CHAPTER 1 GENERAL PROVISIONS Article 1156 – Definition of Civil Obligation 1) Juridical necessity – enforceable in court in case of non-compliance (enforceability) ; if not enforceable, only a natural obligation 2) Essential requisites of a civil obligation: a) b) c) d) Passive subject – debtor or obligor Active subject – creditor or oblige Object or prestation – subject matter Juridical or legal tie – that which binds the parties or efficient cause 3) Forms – oral, in writing, partly oral or in writing General rule – no form is required for validity except for specific contracts i.e. sale of real property 4) Sources of Obligations a) Law b) Contracts c) Quasi-contracts d) Crimes/delicts e) Quasi-delicts a) Law – are not presumed; only those expressly determined in this code or in special laws are demandable (Art. 1158) - Payment of taxes b) Contracts – stipulation of parties; law between the parties; characteristic of compellability (Art. 1159) c) Quasi-contracts – lawful, voluntary and unilateral acts which are enforceable to the end that “no one shall be unjustly enriched at the expense of another” - Solutio indebiti and negotiorum gestio d) Crimes/Delicts – “every person criminally liable is also civilly liable” e) Quasi Delicts – damages cause by act or omission (fault or negligence); no contractual relationship between the parties CHAPTER 2 NATURE EFFECT OF OBLIGATIONS Art. 1163 to 1166 – obligation to give 2 Kinds of Object in an obligation to give a) Specific or determinate - Particularly designated or physically segregated from others of the same class b) Generic or indeterminate - Cannot be pointed out with particularity Duties of debtor in obligation to give a determinate thing 1) Preserve the thing – only ordinary care or diligence of a good father of a family unless another standard of care is stipulated 2) Deliver the fruits of the thing (Art. 1164) - Creditor has a personal right to the fruits at the time obligation of debtor arises - Creditor acquires real rights only upon delivery; Delivery transfers ownership 3 Kinds of fruits a) Natural fruits – spontaneous products of the soil, and products of animals b) Industrial fruits – produced by lands through labor c) Civil fruits – derived by virtue of a juridical relation i.e rentals 3) Deliver the accessions and accessories even not mentioned (Art. 1166) - Accessions are the fruits of a thing or improvements upon a thing i.e. trees on land - Accessories are things joined to the thing for embellishment, better use or completion i.e. car sound system 4) Deliver the thing itself - Creditor can compel debtor to make delivery or specific performance (Art. 1165) - Debtor is liable for damages if there is (a) delay and (b) double promise to deliver, even if a fortuitous event caused the damage. Fortuitous event – an event which cannot be foreseen, or though foreseen is inevitable i.e. Acts of man like robbery and Acts of God like earthquake - No person is responsible for fortuitous event (Art. 1174) except a) Specified by law b) Stipulated c) Nature of the obligation requires assumption of risk. Duties of debtor in obligation to deliver a generic thing 1) Deliver a thing which is of the quality intended - Not necessary to compel delivery of specific performance as creditor can ask another to person to perform the obligation - However, creditor may ask the performance of the obligation. Art. 1167 to 1168 – obligation to do and not to do Remedies of the creditor in positive personal obligation (to do) 1. Failure of the debtor to perform his obligation a) To have other persons perform the obligation at the expense of the debtor. - Cannot compel specific performance as involuntary servitude is prohibited by the Constitution (Section 18 [2], Art. III) b) If personal considerations are involved, to recover damages (Art. 1170) 2. Contravention or violation of the terms or poor performance a) Decreed to be undone if still possible to undo what was done. Remedies of creditor in negative personal obligation (not to do) - Duty of the debtor is to abstain from the act; obligation is fulfilled in not doing what is forbidden. - Obligation is violated if the debtor do what is forbidden. - Remedy of the creditor is the undoing of the forbidden thing plus damages. - If not possible to undo, remedy is to ask for damages. Art. 1169 – When in delay Ordinary delay – failure to perform an obligation on time Legal delay or default – failure to perform an obligation on time even after judicial or extrajudicial demand is made. - No legal delay in negative personal obligation. Kinds of legal delay or default a) Delay of the debtor to perform his obligation (mora solvendi) b) Delay of the creditor to accept the performance of the obligation (mora accipiendi) c) Delay in reciprocal obligations (compensation morae) Demand is not necessary and debtor is still in delay. a) Stipulated b) Provided by law i.e. payment of taxes c) Nature and circumstances of the obligation i.e. wedding gown d) Demand is useless i.e. when the thing was lost due to negligence of the debtor e) In reciprocal obligations when the other party fulfills or is ready to fulfill his obligation i.e. sale Art. 1170 – grounds for liability for damages 1) Fraud 2) Negligence 3) Delay 4) Contravention or violation of the terms of the obligation. 