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BOOK IV LAW ON OBLIGATIONS AND CONTRACTS

In active and passive subjects may be individual persons or juridical persons; where the subject cannot be determined, the obligatory tie can have no effect Object or prestation (subject matter of the obligation) the conduct required to be observed by the debtor; it may consist in giving, doing, or not doing; without this, there is nothing to perform Obligation to give one in which the prestation consists in the delivery of a movable or an immovable thing, in order to create a real right, or for the use of the recipient, or for its simple possession, or in order to return it to its owner Obligation to do includes all kinds of work or services; whether physical or mental Obligation not to do consists in abstaining from some act Elements: 1. It must be possible, physically and juridically 2. It must be determinate, or, at least, determinable according to pre-established elements or criteria 3. It must have a possible equivalent in money (creditors interest may not be economic or patrimonial, it may be moral, sentimental, or ideal) Juridical or legal tie (also called efficient cause) that which binds or connects the parties to the obligation. The tie in an obligation can easily be determined by knowing the source of the obligation. (the reason that binds the debtor to perform the prestation in favor of the creditor) Is the vinculum juris, may either be a relation established 1. By law 2. By bilateral acts 3. By unilateral acts Note: juridical tie can be enforced by law, it is mandatory if not done the aggrieved party has a right of enforcement civil obligations

Title. I. - OBLIGATIONS CHAPTER 1 GENERAL PROVISIONS Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) Obligation It is a tie or bond recognized by law by virtue of which one is bound in favor of another to render something and this may consist in giving a thing, doing a certain act, or not doing a certain act. The juridical relation, created by virtue of certain facts, between two or more persons, whereby one of them, known as the creditor or obligee, may demand of the other, known as the debtor or obligor, a definite prestation. An obligation is a juridical relation whereby the creditor may demand from the debtor the observance of a determinate conduct, and, in case of breach, may obtain satisfaction from the assets of the latter. Juridical necessity The courts of justice may be called upon by the aggrieved party to enforce its fulfillment or, in default thereof, the economic value of that it represents. In a proper case, the debtor may also be made liable for damages, which represents the sum of money given as a compensation for the injury or harm suffered by the creditor or oblige (he who has the right to the performance of the obligation) for the violation of his rights. Essential requisites of an obligation 1. Passive subject (called debtor or obligor) the person who is bound to the fulfilment of the obligation; he who has a duty, has the juridical necessity of adjusting his conduct to the demand of the creditor pursuant to the obligatory tie; 2. Active subject (called creditor or obligee) the person who is entitled to demand the fulfilment of the obligation; he who has a right; 3.

4.

Distinguished from natural obligations:

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Civil Obligations Civil obligations are those which give a right of action to compel their performance Natural Obligations natural obligations are those which cannot be enforced by court action but which are binding on the party who makes them, in conscience and according to equity and natural justice. equity and natural justice cannot be compelled by court action but depends exclusively upon the good conscience of the debtor b. Negative personal obligation is obligation not to do (which naturally includes obligations not to give). (Art 1168)

Art. 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. (1089a) Sources of obligations: 1. 2. 3. Law when they are imposed by law itself Contracts when they arise from the stipulation of the parties (Art 1306) Quasi-contracts when they arise from lawful, voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another. (Art 2142) In a sense, these obligations may be considered as arising from law. Crimes or acts or omissions punished by law when they arise from civil liability which is the consequence of a criminal offense (Art 1161) Quasi-delict or torts when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractual relation exists between the parties (Art 2176)

binding force from positive law can be enforced by court action or the coercive power of public authority

Forms of obligations The form of an obligation refers to the manner in which an obligation is manifested or incurred. It may be oral, or in writing, or partly oral and partly in writing. 1. As a general rule, the law doesnt require any form in obligations arising from contracts for their validity or binding force (Art. 1356) 2. Obligations arising from other sources (Art. 1157) dont have any form at all. Wrong (cause of action) An act or omission of one party in violation of the legal right or rights (recognized by law) of another. The essential elements of a legal wrong or injury: 1. A legal right in favor of a person (creditor/ obligee/ plaintiff); 2. Correlative legal obligation on the part of another (debtor/ obligor/ defendant); and 3. An act or omission by the latter in violation of said right with resulting damage to the former Kinds of obligation according to subject matter 1. Real obligation (obligation to give) is that in which the subject matter is a thing which the obligor must deliver to the obligee. 2. Personal obligation (obligation to do or not to do) is that in which the subject matter is an act to be done or not to be done. There are two kinds of personal obligation: a. Positive personal obligation or obligation to do or to render service (Art 1167)

4. 5.

Sources classified: 1. Those emanating from law

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2. Those emanating from private acts which may be further subdivided into: a. b. Those arising from licit acts, in the case of contracts and quasi-contracts Thos arising from illicit acts, which may be either punishable in the case of delicts or crimes, or not punishable in the case of quasi-delicts or torts Contract meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render service (Art 1305)

1.

Actually, there are only two sources: law and contracts, because obligations arising from quasi-contracts, delicts, and quasi-delicts are really imposed by law.

Binding force Obligations arising from contracts have the force of law between the contracting parties, they have the same binding effect of obligations imposed by law. This doesnt mean, however, that contract is superior to the law. As a source of enforceable obligation, contract must be valid and it cannot be valid if it is against the law.

If offeror withdraws offer and offeree incurred expenses: Pre-contractual obligation may exist. The offer must be clear and definite, thus leading the offeree in good faith to incur expenses in the expectation of entering into the contract; and the withdrawal of the offer must be without any legitimate cause. If the offeror, in so acting, is guilty of FAULT or NEGLIGENCE, his liability would be based on article 2176 (on quasi-delict). If there is no fault or negligence, and the withdrawal was in ABUSE OF RIGHT, then the basis of his liability would be article 19.

Unilateral Promise The one promising the reward or prize acquires an obligation to pay, but because the offer is made to the public in general, no specific acceptance is possible. No separate acceptance is required and the stages of performance and perfection are merged together.

Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090) Once the acts and facts exist, the obligations arising therefrom by virtue of express provisions of the law are entirely independent of the agreement of the parties. Such obligations and their correlative rights are governed by the law by which they are created. Such obligations and their coreelative rights are governed by the law by which they are created. Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a) For the contract to be valid, it must not be contrary to laws, morals, good customs, public policy, or public order. Contractual obligation: presupposes that the contracts entered into are valid and enforceable.

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n) Kinds of quasi-contracts: 1. Negotiorum gestio is the voluntary management of the property or affairs of another without the knowledge or consent of the latter. (Officious Manager) Solutio indebiti is the juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. The requisites are: a. b. There is no right to receive the thing delivered The thing was delivered through mistake

2.

