnership Contract of mortgage Contract of loan

You have specific names given to certain contracts. So if the law has given a specific name to a contract, we call this contract NOMINATE CONTRACT.

Now since contract is defined as “the meeting of the minds whereby one person binds himself to the other to give something or render some service” it could be possible that the agreement of the parties is not covered part of a specific contract to which the law has a given a name; and so these are what we call INNOMINATE CONTRACTS-contract where the law has not given any specific name. It could be:

1. Du ut des- In the nature of “I get, that you may give” (although some said this is actually similar to the contract of barter where the law has given a particular name)

2. Du utfacias- in the nature of “I give that you may do”. So in an agreement for example, that one is willing to pay a sum of money for a person to perform a service, so it in the nature of du ut facia

3. Faciout des- “I do that you may give” let’s say an interpreter, would enter into a contract that he will agree to interpret and the other must pay him for his services.

4. Facioutfacias- “I do that you may do”

So these are what are referred to as INNOMINATE CONTRACTS.

Quasi-contracts- it is a juridical relation resulting to a lawful, voluntary, unilateral act, and which has for its purpose payment for indemnity that no one shall unjustly enrich himself at the expense of others.

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-Negotiorumgestium- based on the principle that no one should unjustly enrich himself at the expense of another

Quasi-delict- there is fault or act of negligence where one did not observe the diligence required of him, it causes damage or injury to another where THERE IS NO PRE-EXISTING CONTRACTUAL RELATION bet the parties.

In relation to the nature and effects of an obligation, we said that we have to classify an obligation to give

1. Specific2. Generic

Now in relation to an obligation to deliver a specific thing, what is required of the debtor while he is in possession of the object of the specific thing, prior to the time that the obligation to deliver arises?

GR: He is to observe ordinary diligence, which is the diligence of a good father of the family.

EXCEPTIONS: when EXTRAORDINARY DILIGENCE is required by

1. Law 2. Stipulation of a contract

So if there no law, or there is no stipulation by the parties of the contract, then the standard of care observed is ordinary diligence.

So if you are therefore, drafting a contract and it involves an obligation to deliver A SPECIFIC THING, and your client is the creditor, how will you fully protect your creditor?

-then you state in the contract that the debtor is required to observe extraordinary diligence.

But if you are drafting a contract for the debtor, what would be your action as far as the degree of diligence?

-do not state anything about the type of diligence required!! Do you get me? Because if you are only silent as to the degree of diligence then your client is only required to observe ordinary diligence.

Accession v accessory

For example if you have a parcel of land, what could be considered as an accession to that parcel of land?

*alluvium- when there is an increase in the area of the land that becomes part of the principal object.

How about if you have a carrrrrr? HAHAHA what could be an accessory to a carrrrr?

-that which is for is better use or enjoyment so, what?

*the jack to a car is an accessory

What is the rule on accessions and accessories in relation to obligations to deliver a specific thing?

*debtor is obliged to deliver the accessions and accessories even if it is not mentioned. But there is no prohibition for a stipulation to the effect that it will be excluded; it will only be included if it is not mentioned, if it is silent about it.

-Let us say for example, that the obligation is to deliver a specific parcel of land. So X obliged to deliver Y his parcel of land. Now, it turned out that there is a house standing in that parcel of land, when the obligation now becomes due, can the debtor now say that in our agreement, it is not stated that the building will also be part of what he is supposed to give, so the debtor now, would demolish the building because he wants to make use of the materials of that building. Is the action of the debtor there correct? Or should the debtor be compelled to deliver the house also?

-what if the debtor does not want to include the building in the delivery? What will you advice your client?

*you have to advice you debtor-client that he should exclude the house in the stipulation.

What are the rules on delivery of a specific thing with respect to who will be entitled to the fruits during the time when the object is not yet delivered to the creditor?

*the law says that the creditor shall have the rights to the fruits from the moment the obligation to deliver arises; however, he shall not acquire any real right over them until the same is delivered to him.

*he has the right over the fruits not from the time the contract was constituted, but from the time the obligation to deliver arises.

So when will the obligation to deliver arise? When is the debtor obliged to deliver?

*depends on the kind of obligation

So what are the kinds of obligation which will be the bases as to when the obligation to deliver arises?

*pure obligation- no term, no condition, demandable immediately.And since it is demandable immediately, so the obligation to deliver arises upon the perfection of the obligation. So if it is a pure obligation, from that time, the debtor is already obliged to give the fruits to the creditor.

*obligation with a period- upon the arrival of the period

*obligation subject to a condition- upon the happening of the condition

When the obligation deliver arises, what kind of right does the creditor have, in relation to the fruits?

*Personal right- creditor can only enforce his right against the debtor.

When will the creditor acquire a real right over the fruits?

*when there is already delivery

Real right- results to a right of ownership; therefore, enforceable against the whole world; not only as against the debtor, but against anybody

Ex: Sam is obliged to give Ben♥on Dec 1, 2014 a particular parcel of land. So you have here an obligation to deliver a specific thing- a particular parcel of land. Prior to Dec 1 that was the time when the parties agreed that Ben has no right over the fruits. From the moment the obligation to deliver arises, the creditor Ben is already entitled, as a matter of right, to the fruits, which he can enforce only as against Sam. When the obligation becomes due on Dec 1, 2014, the debtor may not have yet delivered the land. so in this case, the delivery was made only on dec 15. So what is the effect of the delivery of the land, whether the delivery was actual or constructive? So from dec 15, Ben already becomes the owner of the land as well as the fruits. And so he has already as of dec 15 acquired a real right over the land as well as the fruit so he can enforce that right against anybody. So that if Sam, sold the fruits to a 3 rd person , Y, Ben has a better right because he has already become the owner; and so he can enforce the same not only against the debtor Sam but also against any other person.

It says here that the delivery which will transfer ownership could either be actual or constructive.

Actual- physical transfer of the object Constructive- delivery is effected without physically

transferring the property; physical transfer is impliedo Traditiosimbolica- like how would you deliver a car

without physically giving it- you give the key.o Traditio longa manu- debtor points to the object o Traditiobrevimanu- in the case for example of a

contract of sale is entered into but the object of the sale is already the subject of a contract of lease. So if you have a contract of lease, it is the opposite of constitutuumprosesorium. So let us say for example that one is a tenant, a lessee of a particular parcel of land. so he is IN POSSESSION of the land as a lessee.

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That lessee, bought the land from the lessor. So he is already in possession of the land as lessee, when he buys that land from the lessor, delivery is by way of traditiobrevimanu: from the possession of the land in the concept of a lessee, there is a considered delivery of that land by the seller as the lessor, because the lessee now is still in the possession of the land but now in the concept of an owner. So that now constitutes as a delivery by contract of sale.

o Traditioconstitutuumpossesorium- in this case, the owner of the land who is also in possession of a parcel of land, sells the the land to a 3rd person. But when he sold the land to a buyer, he also entered into a contract of lease with the buyer, this time, instead of an owner, he now occupies the property as a lessee. So in the contract of lease there is already a delivery by way of constitutuumpossesorium.

o Tradition by execution of legal forms and solemnities- like, the object of the contract of lease is a parcel of land and the seller executed a deed of absolute sale over the parcel of land which is the subject of the sale. When the seller delivers the deed of absolute sale to the buyer, that can already be construes as constructive delivery of the land by the delivery of the document evidencing the sale.

Next article

So if it is an obligation to deliver a specific thing, then the right on the part of the creditor is to demand from the debtor that the very object agreed upon will be delivered. Demandable against the debtor himself only bec he is the one in possession of that specific object of the obligation.

What if generic thing?

The obligation on the part of the debtor is he can comply with the obligation by giving any object which belongs to the same class.

And for the purpose of complying with that obligation, under the second paragraph, the creditor may ask that the obligation be complied with at the expense of the debtor.

The law provides that in addition to the right to demand specific performance, failure on the part of the debtor, after the demand has been made, will hold the debtor liable to pay damages.

So in case of delay, the debtor can be held liable for damges. However for the debtor to be liable for damges, the delay should be a legal delay.

When is debtor considered to be in legal delay?

-when there is already demand

-mere arrival of the period does not make the debtor in default/delay. THERE HAS TO BE DEMAND.

-NO DEMAND, NO DELAY.

-demand can be judicial or extra-judicial. When you say judicial you go to court. When you say extra-judicial you can send a demand letter.

Why is it impt to ascertain whether the object of the obligation is a specific or generic thing?

-due to the effect of the loss due to a fortuitous event, which is an event, which cannot be foreseen, or if foreseen, is inevitable.

And so, by the nature of the fortuitous event, the general rule is, obligation is extinguished and no one can be held liable for loss due to a fortuitous event. However this rule is applicable only to an obligation to deliver a specific thing.

But if the obligation is generic, obligation is not extinguished because genus does not perish.

Under the last paragraph there are 2 exceptions on the general rule that no one can be held liable for the loss due to a fortuitous event:

1. If debtor delays. Meaning, debtor, despite the demand he failed to deliver, and subsequent to that demand the object is destroyed due to a fortuitous event.

2. If the debtor promised to deliver the same thing to 2 or more persons who do not have the same interest- this shows BAD FAITH on the part of the debtor.

Remedies of the creditor if the debtor fails to comply with the obligation:

1. Specific performance of the obligation2. Demand for the rescission or cancellation of the obligation3. In either case, he can demand for damages.

Effect of a fortuitous event:

1. If object is specific- obligation is extinguished2. If object is generic- obligation is never extinguished

If there is an obligation with a period that deliver be made on Nov 8 then on that date, debtor did not deliver, but creditor did not also demand for delivery, is the debtor in legal delay or ordinary delay?

-only ordinary delay.

However on nov 10, which is after the due date nov 8, the specific car was destroyed by an earthquake, is the debtor liable?

-no, because he is only in ordinary delay. Apply the general rule.

There is ordinary delay if there is merely a non-performance of the obligation at a stipulated time.

There is legal delay which amounts to a virtual non-fulfilment of the obligation when there is a demand.

*interest starts to run from the time demand is made. That is precisely why it is impt to make a demand. Do not just rely on the demand when you file the case in court. Because if prior to the filing of the case in court, you already sent a demand letter and there was still non-compliance of the obligation, the interest will already start to run from the time you sent the demand letter. But if you did not send any demand letter, you immediately filed a case in court which constituted the demand, then the interest will start to run from the time of the filing of the case.

*for purposes of evidence in court, you send a WRITTEN demand. Because if it is just a verbal demand, it is difficult to prove.

Latin term for delay is “mora”

We go now to Personal Obligations

a person who fails to do something, the same shall be executed at his cost. The 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. So these give us the remedies of the creditor if the debtor fails to do in a personal obligation.

So there is this case cited by your author involving a typewriter. (basahinnalangsa book parangawa)

What has been poorly done be undone- very common in constructions

Or in a negative personal obligation, like in the obligation NOT TO fence portion of your land, if the debtor violated such and constructed a fence, the creditor can demand that the fence be removed at the expense of the debtor.

Instances where debtor can be considered in delay even when there is no demand (exceptions to no demand, no delay):

1. When obligation or law expressly so provides-what lesson do we get out of this? If you are the creditor, stipulate in the contract that the debtor can be in delay even without a demand.

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-For example in a contract of lease: you have a stipulation as to when the payment is made. “Monthly rental shall be paid by the debtor on the first day of every month”. If it simply says “rental is payable on the first day of every month”, when will the lessee be in default if he does not pay the rental? Only upon demand.- if you are the lessor you must stipulate “without need for any demand” -other exception is when law expressly provides. Like payment of taxes. How do we know that there is no need for any demand? Because the law so provides that if you do not pay on the said dates then you are already liable to pay surcharge and interest.

2. When the nature of the circumstances of the obligation it appears that the designation of the time that the thing is to be delivered or services is to be rendered is the controlling motive for the establishment of the contract (time is of the essence)-wedding dress-delivery of the materials to be used for the burial of a deceased.

3. When demand would be useless-there is already bad faith on the part of debtor-ex: debtor obliged to give his car to y on dec 9. Prior to the said date debtor sold his car to another. So on dec 9 he wasn’t able to deliver the car. The creditor did not demand. Is the debtor considered in default even if creditor did not demand? Yes! Because demand is useless because even if you demand a thousand times, he cannot anymore comply with the obligation, considering that he has already sold the car to somebody else.

4. Rule in reciprocal obligations-like in a contract of sale, both the vendor and vendee have obligations to perform. The seller has the obligation to deliver and transfer ownership, the buyer has the obligation to pay the price. So when do we consider, a party in default in a reciprocal obligation? The law provides that in such obligation 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 fulfils his obligation, delay by the other begins. So seller is not in default if buyer cannot pay or is not ready to pay. Buyer is in default if seller is already ready to deliver or transfer the ownership and he makes the demand.-it is possible that compliance of parties in a reciprocal obligation is in different dates. It does not necessarily follow that it is simultaneous. But usually, it is simultaneous. As a rule, if one delivers, one pays the price. But in some cases, parties would agree that the performance of the other could be at a later time and you can only be held in default upon the arrival of the term or happening of the condition.-example: contract of sale of a parcel of land: buyer and seller agreed that seller delivers land immediately and the price will be paid a year after the delivery of the land. If the seller does not deliver now or immediately or upon demand of the buyer he is in delay. If the buyer does not pay the price yet, he cannot be considered in default because it is still premature to demand payment considering that the obligation provides that his obligation to pay will only be a year after the delivery.

Different kinds of delay:

Mora solvendi- delay on the part of debtor despite demand

Mora accipiendi- default on the part of creditor. When? If the creditor unjustifiably refuses to accept payment or fulfilment of obligation.

Compensatiomorae- both parties are in default; it is as if no one is in default

NOV 12, 2015

1. Interests for the non-payment of obligation

If it is a mere verbal agreement to pay interest, that is not valid. The interest stipulation is not valid. Now what we mention that interest which will be imposable from the time that there is a demand that is made that is the damages to which the creditor is entitled which is in the form of interests from the time extrajudicial is made. So that if you did not make any extrajudicial demand because you immediately filed a case in court then the interest or damages (in the form of interests) will start only to run from the time of the filing of the complaint. Therefore, it is more advantageous if you will make an extrajudicial demand – because from that time interests will already be imposed.

