MODULE 1: Meaning and Requisites of Obligation

I. DEFINITION

Q: What is an obligation?

A: It is a juridical necessity to give, to do, or not to do. (Art. 1156, NCC) It is a juridical
relation whereby a person (creditor) may demand from another (debtor) the observance
of a determinative conduct (giving, doing, or not doing), and in case of breach, may
demand satisfaction from the assets of the latter. (Arias Ramos)

Note: Art. 1156 refers only to civil obligations which are enforceable in court when
breached. It does not cover natural obligations (Arts. 1423‐1430, NCC) because these
are obligations that cannot be enforced in court being based merely on equity and
natural law and not on positive law. (Pineda, Obligations and Contracts, 2000 ed, p. 3)

II. ELEMENTS OF AN OBLIGATION

Q: What are the elements of an obligation?

A: JAPOC

1. Juridical or legal tie – vinculum juris;

2. Active subject – obligee or creditor;

3. Passive subject – obligor or debtor;

4. Object – prestation; and

5. Cause – efficient cause is the same with vinculum juris.

VINCULUM JURIS

Q: What is vinculum juris? Q: How is vinculum juris established?

A: It is the efficient cause or juridical tie A: By:

by virtue of which the debtor has
become bound to perform the 1. law (i.e. – relation of husband and
prestation. wife for support)

2. bilateral acts (i.e. – contracts)

3. unilateral acts (i.e. – crimes and

quasi‐delicts)(Tolentino, Civil Code Vol.
IV, p.59, 1999 ed)
ACTIVE SUBJECT

One who is demanding the performance of the obligation. It is he who in his favor the
obligation is constituted, established or created. He is called the creditor (CR) or
obligee.

PASSIVE SUBJECT

One bound to perform the prestation to give, to do, or not to do. He is called the debtor
(DR) or obligor. (Pineda, Obligations and Contracts, p. 2, 2000 ed)

Note: When there is a right there is a corresponding obligation. Right is the active
aspect while obligation is the passive aspect. Thus, it is said that theconcepts of credit
and debt are two distinct aspects of unitary concept of obligation. (Pineda, Obligations
and Contracts, p. 2, 2000 ed)

OBJECT

The object must be: (requisites)

1. licit or lawful;

2. possible, physically & judicially;

3. determinate or determinable; and

4. pecuniary value or possible equivalent in money.

Note: Absence of either of the first three (licit, possible and/or determinate) makes the
object void. Form is not generally considered essential, though sometimes it is added as
the 5th requisite. There is no particular form to make obligations binding, except in
certain rare cases. (Tolentino, Civil Code of the Philippines, Vol. IV, 2002 ed. p. 57)

III. DIFFERENT KINDS OF PRESTATION

PRESTATION is a conduct that may consist of giving, doing, or not doing something.

Note: It is the conduct that must be observed by the debtor/obligor.

KINDS OF PRESTATION:
OBLIGATION TO GIVE. Consists in the delivery of a movable or immovable thing to the
creditor

OBLIGATION TO DO. Covers all kinds of works or services whether physical or mental

OBLIGATION NOT TO DO. Consists in refraining from doing some acts i.e. –
Sale,deposit,pledge,donation, antichresis

i.e. – Contract for professional services like painting, modeling, singing, etc.

i.e. – Easement prohibiting building proprietor or possessor from committing

nuisance(Art. 682, NCC), restraining order or injunction (Pineda,Obligations
andContracts, p. 3,2000 ed)

Requisites of a valid prestation:

1. Possible, physically and juridically;

2. Determinate, or at least determinable according to pre‐established elements or

criteria; and

3. Has a possible equivalent in money (Tolentino, Civil Code Vol. IV, p. 58, 1999 ed).

IV. CLASSIFICATION OF OBLIGATIONS

Q: What are the kinds of obligation?