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article

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2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a) General rule: Every person criminally liable for a felony is also civilly liable EXCEPT when the injured party reserves his right to avail himself of it in a distinct civil action, and EXCEPT in cases where an independent civil action is allowed by law. (Art. 100 RPC) General rule: Acquittal from criminal action will bar civil action if the civil action instituted is based on the very same facts on which the criminal action is based. Exception: if civil action is independent from criminal action General rule: filing of criminal action suspends the civil action. Exceptions: 1. 2. 3. 4. Obligations not arising from the act or omission claimed to be criminal Violations of constitutional rights and liberties of individuals Defamation, or physical injuries Refusal or failure of members of a local police force to render protection to life or property If claim is made in civil case preponderance of evidence Moral damages may be recovered in the ff. and analogous cases p.75 Crimes that cause no material damage: contempt, insults to persons in authority, gambling, violations of traffic regulations, etc. (no civil liability to be enforced) A person not criminally responsible may still be liable civilly. Scope of civil liability: 1. 2. 3. Restitution Reparation for the damage caused Indemnification for consequential damages

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) Requisites of quasi-delict: 1. 2. 3. 4. 5. There must be an act or omission There must be fault or negligence There must be damage caused There must be a direct relation of cause and effect between the act or omission and the damage There is no pre-existing contractual relation between the parties

Exempting Circumstances no criminal liability but not exempt from civil liability because they lack conditions of imputability Subsidiary liability for crime in default of persons criminally liable, innkeepers, tavernkeepers or corporations shall be civilly liable for crimes committed in their establishment shall have been committed by their employees in performance of their functions Also subsidiary liable for the restitution of good taken by robbery within their houses from guest lodging or for the payment of the value thereof provided that the guests are notified in advance the innkeeper of the deposit of such good and within the inn and followed instructions General rule: after a criminal action has been commenced no civil action arising from the same offense can be prosecuted Criminal and civil actions may be instituted separately Evidence required: If claim is made in criminal case proof beyond reasonable doubt

Negligence is the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury. Test of negligence: 1. 2. 3. A duty on the party of the defendant to protect the plaintiff from the injury of which the latter complains A failure to perform that duty An injury to the plaintiff through such failure

Two kinds of negligence:

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1. 2. Culpa aquiliana (culpa extra-contractual) negligence as a source of obligation; is a quasi-delict Culpa contractual negligence in the performance of a contract 2. 3. That there exists a damage or injury, which must be proved by the person claiming recovery That there must be a direct causal connection or a relation of cause and effect between the fault or negligence and the damage or injury, or that the fault or negligence be the cause of the damage or injury

Fraud or dolo involves wilfulness or deliberate intent while negligence is mere want of care or diligence. Distinguished from crime: Quasi-delict private right (wrong against an individual) criminal intent is not present punishable only when there is a penal law that punishes it Every quasi-delict gives rise to liability for damages to the injured par crime public right (wrong against the State) criminal intent is necessary punishable when fault or negligence is present there are crimes from which no civil liability arises, such as in the cases of contempt, gambling, and violations of ordinances and traffic regulations where nobody is injured. fine or imprisonment, or both, the fine accruing to the public treasury (as punishment) Preponderance of evidence Never be compromised

Nature of the right violated Condition of the mind Legal basis of liability Liability for damages

Proximate cause is such adequate and efficient cause as, in the natural order of events, and under the particular circumstances surrounding the case, would necessarily produce the event It is necessary that the negligence should be the proximate cause of the injury. Liability for fault of others obligation arising from quasi-delict is demandable not only for ones own act or omissions but also those persons whom he is responsible ex. Parents are responsible for the acts of their child

CHAPTER 2 NATURE AND EFFECT OF OBLIGATIONS Obligation to give may refer either to: 1. A specific or determinate object or thing 2. To an indeterminate or generic thing Notes: Difference of Obligation from contract 1. Can have an obligation without a contract but all contracts have obligations 2. contracts is a group of obligations

Form of redress

reparation of injury suffered by the injured party (as compensation or indemnification) Proof beyond reasonable ground Can be compromised

Amount of Evidence As to compromise

Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)

Requisites in order that liability for quasi-delict may exist: 1. That there exists a wrongful act or omission imputable to the defendant by reason of his fault or negligence

Determinate/Specific particularly designated or physically segregated from others of the same class; one that is individualized and can be identified or distinguished from

Generic/indeterminate refers only to a class or genus to which it pertains and cannot be pointed with particularity; one that is indicated only by its kinds, without being designated and

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others of its kind distinguished from others of the same kind; In the obligation to deliver a generic thing, the object due is determinable; the moment it is delivered, it becomes determinate. When the generic objects are, however, confined to a particular class, we have a limited generic obligation. A generic thing is identified only by its specie. The debtor can give anything of the same class as long as it is of the same kind. Note: to stipulate for absolute exemption from liability of the obligor or any fault or negligence on his part is contrary to public policy c. Factors to be considered diligence required depends upon the nature of the obligation and corresponds with the circumstances of the person, of the time, and of the place d. Reason for the debtors obligation To insure that the thing to be delivered would subsist in the same condition as it was when the obligation was contracted. Without the accessory duty to take care of the thing, the debtor would be able to afford being negligent and he would not be liable even if the property is lost or destroyed, thus rendering illusory the obligation to give. 2. Deliver the fruits of the thing Art. 1164 3. Deliver the accessions and accessories Art. 1166 4. Deliver the thing itself Arts. 1163, 1233, 1244; as to kinds of delivery: Arts. 1497 to 1501) 5. Answer for damages in case of non-fulfillment or breach Art.1170 Duties of debtor in obligation to deliver a generic thing 1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances 2. To be liable for damages in case of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor thereof.

A determinate thing is identified by its individuality. The debtor cannot substitute it with another although the latter is of the same kind and quality without the consent of the creditor.

In an obligation to deliver a determinate thing, there are three incidental or accessory obligations: NOTE: reason why only determinate objects is because if generic is lost in may be replaced unlike determinate objects 1. the obligation to preserve the thing with due care, provided for in article 1163 2. the obligation to deliver the fruits, provided for in article 1164 3. the obligation to deliver the accessions and accessories, provided for in article 1166 Diligence Required: diligence of a good father of a family (legal standard or model of diligence) Note: object of the obligation deliver the car, object of the prestation the car Duties of debtor in obligation to give a determinate thing: 1. Preserve the thing debtor has the obligation to take care of the thing due with the diligence of a good father of a family pending delivery a. Diligence of a good father of a family equated with ordinary care or that diligence which an average (a reasonably prudent) person exercises over his own property b. Another standard of care however, if the law or the stipulation of the parties provides for another standard of care (slight or extraordinary diligence), said law or stipulation must prevail

Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095) Different kinds of fruits: 1. 2. 3. Natural fruits the spontaneous products of the soil, and the young and other products of animals Industrial fruits those produced by lands of any kind through cultivation or labor Civil fruits those derived by virtue of a juridical relation

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Right of creditor to the fruits: The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery arises. When obligation to deliver fruits arises: 1. Generally, the obligation to deliver the thing due, and the fruits thereof, if any, arises from the time of the perfection of the contract. Perfection, in this case, refers to the birth of the contract or to the meeting of the minds between the parties. Obligation subject to suspensive condition: arises upon the fulfilment of the condition or arrival of the term; parties may, however, may make a stipulation to the contrary as regards the right of the creditor to the fruits of the thing Contract of sale: Obligation arises from the perfection of the contract even if the obligation is subject to a suspensive condition or a suspensive period where the price has been paid Obligations arising from law, quasi-contracts, delicts, and quasi-delicts: time of performance determined by the specific provisions of the law applicable

Mere agreement doesnt effect transfer of ownership; he shall acquire no real right over it until the same has been delivered to him; non nudis pactis, sed traditione dominie rerum transferentur (the ownership of things is transferred not by mere agreements but by delivery); in case of non delivery the proper action is not one for revindicacion (which is an action based on ownership), but one for specific performance of the sale or for the delivery of the thing

2.

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) In specific real obligation, the creditor has the following remedies or rights in case the debtor fails to comply with his obligation:

3.

4.

Personal right the right or power of a person (creditor) to demand from another (debtor), as a definite passive subject, the fulfilment of the latters obligation to give, to do, or not to do; the power belonging to one person to demand of another, as a definite passive subject, the fulfilment of a prestation to give, to do, or not to do Real right the right or interest of a person over a specific thing (like ownership, possession, mortgage), without a definite passive subject against whom the right may be personally enforced; the power belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised Distinguish: 1. 2. In personal right, there is a definite active subject and a definite passive subject, while in real right, there is only a definite active subject without any definite passive subject. A personal right is, therefore, binding or enforceable only against a particular person, while a real right is directed against the whole world.

a. b.
c.