1) Fraud - incidental fraud or fraud in the performance (damages) - Not causal fraud or fraud employed in getting ones consent (voidable) - any waiver of an action for future fraud is void (Art. 1171) based on law and public policy - a past fraud can be subject of a valid waiver of action. 2) Negligence - voluntary act or omission, there being no malice, which prevents the normal fulfilment of the obligation - either contractual negligence (culpa contractual), civil negligence (culpa aquiliana/quasi-delict), or criminal negligence (culpa criminal) - waiver of action for future negligence is valid except those which requires extraordinary care (common carrier) - waiver of action for past negligence is also valid - when negligence shows bad faith or deliberate, considered fraud (Art. 1173) Other provisions Art. 1175 – usurious transactions (legally non-existent) Art. 1176 – disputable presumption as to the payment of interest and the payment of a prior installment - Interest is presumed paid if the principal is paid unless reserved. - Later installment is presumed paid if prior installment is paid unless indicated that prior installment is not paid. - Presumption does not apply to the payment of taxes Art. 1177 – remedies of the creditor to satisfy their claims (damages) 1) Levy the property of the debtor (except those exempt from attachment) 2) Redeem the property of the debtor which is mortgaged. 3) Collect from the debtor of the debtor 4) Ask for cancellation of the contracts that defraud the creditor. Art. 1178 – transmissibility of rights acquired in an obligation - All rights acquired by virtue of an obligation is transmissible except: a) Prohibited by law i.e. partnership, agency, and commodatum b) Prohibited by stipulation (death of the creditor) CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS SECTION 1 Kinds of Obligations 1. Pure 2. Conditional 3. With a period 4. Alternative 5. Joint 6. Solidary 7. Divisible 8. Indivisible 9. With a penal clause Art. 1179 Pure Obligation - Not subject to any condition No specific date mentioned for its fulfillment Demandable at once Ex. A student borrows money from a seatmate. Conditional Obligation Condition – future or uncertain event, or a past event unknown to the parties Art. 1180 – Promise to pay when the means permit is not a conditional obligation but a one with a period Art. 1181 2 Principal Kinds of Condition a) Suspensive condition (precedent or antecedent) - Obligation is suspended - Happening of the condition will give rise to the obligation - Ex. A bonus is given to a Salesman who reach his quota. b) Resolutory condition (subsequent) - Obligation is demandable at once - Happening of the condition will extinguish the obligation Ex. The scholarship foundation cancelled the scholarship after the student scholar fails to meet the grade requirement Art. 1182 – Potestative condition – happening of the condition depends on one party a) Suspensive potestative condition depending on the sole will of the debtor - VOID - Ex. I will pay my tuition if I pass this course. b) Suspensive potestative condition depending on the sole will of the creditor - VALID - Ex. I will deliver the books with cover if you pay on time. c) - Resolutory potestative condition depending on the sole will of the debtor VALID Happening of the condition merely causes extinguishment of the obligation. Ex. I will continue to pay your tuition fee if I remain an employee of USC. d) Resolutory potestative condition depending on the sole will of the creditor - Same as resolutory condition in Art. 1181 e) - Casual condition - Suspensive condition depending upon chance or will of a third person VALID Ex. Contractor’s warranty Ex. I will let you occupy the room if the present occupant would leave. Art. 1183 – Impossible conditions - VOID - If divisible, the part not affected by the condition is VALID. 2 kinds of impossible condition a) Physical impossibility b) Legal impossibility Art. 1184 – Positive Condition - Obligation is extinguished: a) Time expires Ex. The seller will give the agent additional 5% commission if he is able to sell within 30 days. b) Indubitable that the event will not happen Ex. I will give you a college scholarship if you graduate as valedictorian in high school. The student failed a subject in fourth year. Art. 1185 – Negative condition - Obligation is effective: a) Time has elapsed. Ex. Return of deposit if the lessee will not leave within the contract period. b) Evident that the event cannot occur. Ex. I will provide you with a refrigerator if you will not carry other softdrinks. The client disposes of all the bottles of the competitor. Art. 1186 - Constructive fulfillment of suspensive condition - Creditor voluntarily prevents fulfillment of the condition. - Ex. The company unreasonably increase the quota of its salesmen after one almost reach it. - Applies also to resolutory condition if the debtor is bound to return what he has received upon the happening of the condition. Debtor prevents the fulfillment of the condition. - Ex. Employer provides daily allowance for hotel expenses to an employee if the latter cannot find an apartment to stay. Employee did not look for a place so he will continue to receive the daily allowance. Art. 1187 - Retroactive effect of fulfillment of suspensive condition a) Obligation to give - retroacts to the day the obligation is constituted not from the time condition is fulfilled - Ex. Teachers are promised a salary increase at the start of the school year