A: From the viewpoint of:

1. Sanction

a. Civil – gives a right of action to compel their performance

b. Natural– not based on positive law but on equity and natural law; does not grant a
right of action to enforce their performance, but after voluntary fulfillment by the obligor,
they authorize retention of what has been delivered/ rendered by reason thereof.

c. Moral– cannot be enforced by action but are binding on the party who makes it in
conscience and natural law.

2. Performance
a. Positive – to give; to do

b. Negative – not to do

3. Subject matter

a. Personal – to do; not to do

b. Real – to give

4. Object

a. Determinate / specific –

particularly designated or physically segregated from all others of the same class.

b. Generic– is designated merely by its class or genus.

c. Limited generic– generic objects confined to a particular class (e.g. an obligation to

deliver one of my horses) (Tolentino, Civil Code of the Philippines, Vol. IV, 2002 ed, p.
91)

5. Person obliged

a. Unilateral – only one party is bound

b. Bilateral – both parties are bound

6. Creation

a. Legal – imposed by law (Art. 1158, NCC)

b. Conventional – established by the agreement of the parties like contracts

7. Susceptibility of partial fulfillment

a. Divisible – obligation is susceptible of partial performance

b. Indivisible – obligation is not susceptible

8. Existence of burden or condition

a. Pure – is not burdened with any condition or term. It is immediately demandable.

b. Conditional – is subject to a condition which may be suspensive (happening of which

shall give rise to the obligation) or resolutory (happening terminates the obligation).

9. Character of responsibility or liability

a. Joint – each debtor is liable only for a part of the whole liability and to each creditor
shall belong only a part of the correlative rights

b. Solidary – a debtor is answerable for the whole of the obligation without prejudice to
his right to collect from his co‐debtors the latter’s shares in the obligation (Art. 1207,
NCC)

10. Right to choose and substitution

a. Alternative – obligor may choose to completely perform one out of the several
prestations(Art. 1199, NCC)

b. Facultative – only one prestation has been agreed upon, but the obligor may render
one in substitution of the first one (Art. 1206, NCC)

11. Imposition of penalty

a. Simple – there is no penalty imposed for violation of the terms thereof

b. Obligation with penalty –obligation which imposes a penalty for violation (Art. 1226,
NCC) (Pineda, Obligations and Contracts,2000 ed, p. 5‐7)

V. SOURCES OF OBLIGATIONS ( LCQ‐DQ )

Sources Obligations Perfection

1. Law / ex lege. From the time designated by the law creating or regulating them.

2. Contracts / ex contractu.

GR: From the time of the perfection of the contract (i.e. meeting of the minds)

XPNs:

1. When the parties made stipulation on the right of the creditor to the fruits of the thing

2. When the obligation is subject to a suspensive condition or period; arises upon

fulfillment of the condition or expiration of the period.

3. Quasi‐contracts / ex quasi‐contractu. From the time designated by the law creating

or regulating them.

4. Delicts / ex maleficio or ex delicto. From the time designated by the law creating or
regulating them.
5. Quasi‐delict / ex quasi maleficio or ex quasi‐ delicto. From the time designated by
the law creating or regulating them.

Note: The enumeration is exclusive.

I. OBLIGATION EX LEGE

Q: What are the characteristics of a legal obligation or an obligation ex lege?

A:

1. Does not need the consent of the obligor;

2. Must be expressly set forth in the law creating it and not merely presumed; and

3. In order that the law may be a source of obligation, it should be the creator of the
obligation itself.

Q: What governs obligations arising from law?

A: These obligations shall be regulated by the provisions of the law which establishes
them. The Civil Code is applicable suppletorily.

II. OBLIGATION EX CONTRACTU

Q: What are the requisites for a contract to give rise to obligations ex contractu?

A:

1. It must contain all the essential requisites of a contract

2. It must not be contrary to law, morals, good customs, public order, and public policy

Q: What is “compliance in good faith”?

A: It is performance in accordance with the stipulation, clauses, terms and conditions of

the contract. Note: The contract is the “law” between the parties.