Demand specific performance or fulfilment (if it is possible) of the obligation with a right to indemnity for damages Demand rescission or cancellation (in certain cases) of the obligation also with a right to recover damages Demand payment of damages only where it is the only feasible remedy

In generic real obligation: can be performed by a third person; not necessary for the creditor to compel the debtor to make the delivery, although he may ask for performance of the obligation; manner of compliance to deliver generic thing (Art. 1246) Genus nunquam perit genus never perishes (indeterminate thing cant be the object of destruction by a fortuitous event Imprisonment for debt no person shall be imprisoned for debt however without prejudice to subsidiary imprisonment for non payment of the civil liability imposed in a criminal case, or imprisonment for contempt

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Delay and fortuitous events the rule cannot be accepted in this code because no provisions justifies it and if accepted would encourage delay in the performance of the obligation Remedies of creditor in positive personal obligation 1. If the debtor fails to comply with his obligation to do, the creditor has the right: a. b. 2. To have the obligation performed by himself, or by another, unless personal considerations are involved, at the debtors expense To recover damages

Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a)

Accessions the fruits of a thing or additions to or improvements upon a thing; includes everything which is produced by a thing, or which is incorporated or attached thereto, either naturally or artificially; doesnt include the fruits; refers to the accesion continua, including the accesion natural, such as alluvion, and accesion industrial in its three forms of building, planting, and sowing. Accessories things joined to or included with the principal thing for the latters embellishment, better use, or completion; those things which, destined for the embellishment, use, or preservation of another thing of more importance, have for their object the completion of the latter for which they are indispensable or convenient What to deliver: everything that is attached, naturally or artificially, to the principal thing, as well as that which serves to complete it, even if not attached to it, must be delivered together with it; EXCEPT if the parties intent is the contrary Based on the principle of law that the accessory follows the principal; there must be a stipulation to give effect the contrary

In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered (by the court) that it be undone if it is possible to undo what was done.

Specific performance cant be ordered in a personal obligation to do because this may amount to involuntary servitude, which is prohibited in our Constitution Substituted performance - Performed by another person other than the debtor obligation not deemed fulfilled; remedy: indemnification for damages but if obligation can be performed at the expense of the debtor notwithstanding his failure or refusal to do so, the court is not authorized to merely grant damages to the creditor Creditor is entitled to have the thing done in a proper manner, by himself or by a third person, at the expense of the debtor. Indemnification for damages can be done by persons other than the debtor. Notes: 1. 2. 3. Remedies Specific performance Substituted performance resolution

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098) Situations contemplated in this article: 1. 2. 3. Fail to perform an obligation to do Perform an obligation to do but contrary to the terms thereof Perform an obligation to do but in poor manner

Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) Substituted performance Remedies: undoing of the thing + damages; if cant undo, damages Notes : breach Arts. 1168- 1174 1. Total 2. Partial

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3. Irregularity of performance a. b. That the obligation be demandable and already liquidated That the creditor requires the performance judicially or extrajudicially (a mere reminder is not a demand for performance because the demand must show that the tolerance or benevolence of the creditor has ended)

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a) General Rule: Demand is necessary Kinds of delay: 1. 2. Ordinary delay the failure to perform an obligation on time Legal delay or default the failure to perform an obligation on time which failure constitutes a breach of the obligation Kinds of DEFAULT: 1. Mora solvendi the delay on the part of the debtor to fulfill his obligation (to give or to do) Requisites:

Requisites of default by the debtor: 1. 2. Failure of the debtor to perform his positive obligation on the date agreed upon Demand (not mere reminder or notice) made by the creditor upon the debtor to comply with his obligation which demand may be either judicial (when a complaint is filed in court) or extra-judicial (when made outside of court, orally or in writing) Failure of the debtor to comply with such demand Obligation must be due and demandable. Burden of proof that demand was made rests on the creditor.

3.

Default begins the moment the creditor demands the performance of the obligation. The proof of demand will be incumbent upon the creditor. If there is no proof that the creditor made extra-judicial demand, the default will commence upon the filing of the complaint. Demand is generally necessary even if a period has been fixed in the obligation (contract of loan as to the instalments; contact of mortgage as to payment of taxes; contract of sale as to cancellation of contract when there is nonpayment of any installment) When demand is not necessary to put debtor in delay: a. When the obligation so provides - Intent of the parties to constitute the debtor in delay upon maturity of the obligation even without demand must clearly appear in the agreement. In case of doubt, the doubt should be resolved in favor of the debtor. When the law so provides

b.

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c. When the nature and circumstances of the obligation so provides the period is the determining factor for the creation of the obligation; the debtor should know that the fixing of the date for performance was a controlling motive on the part of the creditor; knowledge of the debtor is essential may be proved or shown by the express provisions of the written contract, or by the very nature of the obligation, or from the circumstances under which it was created Where performance has become impossible, demand will be useless and will not be necessary to constitute the debtor in delay, such as: I. When the impossibility is caused by some act or fault of the debtor (such as when he is absent or is in hiding, or has already disposed of the thing which is to be delivered) When the impossibility is caused by fortuitous event, but the debtor has bound himself to be liable in cases of such events c. The creditor refuses the performance without just cause

3.

Compensatio morae the delay of the obligors in reciprocal obligations (the delay of the obligor cancels the delay of the oblige and vice versa). The result is that there is no actionable default on the part of both parties

There is no delay in obligations not to do. Effects of delay: 1. Effects of mora solvendi: The debtor is a. b. Guilty of breach or violation of the obligation Liable to the creditor for interest (in case of obligations to pay money) or damages (in other obligations). In the absence of extra-judicial demand, the interest shall commence from the filing of the complaint Liable for fortuitous event when the obligation is to deliver a determinate thing. However, if the debtor can prove that the loss would have resulted just the same even if he had not been in default, the court may equitable mitigate or reduce the damages. On the other hand, in an obligation to deliver a generic thing, the debtor is not relieved from liability for loss due to a fortuitous event. He can still be compelled to deliver a thing of the same kind or held liable for damages.

d.

II.

c.

e.

When there is performance by a party in reciprocal obligations

When there is an express recognition of default by the debtor and not mere requests for extension of time to perform, the debtor will be in default even if without demand by the creditor. 2.

Effects of mora accipiendi: The creditor a. b. c. d. e. Is guilty of breach of obligation Is liable for damages suffered, if any, by the debtor Bears the risk of loss of the thing due Is not liable for interest from the time of creditors delay (where the obligation is to pay money) May release himself from the obligation by the consignation or deposit in court of the thing or sum due a. Mere tender will not release one from the obligation must consign it in court to be released from obligation. Tender the consignation

2.

Mora accipiendi the delay on the part of the creditor to accept the performance of the obligation Requisites: a. b. An offer of performance by the debtor who has the required capacity The offer must be to comply with the prestation as it should be performed

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f. The responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence already existing because of contract; different from dolo causante or fraud employed in the execution of a contract which vitiates consent (Art. 1338) Notes: dolo incdente remedies damages, resolution, or specific perforemance, dolo causante remedy is annulment of the contract

3.

Effects of compensation morae: Delay of one party is followed by that of the other liability of the first infractor shall be equitably tempered or balanced by the courts (if cant determine which of the parties is guilty of delay, contract shall be deemed extinguished; each shall bear his own damages). The general rule, therefore, is that the fulfilment by the parties should be simultaneous. Where both are in default, their respective liability for damages shall be offset equitably. Ordinarily, however, when one party to a reciprocal obligation fails duly to carry out his agreement, he thereby releases the other, who doesnt become delinquent.