provided the CHED approves the application for salary increase. CHED approved the application in December. Increase in salary is effective from June. - No retroactive effect as to fruits and interests in reciprocal obligations; deemed mutually compensated. - Ex. Sale of taxi. Interest on the selling price and income from rentals of taxi is deemed set-off - No retroactive effect also as to fruits and interests in unilateral obligations unless there is a clear intention to give the fruits and interest; gratuitous in nature. - Ex. Reimbursement of tuition fee if student tops the board exam. Student cannot ask for interest on the tuition fee paid as the intention to return only the tuition fees paid. b) obligation to do or not to do - no fixed rule, discretionary on the courts to apply retroactive effect of suspensive condition - intention of the parties is taken into consideration - Ex. A week before, a contractor submitted a quotation for the repair of the wall of the house on the condition it will not rain on the coming weekend. On weekend, it did not rain but the prices of materials increase. Quoted price prevails despite the increase. Art. 1188 – Creditor’s rights pending the happening of the suspensive condition. a) Bring action to preserve the thing - Ex. In case of sale of land, cause the annotation in the Registry of Property. b) Debtor can recover payment by mistake before the happening of the condition. Art. 1189 – Rules in case of loss (before the happening of the suspensive condition) Kinds of loss a) Physical loss – thing perishes i.e. house gutted by fire b) Legal loss – goes out of commerce i.e. sale of firearms when a law is pass declaring it illegal. c) Civil loss – disappears or cannot be recovered i.e. a ship that sank in the bottom of the sea. Rules: 1) 2) 3) 4) Lost without debtor’s fault – obligation is extinguished Lost through debtor’s fault – debtor liable to pay damages Deteriorates without debtor’s fault – borne by the creditor Deteriorate with debtor’s fault – creditor may choose between rescission or fulfillment of the obligation, with damages in either case. 5) Improve by nature, inure to the benefit of the creditor 6) Improve at debtor’s expense – debtor shall have usufructuary rights (remove the improvements without destroying the principal thing; not subject to reimbursement) Art. 1190 – effects of fulfillment of resolutory condition. a) Obligation to give - Return to each other what they have received including the fruits and interest. Except when it is with a third person in good faith, the remedy is restitution. - Ex. A scholar who violates the scholarship contract shall return the school fees paid plus interest. b) Obligation to do or not to do - The courts shall determine the retroactive effect of the fulfillment of the resolutory condition. - Ex. Salesman is allowed to use company car provided he reached the quota. If quota is not reached, salesman must return the car but is not required to pay rental because the intention is to use the car for company’s business. Art. 1191 – Reciprocal obligations Alternative remedies in reciprocal obligations if one party fails to perform his obligation (needs time and not refusal to perform): a) Ask for specific performance with damages b) Action for rescission with damages (implied); different from rescission due to lesion, defect in consent or violation of contract. Ex. Sale of taxi – the buyer is ready with the payment but the seller needs time to deliver the car as it is not returned by the taxi driver. Limitations on the right to demand rescission: - Must be granted by the court (judicial rescission) except when automatic rescission is expressly stipulated (extrajudicial rescission). However, notice must be given to the other party. If there is objection, resort to court is necessary. Ex. Violation of lease contract. - The court has discretion to allow the party in default a term or period to perform the obligation. - Rescission is not available if the thing is in the hands of a third person in good faith. - There must be substantial breach of contract. - Right of rescission may be waived such as the acceptance of a security. Art. 1192 – both parties are guilty of breach a) First infractor known o Liability for damages of the first infractor is equitably tempered. b) First infractor is not known o Contract is extinguished, each shall bear his own damage. CHAPTER 3 SECTION 2 Art. 1193 Obligation with a period - A future or day certain has been fixed for the fulfilment of the obligation. Day certain means it must necessarily come although it may not be known when. Ex. Death If it is uncertain whether the day will come or not, then it is a conditional obligation. Ex. Graduation. Obligation is demandable when the day comes ex. “30 days from the signing of the agreement” KINDS OF PERIOD 1) Suspensive period – obligation begins only from a day certain upon arrival of the period. Ex. Pay the tuition fee when the student reached college. 2) Resolutory period – obligation is valid up to a day certain and terminates upon arrival of the period. Ex. Giving of financial support until reaching majority age. 3) Legal period – provided by law. Ex. payment of taxes. 4) Conventional period – agreed by the parties. Ex. payment of loan. 5) Judicial period – fixed by the court. Ex. when to move out of the leased premises. 