Q: May a party unilaterally evade his obligation in the contract?

GR: Neither party may unilaterally evade his obligation in the contract.
XPNs: Unilateral evasion is allowed when the:

1. contract authorizes such evasion

2. other party assents thereto

Q: Is there a limitation on the right of the parties to freely enter into stipulations?

A: Yes. Parties may freely enter into any stipulations provided such are not contrary to

law, morals, good customs, public order or public policy

Q: What governs obligations arising from contracts?

GR: These obligations shall be governed primarily by the stipulations, clauses, terms
and conditions of the parties’ agreements.

XPN: Contracts with prestations that are unconscionable or unreasonable.

Note: In case of unconscionable penalty for breach of contract (Art. 1229, NCC), or
liquidated damages (Art. 2226, NCC), the same may be reduced by the court. (Pineda,
Obligations and Contracts, p.13, 2000 ed)

III. OBLIGATION EX QUASI ‐ CONTRACTU

Q: What is quasi‐contract?

A: It is a juridical relation arising from lawful, voluntary and unilateral acts based on the

principle that no one should unjustly enrich himself at the expense of another.

Q: What is presumptive consent?

A: Since a quasi‐contract is a unilateral contract created by the sole act or acts of the
gestor, there is no express consent given by the other party. The consent needed in a
contract is provided by law through presumption. (Pineda, Obligations and Contracts, p.
15, 2000 ed)
Q: What are the principal forms of quasi‐ contracts?

1. Negotiorium gestio (inofficious manager) – arises when a person voluntarily takes

charge of the management of the business or property of another without any power
from the latter.

2. Solutio indebiti (unjust enrichment)– takes place when a person receives something
from another without any right to demand for it, and the thing was unduly delivered to
him through mistake.

Note: The delivery must not be through liberality or some other cause.

NEGOTIORUM GESTIO

Q: Upon the declaration of martial rule in the Philippines, X, together with his wife and
children, disappeared from his residence along Ermita, Manila. Years passed without Y
hearing from X and his family. Y continued taking care of X’s house, even causing minor
repairs to be done at his house to preserve it. In 1976, when business began to perk up
in the area, Z, approached Y and proposed that they build stores at the ground floor of
the house and convert its second floor into a pension house. Y agreed to Z’s proposal
and together they spent for the construction of stores at the ground floor and the
conversion of the second floor into a pension house. While construction was going on,
fire occurred at a nearby house. The houses at the entire block, including X’s, were
burned.

After the EDSA revolution in February 1986, X and his family returned from the United
States where they took refuge in 1972. Upon learning of what happened to his house, X
sued Y for damages. Y pleaded as a defense that he merely took charge of his house
under the principle of negotiorum gestio. He was not liable as the burning of the house
is a fortuitous event. Is Y liable to X for damages under the foregoing circumstance?

A: No. Y is not liable for damages, because he is a gestor in negotiorum gestio(Art.

2144, NCC).Furthermore, B is not liable to A for any fortuitous event because he did not
commit any of the instances provided under Art. 2147 of the Civil Code:

1. He did not undertake risky operation which the owner was not accustomed to embark
upon;

2. He has not preferred his own interest to that of the owner;

OBLIGATIONS

3. He has not failed to return the property or business after demand of the owner; and
4. He has not assumed the management in bad faith. (1993 Bar Question)

Q: In fear of reprisals from lawless elements besieging his barangay, X abandoned his
fishpond, fled to Manila and left for Europe. Seeking that the fish in the fishpond were
ready for harvest, Y, who is in the business of managing fishponds on a commission
basis, took possession of the property, harvested the fish and sold the entire harvest to
Z. Thereafter, Y borrowed money from W and used the money to buy new supplies of
fish fry and to prepare the fishpond for the next crop.