2.

3.

4.

Cessation of the Effects of Mora: 1. Renunciation by the creditor may be expressed or implied (There is implied renunciation when after delay has been incurred, the creditor grants an extensioin of time to the debtor or agrees to a novation of the obligation.) Prescription

Negligence (fault or culpa) any voluntary act or omission, there being no malice, which prevents the normal fulfilment of an obligation; failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury Delay (mora) Art 1169 Contravention of the terms of the obligation violation of the terms and conditions stipulated in the obligation; contravention must not be due to a fortuitous event or force majeure Ordinarily, if a person binds himself unconditionally by contract to do what later turns out to be impossible, he will be held to his bargain, and will be liable for damages for his failure to perform, unless the impossibility arises from a cause which neither party could reasonably have foreseen. Mere pecuniary inability to fulfil an engagement doesnt discharge an obligation nor constitute a defense to an action for specific performance. Mere increase in the cost of performance or unexpectedly burdensome and oppressive war conditions are insufficient excuses. Though such contract may become impossible of exact performance, it will still be given effect if it can by any reasonable construction be treated as still capable of being performed in substance. Negligence No such intention May be allowed Presumed from the violation of a contractual obligation May be mitigated or reduced

2.

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) Grounds for liability: 1. Fraud (deceit or dolo) is the deliberate intent or intentional evasion of the normal fulfillment of an obligation; implies some kind of malice or dishonesty; doesnt cover cases of mistake and errors of judgment made in good faith; synonymous with bad faith

Fraud Deliberate intention to cause damage or injury Waiver for future fraud = void Must be clearly proved Liability cant b mitigated or reduced by the courts

Art 1170 refers to incidental fraud (dolo incidente), which is fraud committed in the performance of an obligation

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Damages include any and all damages that a human being may suffer in any and all manifestations of his life: physical or material, moral or psychological, mental or spiritual, financial, economic, social, political and religious. Breach of contractual obligation entitles the other party to damages even if no penalty for such breach is provided in the contract. In the matter of damages, the plaintiff is entitled to the value of the use of his property from the time it was taken to the time of restoration (contract of lease). The responsibility for damages arising from non-fulfillment of a contractual obligation cannot be divided nor can it be extended to persons who have nothing to do with the obligation. Payment of money and damages Art. 2209 states that if the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. Legal interest in the nature of damages for non-performance of an obligation to pay sum of money is recoverable even if not expressly stated in writing. 1. 2. An action for future negligence may be renounced EXCEPT where the nature of the obligation requires the exercise of extraordinary diligence as in the case of common carriers. Where negligence shows bad faith = fraud; thus, waiver not valid

Kinds of negligence according to source of obligation:

1.

2.

3.

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a)

Contractual negligence (culpa contractual) negligence in contracts resulting in their breach; not a source of obligation because it merely makes the debtor liable for damages in view of his negligence in the fulfilment of a pre-existing obligation Civil negligence (culpa aquiliana) negligence which by itself is the source of an obligation between the parties not so related before by any pre-existing contract; also called quasidelict or tort Criminal negligence (culpa criminal) negligence resulting in the commission of a crime; same negligent act causing damages may produce civil liability arising from a crime under Art. 100 of the RPC or create an action for quasi-delict under Art. 2176 Contractual negligence (culpa contractual) negligence in contracts resulting in their breach; not a source of obligation because it merely makes the debtor liable for damages in view of his negligence in the fulfilment of a pre-existing obligation Liability arises involving a breach of contractual duty, en employer may not exempt himself from liability by proving that he had exercised due diligence (art 1170) Civil negligence (culpa aquiliana) negligence which by itself is the source of an obligation between the parties not so related before by any preexisting contract; also called quasidelict or tort Liability arises not involving a breach of existing obligation, en employer may exempt himself from liability by proving that he had exercised due

Waiver of action for future fraud is void; however, waiver of action for past fraud is valid. The reason is that the waiver is considered to be an act of generosity and magnanimity on the part of the party who is the victim of the fraud. What is renounced is the effect of the fraud, which is the right to indemnity of the party entitled thereto. The fraud referred to in this article is that which is mentioned in Art. 1170, which is malice or bad faith in the performance of an existing obligation, and not fraud or deceit used to procure a contract.

Definition

Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103) Negligence not as serious as fraud may be mitigated Validity of waiver of action arising from negligence

Liability of employers

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diligence (art 2180) No such discretion is given dealing with liability arising under Art. 2176 Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. Graduating the responsibility of the debtor by determining the degree of diligence to be required which may be more or less than the standard fixed by law 2. Imposing liability for fault or negligence, where the law does not impose. This is valid unless the law dispenses with fault or negligence as a matter of public policy in the particular case such as in workmens compensation act Two kinds of exemption from liability 1. in which a party to a contract is relieved from the effects of his fault or negligence by a third person; this is done in insurance 2. in which one party to a contract renounces in advance the right to enforce liability arising from the fault or negligence of the others stipulations arising from liability for gross negligence are void because it amounts to fraud the validity of stipulations exempting from liability for simple negligence, therefore can be accepted as a general principle taking into account the discretionary powers of the court to regulate such liability. But should not be upheld if there are strong reasons against it should be limited in cases where there is real equity in bargaining power of the contracting parties not allowed in contract of adhesion In negligence cases, the aggrieved party may choose between criminal action (Art. 100 of the RPC) or civil action for damages (Art. 2176 of the Civil Code). Art. 2177 of the Civil Code prohibits the recovery of the same negligent act twice. Creditor is also guilty of negligence, can he recover damages? Art. 2179 of the Civil Code: creditors own negligence as immediate and proximate cause of his injury cant recover damages; creditors negligence only contributory to debtors lack of due care courts shall mitigate the damages to be awarded 1. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a) Diligence of a good father of a family ordinary diligence Negligence is a question of fact, its existence being dependent upon the particular circumstances of each case (nature of the obligation, circumstances of the person, of time, and of the place). Measure of liability: Art. 2201 of the Civil Code provides that in contracts and quasi-contracts.. 1. Damages for which the obligor acted in good faith liable only for the natural and probable consequences of the breach of the obligation which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted In cases of fraud, bad faith, malice or wanton attitude obligor liable for all damages which may be reasonably attributed to the non-performance of the obligation

Mitigation of damages

Court is given discretion to mitigate liability according to the circumstances of the case (art. 1172) Stipulations on liability for Negligence

2.

Kinds of diligence required: 1. 2. That agreed upon by the parties, orally or in writing That required by law in particular cases (in the absence of stipulation) If both are silent, diligence expected of a good father of a family

3.

Negligence a question of fact there is no fixed standard of diligence applicable to each and every obligation

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Negligence is simply the absence of due care required by the obligation Notes: In negligence courts may reduce the liability arising from negligence but if done with bad faith courts will not temper debtor must be free from any participation in or the aggravation of the injury to the creditor that there is no concurrent negligence on his part General rule: a person is not responsible for loss or damage caused to another resulting from fortuitous events except: 1. expressly specified by law a. the debtor is guilty of fraud, negligence or delay or contemplation of the tenor of the obligation (Art 1170, 1165, par.3) b. the debtor has promised to deliver the same thing to two or more persons who do not have the same interests (Art 1170, 1165, par.3) c. the obligation to deliver a specific thing arises from a crime (art. 1268) d. the thing to be delivered is generic (art. 1263) 2. when declared by stipulation - freedom of contract (art. 1306) such a stipulation is usually intended to better protect the interest of the creditor and procure greater diligence, the parties may expressly stipulate in their contract that the debtor shall be liable to the creditor even if performance is rendered impossible by fortuitous event a. where because of the inability of the vendor to perform his obligation due allegedly to force majeure under the original contract with the understanding that if he fails to do it on or before a certain date he shall pay the vendee damages and fulfil his obligation, the new obligation assumed by the vendor under the conditional agreement was contracted after the force majeure 3. when the nature of the obligation requires the assumption of the risk risk of loss or damage is an essential element in the obligation, based on social justice a. if a person for his convenience or profit creates risk for the public which formerly did not exist although morally his fault or negligence may not be the cause of the damages nevertheless he shall be liable for the damages: qui sentit commodum sentire debet et incommodum b. this principle is basis of liability of workmens compensation act Notes: Effects of Fortuitous events 1. Determinate obligation Obligation is extinguished 2. Generic obligation Obligation is not extinguished based on the rule genus never perishes 4.