Now what else would be significant in relation to the performance of an obligation if the debtor is in default where there is a demand? Let’s say, that the obligation to deliver is a specific car, the obligation stipulates that the specific car must be delivered by the debtor on November 1, 2015 (due date). So we have here an obligation with a term, when the obligation became due on November 1, 2015, the creditor did not make any demand. On November 5, the car was destroyed due to an earthquake (fortuitous event). On November 10, there was demand to deliver by the creditor. What would be the effect of the loss?

Ans. You apply the GR that loss due to a fortuitous event extinguishes the obligation of the debtor. Debtor is in ordinary delay only, therefore he is free from any liability because the exception to the general rule only refers to LEGAL DELAY NOT ORDINARY DELAY – provided for by law.

Now would it make a difference if the demand to deliver was made on November three? And on November 5, it was destroyed. What is the effect?

Ans. It is the exception of the GR “loss due to a fortuitous event extinguishes obligation” – and one of the exceptions is when the debtor is in legal delay or in default, and subsequent to that demand the specific thing was destroyed due to the fortuitous event, he can still be held liable for his obligation because he is in default.

Under what other instance a debtor may be held liable even if the specific thing promised to be delivered was lost due to a fortuitous event aside from the case when there is legal delay? Another exception of the general rule, even if he is not at fault but he is liable.

Ans.When the debtor promised to deliver the same thing to two or more persons who do not have the same interest – that is already bad faith on the part of the debtor for having promised as such.

Now let’s go back to the general rule, if there is no demand, there is no delay. Are there instances where even when there is no demand still the debtor can be considered to be in default?

Ans. 1. When expressly so declares by law OR stipulated in the contract

2. Time is of the essence4. Demand would be useless because it is beyond the debtor’s

power to perform5. When the obligation is reciprocal: when one does not

perform his obligation , the other does not delayNow, what about in a reciprocal obligation. When can the party in a reciprocal obligation be considered in default?

Ans.When one of them is ready to comply with the fulfillment of the obligation when the other is not.

Is it possible that in a reciprocal obligation, the time of the fulfillment of the obligations would be different for the parties?

Ans. Yes. If the due dates are different then one of the parties whose obligation is already due can already made to comply when the other will have to wait for the time when his obligation becomes due. So it is possible.

So based on this particular provision, when you draft a contract,where there is a stipulated time (obligation with a period or subject to a condition). How will you draft a contract which will benefit the creditor? – STIPULATION ON THE CONTRACT

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Ans. So you stipulate in the contract the upon the arrival of the due date, failure of the debtor to comply within the stipulated time would already put him in default even if no demand was made.

So these are provided for in Art. 1169. We have the general rule and the exceptions and the case of reciprocal obligation. RULE: No demand, No delay.

If the debtor is in default because there was a demand and he failed to pay, what are now the effects?

1. debtor = pay interest + damages

2. debtor may bear the risk of loss and liable for fortuitous event

Another stipulation which can protect the creditor especially in the case of an obligation to pay a sum of money which is payable on installment – the creditor can provide in the contract what is known as acceleration clause.

Acceleration clause – is that which would make all installment due upon default of one installment e.g there is an obligation to pay a sum of money amounting 120,000 pesos and the agreement is the 120k is payable monthly for a period of one year at 10,000 pesos per month. This is a very common stipulation. If you put acceleration clause to such contract, if in the event the failure to pay any installment the entire obligation becomes due and demandable. This one is a valid stipulation – only to ensure that debtor will comply with the installment. If the debtor will refuse this clause, then it will create a doubt on the part of the creditor that the debtor would possibly not comply with the installment when they become due.

Q: How can I compel the debtor to fulfill his obligation when acceleration clause has been violated?

A: What are the remedies of the creditor? 1. Specific performance + damages or if the debtor does not comply despite the demand, you go to court, then the court may render judgment in your favor = payment of principal amount + interest + damages 2. Rescission plus damages

Q: What is moraaccipiendi?

A: When the creditor is in defaut.

Q: When can the creditor be considered in default?

A: When the creditor unjustifiably refuses to accept payment despite the fact the obligation is due (because does not extinguishes the obligation of the debtor)

Q: What are the remedies of the debtor if there is moraaccipied?

A: The debtor canconsignate the thing in court.

Q: What are the effects of moraaccipiendi?

A: The creditor in this is case shall be liable for damages suffered on the part of the debtor. He also bears the risk of loss due to fortuitous event. Take note: it is only moraaccipiendi if the refusal to accept payment is UNJUSTIFIED because if there is a valid reason for not accepting payment (ex. If what is expected to deliver to him is a specific car and the debtor delivered a different car, can the creditor refuse to accept the car? Yes, the refusal is justified)

So in the case of obligation to pay a sum of money and there is refusal on the part of the creditor to accept payment without just cause then the debtor is not liable for the interest from the time of the creditor’s delay. Like in a contract of loan, the obligation became due on September one, on sept. 1,the debtor offered to pay the creditor. The creditor refused to accept the payment for no reason at all. Subsequently, in November, the creditor now demanded payment, will the debtor pay the interest from September to the time when payment is made? NO, because it was not his fault.

Remedy on the part of the debtor:

1. He may (inaudible) to accept the payment so that the debtor will be free from his obligation because payment of obligation extinguishes obligation.

Specific grounds for liability for damages

Art. 1170 gives us the grounds for which the debtor can be held liable for damages

1. Those who are guilty of fraud, negligence, delay, or contravention of tenor thereof. So as far as the creditor is concerned, the creditor now will demand payment. Aside from the fulfillment of the obligation, he may also in addition demand for damages under any of these four circumstances:

a. fraud – how do you differentiate fraud from negligence? Will the award for damages for these two the same? When you talk about fraud there is deliberate or intentional evasion of a normal fulfillment of the obligation, there is bad faith. It is done intentionally. While in case of negligence, there is just fault or voluntary act or omission on the part of the debtor which causes damage to another, there is no malice or bad faith. Danghagraka (ouch naman). Which do you prefer to be called negligent or fraudulent? someone whispered “beautiful” (HAHA). It is better to be negligent than fraudulent (mangingilad).

The law also talks about incidental fraud and causal fraud – how do you differentiate them?

Ans. In article 1170, it talks about incidental fraud – “….those who are in the performance…” – meaning it is incidental. Example you are obliged to deliver a LV bag, now what you delivered is a fake LV bag, is that causal fraud or incidental? It is incidental fraud BECAUSE there was already a valid contract, and it is the fraud that you committed is in the performance of the obligation. There is a valid contract of sale to deliver a LV bag, that means it has to be original, but what you delivered is fake one.

If in the performance of the obligation, you committed fraud that is incidental fraud. And so you are liable for damages.

Causal fraud – fraud that is committed which entice the other party to enter into a contract and that is the reason why if there is fraud that is committed which has vitiated the consent that makes the contract voidable. So the fraud there is committed at the exception of the contract. That is why in the voidable contracts, fraud is one of the vices of consent. Ex. You want to insure your own life, the insurance company requires that a person applying for insurance must undergo medical examination, now you already know that you will not pass the medical examination because you are suffering from stage 4 cancer, what you did was you asked somebody else (healthy person) to act for and on behalf of you, and so you passed the examination and so the application is approved. Now question, would the insurance company approve the contract if it were you who was examined? No, there was causal fraud and in that particular case the effect is – it makes the contract voidable because the consent of insurance company was vitiated by the fraud.

2. Negligence

4. Delay

5. Contravention of the tenor thereof – like for example, terms set forth in the contract. For example, in construction contract, there are plans and specifications and the contractor is required to follow strictly what has been agreed upon in the plans and specifications. If the contractor deviates from what is stipulated in the plan, then he can be held liable for damages. Note: although he has performed the obligations but the performance was in contravention of the tenor. Another example, when you construct in the (inaudible words), it was stipulated that there that there are certain materials should be used however you used different materials, so can you be held liable? Yes because although you have performed the obligation, the performance is in still contravention of the terms and conditions.

What are the different kinds of damages? (in detail in torts an damages)

For easy recall – MENTAL

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1. Moral – mental and physical anguish. When you pray damages for sleepless nights, wounded feelings. Ex. Breach of promise to marry (you cannot demand specific performance)

2. Exemplary – corrective or to set an example

4. Nominal – to vindicate a right

5. Temperate – when the exact amount of damages cannot be determined because there are instances where it is difficult to determine what exactly is the amount of damages sustained

6. Actual – actual losses and unrealized profit (this can be easily proven) ex. Breach of intellectual property OR infringement of patent - if there is infringement of patent that can be sought to losses on the part of the business or your income would decrease because there is now another person who has copied your product.

7. Liquidated – damages which is predetermined beforehand by agreement because it is actually difficult to prove damages. Ex. Stipulation in construction contract, important stipulation there is when the bldg. will be completed. So the owner of the bldg. will really be interested to ensure that the bldg. will be completed on the stipulated date. Now, you advise the owner of the bldg. to include in the contract to ensure that the contractor will really complete the bldg. on the stipulated time – “in case of failure of the contractor to complete the bldg. within the stipulated time, they will be held liable for damages in the amount of 10,000 pesos (for example) per day of delay.” No need to prove actual damages because damages are already agreed upon by the parties.

Art. 1171 – responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void.

In other words, even if it is stipulated in the contract that in case of fraud, the creditor waives his right to file an action in court for future fraud – NOT VALID = VOID. Reason: to discourage commission of fraud because remember fraud is intentional (there is malice).

Remember that when we talk about the freedom of the parties to stipulate, whatever the parties have agreed upon will binding in them provided it is not contrary to law, so there is a limitation.

But if it is a waiver of an action for past fraud, it is VALID. Reason: acts of generosity and forgiveness. Ex. They entered into an agreement to settle the case so that the creditor will not have to go to court, it says “in consideration of an amount of 15,000 pesos as settlement for the fraud that has been committed by the debtor, creditor now waives his right to file action for damages in court.”

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.

This is why I said that liability for negligence is usually lesser than the damages awarded due to fraud. This is based on the circumstances

Fixing of the amount of damages is given to the discretion to the court, and damages in the case where both parties are negligent then the court now can mitigate the amount of damages to be awarded.

Q: What about waiver of an action for future negligence?

A: Generally, valid. XPN: when circumstances require extraordinary diligence. Example, in the contract of common carrier (the law itself requires this –Civil Code)

Q: Can the contract of common carrier validly provide that despite the negligence committed by the common carrier the passenger waives his right to file any action against the transportation company?

TAKE NOTE: in transportation contract, it is a contract of adhesion. What is this contract of adhesion? It is a take it or leave it basis contract. Usually, what comes to our mind when we talk about contract is that both parties will sit down and agree on the terms and conditions of the contract. BUT in the transportation contract (contract of adhesion), the one who drafts the contract is the transportation company e.g airline

ticket BUT it is binding. However, it is favorable to the one who drafted it (natural sya man anggahimo duh). So it is NOT VALID if they provide in the contract of adhesion that the passenger may waive his right of action for future negligence. Such provision is not valid, but other provisions are still binding.

In the contract of adhesion, if there is ambiguity in the contract, the presumption is in favor of the client and against the company who drafted the contract.

Gross negligence is tantamount to fraud. It’s liability is the same with the liability in fraud. Therefore, waiver of an action for future gross negligence is VOID.

FRAUD NEGLIGENCE Deliberate intention to

cause damage or injury No such intention

Waiver of liability for future fraud is VOID (including gross negligence)

Waiver is allowed

Liability cannot be mitigated

May be reduced in certain cases

That only shows as far as the liability in negligence is concerned, the court is more lenient with respect to damages due to negligence because this is unintentional.

What are the kinds of negligence (culpa)?

1. Culpa Contractual – contractual negligence. Negligence in contracts resulting from breach.Ex. A transportation contract, when you ride a taxi you already entered a contract with the operator of taxi (even if you may not have signed a written contract). The contract there is the contract of common carrier. Now the obligation of the common carrier is to bring you, the passenger, safely to your destination using the utmost diligence of the very cautious person and so if you do not reach your destination safely, then you can hold the common carrier liable under CULPA CONTRACTUAL BECAUSE THERE IS AN EXISTING CONTRACT BETWEEN THE OPERATOR AND THE PASSENGER.

If you file a case for culpa contractual, the defendant is not the driver but is the operator because the contract is between the operator (not the driver) and passenger.

2. Culpa Aquiliana – Civil negligence. Negligence which by itself is the source ofobligation between parties not so related before by any pre-existing contract.Ex. If a taxi runs over a pedestrian thus causing damage or injury to the pedestrian, there is no pre-existing contract between the operator and pedestrian, so if you are the pedestrian – you cannot file a case for breach of contract or culpa contractual because there is no contract between the pedestrian and the driver. So your basis is culpa aquiliana, you suffered damages by reason of the negligence committed by the driver and there is no pre-existing contract between the pedestrian and the driver.

4. Culpa Criminal – negligence resulting from the commission of the crime. There are options available to the person injured (either passenger or pedestrian). You file a case against the driver for criminal offense. In RPC, there is a provision on criminal negligence. Injured party has remedies:

a. file a criminal case for physical injuries homicide through reckless imprudence (against the driver)

What is the effect if you file a criminal case against the driver?

Ans. A person who is criminally liable is also civilly liable. If the driver is convicted, then the passenger or pedestrian as the case may be, will be entitled to indemnity for damages.

Q: if you avail of culpa criminal against the driver, what happens is the driver is insolvent?

Ans. Of the driver is insolvent, the operator of the taxi is subsidiary liable. And that is the reason why even if no case is filed against the owner of the taxi, the taxi operator would still want to help in defending the driver in

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the criminal offense because he will be solidarily liable if it is proven that the driver is guilty and driver is insolvent.

FAULT OR NEGLIGENCE of the obligor consists in the omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, time, and place.

If the law or contract does not state the diligence which is to be observed in the performance of the obligation, the good father of the family shall be required.

What is a fortuitous event?

Art. 1174 it sets the rule as regards liability for loss due to fortuitous event except in cases (a) expressly specified by the law, (b) when it is otherwise declared in the stipulation, (c) when the nature of obligation require the assumption of risk, NO PERSON SHALL BE RESPONSIBLE OF THOSE EVENTS WHICH COULD NOT BE FORESEEN OR IF FORESEEN, SUCH ARE INEVITABLE.

So we have mentioned two instances that even if the loss was due to fortuitous event, the debtor is still held liable and does not extinguish obligation because it is expressly provided for by the law:

a. when there is delay (legal delay)

b. when he has promised to deliver the same thing to two or more persons who do not have the same interests

when expressly declared by stipulation or contract:

So what lesson do we get out of this? Again when you draft a contract for the creditor, and it refers to an obligation to deliver a specific thing, so how do you fully protect the interest of the creditor?