1. What is the juridical relation between X and Y during X's absence?

2. Upon the return of X to the barangay, what are the obligations of Y to X as regards
the contract with Z?

3. Upon X's return, what are the obligations of X as regards Y's contract with W?

4. What legal effects will result if X expressly ratifies Y's management and what would
be the obligations of X in favor of Y?

A:

1. The juridical relation is that of the quasi‐contract of "negotiorum gestio". Y

is the "gestor" or "officious” manager" and X is the "owner" (Art. 2144, NCC).

2. Y must render an account of his operations and deliver to X the price he

received for the sale of the harvested fish. (Art. 2145, NCC).

3. X must pay the loan obtained by Y from W because X must answer for obligations
contracted with third persons in the interest of the owner (Art. 2150, NCC).

4. Express ratification by X provides the effects of an express agency and X is liable to

pay the commissions habitually received by the gestor as manager (Art. 2149, NCC).
(1992 Bar Question)

SOLUTION INDEBITI

X received his full retirement benefits including those monetary benefits that were
properly disallowed by COA to be granted to public officers. GSIS sought the restoration
of the said disallowed benefits but the court ruled that such restoration cannot be
enforced against X’s retirement benefits as this is expressly prohibited by law under
R.A. 8291. Is X obliged to return the benefits improperly received by him under the
principle of solutio indebiti?

A: Yes. It cannot be denied that X was a recipient of benefits that were properly
disallowed by the COA. These COA disallowances would otherwise have been
deducted from his salaries. The GSIS can no longer recover these amounts by any
administrative means due to the specific exemption of retirement benefits from COA
disallowances. X resultantly retained benefits to which he was not legally entitled which,
in turn, gave rise to an obligation on his part to return the amounts under the principle of
solutio indebiti. (GSIS v. COA, G.R. No. 138381, Nov. 10, 2004; GSIS v. Pineda, et. al.,
G.R. No. 141625, Nov. 10, 2004).

IV. OBLIGATIONS EX DELICTO

Q: What is the basis for civil liability arising from delicts as according to the penal code?

A: Art. 100 of the Revised Penal Code provides that: “Every person criminally liable for
a felony is also civilly liable.”

Q: What is delict?

A: It is an act or omission punished by law.

V. OBLIGATIONS EX QUASI – DELICTO

Q: What is quasi‐delict or tort?

A: It is an act or omission arising from fault or negligence which causes damage to

another, there being no pre‐existing contractual relations between the parties.

Q: What are the elements of a quasi‐delict?

A: 1. Act or omission;

2. Fault or negligence attributable to the person charged;

3. Damage or injury;

4. Direct relation of cause and effect between the act arising from fault/negligence and
the damage or injury (proximate cause); and

5. No pre‐existing contractual relation between the parties.

Q: What is the scope of civil liability?

A: RRI

1. Restitution;

2. Reparation for damage caused; and

3. Indemnity for consequential damages.

VI. NATURAL OBLIGATIONS

Q: What are natural obligations?

A: They are real obligations to which the law denies an action, but which the debtor may
perform voluntarily.

Q: What are the instances of natural obligations?

A:

1. Performance after the civil obligation has prescribed;

2. Reimbursement of a third person for a debt that has prescribed;

3. Restitution by minor after annulment of contract;

4. Delivery by minor of money or fungible thing in fulfillment of obligation;

5. Performance after action to enforce civil obligation has failed;

6. Payment by heir of debt exceeding value of property inherited; and

7. Payment of legacy after will has been declared void.

Q: Distinguish natural from civil obligation.

A:

NATURAL OBLIGATION CIVIL OBLIGATION

 Based on equity and natural law

 Based from law,contracts, quasi‐ contracts, delicts, and quasi‐delicts
 Cannot be enforced in court because the obligee has no right of action to compel
its performance
 Can be enforced in court because the obligee has a right of action
(Pineda,Obligations and Contracts, 2000 ed, p. 636)

Q: May natural obligations be converted into civil obligations?