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a) The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a) Fortuitous events is any event which cannot be foreseen, is inevitable Also known as case fortuito event takes place by accident and could not have been foreseen Fortuitous events includes unavoidable accidents even if there has been intervention of human element Fortuitous events distinguished from force majeure 1. Acts of man fortuitous event is independent of the will of the obligor but not of other human wills ex. War, fire 2. Acts of God force majeure independent will of every man ex. Earthquake, flood Kinds 1. Ordinary events which are common and which the contracting parties could reasonably foresee ex. Rain 2. extra-ordinary uncommon and which the parties could not reasonably foreseen ex. War, earthwake, flood Requisites 1. 2. 3. event must be independent of the human will or at least of the debtors will event could not been foreseen, if foreseen is inevitable event must be of such character as to render it impossible for the debtor to comply with his obligation in a normal manner

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Art. 1175. Usurious transactions shall be governed by special laws. (n) simple loan or mutuum is a contract whereby one of the parties delivers to another, money or otger consumable thing, upon the condition that the same amount of the same kind and quality shall be paid. It may be gratuitous or with a stipulation of interest (Art. 1933) Interests income produced by money in relation to its amount and to the time that it cannot be utilized by its owner. a. b. May be moratory or compensatory Moratory paid in contractual obligations to pay sum of money, as the price for the use of the money or as the stipulated advanced determination of the damages due to the delay of the fulfilment of the obligation Compensatory Interests on obligations which have an extra-contractual or delictual origin Two kinds of presumption 1. 2. conclusive presumption one which cannot be contradicted, like everyone is presumed to know the law Disputable or rebuttable presumption one which can be contradicted or rebutted by presenting proof to the contrary, like the demand without no effect if it is not due

c.

Usury contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money goods or chattels. It is taking of more interest for the use of money, goods or chattels or credit than the law allows Usury law legal rate of interest 6% per annum, contractual rate not exceeding 12% per annum and if if loan is secured by duly registered real estate and 14% if not secured Requisites for recovery of interests 1. 2. 3. the payment of interest must be expressly stated (art. 1956) the agreement must be in writing The interest must be lawful (art. 1957)

When it does not apply a. With reservation as the interest when no payment has been made as to interest or prior instalments. Reservations are made verbal or in writing. b. Receipt without indication of particular instalment paid if the receipt does not recite that is was issued for a particular instalment due as when the receipt is only dated c. Payment of taxes no presumption that previous taxes have been payment of later ones d. Non-payment proven

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Remedies available to creditors for the satisfaction of their claims 1. 2. 3. 4. exact fulfilment (specific performance) with right to damages pursue the leviable (not exempt from attachment under the law) property of the debtor after having pursued the property in possession of the debtor, exercise all rights and bring all actions of the debtor except those inherent in or personal to the person of the latter ask the court to rescind or impugn acts, or contracts which the debtor may have done to defraud him when he cannot in any other manner recover his claim

Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. Receipt of principal Art. 1253 of the code, if a debt produces interest, payment of principal shall not be deemed to have been made until the interest have been covered Presumption the inference if a fact bit actually known arising from its usual connection with another which is known

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Debtor is liable with all of his property, present and future for the fulfilment of his obligation subject to the exemption provided by law (art 2236) Exercise of Debtors rights 1. 2. 3. 4. the creditor has an interest in the right or action not only because of his credit because of the insolvency of the debtor Malicious or negligent inaction of the debtor in the exercise of his right or action of such seriousness as to endanger the claim of the creditor The creditor of the debtor against a third person is certain demandable and liquidated The debtors right against the third person must be patrimonial or susceptible of being transformed to patrimonial value for the benefit of the creditor. It is not essential that the creditors claim be prior to the acquisition of the right by the debtor 4. Rights consisting of powers which have not been used including a. The power to administer such as when the debtor fails to have some property leased the creditor cannot give it in lease for him b. The power to carry out an agency or deposit which are purely personal acts c. The power to accept an offer of a contract Non patrimonial rights, such as the action to establish the debtors status as legitimate or illegitimate child, the action for legal separation or annulment or marriage and other rights arising from family relations Patrimonial rights inherent in the person of the debtor such as the right to revoke a donation by reason of ingratitude

5.

6.

Accion Subrogatoria or subroatory action the action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover for the patrimony of the debtor the product of such action and then obtain therefrom the satisfaction of his own credit ALS Reviewer Requisites: 1. 2. 3. 4. 5. The debtor whom the right of action properly pertains must be indebted to the creditor The creditor must be prejudiced by the inaction or failure of the debtor to proceed against the third persons The creditor must have pursued first or exhausted all the properties of the debtor which are not exempt from execution The debtors assets are insufficient to satisfy his claims The right of accounts is not purely personal

Accion pauliana creditors have the right to revoke the acts which the debtor may have done to defraud them, and may rescind fraudulent reductions of the properties of the debtor which constitute the guaranty for his debts includes alienation of properties, payment of debts which are not due, renunciation of rights ALS Reviewer Requisites 1. 2. 3. 4. 5. There is a credit in favor of plaintiff The debtor has performed an act subsequent to the contract, giving advantage to other persons The creditor is prejudiced by the debtors acts which are in favour of third persons and rescission will benefit the creditor The creditor has no other legal remedies The debtors acts are fraudulent

a. Previous approval by the court is not necessary Rights of Debtor which cannot be exercised by the creditor 1. 2. 3. The right to existence, thereby exempting from reach of creditors whatever he may be receiving as support Right of relations of a public character Rights of an honorary character

Payment of pre-existing obligations already due whether natural or civil cannot be impugned by accion pauliana ALS reviewer - Accion directa (art. 1729 and 1652) Right of the lessor to go directly to the sublessee for unpaid rents of the lessee. Right of the laborers who furnish material for a piece of work undertaken by a contractor to go directly to the owner for any unpaid claims due to the contractor

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112)

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Transmissibility of Rights An instrument evidencing a credit may be transferred or assigned by the creditor to another and he transferee would be considered in lawful possession of the same as well as of the credit, unless the contrary is shown General rule all rights acquired in virtue of an obligation are generally transmissible except 1. prohibited by law a. Contract of partnership two or more persons bid themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves b. Contract of agency a person bind himself to render some service or to do something in representation or on behalf of another with consent or authority of the latter c. Contract of commodatum one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. Essentially gratuitous prohibited by stipulation of the parties upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) Pure obligation one which is not subject to any condition and no

2.