6) Definite period – fixed period 7) Indefinite period – not fixed period. Art. 1194 – same rules in Art. 1189 for loss, deterioration or improvement of the thing. Art. 1195 – payment by mistake as the period has not yet arrived. - Debtor is entitled to recover the payment plus fruits and interest. But debtor is presumed to know the period and must prove that he was unaware of the period. NO RECOVERY in personal obligation (obligation to do) as it is physically impossible to recover services rendered. Art. 1196 – Rebuttable presumption as to benefit of period - - Presumed for the benefit of both creditor and debtor. Creditor cannot collect or debtor cannot pay before the arrival of the period. Ex. Banks imposed a penalty for early termination of loan. Exceptions to the General Rule: For the benefit of the debtor alone – debtor can pay early. Ex. “on or before” For the benefit of the creditor alone – may demand fulfilment even before the arrival of the term but cannot be forced to accept payment before the arrival of such period. Ex. Acceleration clause. Art. 1197 – Obligation has no period but period was intended. - Court is authorized to fix the period: 1) No period was fix but period is intended. Ex. construction of a house 2) Duration of the period depends upon the will of the debtor. Ex. obligation to pay money. Art. 1198 – when debtor losses right to make use of the period. 1) 2) 3) 4) 5) Debtor becomes insolvent unless he gives guaranty or security for the debt Debtor does not furnish the promised guaranty or security Debtor impairs the guaranty or security unless he gives a new one Breach of contract Attempts to abscond CHAPTER 3 SECTION 3 Art. 1199 Alternative Obligation - Obligation with several prestations which are due but the performance of one is sufficient as determined by the choice of the debtor in general. - Requires complete performance of one prestation. No partial performance of all prestations. Ex. Trip to Paris or car. Art. 1200 – right of choice - Belongs to the debtor unless expressly granted to the creditor. No right to choose impossible obligations, unlawful or not the object of the obligation. No more right to choose if only one is practicable (Art. 1202). Art. 1201 choice must be communicated, otherwise obligation remains alternative. - Concurrence of creditor is not required. Notice either oral or in writing. Art. 1203 – Debtor can rescind contract if through creditor’s fault, debtor cannot make a choice. Ex. Car or cash. Creditor sold the car to another person. Debtor may choose car plus damages. Art. 1204 & 1205 - Effects of loss of objects of obligation (right of choice belongs to debtor) a) All are lost – indemnity for damages; basis of indemnity is the value of the last thing which is disappeared plus other damages b) Some are lost – no liability since the debtor can still performed the obligation. Art. 1205 – Rules in case of loss when the right of choice belongs to the creditor. a) Lost through fortuitous event – creditor can choose from the remaining. If all are lost, obligation is extinguished (determinate thing) - Lost through debtor’s fault – choose the lost item or the existing items plus damages in either case. Art. 1206 – Facultative Obligation - Only one prestation is agreed upon, but the obligor may render another in substitution. Ex. Trip to Paris or convert to cash. No liability in case of loss of the substitute except when substitution is made prior to the loss. CHAPTER 3 SECTION 4 Art. 1207, 1208 – Joint and Solidary Obligation (2 or more debtors/creditors) 1) Joint obligation – pro rata demanded (creditor) or fulfilled (debtor). Ex. bed spacer rental 2) Solidary obligation – one debtor is bound to pay or one creditor may demand fulfilment the whole obligation. Ex. Co-maker 3) Solidarity exists only when (a) agreed, (b) law, (c) nature of the obligation requires solidarity 4) If not clear, presume joint obligation as it imposes lesser burden. 5) Words to indicate joint obligation: pro rata, proportionately, “we promise to pay” signed by 2 or more persons. 6) Words to indicate solidary obligation: jointly and/or severally, solidaria, in solidum, together and/or separately, individually and/or collectively, “I promise to pay” signed by 2 or more persons. Art. 1209 – Joint indivisible obligation 1) Indivisible – object is not physically divisible into parts. 2) Enforced by collective acts of the creditors or proceeding against all the debtors. 3) If there are damages claim, the other debtors are not liable for the share of insolvent debtors. Art. 1210 – indivisibility vs. Solidarity 1) Indivisibility is not solidarity nor solidarity implies indivisibility Art. 1211 – Solidarity with different stipulations 1) Solidary debtors may not be bound in the same manner, same period or same conditions 2) Ex. One debtor pays on instalment while another pays outright; one debtor pay in 1 year while another pays in 2 years. Art. 1212 – Solidary creditors may do acts that are useful and not prejudicial to the other creditors 1) Ex. collect from 1 debtor the whole obligation (useful) 2) To waive action against a debtor (prejudicial) 3) Assign his rights to another (Art. 1213) Art. 1213 – Solidary creditors cannot assign his rights without the consent of the others. Ex. A is indebted to solidary creditors B and C, C, cannot assign his rights to D, without the consent of B. the reason rest on the extra ordinary mutual trust and confidence among solidary creditors and it may happen that the other creditor may not want dealings with the person to whom the debts will be assigned. Art. 1214 – To whom payment is made 1) To any solidary creditor 2) Otherwise, to one who made a judicial or extrajudicial demand (avoid confusion or acknowledge a diligent creditor) Art. 1215 – Liability in case of novation, compensation, confusion or merger (extinguishment of obligation) by a solidary creditor 1) Solidary creditor is liable to the others to give their share in the credit corresponding to them. Art. 1216 – Right of creditor to proceed against any solidary debtor. 