A: Yes, by way of novation. The natural obligation becomes a valid cause for a civil
obligation after it has been affirmed or ratified anew by the debtor. (Pineda, Obligations
and Contracts, 2000 ed, p. 634)

MODULE 2: Nature and Effects of Obligation

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.

• Refers to the obligation to give.

• The obligation to give may refer to a determinate object / thing or to an indeterminate

or generic thing.

• A generic thing/ indeterminate thing is one that is indicated by its kinds, without being
designated and distinguished from the others of the same kind. In an obligation to
deliver a generic or indeterminate thing, the thing is determinable and becomes
determinate from the time the obligation has been fulfilled or performed. A generic thing
is something which is not particularized or specified but has reference to a class or
genus.

• A limited generic obligation is one when a the generic objects are classified to a
particular class, i.e. one of my cars

• A Determinate thing is something which is susceptible of particular designation or

specification. It is one which is individualized and can be identified or distinguished form
the others of its kind.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla),
2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM

• Read in relation to 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.

Effect of breach: Liability for damages, unless the loss or damage of the thing is due to
a fortuitous event.

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.

• Delivery is essential to acquire real right.

WHEN DOES OBLIGATION TO DELIVER ARISE?

a. Perfection of contract if no term/condition;

b. From the moment the term/condition arrives if there is a term

• The creditor has a right to the fruits of the thing from the time to deliver it arises. The
fruits referred involve only determinate things.

Kinds of fruits: (cf: Property)

1) Natural 2) Civil 3) Industrial

The moment when the obligation to deliver arises varies in different types of
obligations:

a. In obligations arising form law, quasi-delicts, quasi-contracts and crimes, the specific
provisions of law applicable to the obligation determine when the delivery should be
made.

b. Suspensive conditions attached to an obligation to deliver arises only form the

moment the condition happens.

c. Suspensive periods agreed upon for the performance of the obligation gives rise to its
delivery only upon the expiration of the term.

d. Pure obligations are immediately demandable.

• The right to the fruits of the thing shall only be personal, and only upon the delivery of
the thing, its fruits, accessory and accession shall the creditor acquire a real right over
it.

Classes of Delivery or Tradition:

a. REAL or ACTUAL tradition- This contemplates the actual delivery of the thing from
the hand of the grantor to the hand of the grantee , if it is a personal property. If it is a
real property, it is manifested by certain possessory acts executed by the grantee with
the consent of the grantor such as by taking over the property; occupying the property.

b. CONSTRUCTIVE tradition- when the delivery of the thing is not actual but
representative or symbolical in essence. But there must be intention to deliver the
ownership.

Kinds of CONSTRUCTIVE TRADITION:

REAL right- is the power belonging to a person over a specific thing, without a passive
subject individually determined, against whom such right may be personally exercised.
It gives to a person a direct and immediate juridical power over a thing, which is
susceptible of being exercised against the whole world. There is a need for tradition or
delivery since from the time the obligation to deliver a determinate thing arises, the
creditor has only a personal right. He can only demand that the debtor deliver such
thing and its fruit. The delivery or tradition of a thing constitutes a necessary and
indispensable requisite for the purpose of acquiring ownership. The ownership of things
is transferred not by mere agreements but by delivery.

i. Tradicion Symbolica- delivery of certain symbols or things representing the thing to

be delivered such as keys, titles.

ii. Tradicion Instrumental – consists in the delivery of the instrument of conveyance to

the grantee by the grantor.

iii. Tradicion Longa Manu – consists in the pointing to a movable property within sight
by the grantor to the grantee but which at the time of the transaction, the thing could not
be placed yet in the possession of the grantee.

iv. Tradicion Brevi Manu – consists in the grantee’s continuation of his possession
over the thing delivered but now under a title of ownership as in case of a lessee who
had purchased the property leased to him. (Jovellanos)

v. Tradicion Constitutum Possessorium – consists in the owner’s continuous

possession of the property he had sold to another person and his present possession
thereof is no longer that of the owner but of a lessee.

vi. Tradicion by operation of law – consists in the delivery of the thing by operation of
law such as intestate succession.

vii. Quasi-Tradicion- consists in the delivery of incorporeal property.