Ans. It is valid to stipulate in the contract that the debtor will still be held liable even if the loss is due to a fortuitous event (expressly provided in the contract) – since the specific thing is destroyed by the fortuitous event and it cannot be anymore delivered to the creditor, such will be converted into monetary obligation to pay damages (binding on the part of debtor because agreed upon)

Nature of the obligation requires the assumption of risk

a. Risk is quite evident

b. Mere difficulty to foresee risk is not sufficient, it must be IMPOSSIBLE to foresee.

Essential characteristics for the debtor cannot be held liable due fortuitous event – these should all be PROVED in the court:

a. the cause must be independent of the will of the debtor (act of God), if the event is an act of man the event should happen independent of the will of the debtor

b. impossible for him to foresee the event, or if foreseen, it is inevitable

c. the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner

d. obligor must be free from participation in the aggravation of the injury to the oblige

Art. 1175 – usurious transactions shall be governed by special laws.

The usury law which sets a limit as to the amount of interest that can be charged has now been suspende, so there is usury law at present. And so the parties now are free to agree on the rate of interest that can be charged, in the later provision you will know that if the interest that is charged is unconscionable the SC can reduce the amount (based on SC jurisprudence)

Usury – contracting for or receiving something in excess of the amount allowed by law for the loan or use of money, goods, chattels, or credits. It is the exaction of excessive interests. Why? Because the law now gives the parties the freedom because it can also restrict transactions. However, there are SC decisions where they regulate or restrict the rate of interest.

Art. 1176 – gives us two presumptions – these are rebuttable presumptions.

1. The receipt of the principal by the creditor without reservation with respect to the interest shall give rise to the presumption that the said interest has been paid.

When you talk about a contract of loan which bears an interest, example.

Principal is 100,000, interest is 10%. So when the obligation becomes due the debtor is liable to pay 110,000. So if the debtor pays the full amount of 110,000 that results in the extinguishment of obligation. But what happens if the debtor did not come up with the full amount of 110,000. Let’s say, he paid only 100,000 – so it depends now on what was stated in the receipt. If you are the creditor, and you issue there the receipt, it is stated in your receipt that you receive 100,000 pesos and actually it only refers to the principle but you did not indicate in the receipt that the interest has not been paid then the presumption there is if you receive payment of the principal, then the law presumes that the interest was already paid.

If the debtor paid only 100,000, you should state in the receipt that as far as the principal is concerned, it is only 90,000 is received and that 10,000 is the interest. That is how payment will be applied as a rule.

What happens there if you issue a receipt stating that you received an amount of 100,000 as payment for the principal, it already creates the presumption that the interest has been paid. But such is a rebuttable presumption – burden of proof is on the part of the creditor.

Whatever you pay, the interest must be paid first.

2. 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.

Obligation is payable on installment – obligation to pay a sum of money and it is payable for a period of one year and the amount is 10,000 per month. If the creditor issues a receipt “received the amount of 10,000 pesos as payment for the march installment” but the January and February were not yet paid but in the receipt issued by the creditor, there is no mention of non-payment of Feb and Jan installments. So what is the effect there if he did not reserve? It is presumed that the Jan and Feb month installments have already been paid. If receipts are lost for January and February (part sa debtor then nakit.an ranimopag march), it already raises the presumption that the previous installments were already paid BUT REBUTTABLE PRESUMPTION.

So if you are the creditor, if the previous installment were not yet paid then you have to state in the receipt (kung ganahanang debtor bayaranang march nyawala pa syakabayadsa January ug February, then you must state in the receipt that the February and January installments were not yet paid – you make this RESERVATION)

Nov. 14, 2015

ARTICLE 1174 General rule with respect to fortuitous event and the exceptions;

So in a contract of lease and 1 of the stipulations in the contract of lease is that the lessee upon the termination of the contract of lease has to return the lease property with the same condition that the lessee received it at the time when the contract of lease started. During the time that the contract of lease was still effective the part of the property was destroyed because of a typhoon and so upon the expiration of the term of the lease, the lessee gave back the property to the lessor and the condition where it was already damaged by the reason of the typhoon.

Can the lessor demand from the lessee payment for the damages in lieu of the stipulation in the contract of lease that the debtor is obliged to return to him the property in the same condition that the lessee received it at the time the contract of lease was executed?

Answer: as a general rule no liability is incurred if the damage is caused by a fortuitous event but there are 3 exceptions:1st, when the law expressly provides that the debtor is liable to any fortuitous events if he is guilty of bad faith or is in default.

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2nd, when expressly declared by stipulation (for this to apply, it must be clearly stated in the contract)3rd, nature of obligation requires assumption of risk

Review the case of Republic vs Luzon Stevedoring Corp.

ARTICLE 1176 - 2 rebuttable presumptions:1. Receipt of the principal – if the creditor receives the payment

of principal it is presumed that the interest has already been paid

What should the creditor do so that the presumption will not apply?- The creditor has to reserve or state in the receipt to the effect

that the interest has not been paid2. Receipt of a later installment – it presumes that if it creditor

receives the 4th installment of a debt, it is understood that the first 3 installments has already been paid

- The creditor shall also note the reservation

It is the receipt that raises the presumption.

What are now the remedies available to the creditor for the purpose of satisfying his claim when the debtor does not comply with his obligations when it becomes due?

1. The creditor can demand for specific performance plus damages for failure to comply with the demand of obligation

2. Pursue the properties to your debtor (generally by attachment, exhausting the debtor’s properties)

3. Avail of accion subrogatoria – you can exercise the rights of your debtor (debtor is a creditor of another person, you can exercise his rights to collect what the debtor could collect as a creditor of another person)

4. Accion Pauliana – you can receive – impugn or rescind acts or contracts done by the debtor to defraud the creditors (example: you found out at the time you filed the case he has a parcel of land but when the decision was rendered by the court favorable to you he does not have anymore lands, so you check what happened to that land, so if the debtor donated the property to another the law provides that if a person without living sufficient property to pay his indebtedness would donate a property then there is a presumption that such donation is in fraud of creditor which is but logical because when you donate you don’t receive anything in exchange why will a person give away his property when he doesn’t even have sufficient property to pay his obligations, so the priority of a person is to pay the obligation rather than donate because you don’t have an obligation to donate)

- Badges of fraud – indicator that the debtor defrauds the creditor (instances where it is obvious that it tries to defraud the creditor)

ARTICLE 1178 – subject to the laws, all rights acquire in virtue of an obligation are transmissible, if there has been no stipulation to the contrary

General rule:- Rights are transmissible

(The heirs of a debtor (in cases where the debtor dies) can only be held liable to pay up to the extent of the value of the inheritance that is left with them)EXP:

1. Law provides otherwise – consent of the other party is necessary

2. Contract provides otherwise (if it is specifically stated in the contract that when the debtor dies, the obligation is likewise extinguished is a valid stipulation)

3. If the obligation is purely personal (example: if the singer dies, you cannot transfer the obligation to sing in a concert to his heirs)

November 16, 2015; 2 hours

Kinds of obligations

Pure and conditional obligations

Pure obligation is that which is not subject to a condition there is also no period. So it is demandable at once. There two kinds of obligations which are immediately demandable; a pure obligation and an obligation subject to a resolutory condition. In a pure obligation it says, its performance does not depend upon a future event or uncertain event or a past event which unknown to the party. If I oblige myself to give you my car, when can the

creditor demands for the delivery of the car? Immediately, because it is not subject to a term or any condition.

However, if it is an obligation to pay a sum of money like in a contract of loan. So ‘X extended a loan of 1 million to Y.’ and the parties did not provide for a term and no condition. So if we are to apply the general rule on pure obligation then the amount is considered to be demandable at once. However, it can be inferred from the nature of the obligation that if it is a contract of loan and there is no term nor condition, from its very nature you will note that a period is really intended. You cannot have a loan and you just borrowed now and the creditor will immediately demand payment. So under such situation, where the parties in the agreement simply failed to provide for a term but from the nature of the obligation it can be inferred that a period has been intended by the parties because that is really the nature of contract of loan the debtor borrows money because he would use the money and he should be given time to pay.

So if there’s no term when is the obligation payable?

In that situation if it can be inferred from the nature of the obligation that a term was really intended by the parties then the right of the debtor is to ask the court to fix the period.

Obligation subject to a resolutory condition.

In a conditional obligation the condition can either be resolutory or suspensive condition. We will differentiate the two. To show another kind of obligation which is also immediately demandable. Under the second paragraph which says, every obligation which contains a resolutory condition shall also shall also be demandable without prejudice to the effects of the happening of the event. So in that particular provision we can say that there are two kinds of obligations which are immediately demandable; the pure obligation where the one whose effectivity or extinguishment does not depend upon the fulfillment or non-fulfillment of a condition or upon the expiration of the term therefore it is characterized that it is immediately demandable, and in the case of an obligation with a resolutory condition, the happening of the condition extinguishes the obligation. But once the obligation is constituted it is immediately demandable.

So what a conditional obligation? So when you talk about a condition, it can either be a future and uncertain event or it can be a past event unknown to the parties. But basically when you talk about a condition it refers to a future or uncertain event. When you say it is uncertain, that means it may or may not happen as you distinguish condition from a term. A term will definitely come. Condition is future or uncertain fact or event upon which an obligation is subordinated or made to depend.

A condition is suspensive when the fulfillment of the condition results in the acquisition of rights arising out of the obligation. Simply put, a suspensive condition its happening will give rise to an obligation. Example: if I oblige myself to give you my car if pass the bar examination. Passing the bar examination is a future and uncertain event. And so when that event happens, what is its effect on the obligation? It gives rise to an obligation. So once you pass the bar exam that gives rise to my obligation to deliver to you my car.

Resolutory condition: when the fulfillment of the condition results in the extinguishment of rights arising out of the obligation. If an obligation is subject to a resolutory condition it is immediately demandable. The creditor can already compel the debtor to perform the obligation once the condition is perfected. “I will give you my car for you to use it until you pass the bar exams.” When is that obligation demandable? I have to deliver the car but the happening of the condition, the passing of the bar exam, what is its effect on the obligation? It extinguishes the obligation. When we say it extinguishes its obligation, it creates now an obligation on the part of the creditor to return the car.

Our professor then told us “so that you can easily remember the difference between suspensive and resolutory condition, the happening of a suspensive condition gives birth to an obligation, while the happening of a resolutory condition kills an obligation.”

Then we have potestative condition, when the fulfillment of the condition depends upon the will of a party to the obligation.

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Casual condition, when the fulfillment of the condition depends upon chance and/or upon the will of a third person. I will give you my car if you win in the lotto.

Mixed, when the fulfillment of the condition depends partly upon the will of the party to the obligation and partly upon chance and/or the will of a third person. ‘I will give you 50k if I am able to sell my land’ – according to sc, not potestative on the part of the debtor.

Possible, when the condition is capable of realization according to nature, law, public policy or good customs.

Impossible, when the condition is not capable of realization according to nature, law, public policy or good customs. Disregard the impossible condition.

Positive, when the condition involves the performance of an act. ‘to sing in a concert, I will give you 1 million’

Negative, when the condition involves the omission of an act. ‘I will give you 1 million if you willnt go to the casino’

Divisible, when the condition is susceptible of partial realization.

Indivisible, when the condition is not susceptible of partial realization.

Conjuctive, when there are several conditions all of which must be realized.

Alternative, when there are several conditions but only one must be realized.

Express, when the condition is stated

Implied, tacitly provided.

What is the effect if the obligation provides ‘ I oblige myself 1 million when my means permit me to do so’ ‘ payable when able’ is that a valid obligation? You will note that we have another provision which talks about an obligation where the happening of the condition is made dependent on the will of the debtor then the obligation is invalid./void. Is this considered as a void obligation. Under the law which says, if the nature of the obligation is such that the debtor promises to pay when his means permit him to so that is considered not as a conditional obligation but an obligation with a period or term. So if it is considered an obligation with a term/period, when is the obligation due? ‘x promise to give y his land when he dies’ this is obligation with a period because death is certain.

The law provides a remedy in an obligation where the debtor binds himself to pay when his means permit him to do so. When is the obligation payable? Subject to the provisions of article 1197. The nature of the obligation it can be inferred that a period is intended by the parties then you go to the court and ask to fix the period. If the court has already fixed the period the parties cannot change it.

Suspensive; the date when it was constituted and the date when the condition happened. In this particular case, what is acquired by creditor upon the constitution of the obligation is only a mere hope or expectancy. If the suspensive condition did not take place it is as if there was no obligation at all.

Resolutory, it also refers to a future and uncertain event upon the happening or fulfillment of which, rights which have already been acquired by virtue of an obligation are extinguished or lost. An obligation subject to a resolutory condition is immediately demandable after its establishment or constitution.

Condition which refers to a past event unknown to the parties, the event must not be known to the parties ‘I oblige myself to sell to you my land, which is the subject to a litigation, if I win the case. What happens if at the time I made that obligation there was already a decision by the court and you would not immediately know if the judge already made a decision. The case was already decided but the parties were not yet aware at the time when the contract was entered into.

Potestative condition, when the fulfillment of the condition is dependent upon the will of the debtor, the conditional obligation is void. But if it is dependent upon the will of the creditor, it is valid.

One case where it involves the sale of a parcel of land. The owner of the land which is being rented out to X. the owner decided to sell that land which was being occupied by X. the owner sold that land to Y (buyer). The agreement was, Y will pay the balance of the selling price the moment the debtor will vacate the land. And it was imposed as an obligation on the part of the seller to eject the tenant. The buyer Y had to undertake efforts to eject the tenant. And only upon ejectment of the tenant will the balance become due. Is that contract valid considering that the ejectment of the tenant was made to depend on the efforts of the buyer and only after the ejectment that the balance will be due. So sc said, that particular obligation is valid. It is not purely dependent on the will of the debtor(buyer, in an obligation to pay the balance) because even if the buyer does not undertake steps to eject the tenant, the tenant may voluntarily vacate the property. Applying the provision on potestative condition, the question now is the condition of ejecting the tenant potestative on the will of the debtor. The obligation then provided that the buyer who is the obligor in the obligation to pay will pay only the balance if he is able to eject the tenants. So that is why it was contended that it was potestative dependent on the will of the debtor(buyer). Sc said, it is not purely dependent on the will of the buyer because it is not only the buyer can eject the tenant; one the tenant may voluntarily vacate the property that would already make the buyer’s obligation to pay due. Or the seller himself can file an action to eject the tenant because he is still the owner of the property.