1) If one solidary debtor has not paid in full, creditor can still proceed against the other solidary debtor. Art. 1217 – Effect of payment by a solidary debtor 1) If payment is full, obligation is extinguished. 2) The solidary debtor who paid can demand reimbursement from his co-debtors their proportionate share in the obligation. 3) The solidary creditor who received payment is liable to give to his co-creditor their share. Art. 1218 – Effect of payment after obligation becomes illegal or prescribed. 1) Solidary debtor is not entitled to reimbursement Art. 1219 – Effect of remission of obligation of one solidary debtor made by the solidary creditor 1) If payment is made first by the other solidary debtor, the remission has no effect. Paying debtor is entitled to reimbursement. Art. 1220 – Remission of the whole obligation through one solidary debtor 1) Solidary debtor is not entitled to ask for reimbursement from his co-debtors. Art. 1221 – Rules in case of loss or prestation becomes impossible 1) Same rules in case of loss 2) Solidary debtors who are not guilty can recover from the guilty co-debtor. Art. 1222 – Defenses available to a solidary debtor 1) Defenses derived from the nature of the obligation – Ex. payment by a co-debtor 2) Defenses personal to the solidary debtor – Ex. his minority or incapacity 3) Defenses personal to the other solidary debtors – Ex. minority or incapacity of the other debtor regarding the latter’s share of the obligation. CHAPTER 3 SECTION 5 Art. 1223 – Divisible and indivisible Obligations 7) Divisible obligation – delivery or performance is capable of partial fulfilment. 8) Indivisible obligation – delivery or performance is not capable of partial fulfilment. 9) Test – purpose of the obligation or intention of the parties. 10) Object is physically divisible but is indivisible if provided by law or intended by the parties (Art. 1125) 11) Ex. payment of money - money is divisible but intention is to pay as a whole. 12) Object is not physically divisible, the obligation is always indivisible. 13) Ex. delivery of a car – not physically divisible. Art. 1224 – Effect of non-compliance by a debtor in a joint indivisible obligation. 1) Ex. delivery of car. 2) Creditor can demand damages to the debtor who does not comply with the obligation. 3) Debtors who are willing to comply are not liable beyond the corresponding portion of the price of the thing or the value of the services. Art. 1225 – Divisible or indivisible. Obligations deemed indivisible: 1) 2) 3) 4) To give definite things. Ex. Deliver a car Not susceptible of partial performance. Ex. Host a wedding. Provided by law. Ex. payment of taxes Intention of the parties. Ex. payment of money. Obligation deemed divisible: 4) Execution of a certain number of days of work. Ex. Construct a house 5) Accomplishment of work by metrical units. Ex. Make a table with a specified dimension. 6) Susceptible of partial performance. Ex. paying a debt by installment. CHAPTER 3 SECTION 6 Art. 1226 – Obligation with a penal clause 14) A penal clause is an accessory undertaking to pay indemnity in case of breach of the obligation. 15) The penalty shall substitute the indemnity for damages and interest. 16) The debtor is liable for damages and interest aside from the penalty in the following: a) Agreement b) Refusal to pay the penalty c) Fraud. 17) Ex. Failure of the contractor to complete a government project on time, a penalty per day of delay is imposed on the contractor. 18) Penalty cannot be imposed if obligation was not performed due to fortuitous event. 19) Penalty maybe reduced if unconscionable or there is partial performance. Art. 1227 – Penalty not a substitute for performance. 4) Debtor cannot pay penalty as a substitute for performance except when reserved for him. Ex. Remove the garbage after vacating the leased premises or pay penalty taken from the security deposit. 5) Creditor cannot demand fulfilment and penalty at the same time unless it is clearly granted to him. Ex. construction of a house with penalty for delay. Art. 1228 – Penalty can be demanded even without proof of actual damages. Ex. penalty for delay. Art. 1229. When Penalty may be reduced by the courts 1) When there is partial or irregular performance. 2) When the penalty is iniquitous or unconscionable. Ex. 50% penalty Art. 1230 – Effect of nullity of penal clause 1) Accessory follows the principal. 2) If penal clause is void, the principal obligation remains. 