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS Civil code Classifies obligations primarily into: 1. Pure 2. Conditional 3. With a term 4. Alternative 5. Joint or mancommunada 6. Solidary or several or in solidum 7. Divisible 8. Indivisible 9. With a penal clause Other classes 1. Unilateral and bilateral 2. Determinate and generic SECTION 1. - Pure and Conditional Obligations Art. 1179. Every obligation whose performance does not depend

Suspensive Resolutory Conditio Obligation arises Obligation extinguished n fulfilled Does not Juridical tie doesnt appear Tie of law is consolidated take place Until it Existence of obligation is a Hovers the possibility of takes mere hope termination of obligation place specific date is mentioned for its fulfilment and, is, therefore, immediately demandable. When the obligation contains no term or condition whatever upon which depends the fulfilment of the obligation contracted by the debtor, it is immediately demandable and there is nothing ti exempt the debtor from compliance therewith A demand note is subject to neither a suspensive condition nor s suspensive condition. The note is binding even before the demand is made When the period originally given has been cancelled by mutual agreement by the parties or by a non-fulfilment of a condition resolves the period stipulated, the obligation must be considered as pure

The present article is not violated when the court fixes a reasonable period within which the debtor should pay, inasmuch as this does not alter the character of the obligation as pure and immediately demandable Conditional obligation one whose consequences are subject in one way or another to the fulfilment of a condition. Condition a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation (or right) subject to it depends. An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered as one with a term Characteristics of a condition:

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1. Future and uncertain the occurrence and the time of its occurrence must be uncertain 2. Past but unknown Note: a condition must not be impossible The code considers a past event unknown to the parties as a condition. Two principal kinds of condition: 1. Suspensive condition (condition precedent or condition antecedent) the fulfillment of which will give rise to an obligation (or right); the demandability of the obligation is suspended until the happening of the uncertain event which constitutes the condition 2. Resolutory condition (condition subsequent) the fulfilment of which will extinguish an obligation (or right) already existing Distinctions: When obligation is demandable at once: 1. When it is pure (Art. 1179 par.1) 2. When it is subject to a resolutory condition (Art 1179 par.2 ) 3. When it is subject to a resolutory period (Art. 1193 par.2) Past event unknown to the parties: What is contemplated by the law is the knowledge to be acquired in the future of a past event which at the moment is unknown to the parties interested, for it is only in that sense that the event can be deemed uncertain. This knowledge determines whether the obligation will arise or not. What can be a condition is the future knowledge or proof of a past event unknown to the parties, but not the event itself. Thus, the proof of an unknown past event may, by the will of the parties, be established as a condition Classification of conditions o Suspensive and Resolutory the happening of the former gives rise to an obligation, while the happening of the latter extinguishes rights already existing (Art. 1181) o Potestative, casual and mixed (Art. 1182) according as to whether it depends upon the will of the party to the juridical relation, or upon chance, or the will of the third person; o divisible or indivisible - according as to whether by its nature, by agreement or by under the law o conjunctive and alternative - according as to whether, when there are several, all of them or only one must be performed Positive or negative (Art. 1184 and 1185) - depending whether it is an act or omission o Expressed or Implied whether it is stated or merely inferred o Possible or impossible whether they can be fulfilled or not the impossibility in the latter casse being either physical or legal Indivisibility of conditions provides that the fulfilment of conditions is indivisible, even when the object of the condition is a divisible thing; hence, partial fulfilment of the condition does not give rise to the existence of part of the obligation. However by the very nature of the condition, by stipulation, or by law, it may be divisible Plurality of Conditions if several conditions are imposed for the same obligation, the necessity of complying all or only one depends upon the intention of the parties. o Alternative or disjunctively fulfilment of one is sufficient o Conjunctively all must be complied with o

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. (n) Period a future and certain event upon the arrival of which the obligation subject to it either arises or is extinguished The debtor binds himself to pay when his means permit him to do so deemed to be one with a period; what is left only to the debtors will is the duration of the period; If the debtor and the creditor cannot agree as to the specific time for payment, the court shall fix the same on the application of either party. The creditor should file an action to fix a period for the payment of the obligation. An immediate action to enforce the obligation, without a period having been previously fixed by court would be premature

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114) The efficacy or obligatory force (as distinguished from its demandability) is subordinate to the happening of a future and uncertain event.

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2. As to form: a. b. 3. Definition Suspensive if the condition does not happen the obligation does come into existence Precedent or antecedent Resolutory If the condition happens it extinguishes the rights and obligations already existing subsequent 4. As to cause or origin: Potestative the condition depends upon the will of one of the contracting parties (debtor not valid; creditor valid) b. Casual the condition depends upon chance or upon the will of a third person (valid) c. Mixed the condition depends partly upon chance and partly upon the will of a third person (valid), depends upon the will of one of the contracting parties, and other circumstances including the will of a third person 5. As to mode: a. Positive the condition consists in the performance of an act b. Negative the condition consists in the omission of an act 6. As to numbers: a. Conjunctive there are several conditions and all must be fulfilled b. Disjunctive there are several conditions and only one or some of them must be fulfilled 7. As to divisibility: a. As to possibility: a. Possible the condition is capable of fulfilment, legally or physically b. Impossible the condition is not capable of fulfilment, legally or physically Express the conditionis clearly stated Implied the condition is merely inferred

AKA

When the consent of the party to a contract is given subject ti the fulfillment of a suspensive condition, the contract is not perfected unless that condition is first complied with The contract may expressly provide that the rights of a party, subject to a resolutory condition, shall be extinguished upon the happening of the condition, this would be merely stating what the law already provides If condition does not happen and is suspensive, the conditional creditor loses all hope of being a real creditor and he likewise loses the power granted in Art. 1188 for the preservation of his rights but if resolutory the creditors rights become absolute

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115) 1. Conditions may be classified as follows: As effect: a. Suspensive - the happening of which gives rise to the obligation b. Resolutory - the happening of which extinguishes the obligation

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a. Divisible the condition is susceptible of partial performance b. Indivisible the condition is not susceptible of partial performance Potestative condition a condition suspensive in nature and which depends upon the sole will of one of the contracting parties Kinds of Potestative Condition 1. Simple potestative - condition which presupposes not only a manifestation of will but also the realization of an external act such as if you sell your house Simple potestative condition on the part of the debtor dose not prevent the formulation of a valid obligation. While it is true that to a certain extent it depends on the voluntary act of the obligor, yet it is likewise true that it is subject, in part to contingencies over which he has no control 2. Purely potestative condition which depends solely and exclusively upon the will such as, If I like it, If I deem it proper Destroys the efficacy of the legal tie Effects of Potestative Condition 3. To allow conditions whose fulfillment depends exclusively on the debtors will is to sanction illusory obligations; this cannot happen when the fulfillment depends on the will of the creditor In reciprocal obligations where both parties are creditors and debtors the rule applies to each in his capacity as debtor In this article it is only the condition that is void; the whole obligation is void This provision is applicable only when the condition is suspensive and cannot apply to resolutory conditions the validity of which is recognized in Art 1179 of the code. In other words a condition that is both potestative and resolutory may be valid, even though the condition is made to depend upon the will of the obligor When condition depends not only upon the will of the debtor, but also upon chance or the will of the others, the obligation is valid

4. 5. 6.

7.

Where suspensive condition depends upon will of debtor: 1. Conditional obligation void Since the validity and compliance is left to the will of the debtor, the obligation cant be easily demanded. In order not to be liable, the debtor will not just fulfil the condition. There is no burden on the debtor and consequently, no juridical tie is created. Only the condition is void If the obligation is a pre-existing one and, does not depend for its existence upon the fulfilment by the debtor of the potestative condition, only the condition is void leaving unaffected the obligation itself.

Condition depends exclusively upon will of the debtor Partly on the will of the debtor, and partly upon chance or will of a third person (mixed)

Conditional obligation Void Valid

2.