Purely potestative condition, it is one whose fulfillment depends exclusively upon the will of either one of the parties to the obligation.

What are the effects of the potestative conditions? If the happening of the condition depends upon the will of the creditor, the obligation is valid. if it depends upon the will of the debtor, the obligation is void.

That provision which says if the happening of the condition is made dependent on the will of the debtor only applies if the condition is suspensive. Because if the condition is resolutory, remember the obligation is immediately demandable. If it is resolutory the obligation is not void even if it depends upon the will of the debtor.

In a case where a contract was entered into by the sugar company and the hacienda. The conditions were the sugar company will do the milling while the hacienda will construct a road. The hacienda owner did not construct a road when the sugar central has nothing to use in getting the sugar cane. Is the sugar central liable under such situation? No, the hacienda owner is considered to be liable despite the fact that there is non fulfillment of the obligation because it was the hacienda owner who voluntarily prevented the fulfillment of the obligation. There is constructive fulfillment of the condition. One author explain in this manner, the obligation is X is obliged to give Y 1 million pesos if he passes the bar exam. On the day of the exam the debtor locked Y in his room. So Y was not able to take the bar exam so the condition cannot be fulfilled. Is the debtor liable to give the 1 million? Yes, there is constructive fulfillment of the obligation because it was the debtor who voluntarily prevented the fulfillment of the obligation. In effect the debtor is to be punished for his bad faith. So that is a constructive fulfillment of a suspensive condition. Not applicable to resolutory conditions.

In an Obligations subject to suspensive condition you have the date of the perfection of the obligation up to the time when the suspensive condition happens, it give rise to the obligation. This provision now tells us what would be the effect of that happening of the condition. Will it gives rise to the condition upon its happening the law now provides what we call as the retroactive effect of the happening of the suspensive condition. Says that the effects of a conditional obligation to give once the condition has been fulfilled, it shall retroact to the date of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interest 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 interest 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

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each case, the retroactive effect of the condition that has been complied with. (art. 1187)

An obligation subject to a suspensive condition which was constituted in 2012. A oblige himself to give B his parcel of land if B passes the bar exams. B here passed the Bar exam in 2014. So the condition was fulfilled in 2014. It now gives rise to an obligation of A to deliver his parcel of land but the law says that the effects of a conditional obligation to give, once the obligation has been fulfilled it retroacts to the date of the constitution of the obligation. Question. As of what date did B become the owner of the parcel of land? In 2012 because its effects retroacts to the date of the constitution of the obligation. So if in 2013, B sold that specific land to X is the sale valid? yes, because his ownership retroacted to 2012. If the obligation is unilateral, the debtor shall appropriate the fruits and interest received now talking about fruits and interest in this particular case when you say it retroacts to the date of the constitution, who owns the fruits and interest within the period of 2012-2014? It is B. under the nature and effects of the obligation, the creditor is entitled to the fruits from the moment the obligation to deliver arises but he shall have no real right over it until the same has been delivered to him. If the case of a conditional obligation the law says it retroacts to the date of the constitution of the obligation in this case if you have a unilateral obligation where only A is obliged to give to B, the debtor shall appropriate the fruits receive. Who is the debtor? It is A, as far as the fruits are concerned, the fruits would belong to the debtor in a unilateral obligation. Although in effect he became an owner retroacting to 2012 but as far as the fruits are concerned, he is entitled to the fruits only as of 2014.

How can B protect his interest? because it could be possible while he has not passed the bar exam A might sell the property. If A sells the property to a buyer who had no knowledge at all as to the obligation of A and B to deliver the land, that buyer will have a better right over B because he acquired the land in good faith. If B really wants to protect his interest, the contract should be in writing and he will have it annotated in the registry of property. If this agreement or encumbrance is annotated in the registry of property it is binding against anybody. In other words if there is a buyer to that property from A, the right of that buyer is dependent on the obligation of A to B.

What is the status between the periods of 2012-2014 if you talk about a reciprocal obligation? (a obliged himself to sell to B his parcel of land if B passes the Bar exam, contract of sale, A is the seller B is the buyer but subject to a suspensive condition) if b passes the bar exams when will the right of B to buy the land arise? From 2014 and the sale will now retroact to 2012. What are now the obligations? The seller is to deliver and the buyer is to pay the price. In reciprocal obligation it says,

What about in a reciprocal obligation, reciprocal prestations upon the parties, the fruits and interest during the pendency of the condition shall be deemed to have been mutually compensated. What does that mean? As far as the fruits are concerned, if it retroact to the time of the constitution of the obligation B is entitled to the fruits and A is entitled to the interest of the price. When will B pay the price of the land? Only upon the happening of the condition but became the owner of the land in 2012. In effect, when was the sale supposedly consummated? 2012. So you are supposed to pay in2012 and the payment was that on 2014 so the money that should been given to A was not paid yet, that money would have earned interest. During the pendency of the period, the land may also have fruit to it. The law says they don’t anymore have to account for the interest nor the fruits because they are deemed to have compensated with each other. For purposes of convenience and practicality of the parties, there is no need to compute for they are deemed to have compensated with each other.

Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. In the above case, where the obligation is subject to a suspensive condition, the obligation was constituted in 2012, B will have to wait until he passes the bar exams. In the mean time A is still the owner of the property. Now what is the protection on the part of B so that when the condition is fulfilled the land is still there. He is protected under the law. Like he can bring appropriate actions for the preservation of his right. Example, if A would enter a contract of sale, B can already enjoin the sale. If it is a real property , in order the agreement of A to B will bind the whole world, B can have the agreement annotated in the registry of property.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. The suspensive condition is to pass the bar exams. If A thought that in 2013 B has already passed the bar exams when in fact he did not take the exam. What right does the debtor have? A can get the land back because that is considered as payment by mistake or solutio indebiti.

To summarize, during the pendency of the condition the creditor has only a mere hope or expectancy. This hope or expectancy is protected by law. This is for the protection and preservation of his right.

(phil long distance telephone vs jeturian) they may take such action as may be appropriate to preserve their conditional right and if the promisor should voluntarily prevent the fulfillment of the condition the same shall be fulfilled, under the constructive fulfillment of the obligation. But if its obligation is one which is generic to pay a sum of money and such obligation cannot extinguish by loss or inability to raise the funds.

Retroactivity effect, so the condition which is imposed is only an accidental not an essential element of the obligation. Consequently, once the event which constitutes the obligation is fulfilled thus resulting in its effectivity of the obligation its effect must logically retroact to the moment when the essential elements which gave birth to the obligation and not the moment when the accidental element was fulfilled.

Art. 1189 gives us the effect during the pendency of the suspensive condition.

Take note in this case we talk about two point in time; the date when the obligation was constituted and to the time when the condition happens. Within this period what can possibly happen to the specific object during the pendency of the suspensive condition.

Obligation to deliver a specific thing

Fault of the debtor Not the fault of the debtor (Fortuitous event, other person etc.)

Loss ( if it perishes, goes out of commerce, existence is unknown, or cannot be recovered)

Debtor pays the damages

extinguished

deterioration Creditor may demand specific performance plus damages orrescission of the obligation and its fulfillment, with indemnity for damages in either case

Impairment is to be borne by the creditor

improvements The debtor shall have no other right than that granted to the usufructuary

Inure to the benefit of the creditor

Usufructuary – he is entitled to remove the improvements for as long as it does not cause damage to the main object.

Nov 28 2015; 1 hour

A, B and C are solidary debtors bound themselves to pay X and Y who are also solidary creditor 90k. As far as debtors are concerned, anyone of them can be required to pay the full amount. If one of the debtors ,C, who paid the obligation then he is entitled for reimbursement from A and B. of course the payment should be made at the time when the obligation is already due and demandable. So if he paid the obligation because there was a demand and the obligation was already due, how much reimbursement can he be entitled to receive from A and B? he will be entitled to receive reimbursement of 30k, because that I the share of each one, plus interest from the time he made the payment up to the time he is reimbursed by the solidary debtors. Let say it was B who paid the 90k, A is liable to pay his share of 30k and so is C. what is the nature of the relationship in the action for reimbursement? The treatment here of A and C is that they are joint debtors in the right of B for reimbursement. Even if

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the obligation is solidary, as far as the original obligation is concerned, that was already extinguished by payment. In the action for reimbursement by the paying debtor, the co debtors are treated as joint debtors. What is the consequence of that? When B demands reimbursement from A, he can only demand the share of A and he cannot say ‘since we are solidary debtors, I will demand from you payment of 60k’. he can only demand reimbursement for the share of his co debtor not the full amount.

In another provision, it talks about the effect of insolvency. In case of insolvency of one of the solidary debtors, what would now be its effect on the obligation? The solvent debtors are to share the amount which was supposed to be payable by the insolvent debtor proportionate to their respective shares. For example(same example sa first), the obligation is still not paid and A became insolvent. As far as the creditors are concerned, that is not a problem to them if any of the debtors become insolvent because they can still demand full payment from any one of the solidary debtors. But the question now is, if B and C are solvent they supposed to pay the 90k so the share of A which is supposed to be 30k will now be divided between B and C. that is why B and C will now be liable for 45k each, their share of 30k and the share of A will be divided between them. How do we illustrate when we say proportionate? If the respective obligations of the solidary debtors vary in amount which is possible, for example, A is 40k, B is 40k and C is 20k for a total of 100k. if A becomes insolvent, the 100k will now just be shared with B and C. 40k over 60k times the 100k this is for B. 20k over 60k times the 100k this is for C.

There is also another term created to a solidary obligation. You have what we call as a surety. What is the difference between a surety and a solidary debtor? A surety is considered as solidary guarantor. He is not just an ordinary guarantor but he is a solidary guarantor. For example, D owes C 100k with G as the guarantor(ordinary). When would the guarantor be held liable to pay? Only in case of failure of the debtor to pay. So the creditor can run after the guarantor. What if G is not an ordinary guarantor but a surety or solidary guarantor, he signed the contract of loan as a surety? Take note if you are an ordinary guarantor the liability is only subsidiary for the obligation of the principal debtor. That means to say he can only be held liable in the event of failure of the principal debtor to pay. Now if you are as a surety, you are not subsidiarily liable but solidarily liable. What is the nature of your liability if you say solidary? The creditor may opt to collect from you even if without pursuing the debtor because you have assumed the liability as a solidary guarantor.

Difference between a surety and a solidary debtor. D and G(surety) are solidary debtors of C for 100k. a surety is not the principal debtor but because his liability is the same as that of a solidary debtor the creditor can demand payment from him. If it was the surety who was required to pay because the creditor demanded payment from him, what would be the right of the surety? He can demand for a reimbursement from the principal debtor. How much reimbursement may he be entitled to? The full amount of 100k because he is not a principal debtor but a solidary guanrantor. D and G are the solidary debtors, it was G who paid the 100k to C. what will now be the right of G? he is entitled to reimbursement from D but how much? Only 50k because he himself is a principal debtor. It is possible that the creditor will grant an extension of time to the debtor within which the obligation will be paid. For example, the obligation is payable in 2016. When the creditor granted an extension of time to the debtor, what would be the effect on the liability of G who is the surety? His obligation is extinguished if he did not give his consent to the extension. In other words, in order to bind the surety for any extension granted to the principal debtor you should get the consent of the surety. D and G are solidary debtors. The obligation is payable in 2015. Now let us assume that the creditor granted D and extension for his share. So what will now be the effect of such extension? It can benefit G, the solidary debtor, even without his consent because that is actually beneficial to a solidary debtor. Since they are principal debtors, if there is an extension of time that is granted it does not release the solidary debtors from liability. What happens if despite the extension of time, C demands payment from G how much will G be liable? It will be 100k minus the share of D because he has extended the term for the payment of D. now upon maturity in 2015 can C again demand payment of the balance from G? yes because he is a solidary debtor. However, since he had already paid his share of 50k and he is now paying the share of D he can now demand for a reimbursement from D.

Art. 1214. If there are several solidary creditor, the right of a solidary creditor is that he can demand full payment of the obligation from any of the solidary debtors. To whom should a solidary debtor pay? He can pay any of the creditor. But if there is a demand already made by one of the solidary creditors then payment should be made to that solidary creditor who has already made a demand. If both of them made a demand but at different times then payment should be made to the one who first demanded for payment. If they demanded payment ate the same time? Then the debtor may choose whom payment shall be made.

Modes of extinguishing an obligation Novation compensation merger/ confusion condonation

In relation to a solidary obligation, what would be the effect of novation? Change in a principal object of the obligation, change in the person of the debtor or change in the person of the creditor, for as long as there is agreement by the parties that the original obligation will be extinguished and now a new obligation is created. For example, X owes Y and Z 1million and the creditors are solidary. The object is 1 million, it could be possible that one of them entered into an agreement with X. so X and Y agreed that instead of 1million X will construct the house of Y. so there is a change on the object of the obligation. The first obligation (1million) is extinguished and a new obligation(construct the house of Y) is created. What is now the effect of the novation? What will now be the right of Z? as far as Z is concerned, there is no receivable here because the obligation has already been extinguished but it benefitted only Y so Y has to reimburse Z for Z’s share which is 500k. Y cannot prejudice his co creditor, it is as if why collected the payment.

Compensation, when two persons are debtors and creditors to each other, reciprocal obligation, and the obligation is extinguished in their concurrent amount. Like if I owe you 100k and you also owe me 100k so what will now be the effect? In layman’s language we say ‘quits nata’. If all the requisites for compensation are present; the obligation are of the same object, both obligations are already due and demandable, the amount is already liquidated, there is no claim by any third person, then legal compensation can take place. Legal compensation takes place by operation of law. For example, X owes Y and Z 1million(first obligation) and the creditors are solidary and Y owes X 1million (second obligation). In the second obligation X is the creditor while in the first obligation he is the debtor. In this case, toal compensation takes place. Total because the amounts are the same. So what is the effect? Both obligations are extinguished. So we go now to the solidary creditors, what will now be the effect? Y will have to give Z his share of 500k because it was Y who benefitted by the compensation. Compensation may also be partial if the amounts are not the same.