Art. 1156. When what is to be delivered is a determinate thing, the creditor, in

addition to the right granted to 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 2 or more
persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
RULES:

OBLIGATION TO DELIVER REMEDY

1. Determinate thing Creditor may compel debtor to deliver

2. Indeterminate or generic thing Creditor may ask for compliance at the expense of the
debtor

REMEDIES OF CREDITOR

a. Demand for specific performance - This action presupposes that it is based on a

contractual relationship between the contending parties. Specific performance is
available even if the thing to be delivered is indeterminate.

b. Rescission of the obligation which is under Art. 1380.

c. Resolution of the contract under Art. 1191 if it is a reciprocal obligation.

d. Damages exclusively or in addition to either of the first actions.

General Rule: Obligation to deliver a specific thing is extinguished by fortuitous event;

Indeterminate thing is however not extinguished.

Exceptions:

1. If obligor delays or in default;

2. Obligor is guilty of bad faith;

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

Art. 1167. If a person obliged to do something fails to do it, the 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.

Remedies:

1. have obligation executed at debtor’s expense;

2. obtain damages.
(Thing may be ordered undone if done poorly or obligation is a negative one.)

This article presupposes that the thing can be done by the creditor himself or a third
person. However, if the prestation can be done only by the debtor, the only recourse
available to the creditor is a claim for damages since it is against the constitution to
force the debtor to perform the obligation.

Coverage:

a. the obligor failed to fulfill a positive personal obligation, that is TO DO something;

b. he fulfilled the obligation but in contravention of the agreement;

c. There was fulfillment but the same was poor or inadequate.

Note: if any of the above happens, the creditor is entitled to have the thing done in a
proper manner, by himself or by a third person, at the expense of the debtor. The court
has no discretion to merely award damages to the creditor when the act can be done in
spite of the refusal or failure of the debtor to do so.

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.

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

Demand is generally necessary, even if a period has been fixed in the obligation. Even
in obligations where there is an acceleration clause, there is still a need for demand.

INSTANCES when demand by Creditor not necessary in order that delay may exist:

a. when there is an express stipulation between the parties to that effect;

b. where the law so provides;

c. when time or period is the controlling motive or the principal inducement for the
creation of the obligation;

d. when demand would useless;

e. when the obligor admits he is in delay

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.

Note: The demand must refer to the prestation due and not to another, however, there
will still be delay even if the demand was wrong if:

1. even if the demand had been absolutely correct, the debtor would not have
performed the obligation, or

2. in the light of good faith he should have offered the prestation in the form and manner
that it is due.

• When the time for the fulfillment of the obligation is fixed, no further demand is
necessary. In case of doubt on whether the debtor has incurred delay, the doubt is
resolved in favor of the debtor.

REASON: because the dispensing of demand is only an exception, it is not a general

rule.

• The law does not require expressly that the debtor should know that the fixing of the
date for the performance was a controlling motive on the part of the creditor; but this
knowledge is essential in order that it can be said that the debtor has tacitly consented
to incur delay without the necessity of delay.

KINDS OF DELAY:

A. MORA SOLVENDI – default on the part of the debtor which may either be ex re (real
obligations; obligations to give) or ex persona (personal obligations; obligations to do)

B. MORA ACCIPIENDI – default on the part of the creditor

C. COMPESATIO MORAE – default on the part of both parties in reciprocal obligations

I. MORA SOLVENDI REQUISITES FOR MORA SOLVENDI TO EXIST:

1. the obligation pertains to the debtor or obligor;

2. the obligation is determinate or liquidated, due and demandable;

3. the obligation has not been performed on its maturity date;

4. there is a demand made by the creditor on the debtor for the fulfillment of the
obligation that is due.