1. 2. It is only when the potestative condition depends exclusively upon the will of the debtor that the conditional obligation is void When it depends partly on the will of the debtor and partly upon chance or will of a third person the conditional obligation is valid

Where the suspensive condition depends exclusively upon the creditor, the obligation is void. Where resolutory condition depends upon will of debtor the condition is valid because the debtor is naturally interested in its fulfilment Where suspensive condition depends partly upon will of debtor If compliance with the obligation still depends upon that part of the condition whose fulfilment depends upon the

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will of the debtor, the obligation is void as it is within his power to comply or not to comply with the same. Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a) The suspensive condition referred to in this article refers to the impossibility of the condition already existed at the time the obligation was constituted. Two kinds of impossible conditions 1. 2. Physically impossible conditions when they, in nature of things, cannot exist or cannot be done a. Contrary to law of nature Legally impossible conditions when they are contrary to laws, morals, good customs, public order, or public policy 4. Only the condition void If the obligation is a pre-existing obligation, and, therefore, does not depend upon the fulfilment of the condition which is impossible, for its existence, only the condition is void.

Effect of impossible conditions: 1. Conditional obligation void Impossible conditions annuls the obligation which depends upon them. Both the obligation and the condition are void. The reason behind the law is that the obligor knows his obligation cannot be fulfilled. He has no intention to comply with his obligation. Conditional obligation valid If the condition is negative, that is not to do an impossible thing, it is disregarded and the obligation is rendered pure and valid. Actually, the condition is always fulfilled when it is not to do an impossible thing so that it is the same as if there were no condition. The negative obligation may not be to give an impossible thing. Only the affected obligation void If the obligation is divisible, the part thereof not affected by the impossible condition shall be valid.

To be considered illicit or juridically impossible, it is necessary that it consists of an act or fact for one of the parties to the contract. The illicit character of the act is not determined by the act or fact in itself but by its effects upon one of the parties There are certain illicit acts for instance which if mentioned as a condition will not affect the obligation; on the other hand there are lawful acts which by the manner in which they are attached to the condition nullify the obligation Reason behind the law is that one who promises something under a condition that is impossible or illicit knows that it cannot be fulfilled, and manifests that he does not intend to be bound hence the effect is nullity of the promise That an impossible obligation to annul the obligation the impossibility must exist at the time of the creation of the obligation; a supervening impossibility does not affect the existence of the obligation When the obligation is divisible that part which is not affected by the impossible or unlawful condition shall be valid Although the second paragraph of this article provides that the condition not to do an impossible thing shall be considered as not having been agreed upon, this should be understood to include all negative impossible conditions A negative unintelligible condition is the same as a negative impossible condition; hence, it is considered as not imposed

2.

Art. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117) This article refers to a positive suspensive condition. The obligation is extinguished: 1. 2. As soon as the time expires without the event taking place As soon as it has become indubitable that the event will not take place although the time specified has not expired

3.

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When no period has been fixed, the rile in the second paragraph of art. 1185 is applicable. The intention of the parties is controlling and the time shall be at that which the parties may have probably contemplated, taking into account the nature of the obligation Note: The law doesnt require that the obligor acts with malice or fraud as long as his purpose is to prevent the fulfilment of the condition. He should not be allowed to profit from his own fault or bad faith. This article also refers to a resolutory condition with respect to the debtor who is bound to return what he has received what he has received upon the fulfilment of the condition (Art. 1190). Constructive fulfilment refers to a condition which although not exclusively within the will of the debtor may in some way be prevented by the debtor from happening Requisites o Intent of the obligor to prevent fulfilment of the obligation o Actual prevention of compliance The principle underlying constructive fulfilment of conditions is that a party to a contract may not be excused from performing his promise by non-occurrence of an event which he himself prevented the intent of the debtor to prevent the fulfilment of the condition is essential. Savigny is one of the view that the debtor must act with fraud or malice in order to be considered as voluntarily preventing fulfilment If in preventing the fulfilment of the condition the debtor acts pursuant to a right, the condition will not be deemed as fulfilled There is constructive fulfilment of the condition only if the act of the debtor had in fact prevented compliance with the condition

Art. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118) This article refers to negative conditions. The obligation shall become effective: 1. 2. From the moment the time indicated has elapsed without the event taking place From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed Note: If no time is fixed, the circumstances shall be considered to arrive at the intention of the parties. This rule may also apply to positive conditions.

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)3 Three requisites for the application of this article: 1. 2. 3. The condition is suspensive The obligor actually prevents the fulfilment of the condition He acts voluntarily

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

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Retroactive fulfilment of suspensive condition: 1. In obligations to give Demandable only upon the fulfilment of the condition; however, once the conditionis fulfilled, its effects shall retroact to the day when the obligation was constituted Reason: The condition is only an accidental element of a contract. Had the parties known beforehand that the condition would be fulfilled they would have bound themselves under a pure obligation. 2. In obligations to do or not to do No fixed rule is provided; the courts are empowered by the use of sound discretion and bearing in mind the intent of the parties, to determine, in each case, the retroactive effect of the suspensive condition that has been complied with. It includes that power to decide that the fulfilment of the condition shall have retroactive effect or from what date such retroactive effect shall take effect. If the conditional obligation has for its object the delivery of a determinate thing the debtor cannot before the happening of the suspensive condition makes contracts disposing of or alienating or encumbering the thing or otherwise creating a real right over the thing incompatible with the right of the creditor If the third person with whom the debtor has made a contract pendente conditionae acted in good faith and the thing has been delivered to him, the happening of the suspensive condition will not serve as to defeat his right of ownership. The creditor cannot recover the thing by an accion reinvindicatoria because there being no delivery to him he does not have the ownership over the thing If the creditor before the happening of the condition has already disposed of his expected right such as by creating a mortgage over the property to be delivered to him, the happening of the suspensive condition make effective the act performed pendente conditione The increase in the value which the thing may acquire before the happening of the suspensive condition inures to the benefit of the creditor Art. 1189 par 5 The law does not require the delivery of the fruits or interest accruing before the happening of the suspensive condition In obligation to do or not to do the courts shall use sound discretion to determine the retroactive effect of the fulfilment of the condition

Retroactive effect as to fruits and interests in obligations to give: 1. In reciprocal obligations There is no retroactive effect because the fruits and interests received during the pendency of the condition are deemed to have been mutually compensated. In unilateral obligations There is usually no retroactive effect because they are gratuitous. The debtor receives nothing from the creditor. Thus, the fruits and interests belong to the debtor unless from the nature and other circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) Rights pending fulfilment of suspensive condition: 1. Rights of creditor He may take or bring appropriate actions for the preservations of his right, as the debtor may render nugatory the obligation upon the happening of the condition. Thus, he may go to court to prevent the alienation or concealment of the property of the debtor or to have his right annotated in the registry of property. Rights of debtor He is entitled to recover what he has paid by mistake prior to the happening of the suspensive condition. This right is granted to the debtor because the creditor may or may not be able to fulfill the condition

2.

Between the moment of the creation of the conditional obligation and the fulfilment of the suspensive condition the creditor cannot enforce the obligation his right during the period is a mere expectancy however the obligation becomes effective and enforceable The effects of the obligation retroact to the moment when such an obligation was constituted or created. The juridical reason for the rule is that one condition is only an accidental and not an essential element of the obligation

2.