November 21, 2015

(Inaudible chos hahaha bitaw wa ko kasabot sa first na iyang gipangyawyaw huhuhuhu)

resolutory condition – if the obligation is a resolutory condition it is immediately demandable

suspensive condition - the moment the condition is fulfilled its retroactivity retroacts to the date of the constitution of the obligation, it is as if the obligation then the creditor is deemed to have become the owner as of the date the obligation was constituted - however the law specifically provides that if we talk about

of a unilateral obligation then the fruits shall belong to the debtor.

- In the case of a reciprocal obligation then the fruits and interest are deemed to compensate with each other, so to the debtor and creditor will not have to account even if it is a reciprocal obligation they could not have to account for the fruits and interest for purposes of convenience and practicality, the law says they just deemed to compensate each other.

So the date of the constitution of the obligation made with a period may be paid before the condition is fulfilled and so the last article (ARTICLE 1189).

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What would be the effect if this applies to a situation where there is an obligation to deliver a specific thing and the obligation is subject to a suspensive condition? And so within the time from the date of the constitution of the obligation to the time of the happening of the condition Article 1189 talks about the;

- in case of lost of the specific thing (you will have to determine whether the lost was without the fault of the debtor or it is due to the fault of the debtor)if the lost of the specific thing was without the fault of the debtor so you apply the rule that no one can be held liable for loss due to fortuitous event and so the obligation is extinguishedthe law also defines when is a thing considered to be lost, it is considered lost when it perishes, it goes out of commerce or when its existence is unknown or can no longer be recovered.If the lost is due to the fault of the debtor then he would be liable for the damages, he has to pay for damages because of his bad faith

- in case of deterioration (you also differentiate whether the deterioration was without the fault of the debtor or if it was due to the fault of the debtor)the law says if the deterioration was without the fault of the debtor then the impairment is to be borne by the creditor in other words the debtor will just have to deliver that specific thing in its deteriorated state and he is not liable for such deteriorationif it was due to the fault of the debtor, the creditor has two options; the creditor can ask for rescission or he can demand for specific performance in both cases with damages

- in the case of improvement (the improvement on the specific thing could be by nature or by time)so there was no expense to the part of debtor while the object was with him but there are improvements, the law says since there was no expense so the improvement shall inure to the benefit of the creditorthe other situation is the improvement were made at the expense of the debtor, then the debtor shall have no other right than that granted to a usufructuary.

When you talk about the right of usufruct, the usufructuary is entitled to use of the thing. In relation to the improvements which are introduced by the usufructuary the law says that expenses introduced at the expense of the debtor he can remove the improvement if it does not cause damage to the main object. But if the removal of the improvement would cause damage to the object then the debtor cannot remove the improvement.

Basically this is just patterned after the basic principles that we have discussed in relation to an obligation to deliver a specific thing.

Article 1189, notice that this deals with an obligation that subject to a suspensive condition.

In article 1190 it deals with an obligation subject to a resolutory condition. An obligation subject to a resolutory condition as we said the obligation is demandable at once but the happening of the condition what it will result to the extinguishment of the obligation.

What is the consequence if the obligation is extinguished? The creditor in the original obligation subject to a suspensive condition will now have the obligation to return what he received. Example: you have an obligation where it says I’ll deliver to you my car for you to use it until you become a lawyer. There is again a period from the time when I delivered to you my car and the time when you passed the bar exam. When you now become a lawyer, what is the effect of the obligation? – you have to return now the car and so when you have to return the car what is expected of you when the car is still with you? – so you are in the original obligation subject to a resolutory condition, you were the creditor and since it is subject to a resolutory condition you can demand immediate performance to deliver to you the car. The moment the resolutory condition happened you now become the debtor of the obligation to return, while the car is with you what can possibly happened to the car?

- It may be lost- Deterioration

- Or improvementArticle 1190 says that the rules provided in article 1189 will likewise apply to obligation subject to a resolutory condition however the person is previously the creditor will now become the debtor in the obligation to return.

Article 1191 talks about the remedy of rescission, it talked about a reciprocal obligation. What is a reciprocal obligation?

- It is an obligation when the 2 parties are debtors and creditors to each other, the obligations of the parties arise from the same cause and both have obligation. Example: contract of sale (the seller and the buyer, both are debtor and creditor, the seller’s obligation is to deliver and to transfer ownership. The obligation of the buyer is that he is expected to pay the price.

What will now be the remedies in case of non-fulfillment of the obligation in a reciprocal obligation?

The seller has two options;1. He can demand for specific performance plus damages2. He can ask for the cancellation of the sale or rescission plus

damages However, we have to take note if one demands for rescission the party who demands for rescission should be ready to return what he has received by virtue of the contract and the law further says that since this is an option given to the injured party. (who is the injured party? It is the party who is ready to comply what is expected of him when the other is not ready to fulfill his obligation despite demand) assuming that the injured party initially availed the remedy of specific performance, you file an action in court demanding the specific performance, however, when he filed that action for specific performance he found out (let say that the buyer is the one who filed a case in court demanding for the delivery and transfer of ownership) that the seller cannot anymore deliver and transfer ownership because he already sold the property to a third person who acted in good faith. Specific performance here is no longer possible so the law now says that if after demanding for specific performance but it becomes impossible then the injured party makes now resort to rescission. And in this case the third person who acted in good faith is protected by law. Do not confuse this of consent of rescission where authorities really said that the more appropriate term is resolution than rescission because we also have the concept of remedy of rescission in the case of what we call as effective contracts that rescissible contracts. This is different, the action for rescission under the defective contract does not refer to a situation where a party to the contract fails to comply in a reciprocal obligation, in a rescissible contract this is a remedy availed of when there is adequacy of consideration or in the case where the contract is entered into in fraud of creditors. The remedy of rescission is availed of when the contract is entered into defraud of creditors.

The rescission under article 1191 refers to a reciprocal contract or obligation. Under rescissible contracts the contract there can be rescinded because of inadequacy of consideration or what the law refers to as lesion or the contract was entered into to defraud the creditor.

Next chapter

Obligation with a period

How do we differentiate a period from a condition?- If you talk about condition it is a future and uncertain. It

may or may not happen.- If you talk about a period or a term it is future and

certain. It will certainly come but in certain cases we don’t know when will it happen but it will definitely come. Example: death

There are instances where the obligation does not specifically state when the obligation is due, if the obligation does not specify when it becomes due and from the nature and circumstances of the obligation it can be inferred that a period is intended by the parties. In a contract of loan for example it can be inferred from the nature of the contract that a period is intended by the parties, you cannot say that the obligation is pure and therefore demandable immediately because it is not inconsonance with the nature of a contract of loan. So what is the remedy? Article 1197, if from the circumstances and nature of the obligation it can be inferred that a period is intended by the parties then the parties can go to court and ask the court for fixing the period.

If the debtor obliges himself to pay when his means permit him to do so, how do you classify that obligation? Is that an obligation with a condition or period?

- The law specifically stated that kind of obligation with a term or period. Since the term has not been fixed then the same remedy, you go to court and ask the court and fixed the period and once the period is fixed it cannot anymore change by the parties.

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1. If the obligation does not fix a period, but from its nature and circumstances it can be inferred that a period was intended by the parties

2. If the duration of the period depends upon the will of the debtor

3. If the debtor binds himself to pay when his means permit him to do so

For whose benefit is the period constituted? - The law presumes that the period is fixed to benefit both

debtor and creditor.

Is it possible that the period constituted can only benefit a party?- It can be inferred from the obligation itself, you will be

able to know whether the period will benefit only one party, like if you have a contract of loan with a term but it does not bear interest. For whose benefit is the term constituted? It is for the debtor.

- Although the law presumes that the term is to benefit both debtor and creditor however, the parties may stipulate that the period will only benefit one party.

-You have a suspensive term and also a resolutory term. If I say I obliged myself to give you my car on dec312015 so that is an obligation to deliver a specific car with a term. So if I made or the obligation is constituted today and the term is dec31 so there is a possibility that it can be lost, deteriorate or improve of that specific thing and so you apply the same rules.

Resolutory term – if an obligation is subject to this term it is also demandable immediately like I obliged myself to give you a monthly allowance of 10k until the end of the year, so that obligation is immediately demandable but upon the arrival of the term the obligation is extinguished.

The law also provides specific instances when the debtor loses, so the general rule is the period is constituted to benefit both debtor and creditor. But there are instances that the debtor loses the right to make use of the period.

ARTICLE 1198 Instances where the debtor loses the 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 (it is not necessary that he is judicially declared insolvent)

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

NOV23, 2015

When we talk about a period there is already an existing obligation, so the arrival of the period does not determine the effectivity of the obligation because there is already a pre-existing obligation. It merely fixes the time of the fulfillment of the obligation unlike in condition, the obligation arises or extinguished.

An obligation with a period – there is already an existing obligation, it only fixes the date of its effectivity.

Obligation with a condition – gives rise or extinguishes an obligation.

So that is the reason why if it is an obligation subject to a suspensive condition at the time when the obligation is constituted, you do not have yet an existing obligation. It is the happening of the condition that will give rise to an obligation, but if the condition is resolutory, it extinguishes the obligation.

In the case of an obligation subject to a condition, we have that provision that if an obligation is subject to a suspensive condition, once the condition is fulfilled, the effectivity of such obligation retroacts to the date when the obligation was constituted. Is this also applicable in an obligation with a period?

So when you talk about an obligation – In 2012, X obliged himself to give his specific car to Y if X passes the bar exam in 2015. The passing of the bar exam happened in 2015, as of what date the creditor becomes the owner of the car?

Ans. The moment the creditor passes the bar exam is already considered to have become the owner as of 2012.

What happens if the obligation is – in 2012, X obliged himself to give his car to Y in 2015, so in 2015 which is the arrival of the period, what would be the effect of the condition? What gives birth to the obligation?

Ans. The obligation arises upon the arrival of the period. The birth of obligation is on 2015. No retroactive effect for obligation with a period.

When we were talking about an obligation subject to a condition, there is that provision which says “If the happening of the condition is dependent purely on the will of the debtor, the obligation is void”, now in the case of an obligation with a term, if the term is dependent upon the will of the debtor, is the obligation also void?

Ans. Yes it is valid. It is only the term not the fulfillment of the obligation.

When can the creditor demand if the period is dependent upon the will of the debtor?Ex. The debtor has obliged himself to pay the creditor little by little, when can the debtor demand?

Ans. When the period is dependent upon the will of the debtor, the court may fix the period. And once the period is already fixed, then the creditor will know when the obligation can be demanded which is upon the arrival of the period.

In what instances should the creditor go to court to fix the period?

Ans. 1. Term is dependent upon the will of the debtor

2. Nothing is mentioned about the period but it can be inferred from the nature of the obligation that a period was intended

NOTE: ONCE DATE IS FIXED, PARTIES COULD NO LONGER CHANGE IT

For whose benefit is the period constituted?

Ans. It is for benefit of both creditor and debtor unless otherwise stated. As far as the debtor is concerned, the debtor may use to comply with the obligation before the due date because otherwise, the demand is considered to be premature, he cannot be compelled to perform the obligation.

Are there instances when the creditor can demand for the fulfillment of the obligation even if the period has not yet lapsed?

Ans. Yes, under five circumstances.

1. When after the obligation has been contracted, debtor becomes insolvent unless he gives a guaranty or security for debt;

2. When he does not furnish to the creditor the guaranties or securities which he has promised

4. 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;

5. When the debtor violates any undertaking. In consideration of which the creditor agreed to the period

6. When the debtor attempts to abscond

Example: contract of loan payable for two years, the security by way of real estate mortgage is the house and lot of the debtor. Because of the typhoon Yolanda the roofing of the house came off, can the creditor now immediately demand for the payment of the obligation? Is there a difference between mere impairment of the security due to the acts of the debtor and disappearance of the security due to a fortuitous event?

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Ans.Yes, there is. It is very clear that it is enough that the security is impaired due to the act of the debtor will already lose the right to make use of the period even if it is a mere impairment, not a total loss.

But if it is a fortuitous event, and the result of fortuitous event is a mere impairment of the security, does it make the obligation due and demandable?

Ans. No, there must be a total loss (to protect the interest of the creditor if there is total loss and the obligation is demandable). If it is mere impairment resulting from the fortuitous event, the debtor does not lose the right to make use of the period, hence the creditor cannot compel the performance.

For both instances, he can make use of the period if he can provide another security.

Reasons for this exceptions – the possibility that the debtor may not be able to comply with his obligation. That is why the law now says the debtor loses the right to make use of the period, giving the creditor the right to demand payment.

On the matter of insolvency, it says when the debtor becomes insolvent after the debt has been contracted unless he gives a guaranty or security for the debt. Is judicial declaration of insolvency necessary?

Ans. No, it is not necessary.

How do you prove that the debtor is insolvent, so that creditor can demand payment?

Ans. When his assets are less than his liabilities or he finds difficulty in meeting his obligations when the obligation become due.

What would be the effect if the debtor pays the obligation, unaware of the period, even if it is not yet due? Can he get it back?

Ans. He is entitled to get it back because it amounts to solutioindebiti (undue payment)

So you have several examples of contracts involving obligations with a term, like when we mentioned about the right of the court to fix period when the term is made dependent upon the will of the debtor. We have a common provision in certain contract of lease which provides that the lessee can continue to occupy the property for as long as he pays rental, so that is the provision in the contract of lease. So if you are the lessor in this particular kind of contract, you would now want to determine until when the lessee will occupy the property, because as far as the lessee is concerned, the lessee would think that he can continue to occupy the property forever for as long as he pays the rental. So on the part of the lessor, what would his remedy if wants to fix the time of lease?

So clearly with this kind of stipulation, the term of a contract of lease is made to depend on the will of the lessee, and so the creditor here who now wants the period of the contract to be fixed can go to court so that the court will now fix the period, so that at the end of the term fixed, the creditor can demand the debtor to vacate the premises.

In another case, it also involves contract of lease. There is stipulation in the contract of lease that such contract will be for a period of 5 years. But there is a stipulation to the effect that the contract of lease may be renewed for the same term subject to the terms and conditions as may be mutually agreed upon by the parties. That means to say that not all the provisions or terms and conditions of the original contract will be renewed because the stipulation in the contract says that the term of 5 years will be renewed only provided that the lessor and lessee will arrive at the mutually terms and conditions of the new contract of lease. So the issue that was raised before the court was, is this also a situation where the court may fix the period? Is the remedy under Art. 1197 the proper remedy, that the court may fix the period because there is no specific period that has been set?