DOES NOT APPLY IN THE FF. OBLIGATIONS:

1. natural obligations;

2. negative obligations

CONSEQUENCES/EFFECTS OF MORA SOLVENDI:

1. debtor may be liable for damages or interests;

2. debtor may bear the risk or loss of the things even if the default is due to
fortuitous event, subject to equitable mitigation if the loss would have still
occurred even if there was no default on the part of the debtor.

II. MORA ACCIPIENDI is the delay in the performance of the obligation based on the
omission by the creditor of the necessary cooperation, especially in acceptance on his
part. It is necessary that it be lawful for the debtor to perform, and that he can perform.

REQUISITES FOR MORA ACCIPIENDI TO EXIST

1. an offer of performance by the debtor who has the required capacity;

2. the offer must be to comply with the obligation as it should be performed;

3. the creditor refuses the performance without just cause

CONSEQUENCES OF MORA ACCIPIENDI

1. the responsibility of the debtor for the thing is reduced and limited to fraud and
gross negligence;

2. the debtor is exempted from the risks of loss of the thing, which automatically
pass to the creditor;

3. all expenses incurred by the debtor for the preservation of the thing after the
mora shall be chargeable to the creditor;

4. the debtor may relieve himself from the obligation by consignation of the thing.

III. COMPENSATIO MORAE applies only in reciprocal obligations. Where the parties
are both guilty of mora or mutual default, the default of one compensates the default of
the other.
 o Delay begins when one party fulfills his obligation.
o When one party does not fulfill his obligation, he releases the other from
his obligations, who therefore does not become delinquent in the
fulfillment.
o Neither party incurs delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.

CESSATION OF THE EFFECTS OF DELAY:

(may the right to place the debtor in delay be renounced or waived? Yes. How: )

1. Renunciation by the creditor, which may be implied or expressed. There is

implied renunciation when the creditor, even after the delay, grants an extension
of time to the debtor or agrees to a novation of the obligation. (remember Tayag
vs. Leyva case. The effects of delay was not applied since there was a waiver on
the part of Tayag when she accepted the payments even after the due date)

2. Prescription

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.

GROUNDS FOR LIABILITY:

1. Fraud;

2. negligence;

3. default; and

4. violation of terms of obligations.

Damages: MENTAL

Indemnity for damages consists of:

a. that agreed upon;

b. in absence of agreement, legal rate of interest.

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

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.

KINDS:

1. Culpa Contractual – breach of contract

2. Culpa Aquiliana – civil negligence, tort or quasi-delict;

3. Culpa Criminal – criminal negligence that which results in commission of

crime or a delict.

Culpa Contractual Culpa Aquiliana Culpa Criminal

1. negligence is incidental; oblig. Existscontract

N is direct, substantive and independent;

N is direct, substantive

2. there is pre-existing obligation. No pre-existing obligation; No pre-existing obligation

except not to harm others

3. preponderance of evidence - same - Guilt beyond reasonable doubt

4. master-servant rule Defense of a good father of a family ER’s guilt- civilly liable in
case of insolvency

5. there is a contract Prove that defendant is negligent Presumption of innocence until

contrary is proved.

Case: Prudential Bank vs. CA: responsibility from negligence in the performance of
every kind of obligation is demandable. While in the case at bar there was no bad faith,
respondent still suffered anxiety, embarrassment and humiliation. Hence, entitled to
recover (moral) damages.
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons, of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall
apply.

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

DILIGENCE REQUIRED:

1. that agreed upon by parties;

2. in the absence of #1, that required by law;

3. in absence of #2, that expected of a good father of a family.

(cases) SABEDA airlines, Prudential Bank cases

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.

General Rule: Fortuitous events absolve Obligor from liability.

ELEMENTS OF FORTUITOUS EVENT:

1. The cause of the unforeseen and unexpected occurrence, or the failure of the debtor
to comply with his obligations must beindependent of the human will, or of the debtor’s
will.