3) If principal obligation is void, the penalty is void. CHAPTER 4 PAYMENT OR PERFORMANCE SECTION 1 Art. 1231 Causes of extinguishment of obligations 1) 2) 3) 4) 5) Payment or performance Loss Condonation or remission Confusion or merger Compensation 6) Novation 7) Other causes i.e. annulment, rescission, fulfilment of a resolutory condition, & prescription Art. 1232 Meaning of payment 1. Delivery of money or 2. performance of the obligation a) giving of a thing b) doing an act c) not doing an act Art. 1233 – Extinguishment of debt 1. Debt includes to deliver money, to deliver a thing, to do an act, or not to do an act. 2. Debt is extinguished if thing or service is completely delivered or rendered. Art. 1234 – Effect of substantial performance in good faith 1. 2. 3. 4. 5. Obligor can recover as if completely performed less damages suffered by the obligee. Justification: Based on fairness. 1st requisite: There is substantial performance. 2nd requisite: Obligor is in good faith. Ex. seller was able to deliver only 400 sacks of rice out of 500 due to government restriction (good faith). Seller can demand payment of the price for 400 sacks. Art. 1235 – Effect of acceptance (or without protest or objection) despite incomplete or irregular performance 1. Based on estoppel. 2. Obligation is deemed fully complied with. 3. Ex. Delivery of a car without tire jack. Buyer accepted as he has an extra tire jack. Art. 1236 – From whom creditor must accept payment 1. a. b. c. Creditor is bound to accept payment or performance from the following: Debtor Any person interested in the fulfilment of the obligation (guarantor) A third person authorized to make payment. 2. If a third person pays without the knowledge or against debtor’s will – he can recover only the amount paid (right of reimbursement). No right of subrogation. 3. If a third person pays with the knowledge of the debtor – he can recover the amount paid plus right of subrogation or acquires the rights of a creditor, i.e. mortgage, guaranty or penalty (Art. 1237) Art. 1238 No intention to be reimbursed – considered a donation. 1. Donation requires debtor’s consent. 2. Whether with consent or not, payment is valid as far as the creditor is concerned. Art. 1239 – payment by a person who has no right to freely dispose of the thing or capacity to alienate is VOID 1. Free disposal – not subject to any claim, lien or encumbrance. Ex. mortgage or pledge. 2. Capacity to alienate – incapacitated to contract. Ex. minor. 3. Payment can be recovered. Art. 1240 – to whom payment is made. 1. Creditor 2. Successor in interest. Ex. heirs. 3. Authorized representative Art. 1241 – Effect of payment to an incapacitated person (minor) and effect of payment to a third person. 1. Valid if thing is kept or beneficial to him (incapacitated person) 2. Valid if it redounded to the benefit of the creditor. Ex. creditor is indebted to the third person. 3. No proof of benefit is required: a) Third person acquires creditor’s rights b) Ratification by the creditor c) Estoppel (debtor is made to believe third person is authorized to receive payment) Art. 1242 – Effect of payment in good faith to third person in possession of credit 1. Payment is valid. Obligation is extinguished. 2. Ex. check payable to cash or promissory note payable to bearer. Art. 1243 Effect of payment by a debtor judicially ordered not to pay. 1. NOT VALID. 2. Ex. two persons claim ownership of the thing leased. The court ordered the lessee not to pay the lessor. If the lessee pays, his payment is not valid. If the other person (not the lessor) is declared the owner, the lessee must again make payment to him. Art. 1244 – Creditor cannot be forced to accept another object even if it is more valuable. (determinate thing) 1. Ex. obliged to deliver a Kia vehicle. Debtor cannot be compel creditor to accept a Ferrari. Art. 1246 – Creditor cannot demand a superior quality or debtor deliver an inferior quality than agreed (generic thing) Art. 1247 – Extrajudicial expenses of payment. 1. Payable by the debtor. Ex. notarial fees. 2. Judicial expenses are paid by the losing party. Art. 1248 – No partial performance. 1. Creditor cannot be forced to accept partial payment. Ex. Debtor begs creditor that he pays on installment. 2. Debtor cannot be required to make partial payments. Ex. Due one year after and creditor demands payment every month. Art. 1249 – Payment must be legal tender. 1. Legal tender – creditor can be compelled to accept as payment. 2. Parties can agree on the currency other than Philippine peso. 3. There is also legal tender for coins. Art. 1250 – Effect of extraordinary inflation or deflation 1. Payment shall be based on the value of the currency at the time of the establishment of the obligation 2. Payment is based on the current value of the currency if there is an agreement. 3. Ex. loan by the corp. in US dollars and payable in US dollars. Art. 1251 – Where payment is made 1. Place designated. 2. Where the thing is situated. 3. Domicile of the debtor. SPECIAL FORMS OF PAYMENT A. Art. 1245 – Dation in payment 1. Payment by conveying ownership of a thing. Debtor is not insolvent. Only one creditor. B. 1. 2. 3. 4. Art. 1252 – Application of payment Debtor has two or more debts of the same kind to one creditor and all debts are due. Debtor can choose what debt is paid if his payment is not enough. If debtor does not choose, creditor can specify in the receipt what debt is paid. If creditor does not specify, the most onerous debt is paid (Art. 1254). If the same burden, proportionately (Art. 1254). Art. 1253 – Interest is paid ahead of the principal amount. C. 1. 