According to the SC in this particular case, Art. 1197 does not apply because in art 1197, it presupposes a situations where the terms and conditions are already agreed upon by the parties, what is uncertain only is the term. So in this particular case, the SC said since it was made clear

from the facts of the case that the parties to that contract of lease were not able to reach a mutually agreed upon terms and conditions for the renewal of the contract of lease, therefore, there is no period that can be fixed. Because in order for 1197 to apply, there has to be a valid and binding agreement, the only vague thing is the term.

ALTERNATIVE OBLIGATIONS

So you have here two obligations:

1. Alternative obligation

2. Facultative obligation

One of the essential elements of an obligation is the object or prestation

In an alternative obligation, what happens here is that there are several prestations in one obligation but only one is due.

Facultative obligation – it comprehends only one object or prestation which is due but it may be complied with by delivery of another object or the performance of another prestation in substitution

A person alternatively bound by different prestation shall completely perform one of them, and creditor cannot be compelled to receive part of one and part of the other.

In the case of alternative obligation, when the debtor binds himself to deliver object number 1, or 2, or 4. You have three objects. Now, when the object becomes due mere compliance with one is sufficient to extinguish the obligation.

In this particular kind of obligation, who has the right to choose as to whether it is object number 1, 2, or 4?

Ans. If the obligation is silent, then the right to choose belongs to the debtor

The moment the debtor communicates his choice to the creditor in any form by which he notifies the creditor as to which object he has chosen to deliver, then that will now convert the obligation into a simple obligation.

What would be the effect on the obligation if for example when the obligation is not yet due and there was also no notification by the debtor made to his creditor as regards his choice, then item number 2 was destroyed by the debtor. What would be its effect on the obligation?

Ans. It has no effect on the obligation because the debtor can still comply with the delivery of object 1 or 4. Because the right to choose belongs to the debtor.

What if the after the destroyed object number 2, object number 1 was destroyed due to a fortuitous event, what would be the effect on the obligation?

Ans. The obligation now becomes a simple obligation. So in which case, even if the debtor did not communicate his choice to the creditor since the obligation is now converted into a simple obligation, then the debtor has to deliver object number 4. The debtor cannot also say that his obligation is distinguished because of the loss due to a fortuitous event because there is still one object left and he has not yet communicated his choice.

Now, after what happened to objects 2 and 1, if item number 4 I lost due to a fortuitous event, what is now the effect of the obligation?

Ans. Obligation is extinguished.

What would be the effect if item number 4 was destroyed by the debtor?

Ans. Debtor will be held liable to the creditor.

Since he cannot anymore comply with the obligation, what will be now the basis in determining the liability for damages of the debtor?

Ans. The value of the last thing which disappear – object number 4.

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The law also set certain restrictions on the right of the debtor to choose the object to deliver, what are these?

1. the debtor cannot choose that which is impossible or unlawful or which could not have been the object

And so if among the objects, one is impossible and the other is unlawful, he cannot choose those objects.

Would it also be possible if the right to choose is given to the creditor?

Ans. Yes. But for this to become possible, there has to be express stipulation in the contract.

Example of alternative obligation: contract of insurance, it is provided that in case of loss, the insurance company may either pay the value of the damage to the creditor or have the object repaired by the insurance company.

Alternative obligation can be with a term or subject to a condition. So if it is subject to a condition and the condition is already fulfilled then he has the obligation to choose, because obligation arises now (suspensive condition)

If the debtor does not make a choice and the term has already lapsed, then the creditor can demand for the fulfillment of the obligation.

**if you are the debtor and you are entering an alternative obligation, just keep silent as to who has the right to choose. Do not remind or ask the creditor**

No communication = still remains alternative obligation

What specific form the communication has to be effected?

Ans. Any form may be employed provided that the other party is properly notified of the selection. So that there will be no quarrel as to whether there has notification or not. For the one who makes a choice, might as well do it in writing (for proof but not required)

Is it important to determine when the communication is made?

Ans. Yes, because of the possible things that can happen prior to the communication. There might be loss or destruction the thing.

Is the consent of the creditor to the choice of the debtor necessary before the choice can produce effect?

Ans. Not necessary otherwise it is useless giving the right of choice to the debtor. Or probably you might only do it for courtesy.

Two instances when the obligation (from alternative) becomes simple:

1. when the choice has been communicated

2. when the choice has not been communicated but by some circumstances only one is practicable for delivery

Art. 120three If through the creditor’s acts, the debtor cannot make a choice according to the terms of the obligation, the latter may receive the contract with damages. Again, the right of choice belongs to the debtor but the creditor performs acts which will now affect the right of the debtor to choose, then the debtor may ask for the rescission of the obligation.

Art. 1204 So this is the rule on the determination as to what will now the bases for the damages:

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 obligation have been lost, or the compliance of the obligation has become impossible.

What is the basis for indemnity?

Ans. The value of the last thing which disappeared or service which last become impossible. Damages may also be awarded (rule on damages, you have to prove the extent of damage)

Art. 1205 – the rules in case of loss due to a fortuitous event or loss due to the fault of the debtor prior to the time when the communication is made.

Ex. Object number 2 was destroyed by the debtor and the right to choose was given to the creditor, what right will the creditor have?

Ans. The creditor can choose 1 or 4, will he be entitled to damages?

Ans. Yes because of the fact that he was already deprived to choose of object 2.

What if the creditor does not like objects 1 and 4? Object 2 judiyaganahan.

Ans. He can demand for the value of item number 2 plus damages

RIGHT OF CHOICE BELONGS TO THE DEBTOR

Loss:

1. Fortuitous event

All objects – obligation is extinguishedOne or some – debtor chooses from the remainder

2. Fault or negligence of the debtor

All objects – obligation is not extinguished; object converted in monetary-liable value; value of object which last disappeared; damages

One or some – choose from the remainder but creditor cannot claim for damages

RIGHT OF CHOICE BELONGS TO THE CREDITOR

Loss:

1. Fortuitous event

All objects – obligation is extinguishedOne or some – creditor chooses from the remainder; no liability

on the part of the debtor

2. Fault or negligence of debtor

All objects – value of any subject chosen plus damagesOne or some – choose any objects, lost or not. If object

chosen is already lost – value plus damages; if not lost – no damages

(Damages will arise if there is fault, damages cannot arise due to fortuitous event)

NOTICE: If you read carefully the law, there is damages there but another author says no damages, but if you read the law, there is damages because you have been deprived of the choice of that other object.

Art. 1206 – Facultative Obligation

In a facultative obligation, there is only one prestation that is due but the debtor may render another as a substitute.

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.

Who has the right to make the substitution?

Ans. The debtor

Can the right to make the substitution be given to the creditor?

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Ans. No, the right to make the substitution only belongs to the debtor unlike in alternative obligation where the right to choose may be given to the creditor

The loss or destruction of the substitute will not hold the debtor liable

Ex. If he promised to give object 1 but the debtor has the right to make a substitution with item number 2, it is not alternative. If item number 2 is destroyed even if fault of the debtor or due to a fortuitous event, he cannot be held liable because the right to choose whether to make a substitution ONLY belongs to the debtor.

ALTERNATIVE FACULTATIVEThere are several prestations There is only one prestation but

the debtor may give one as a substitute

The right to choose may be given either to debtor or creditor or even to a third person

Only the debtor who has the right to substitute the principal object

Complied with the delivery of one of the objects or by the performance of one of prestations

Complied with another object in substitution of that which is due

The loss or impossibilities it has to be all of the objects which are due without the fault of the debtor which will result to the extinguishment of the debtor

The loss or impossibilities of the object which is due without any fault of the debtor is sufficient to extinguish the obligation

If one of the prestation is unlawful, the others may still be valid and the obligation remains

If it is the principal object is lost, even if the substitute is still there, the debtor cannot be required to deliver the substitute because there is only one prestation due

When does the substitution take effect?

Ans. Only one who is empowered to make the constitution is the debtor, however, in order for the creditor will be bound by the substitution, it is necessary that the debtor should communicate to the creditor that he has made the substitution.

What is the effect of loss of substitution?

Ans. BEFORE THE SUBSTITUTE IS MADE BY THE OBLIGOR, the loss or deterioration of the thing intended as a substitute, through the negligence of the said obligor, does not render him liable.

Once the substitution has been made, the debtor shall be liable for loss or deterioration.

Obliconnov 26

Now in the alternative obligation, as a general rule, if the obligation is silent as to who is given the right of choice, then we said that the right of choice is given to the debtor.

So based on that concept that choice is presumed to be given to the debtor, so this will be a guide on the part of parties to a contract when they look into the terms and conditions. So naturally, if you are the debtor you can just be silent as to the right of choice because the law already presumes it to be in your favor.

However if you are the creditor in an alternative obligation then you will have to propose that the right of choice be given to you as the creditor.

Now while obligation is still alternative because choice has not been made yet and has not been communicated to the creditor, in the case the presumption that the right of choice belongs to the creditor applies, then you have the rules provided in the law as to the effect of the loss of any of the object in an alternative obligation. It depends on who is given the right of choice.

(na corrupt ninga part mga frets HUHU amsorry)

(bastanibalik shag play sa part ngaang alternative obligation na convert na into a simple obligation)

So debtor will have to deliver the object chosen/ object that remained in this case object 2. Now as to what happens to object 2 in case it is lost due

to a fortuitous event, now it is a simple obligation then obligation is extinguished.

If it was lost due to the fault of the debtor then the sae can be held liable for the damages.

On the other hand, if the loss due to the fault/negligence of the debtor then the rules are:

If ALL are lost due to the fault of the debtor the Debtor will be held for damages.

What is the basis for the determination of the damages? So if the choice was given to the debtor the basis for the damages is the value of the last thing that disappeared.

If only ONE or SOME are lost due to the fault of the debtor, as there are still the other objects, if one was lost due to this fault then he can still to give the other objects. Or if the others are lost and there is one that remains, then he can still comply by delivering that one last object without damages because precisely the right of choice was given to the debtor.

On the other hand, if the right of choice was given to the creditor, we have to differentiate whether the loss is due to a fortuitous event or the due to the fault or negligence of the debtor.

If ALL are lost due to a F.E. = obligation is extinguished If only ONE is lost due to a F.E. = the creditor can still bet the

remaining objects. If there is only one remaining then the obligation becomes a

simple one, creditor will have to accept the remaining objects without damages because the loss is without the debtor’s fault.

On the other hand if the loss was due to the fault or negligence of the debtor

If ALL were lost due to debtor’s fault, since the right of choice was given to the creditor then the creditor can demand for the value of any of the objects + damages.

If only ONE or SOME were lost due to the fault of the debtor, then the creditor has 2 options:

o Creditor can demand for the remaining objects + damages (is debtor liable for damages? Yes he is liable because the creditor lost his right to choose due to his fault)

o Demand for the value of any objects that was lost +damages

Now we compared the alternative obligation v facultative obligation.

In a facultative obligation there is only one object but the debtor may render another as a substitute.

In a facultative obligation it is only the debtor who is given the right to make a substitution. So if you have a principal object #1 there is only one prestation. Then the debtor can only have object #2 as a substitute. Substitution can only be made by the debtor- cannot be given to the creditor.

Therefore, if substitution is resorted to by the debtor, he has also to communicate his desire to make a substitution. The moment he has communicated such substitution, his obligation is now to deliver object #2. As to what happens subsequently to object #2 you apply the rules on the loss of the thing based on a simple obligation. Because the moment substitution has been made the obligation becomes a simple obligation.

If the obligation is facultative and there is no substitution that was yet made by the debtor, not yet communicated substitution, the loss of the substitute, even due to the fault of the debtor, will NOT hold the debtor liable. Even if he destroyed the substitute, he will not be held liable because the principal object is still there.

Culpable loss of the substitute will not hold the debtor liable. This would mean that he has opted to comply by delivering the principal object.

JOINT AND SOLIDARY OBLIGATIONS

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Now, with respect to the illustrations that we gave, in most of the examples we only had one debtor and one creditor.

When we talk about joint or solidary obligations there are now the components of several debtors and several creditors in one and the same obligation. And so, what is impt with respect to the joint and solidary obligation is what will govern the nature of the relationship of the debtors, and/or the creditors, if there are several of them; or the relationship of the debtor to the creditor.

There is a presumption that if you have several debtors in one and the same obligation, you do not presume them to be liable for the full amount of the obligation. In other words, obligation is presumed to be divided among the joint debtors. Presumption is obligation is joint.

On the other hand, if there is component of several creditors, and it is silent as to how the creditors relate to each other, then the law also says, you do not presume that creditor can demand the full payment of the obligation. Simply put, the creditor can only demand his share. And so it is presumed to be a joint obligation.

So when will the obligation be solidary?

It is solidary when:

1. Expressly agreed upon by the parties2. Law provides 3. Obligation require it to be solidary

So the first thing that you will have to consider if the obligation has several debtors/creditors is go through the enumeration of the solidary obligation. Did the parties stipulate that the obligation is solidary? Or is there a specific provision of law saying that the obligation is solidary? Or does the nature of the obligation require it to be solidary?

If not, then presumption is obligation is joint.

Joint obligations

You can have the components of two or more creditors.

In an example you can have one debtor but 2 creditors in the amount of 300k. D owes X and Y the total amount of 300k. OBLIGATION IS SILENT AS TO THE relationship of x and y. so the presumption is the obligation is JOINT. Which means to say that the creditor there can only demand his share in the obligation. So in this particular example how many obligations are there?

-there are 2 obligations where d owes x 150k and y can also demand 150k from d. so it is divided equally bet the 2 creditors. Of course if the agreement has expressly stated diff amounts, like d owes x and y 300k but the share of x is 200k and the share of y is 100k, then that will govern.

Presumption of equal division will only apply if agreement is silent.

You can also have 2 or more debtors and only one creditor. So the same principle will apply. If the amount is 500k, you have 2 joint debtors then you also have 2 obligations. And since it is silent it is divided equally bet the 2 debtors.

As to how much is the share of the debtors, and creditors in obligation which is presumed to be joint but does not specify their respective shares: the law says that it will be divided equally among the debtors and among the creditors in the absence of any stipulations.

If from the law or the nature of the wording of the obligations to which the preceding article refers, the contrary does not appear, then the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits being considered being considered distinct from one another subject to the rule on multiplicity of suits.