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imposed and hence, it is not certain that the obligation will arise. Note: The payment before the fulfilment of the condition must be by mistake; otherwise, the debtor is deemed to have impliedly waived the condition. In any case, he cannot recover what he has prematurely paid once the suspensive condition is fulfilled. Preservation of the Creditors rights 1. To prevent the loss or deterioration of the things which are the object of the obligations by enjoining or restraining acts of alienation or destruction by the debtor himself or by third persons 2. To prevent concealment of the debtors properties which constitute the guarantee in case of non performance of the obligation 3. To demand security if the debtor becomes insolvent 4. To compel the acknowledgement of the debtors signature on a private document or the execution of the proper public documents for registration so as to affect third persons 5. To register the deeds of sale or mortgages evidencing the contract 6. To set aside fraudulent alienations made by the debtor 7. To interrupt the period of prescription, by actions against adverse possessors of the things which are the objects of the obligation This article does not grant any preference of credit but only allows the bringing of the proper action for the preservation of the creditors rights Payment before condition if the payment was d a determinate thing, and it still exists in the hands of the creditor, the accion reinvidicatoria will lie otherwise the provisions of solutio indebiti will apply This article unlike Art. 1195 does not provide for recovery of the fruits or interests by the debtor who has paid before the happening of the condition (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) Article 1189 applies only if: 1. 2. 3. 4. 5. The obligation is a real obligation (obligation to give) The object is a specific or determinate thing The obligation is subject to a suspensive condition The condition is fulfilled There is loss, deterioration, or improvement of the thing during the pendency of the condition

Loss in civil law may be: 1. Physical loss when a thing perishes as when a house is burned and reduced to ashes Legal loss when a thing goes out of commerce or when a thing heretofore legal becomes illegal Civil loss when a thing disappears in such a way that its existence is unknown, or even if known, it cannot be

Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

2. 3.

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recovered, whether as a matter of fact or of law (ex. through prescription) Deterioration A thing deteriorates when its value is reduced or impaired with or without the fault of the debtor Improvement - A thing is improved when its value is increased or enhanced by nature or by time or at the expense of the debtor or creditor Usufruct the right to enjoy the use and the fruits of a thing belonging to another (Art. 579 and Art. 580 of the Civil Code) the principle of retroactivity of the effects of conditional obligations)

Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123) Effects of resolutory condition:

Art.579 The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere pleasure as he may deem proper provided he does not alter its form or substance; but he shall have no right to be indemnified therefor. He may, however, remove such improvements should it be possible to do so without damage to the property.

Art. 580 The usufructuary may set off the improvements he (debtor) may have made on the property against any damages to the same.

1.

By debtor

Loss Liable for damages to the creditor upon the fulfilment of the condition Obligation is extinguished, unless there is a stipulation to the contrary

Not by debtor

Deterioration Creditor may demand the thing or ask for rescission, with damages in either case Debtor not liable for damages; the creditor must accept the thing in its impaired condition

Improvement Usufructuary

By nature of the thing or by time improvements shall inure to the benefit of the creditor (in conformity with

In obligations to give When the resolutory condition in an obligation to give is fulfilled, the obligation is extinguished and the parties are obliged to return to each other what they have received under the obligation. There is a return to the status quo. In other word, the effect of the fulfilment of the condition is retroactive. But in case the thing to be returned is legally in the possession of a third person who did not act in bad faith, the remedy of the party entitled to restitution is against the other. The obligation of mutual restitution applies not only to the thing received but also the fruits and interests. In obligations to give subject to suspensive condition, the retroactivity admits exceptions according as the obligation is bilateral or unilateral. If the thing is lost before the happening of the resolutory condition, the loss must be borne by the owner at the time of the loss; that is, by the party who is bound to return it. If he has paid a price therefore, he cannot recover such price. And if the loss occurred by his fault, he would still be liable for damages. Also, in determining the

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fruits to be returned, it should be remembered that under Article 443 of the Code, he who receives the fruits has the obligation to pay the expenses made by a third person in their production, gathering, and preservation; therefore, these expenses incurred by the person obliged to make restitution should be deducted from the gross value of the fruits to be returned. In obligations to do or not to do In such obligations, the courts shall determine the retroactive effect of the fulfilment of the resolutory condition as in the case where the condition is suspensive. The courts in the exercise of discretioin may even disallow retroactivity, taking into account the circumstances of each case. 1. 2. Unilateral when only one party is obliged to comply with a prestation Bilateral when both parties are mutually bound to each other; both parties are debtors and creditors of each other; may be reciprocal or non-reciprocal a. Reciprocal obligations those which arise from the same cause and in which each party is a debtor and creditor of the other, such that the performance of one is designed to be the equivalent and the condition for the performance of the other. Each party may treat the fulfilment of what is incumbent upon the other as a suspensive condition to his obligation and its nonfulfillment, as a tacit or implied resolutory condition, giving him the right to demand the rescission of the contract. Non-reciprocal obligations those which do not impose simultaneous and correlative performance on both parties. In other words, the performance of one party is not dependent upon the simultaneous performance by the other.

2.

Applicability of Article 1189 to party with obligation to return: The fulfilment of the resolutory condition converts the creditor into debtor, and the debtor into creditor. Hence, the applicability of the provisions of Article 1189 in case of loss, deterioration or improvement of the thing. Pending the fulfilment of the condition, the parties are entitled to the rights granted by Article 1188. b.

Remedies in reciprocal obligations: 1. Action for specific performance (fulfilment) of the obligation with damages Action for rescission of the obligation also with damages (power to rescind granted to the injured party) Note: The right of the injured party to rescind is subordinated to the rights of a third party to whom bad faith is not imputable.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124) Kinds of obligation according to the person obliged

2.

Court may grant guilty party in default a term or period for the performance of his obligation. This exception applies only where the guilty party is willing to comply with his obligation but needs time to do so and not where he refuses to perform. Remedies of the injured party are alternative and not cumulative subject to the exception that he may also seek rescission even after he has chosen fulfilment if the latter should become impossible. But after choosing rescission of the obligation, he cannot thereafter demand its compliance. Limitations on right to demand rescission

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1. 2. The rescission is a judicial rescission or one granted by a court. The injured party has to resort to the courts to assert his rights judicially. The court has discretionary power to allow a period within which a person in default may be permitted to perform his obligation if there is a just cause for giving time to the debtor, as where the default incurred was not wilful or could be excused in view of the surrounding circumstances. Rescission is not available if the thing subject matter of the obligation is in the hands of a third person who acted in good faith. The general rule is that rescission will not be granted for slight breaches of contract; the violation should be SUBSTANTIAL as to defeat the object of the parties in making the agreement. The right to rescind may be waived, expressly or impliedly. 3. Abrogates the contract in all parts (The party seeking rescission cannot have performance as to a part and rescission as to the remainder)

3. 4.

5.

The prescriptive period for the action for rescission in such case is four years from the final judgment on the action for specific performance which has become impossible to execute. So long as there has been no judgment declaring rescission, however, the creditor who has asked for it may change his mind and demand specific performance instead, or vice-versa, unless he has preciously renounced one of these remedies. The right to choose between fulfilment and rescission is not incompatible with an alternative prayer in the complaint, or with a subsidiary petition for rescission when fulfilment is impossible. Acceptance by the creditor of delayed instalment payment beyond the grace period amounts to a waiver of the right of rescission.

Rescission without previous judicial decree: 1. Where automatic rescission is expressly stipulated by the parties; however, there must at least be a written notice sent to the other party informing him of the rescission. This extrajudicial rescission has legal effect where such party does not oppose it. Where it is objected to, a determination of the issues by the court is still necessary. Where there is no performance yet by both parties, but one is ready and willing to comply with what is incumbent upon him and the other is not, the willing party may, by his own declaration, rescind the contract without a previous judicial decree of rescission. In such a case, it is not necessary that there be stipulation providing for automatic rescission. If the extrajudicial rescission is contested, the party contesting is free to resort to judicial action.

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)

2.

Effects of rescission: 1. 2. Extinguishes the obligatory relation as it it had never been created (the extinction having a retroactive effect) Equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract

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