2. D. Art. 1255 – Payment by cession. Payment by conveying ownership of a thing. Difference with dation in payment, in cession debtor is insolvent, two or more creditors. Art.1256 – Tender of payment and consignation 1. Tender of payment – debtor offering the creditor payment of the obligation. 2. Consignation – depositing the payment in court (Art. 1258) if creditor does not accept payment. 3. Effect of consignation – obligation is extinguished. 4. When no need to make a tender of payment a) Creditor is absent or unknown b) Creditor is incapacitated. c) Creditor refuses to give a receipt d) Two or more persons claim the same right to collect e) Title of the obligation has been lost. Art. 1257 – Requirement of Notice to persons interested in the fulfilment of the obligation. 1. Persons interested in the fulfilment of the obligation are: guarantors, mortgagees, solidary debtors, solidary creditors. 2. Absence of notice – consignation is void. Art. 1259 – expenses of consignation chargeable to the creditor. Art. 1260 – Rights of the debtor after consignation 1. Ask the judge to order the cancellation of the obligation. 2. May withdraw the amount consigned if not yet withdrawn by the creditor or before the judge declared the cancellation of the obligation. Art. 1261 – Effect of withdrawal of thing consigned with authority from creditor. 1. Creditor losses preferential right over the thing. 2. Co-debtors, guarantors and sureties are released from liability. CHAPTER 4 SECTION 2 LOSS Art. 1262 Loss of the thing (determinate thing) 1. Obligation is extinguished: a) Loss is without fault of the debtor b) Debtor is not guilty of delay c) Loss due to fortuitous event 2. Obligation is not extinguished (even w/o fault or delay): a) Provided by law b) Agreed by parties c) Nature requires assumption of risk d) Arises from a crime. Ex. return of stolen item (Art. 1268) Art. 1263 Loss of the thing (generic or indeterminate) 1. Obligation is not extinguished even due to fortuitous event. 2. Based on the principle “generic thing never perishes” Art. 1264 Effect of partial loss 1. Discretionary on the court to determine whether or not the obligation is extinguished. 2. Ex. Delivery of a race horse that suffered a leg injury. Art. 1265 Presumption who is at fault in case of loss (disputable) 1. Debtor’s fault if in his possession. 2. Creditor need not prove debtor’s fault. 3. Exceptions: earthquake, flood, storm or other natural calamity. Art. 1266 Effect of impossibility of performance 1. 2. 3. 4. Obligation is extinguished. Legal or physical impossibility takes place after the obligation is agreed. If impossible from the beginning, VOID. Ex. of legal impossibility - Delivery of full face helmets after being banned by law. 5. Ex. of physical impossibility – To perform (sing) at a wedding after operated in the throat. Art. 1267 Effect of difficulty of performance 1. A fortuitous event made the performance difficult. 2. Ex. Construction of a house when the roads leading to the site was damage beyond repair by earthquake. Art. 1269 Right of creditor against third persons. 1. Against third persons who cause the loss or destruction. Ex. To sue for damages. CHAPTER 4 SECTION 3 CONDONATION or REMISSION Art. 1270 Meaning of condonation or remission 3. 4. 5. 6. Gratuitous abandonment of creditor’s right against the debtor. Comply with the form of donation. Accepted by the debtor. Not inofficious. Ex. Creditor has no other properties left. Art. 1271 Delivery of document evidencing the credit 1. Debt is presumed renounce. 2. Disputable presumption. 3. Debtor or his heirs can prove that delivery of document was due to payment. Ex. when heirs of creditor questioned the donation. Art. 1272 Debtor possesses the document evidencing the credit 1. Presumed voluntarily given to him. (disputable) 2. If no payment, presumed condone or remitted. Art. 1273 Effect of renunciation of principal debt on the accessory obligation. 1. Accessory obligation is extinguished. Ex. Real estate mortgage. 2. Renunciation of the accessory obligation (mortgage) does not automatically extinguish principal debt. Ex. return of jewelry pledge. Art. 1274 Presumption in case thing pledged is found in possession of debtor. 1. Accessory obligation is remitted. 2. Principal debt is not automatically extinguished. CHAPTER 4 SECTION 4 CONFUSION or MERGER Art. 1275 Meaning of confusion or merger 7. A person becomes creditor and debtor at the same time over the same obligation. Art. 1276 Effect of merger to guarantors 4. Obligation of the guarantors are extinguished. 5. Reason: Accessory follows the principal. 6. Effect of merger in the person of the guarantor, principal obligation remains. Art. 1277 Effect of merger in joint obligation 3. Affects the co-debtor only whom the two characters of creditor and debtor are merged. 4. While in solidary obligation, extinguishes the entire obligation. CHAPTER 4 SECTION 5 COMPENSATION Art. 1278 Meaning of compensation 8. Two persons are debtor and creditor of each other. Art. 1279 Requisites of compensation 7. The parties are bound principally to each other. 8. Either debt is sum of money or thing of the same kind and quality. 9. Both debts are due. 10. Liquidated (determine) and demandable. 