So debtors are joint debtors. If you would want to demand payment since the share of each debtor is considered separate and distinct from each other then you will have as a creditor to demand from each of the joint debtor. So if you demand from one debtor, the other debtors cannot be

considered yet to be in default because the share of each debtor in a joint obligation is considered separate and distinct from each other.

That would be very relevant if we talk about the principle of prescription. In prescription, a person may lose his right to collect by prescription. Let’s say a contract of loan is embodied in a promissory note; so the creditor can demand payment of the value of the promissory note when the latter becomes due and demandable. Under our law on prescription, the action of the creditor to demand payment should be made within a period of 10 years from the time the obligation became due; otherwise, then his action will be considered to have prescribed and so the debtor will no longer be held liable. Therefore, if you are the creditor, so that you will not lose your right to collect by prescription, then you will have to demand payment. And if it is a joint obligation, you should have to demand payment from each of the joint debtor. Because the share of each debtor is separate and distinct.

Underlying principles:

Joint obligation is presumed; if silent= joint In a joint obligation, creditor is entitled to a proportionate part

of the credit and the debtor is liable only to that proportionate part of the debt; that is why a brief description of the concept of a joint obligation, you have there “to each his own”

Obligations are separate and distinct subject to the rule on multiplicity of suits.

In this particular obligation, on both sides, you have several parties. You have 3 debtors and you have 4 creditors and an obligation amounting to 120k. So you apply the 3 principles that we have earlier mentioned. So it is silent as to what kind of obligation so it is presumed to be a joint obligation. Then it is also silent as to how much is the share of the parties so it is divided into equal shares. But there are several debtors and several creditors in this case. So if each of the debt is considered separate and distinct from each other, how many obligations are there?

-There are 12 obligations.

-in other words, as far as debtor A is concerned, A owes 4 creditors; so there are 4 obligations as far as A is concerned. The same is true with B, and C. so you have a total of 12 obligations.

So if you are to divide the total amount of the obligation, 120k, on the side of the debtors, each of the debtor’s total liability is 40 thousand. But, the 40k that A owes, he owes it to each creditor W, X, Y, Z. So if creditor W were to demand from A, he can only demand 10k. Same is true with respect to the other creditors.

We go to the SOLIDARY OBLIGATION

When is an obligation solidary:

1. When it is expressly stipulated upon by the parties2. When law so provides3. When nature of obligation requires solidary

And so in a solidary obligation, this can be described by the concept of “all for one, one for all”

So if you are a solidary debtor, you can be held liable to pay the full obligation and what right will the debtor have as against his co-debtors?

-if you are the debtor who paid full amount, you can demand reimbursement from the co-debtors

On the side of the creditor, if the creditors are solidary creditors anyone of them can also demand payment for the full amount. And if only one of the creditors collected the full amount, what will be his obligation to his co-creditors

-Give to his co –creditors their respective shares.

In this case, if you have A who owes 100k from Y and Z and they agreed that obligation is solidary as far as creditors are concerned, Y can demand the entire 100k from A. A cannot refuse to pay the full amount bec in a solidary obligation there is the concept of mutual agency.

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So knowing the nature of a solidary obligation, if you are a creditor and there are several of you, what reason can you have, not to agree to a solidary obligation? By its nature there is a possibility that your co-creditor, who might manage to collect the full amount, will not give to you your share. This time you cannot demand payment from the debtor bec the debtor once he pays full amount to any of the solidary creditors that results to extinguishment of his obligation.

You can also have several debtors and several creditors in a solidary obligation. So if you have in this case, A B AND C are solidary debtors of Y AND Z who are solidary creditors. If Y will demand payment from A he can demand payment for the full amount and A can also be compelled to pay for the full amount.

Mutual agency- your co-creditor who is a solidary creditor, can very well collect the full amount. You would not want to enter into such an arrangement with a person whom you do not trust bec that person after collecting full amount might not also deliver your share.

Could it be possible that on the side of the debtor you have a joint obligation, while on the side of the creditor you have a solidary or vice-versa?

-yes. So how will it affect the obligation?

So we have here an example where on the side of the debtors they are solidary, then on the creditor you have joint.

If the obligation is solidary on the side of the debtor, we simply remember that each one can demand the full amount but on the side of the creditors they are joint creditors. So if you are a joint creditor you are liable only for your share.

As far as y is concerned he is liable only up to

So as far as the creditors are concerned, each one being a joint creditor can collect only a maximum of 60k.

On the side of the debtors this is solidary. So strictly, eavh one can be held liable for the whole amount of 120k.

Now since it is joint on the side of the creditor, if Y will collect from A, how much can Y demand from A?

–only 60k, even if the debtors are solidary debtors, because Y here is entitled to only 60k. The same is true with respect to Z.

If you have joint on the side of the debtor and solidary on the part of the creditor, again apply the rule. If they are joint debtors of 120k, the maximum that each one can be held liable is only 40k, being a joint debtor.

You have Y and Z who aresolidary creditors. If they are solidary creditors supposedly they can demand 120k. How much can Y demand from A?

-only 40k, even if they are solidary creditors, because the debtors are joint debtors.

So just remember that if it is joint, you divide the obligation equally among the parties, and if it is solidary then you can collect the entire amount.

1209- A joint indivisible obligation

If the division is impossible the right of the creditors may be prejudiced only by their collective acts and the debt can only be enforced by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.

In this kind of division, the object of the division is not capable of partial performance; that’s why it says division is impossible.

If A and B are joint debtors of X for the delivery of a car worth 1M- so the object of the obligation here is a car which is indivisible. The division is impossible but the debtors here are joint debtors. So therefore for X to be able to enforcecomplete fulfilment of obligation, A and B should be able to come up with their respective shares. So 500K each. But what happens if A, is insolvent?

If A is insolvent, can X demand from the solvent debtors, the delivery of the car which is worth 1M?

-He cannot bec the relationship is joint; in which case the debtor can only be held liable to pay his share of the obligation.

But since the object is indivisible, X cannot demand from B to deliver one half of the carrrrbec it is indivisible.

And so under this situation , the obligation of B will now be converted into a monetary obligation. That means to say, if B is capable of complying with his share, he can now be held liable by X to pay his share of 500k without damages bec he is able to come up with his share.

In the event that A, assuming that A later on, is now capable of complying with his share, it will only be A who will be held liable for damages.

Underlying principles:

2 or more debtors. If there are 2 or more debtors the fulfilment of the obligation requires the concurrence of all debtors although each to his own share

Creditor will have to enforce the obligation against all debtors if he wants the fulfilment of the obligation.

Creditor cannot act in representation of the others and it is also indivisible and therefore not susceptible of partial fulfilment then he cannot also demand fulfilment of the entire obligation if the obligation is indivisible

So what is the effect if one cannot comply?

The debtors who may have been ready to fulfil or perform what was incumbent upon them shall not contribute to the indemnity beyond the corresponding value of the price.

1210- Indivisibility does not necessarily give rise to solidarity neither does solidarity by itself imply indivisibility

If object is indivisible it does not necessarily mean that the debtors are solidary debtors. In the same manner that you may have a solidary obligation but the object is divisible obligation.

Like an obligation to pay a sum of money- like a contract of loan, the debtors bound them as solidary. X and Y are solidary debtors of A and C. the parties’ relationship is solidary but the object of the obligation 100k is divisible; it is capable of partial performance.

1211

In a solidary obligation it may be possible that the debtors may be bound by diff terms and conditions.

Ex: you have a solidary obligation where X Y and Z are solidary debtors of C for 9k subject to the following terms and conditions:

1. X’s share is payable on nov 15 20152. Y’s share is payable on dec 313. And Z’s share is C marries B.

On nov 15 C demands payment from Z. question, can Z be held liable and if so how much?

-since they are solidary debtors, anyone of them can already be held liable to pay that which is due even if it is not his share, because they are solidary debtors. And so when C demands payment from Z on nov 15, Z can be compelled to pay the 3k share of X, because they are solidary debtors. Now if it were Z who were made to pay, Z can demand reimbursement from X bec it was X’s share that was due and demandable.

That is the nature of a solidary obligation- the creditor can demand payment from one some or all of them simultaneously. That is the prerogative of the creditor! For as long as obligation is already due and demandable.

-even if it is not your share you can still be held liable to pay for that, and you can just demand for reimbursement from your co-debtor

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-if sharing is equal, and one becomes insolvent, the share on the insolvent will be divided equally bet the solvent ones

What is the effect of active solidarity?

When you say active it refers to the creditor.

So what id its effect?

-there is mutual agency where each creditor is empowered to exercise against the debtors not only the rights which corresponds to him but all the rights which corresponds to the other creditors when the consequent obligation to render an accounting of his (inaudible word) to the creditor.

That’s why if you’re a solidary creditor you can demand full payment but you will have to account your co-creditor their respective shares.

What is the effect of passive solidarity?

-anyone of the debtor can be held liable for the full amount and so therefore the one who pays the full amount of the obligation is also entitled to reimbursement. However is a debtor only to the extent of his share.

If the solidary obligation is expressly stipulated or expressly provided for by the law you already encountered in your study in the family code where the law provides for instances that obligation is solidary.

-obligations of an absolute community or conjugal partnership. You remember in the liquidation, the moment the property is liquidated you pay first from the total properties all obligations of the community. If there is a balance, then the balance will be divided bet the spouses. What if the liabilities are more than the assets of the conjugal partnerships? Who are now held liable?

-exclusive properties of the spouses can be made to answer for the deficiencies of the absolute of conjugal property. And what is the nature of the liability of the h & w as regards the unpaid obligations?

-solidary liability; creditor can demand full payment from anyone of them. Either the h or the w.

-whoever pays will simply demand reimbursement from another.

Special parental authority- the teacher, the school administrator, or the school are liable for the acts or omissions committed by children under their care if it causes damage or injury to another

What is the nature of the liability of the teacher administrator and the school?

-they are solidary liable

Parents- only subsidiary liability which means only when those who are primarily and solidarily liable are insolvent

Nature of a solidary obligation says each creditor may do whatever may be useful to the others but not anything which may be prejudicial to the others and this is bec of the concept of mutual agency. If the creditor does an act it should be beneficial.

Example, if the creditor sends a demand letter to any of the debtors when obligation becomes due- that is beneficial

But if solidary creditor will condone the obligation, tells the debtor “forget about your obligation” that is prejudicial; he has to account for that to his co-creditors.

As far as debtors are concerned a prejudicial act performed by a solidary creditor shall be valid and binding based on the principle of mutual agency among creditors.

The creditor who incurred the act shall indemnify others for damages.

A solidary creditor cannot assign his right to others without the consent of other co-creditors.

This is an exception to that general rule that rights are transmissible.

This is one instance where the law prohibits assignment of rights without the consent of co-creditors.

Why? It can prejudice the other co-creditors because their relationship is based on mutual agency. They trust each other.

DATE: 12-3-’15: RECAP ON NOVATION UNTIL 1230

ARTICLE 1215

Different modes of extinguishing obligation1. Novation2. Compensation3. Confusion or remission 4. Condonation

*nature of solidary obligation is based on mutual agency hence whatever acts made by one binds the others.

Novation-takes different forms:

Change in the object of the obligation Change in the person of the debtor Change in the person of the creditor

-the original obligation will be extinguished by agreement of the parties because it will now be substituted by a new obligation.

Example: X owes Y and Z, solidary creditors for 100,000.

-it is possible that X and Y will agree that instead of the 100k, debtor X will just repair the house Y.Hence, the original obligation is extinguished and a new one is created where there is now a change in the object. New obligation: repair the house of Y

Q: what is the effect of novation in so far as the original obligation to the parties?ANSWER:The first obligation is already extinguished and the new obligation is to repair the house. As far as the solidary creditors are concerned, Z is prejudiced if no payment will be made to him since it will only be the house of Y to be repaired hence it is beneficial to Y only. On his part, Z, he will be paid by Y his share on the credit which is 50k. But the original obligation is extinguished and a new one is created.

Effect of Novation-if it is prejudicial, the solidary creditor who effected the novation shall reimburse the others for damages incurred by them. -if it is beneficial to the creditor, all of them will receive the benefits. So the creditor effecting the novation who was able to secure the fulfillment of the new obligation shall be liable to the others for the share which corresponds to them not only for the obligation but also the benefits.

Example: (same situation above) if instead of an obligation 100k, there is

an agreement between X + Y, the object is a parcel of land. And if you get the value of the parcel of the land, it is for 150k. Hence, beneficial to them. Z will be benefitted in consonance with the principle in solidary obligation that a solidary creditor can do acts which are beneficial to his co-creditors but not those acts which will be prejudicial.

NB:if it is prejudicial, he will reimburse the co-creditor who is prejudiced and if damages are sustained, he will also have to pay.

Compensation-it is a figurative operation of weighing two obligations simultaneously in order to extinguish them to the extent that the amount of one is covered by the amount of the other.-Two persons are creditors and debtors to each other. So when to persons are creditors and debtors to each other and all the requisites for legal compensation are present (when both obligations are due and demandable, they are at the same time, both obligations are already liquidated and there is no claim by any person by any of the credit), then compensation takes place by operation of law.

“compensation takes place by operation of law”-the obligations are automatically extinguished to their concurrent amounts even without the parties knowing it. The obligations are already extinguished.

Example:X owes Y + Z, SC for 100k.

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Y owes X 100k. *in the first obligation, X is the debtor and Y + Z are the creditors.*in the second obligation, Y who was a creditor in the first obligation is the debtor in the second obligation. And X is a creditor. Therefore, the two persons X + Y are concern, they are debtors and creditors to each other. The two obligations are already due and demandable. The effect is the two obligations are automatically extinguished. Legal compensation takes place.

NB:Total compensation-amounts due are the same hence the two obligations are automatically extinguished. Partial compensation-amounts are not the same or different hence there will still be a balance that is payable.

CAVEAT:if the two obligations are automatically extinguished since there is already legal compensation, as regards Y + Z, Z is not a debtor but the credit that he has against X is already extinguished. So the rights and obligations of the parties are: Y, who was benefitted in the sense that it was his obligation of 100k that was extinguished, therefore he has to deliver to Z his share of 50k. If he does not immediately reimburse Z, then he will have to pay Z 50k PLUS interest from the time the compensation took place up to the time payment was made.

Confusion or Merger-the characters of creditor and debtor is merged in one person.-this refers to the merger of the qualities of creditor and debtor in one and the same person with respect to one and the same obligation.