11. No controversy (3rd party claim) commenced by third persons. Art. 1280 Effect of compensation to the guarantor 5. Compensation extinguishes the accessory liability of the guarantor. Art. 1281 Two kinds of compensation 1. Total compensation - debts of same amount 2. Partial compensation – debts of different amounts Art. 1282 Compensation of debts not due 1. Voluntary compensation – by agreement of the parties. Art. 1283 Judicial compensation 1. The party claiming compensation must prove his right to damages and amount thereof. Art. 1284 Compensation of rescissible or voidable contracts 1. Reason: Rescissible or voidable contracts are valid until annulled. Art. 1285 Effect of compensation when debt is assigned. 1. Compensation before assignment – the debtor can raise the defense of compensation; assignee’s remedy is against the assignor of the debt. 2. Compensation after assignment – a) With consent of the debtor – debtor cannot claim compensation against the assignee or debtor is liable for the full amount against the assignee b) With the knowledge but without consent of the debtor – debtor can claim compensation only on debts that are due; as to debts not yet due, debtor cannot claim compensation c) Without knowledge of the debtor – debtor can claim compensation on debts due and not yet due. Art. 1286 Compensation of debts payable at different places 1. Applies to legal compensation. 2. There shall be indemnity for expenses of exchange (currency) or transportation to the place of payment. Art. 1287 When legal compensation is not allowed 1. 2. 3. 4. Depositum Commodatum Claim for support Civil liability arising from penal offense Art. 1289 Compensation of several debts 1. Rules on application of payment applies to compensation Art. 1290 Requisites of legal compensation 1. All requisites in Art. 1279 are present. 2. No consent is required from the parties. CHAPTER 4 SECTION 5 NOVATION Art. 1291 Meaning of novation 9. Extinguishing an obligation by creating a new one substituting it. 10. Kinds of novation: According to origin a) Legal – by operation of law b) conventional – by agreement of the parties According to subject a) Personal – object is changed b) Real – parties are changed 11. How novation effected: a) Changing the object or principal conditions b) Substituting the person of the debtor c) Subrogating a third person in the rights of the creditor Art. 1292 Requisites of novation 12. Requisites a) Valid obligation b) Capacity and intention to modify the obligation c) Extinguishment of old obligation and Creation of new obligation (every point incompatible) d) Old and new obligation be incompatible 13. Ex. To deliver a truck instead of a car. Art. 1293 Kinds of personal novation 6. Substitution – change in the debtor a) Expromission – without knowledge or consent of the debtor b) Delegacion – with knowledge or consent of all parties 7. Subrogation – change in the creditor Art. 1294 Effect of Expromission 3. Change in the person of the debtor without knowledge or consent of the latter. 4. New debtor’s insolvency or non-fulfillment of the obligation will not revive the liability of the original debtor. Art. 1295 Effect of delegacion 2. Change in the person of the debtor with the knowledge and consent of the creditor, old and new debtor. 3. New debtor’s insolvency or non-fulfillment of the obligation will not revive the liability of the original debtor EXCEPT insolvency is (a) public knowledge or (b) known to the old debtor when the debt was delegated. Art. 1296 Effect of novation on accessory obligation 1. Accessory obligation is extinguished. Reason: accessory follows the principal 2. EXCEPTION: Not extinguished if accessory obligation benefits a third person unless the latter gives consent. 3. Ex. A owes B P2,000 plus interest at 12%. B owes C P240. The parties agreed that A pays C P240. Later A and B agreed to novate their contract and instead deliver a TV. A’s obligation to pay C P240 remains. Art. 1297 Effect where new obligation is void 2. The original obligation subsists unless the parties agreed that it is extinguished in any event. 3. If the new obligation is voidable, there can be novation. But if new obligation is annulled, same effect as void obligation. Art. 1298 Effect if old obligation is void or voidable 3. The new obligation is void if the old obligation is void. 4. If the old obligation is voidable, there is novation until the old obligation is declared void. Also novation is valid if old obligation is ratified. Art. 1299 Effect if old obligation is subject to a resolutory or suspensive condition 1. 2. The new obligation is subject to the same resolutory or suspensive condition. EXCEPT when otherwise agreed. Art. 1300 Kinds of subrogation 5. Conventional – by agreement of the parties 6. Legal – by operation of law Art. 1301 Requisites of conventional obligation 2. Consent of all parties is required. Art. 1302 Presumption of legal subrogation 3. When a creditor pays another creditor who is preferred, even without the debtor’s knowledge. 4. When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor. 5. When, even without the knowledge of the debtor, a person interested in the fulfilment of the obligation pays, without prejudice to the effects of confusion as to the latter’s share. (guarantor) Art. 1303 Effect of total subrogation 1. Transfer all the rights of the old creditor to the new creditor against the debtor or guarantors. 2. If conventional subrogation – depends on the agreement of the parties. Art. 1304 Effect of partial subrogation 1. Old creditor remains a creditor for the balance of the obligation. 2. In case of insolvency of the debtor, old creditor is preferred over the new creditor.