Example: Illustration by way of a promissory note

A + X owe Y + Z, SC, 100k. This is evidence by a promissory note, a negotiable PN where it says “I promise to pay Y + Z solidary creditors the amount of 100k on December 21, 2015. The PN is signed by the solidary debtors, A + S.

*negotiable instrument-any person who will be in possession of the PN can demand payment from the debtor or the signatory of the PN.

If it is negotiated to B to C to D and finally to A. as far as A is concerned, he is a debtor and when it was negotiated to him, he is also a creditor. Hence, the character of creditor and debtor are now merged in the same person. The PN which is the evidence of indebtedness is now extinguished.

The rights and obligations of the parties: As far as the debtor is concerned when it was negotiated, there was already a settlement between the creditors and whatever proceeds was collected he has to deliver that. As far as the debtor is concerned, it is now A who is the creditor. The merger of the character of debtor and creditor has benefitted also X because the obligation is extinguished but it was the credit of A that was used to extinguish the obligation. So in effect X will have to pay A his share in the obligation.

Remission or Condonation of debt-it is an act of pure liberality by virtue of which the creditor, without having received any compensation or equivalent, renounces his right to enforce the obligation, thereby extinguishing the same either in its entirety or in the part or aspect thereof to which the remission refers. -this is a gratuitous act and this amounts to a donation. When the creditor tells the debtor to forget the amount of the obligation. Since this constitutes a donation then the consent of the donee is required as an essential requisite of a valid donation because no one can be compelled to accept the generosity of another. So if the debtor did not accept the remission or condonation of debt then the obligation remains.

Example:(same example) if X, the creditor condones the obligation and tells A + Z to forget the obligation, the effect will be extinguished if any of the debtors will accept it since it is considered as a donation in favor of the debtors (because it benefitted them by the extinguishment of the obligation).

NB: if there is a valid remission since there was acceptance, as between the debtors, if there was a condonation of the entire obligation or the whole amount which was secured by A, A cannot demand X’s share because there was no actual payment made, hence no basis to ask for reimbursement.

On the part of the solidary creditors, if it was only Y who condoned the entire obligation, he has to account for the share of Z. He has to deliver Z’s share as if Y was able to collect an amount.

ARTICLE 1216

Q: Against whom a creditor may demand payment in the case where there is a solidary obligation and there are several debtors or there is plurality on the side of the debtors?ANSWER: Article 1216 provides the answer. The law provides that the creditor could proceed to any of the solidary debtors or some or all of them simultaneously…

*it is the prerogative of the creditor to demand the full payment of one or all of the debtors.*as illustrated in the case of the husband and wife, if the ACP or CPG is not enough, their separate property may be proceeded by the creditors. If the creditor will proceed the husband’s property, the husband cannot refuse. Because the nature of their liability is solidary. If there is a demand made from the husband and he paid the full amount, he could ask reimbursement from his wife.

Q: If the debtor has already demanded from one of the debtor, can he still demand from another debtors?ANSWER: Yes, as long as the obligation had not been paid yet.

Example: X, Y, Z owe A 100k, the creditor can demand payment from any

of the debtors. If there is a demand from Y, and he pays only 70k, A can still collect Z the balance as long the obligation is not yet been fully paid.

Suretyship(Palmares vs CA)

There is only one contract and the surety is bound by the same agreement which binds the principal.

Demand (extrajudicial or judicial) on the sureties is not necessary before bringing suit against them since the commencement of the suit is a sufficient demand.

A surety is not entitled to be given notice of the principal’s default. (This is so because if you are a surety, the creditor can demand payment from you because you are bound solidarily, you are a solidary guarantor.

ARTICLE 1217

-can be made by one of the solidary debtors and the effect is it extinguishes the obligation.-if there are two or more debtors who offered 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”Ratio: because he is also a principal debtor so when he asks for reimbursement, he could only ask the share of the debtor from whom he is demanding payment for reimbursement.

“..with the interest for the payment already made”-from the time he made the payment up to the time he is being paid.

“The payment is made before the debt is due, no interest for the intervening period may be demanded”Ratio: fault of the debtor. If he pays prior to due date, he is not entitled to pay the interest because of premature payment.

“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.”-when of the solidary debtors is insolvent, the share of the insolvent debtor will have to be divided by the remaining solvent debtors. The sharing is proportionate to their shares.

Summary of the ArticleTo whom the solidary debtor will pay:

1. any of the solidary creditor (if no demand was made) 2. if there was a demand-to the demanding creditor only3. if there were 2 or more demands-to the first who demanded

(priority in time is priority in right) 4. if there were 2 or more demands at the same time-debtor can

select from any who demanded

Legal effects of payment1. The obligation is totally extinguished.2. Payer who is a co-solidary debtor is entitled to reimbursement

from his co-solidary debtors. 3. In case of insolvency of a solidary co-debtor, his share shall be

assumed by his solvent solidary co-debtors.

ARTICLE 1218

-One of the modes of extinguishing an obligation is prescription. -If the period has already lapsed, like an obligation is evidenced by a written agreement, then the debtor of the written agreement fails to

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comply with the obligation. On the part of the creditor, if it is based on a written agreement, then the prescriptive period to which an action to be filed is 10 years from the time the obligation becomes due. And so if the creditor fails to file the action within the prescriptive period, the obligation is extinguished by prescription. Hence the creditor can no longer enforce his claim and if he files an action in court after the lapse of the prescriptive period, then the debtor’s defense will be prescription because it is no longer legally enforceable.

Effect of Prescription in Solidary Obligation

Situation:There is a solidary obligation and it has already prescribed. The creditor did not act within the prescriptive period like in the case of a promissory note which is 10 years and the period has already lapsed and the creditor did not make any demand, despite the fact that the obligation has already prescribed, the debtor paid the obligation to the creditor knowing that the obligation has already prescribed. After payment, can he ask reimbursement from his co-debtors?

Answer: No, because the obligation was already extinguished prior to the time he made the payment. No benefit derived from his co-debtors when he made payment.

Caveat: in the case where the obligation becomes illegal

Example: deliver prohibited drugsAt the time the obligation was agreed upon, the particular drug was not yet prohibited and now it is already prohibited by law, yet the debtor complies with the obligation. In the same manner, no benefit was derived by delivery hence not entitled to be reimbursed.

ARTICLE 1219-deals with the situation “okay. Pasayluonnalangtikasimongutang. Peronakadawatnaugbayadangcreditor.”If this happens, the debtor will say “uy! Di nadaw ta pabayaronkay the creditor is my friend” where in fact it was already paid. In such case, if it was already paid the remission has no effect.

Q: Can the co-debtors will still be liable to reimburse?ANSWER: YES. The co-debtors can still be held liable to reimburse because the payment was made ahead of the remission. If there was already a prior payment, the obligation is extinguished by payment. ARTICLE 1220

-if there was remission of the whole obligation by reason of the friendship of the creditor and the debtor, one is not entitled to reimbursement since there was no actual payment made.

ARTICLE 1221

-apply the rules already learned in case there is loss due tofortuitous event, fault of the debtor.

Simple obligation to deliver a specific thing, if loss fortuitous event: extinguish fault of the debtor: damages without fault and becomes impossible: extinguish if loss due to a fortuitous but there was legal delay: damages

(3rd paragraph)

2 nd paragraph

Example: If X + Y, SD oblige to deliver a specific thing and the thing was destroyed by X. the creditor could still demand payment of damages and interest to Y who is not the party responsible because the nature of the obligation is solidary. The debtor who was not at fault and was made to pay can demand reimbursement for payment made including damages and interest

ARTICLE 1222-defenses available to the debtors in an action filed by creditors-defenses: how the debtor escapes liability

Kinds of Defenses1. derived from the nature of the obligation2. personal to him or pertaining to his own3. personal to others, but only as regards that part of the debt for

which the latter are responsible

Complete Defenses 1 and 2 in which the debtor could not be held liable at all.-the debtor whom the action is filed cannot be held liable for any amount.

Partial Defenses-refers to a defense personal to a co-debtor and the liability of a debtor against whom the demand is made is the total obligation minus the share of the debtor who has the personal defense.-can be held liable to pay the total obligation minus the share of the co-debtor who has a personal defense.

Example: X, Y + Z owe A + B in a solidary obligation the amount of 90k and it is evidenced by a written agreement and the creditor did not filed an action within 10 years.

Q: When the creditor files a case against X, what could be X’s possible defenses?

Answer: -derive by from the nature of the obligation by reason of prescription hence complete defense -object of the obligation is illegal (supposing the object is delivery of 10 tarsiers) since it is prohibited.

*another complete defense: personal to you

Example:(same characters with the above example) X, a minor when he signed the promissory note as solidary debtor and a case is filed against X. he could use minority as his defense. Hence, he cannot be held liable.BUT if A files a case against Y in the same obligation when X signed the promissory note when he was still a minor, how much Y can be held liable?

Answer: Only 60k because a defense which is personal to a co-debtor is a partial defense.

DIVISIBLE AND INDIVISIBLE OBLIGATION

Divisible obligation: capable of partial performanceIndivisible obligation: incapable of partial performance

ARTICLE 1224-joint indivisible obligation

Illustration: X + Y oblige themselves to deliver a car worth 1M to Z.

-X + Y are joint debtors and to fulfill the obligation, both of them should come up with their respective shares.-if one of them cannot give his obligation since the relationship is joint, if X cannot come up with his share of 500k, Y cannot be made liable to deliver the amount of 1M. in effect, it will be converted into a monetary obligation with liability for damages on the part of the noncomplying debtor is concern.

General Rule: Creditor cannot be compelled to partially receive the prestation in which the obligation consists; neither may the debtor be required to make partial payments.

Breach of Joint Indivisible Obligation-this kind of obligation can be enforced only by proceeding against ALL of the debtors should fail or refuse to comply with the obligation, it is converted into one of indemnity for damages.

Example: Y + Z oblige to deliver a specific horse to A.

-you cannot divide the horse.-if the obligation is silent, it is joint. -to enforce the obligation, A must enforce against both Y + Z. *if Y fails to comply, he will bear the burden of paying the damages borne by A for non-fulfillment. Z will not be held liable and he only has to pay for his share. And the obligation is converted into a monetary obligation.

Exceptions:1. when the obligation expressly stipulates the contrary2. when the different prestations constituting the objects of the

obligation are subject to different terms and conditions3. when the obligation is in part liquidated and in part

unliquidated

NB:2nd paragraph of Article 1225 is an example of divisible obligation

obligation can be accomplished by a certain number of days

or by metrical units like construct a road with 10kms or analogous things

3rd paragraph means: even if the object is susceptible of partial obligation but if the parties have agreed and stipulated that the

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obligation is not susceptible for partial performance, it becomes indivisible.

Example: construction of 10km road. If agreed that it should be the entre 10km road, partial performance is not possible hence indivisible.

Q: What is the True Test of Divisibility?ANSWER: Whether the obligation is susceptible of partial compliance or not.

NB:In obligations to do, the presumption is it is indivisible. Partial performance is equal to non-performance. This is the general rule for indivisible obligations.

OBLIGATIONS WITH A PENAL CLAUSE

Concept: -one which is an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach.

Example: In a construction contract, very important stipulation is when will the building be completed and to insure that the contractor will complete the building on the stipulated date, usually they file a penalty, that in case of failure to complete the building, a penalty of 10k per day of delay is imposed.

Purpose:1. To insure the performance of the obligation.2. To liquidate the amount of damages to be awarded to the

injured party in case of breach of the principal obligation. 3. In certain exceptional case, to punish the obligor in case of

breach of the principal obligation.

NB:if there is no penal clause, in case there is non-fulfillment of the obligation, the remedies of the creditor is to demand specific performance plus damages. In claiming for damages, if you are claiming for 1M, you need to prove that you actually suffered otherwise the court will not believe. However, you have provided for a penal clause, that already substitutes for the claim of damages without need of any proof.

Example:(reference to the same building example)

Q: in what form may the creditor suffer damageif the building is not yet finished on the stipulated date?

ANSWER: If not yet done, he will have to rent an apartment. He will pay monthly rentals hence he suffered damages. In order for the creditor to claim damages, he needs to prove it to the court by presenting evidence which will take place or you don’t have any receipts to substantiate your claim. BUT if there is a penal clause in the agreement, you don’t need to prove that you have suffered for that particular amount. Because as a general rule, it will substitute for the damages except if there is a stipulation to the contrary.

General rule:The penalty is a substitute for damages and interest.-proof of actual damages is not necessary in order that the stipulated penalty may be demanded.

Exceptions:1. When there is a stipulation to the contrary.

-if your intention when you entered into an agreement, that even there is a penal clause, you will still be allowed to claim other damages, then you must state it in the contract, otherwise the penalty will substitute all damages.

2. When the obligor is sued for refusal to pay the agreed penalty.3. When the obligor is guilty of fraud.

-since it constitutes bad faith.

NB:If you want to collect other than the stipulated penalty, you stipulate and indicate in the agreement that you can collect other payment other than the agreed penalty, otherwise general rule will apply.

But the court will also determine and may reduce the penalty even if it was agreed by the party if it is partly or irregularly complied with, or the penalty is iniquitous or unconscionable.

Limitation upon the right of the debtor The debtor cannot exempt himself from the performance of

the principal obligation by paying the stipulated penalty. There is, however, an exception to this rule and that is when the right has been expressly reserved for him.

Limitation upon the right of the creditor The creditor cannot demand the fulfillment of the principal

obligation and the satisfaction of the stipulated penalty at the same time, unless the right has been clearly granted to him.

Instances where the judge may equitably reduce the penalty-exception to the rule that even if the stipulation of the parties becomes the law of the parties and such must be complied in good faith, provided what they have agreed upon is not contrary to law, good moral, public policy, good customs and public order.

Example: Value of the contract agreed is 1M and per day of delay is 500k.

-even if you have agreed on it, you can ask the court to reduce it for such is unconscionable and shocking to the conscience of man.

Rules on interest-no more Usury law: no minimum and maximum rates of interest to impose for as long as it is agreed upon by the parties. However, based on jurisprudence, SC has reduced the interest rate as agreed upon by the parties for being excessive. This is based on equity.

If there is already partial performance-obligation to deliver a 100 bottles of wine and in case of failure to deliver, the penalty is 50k pesos. If the debtor delivers 95, it is improper to impose the penalty of 50k so debtor could go to court to ask the court to reduce the penalty.

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