In the case of PAL, the hijacking was independent of the will of PAL.

2. It must be impossible to foresee the event which constitute the caso fortuito, or if it
can be foreseen, it was inevitable to avoid

Although under normal circumstances, it was not impossible for PAL to foresee the
hijacking of the airplane, the military take over that took place that afternoon rendered
the foreseeability of the event as impossible since it was the army already conducting
the checking and frisking.
Note: In the case of PHILCOMSAT v Globe: the SC held that although the parties could
have foreseen the closure of the military bases, it was impossible to avoid.

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

4. The obligor must be free from any participation in, or aggravation of, the injury
resulting to the creditor.

Note:

 An obligation consisting of the delivery of a specified thing shall be extinguished

when the said thing shall be lost or destroyed without the fault of the obligor and
before he is in default.
 The obligor is released from liability no only when the non-performance of the
obligation is due to fortuitous events, but also when it is due to the act of the
creditor himself, such as defective packing.

EXCEPTIONS: (when obligor is still liable even if there is a fortuitous event)

1. When the law so provides;

2. When it is expressly stipulated by the parties;

3. When the nature of the obligation requires the assumption of risk;

4. When the obligor is in delay already;

5. When the obligor has promised the same thing to two or more persons who do not
have the same interest (Art. 1165);

6. When the possessor is in bad faith and the thing is lost or deteriorated due to a
fortuitous event;

7. When the obligor contributed to the loss of the thing during the fortuitous event;

8. When the obligor is guilty of fraud, negligence or delay or if he contravened the tenor
of the obligation.

ASSUMPTION OF RISKS: (doctrine of created risk)

The exception is based on social justice: If a person, for his convenience or profit,
creates risks for the public which formerly did not exist, although morally his fault or
negligence may not be the cause of the damages resulting therefrom, he should
nevertheless be held liable for such. If he benefits from the means that have produced
the loss, it is only equitable that he should bear the consequences of such loss.
Case: Yobido vs. CA: Even if the tires are new, or that it had a good brand name, it is
settled that all accident caused either by defects in the automobile Or through the
negligence of its driver is not a caso fortuito that would exempt the carrier from liability
for damages. Moreover, a common carrier may not be absolved from liability in case of
force fortuitous event alone.

The common carrier must still prove that it was not negligent in causing the death or
injury resulting from an accident.

Petitioners should have shown that it undertook extraordinary diligence in the care of its
carrier, such as conducting daily routinary check-ups of the vehicle's parts.

Art. 1175. Usurious transactions shall be governed by special laws. (n)

Art. 1176. The receipt of the principal by the creditor without reservation with
respect to the interest, shall give rise to the presumption that said interest has
been paid.

The receipt of a later installment of a debt without reservation as to prior installments

shall likewise raise the presumption that such installments have been paid.

Art. 1177. The creditors, after having pursued the property in possession of the
debtor to satisfy their claims, may exercise all the rights and bring all the actions
of the latter for the same purpose, save those which are inherent in his person;
they may also impugn the acts which the debtor may have done to defraud them.
(1111)

Rights of Creditors:
1. exact payment;
2. exhaust debtor’s properties generally by attachment;
3. subrogatory action – exercise all rights and actions except inherent rights;
4. impugn/rescind acts or contracts done by debtor to defraud them.

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)

Gen. Rule: All rights acquired in virtue of an obligation are transmissible.

Exceptions:
1. if law provides otherwise;

2. if contract provides otherwise;

3. if obligation is purely personal

Note: The exceptions refer to:

a. those not transmissible by their nature, i.e. purely personal rights; and

b. those not transmissible by law or by stipulation of the parties.

MODULE 3: Different Kinds of Obligations

Kinds of Obligations:
1. Pure and conditional
2. With a period
3. Alternate obligation
 4. Divisible and indivisible
5. With penal clause

SECTION 1. - Pure and Conditional Obligations

PURE AND CONDITIONAL OBLIGATIONS:
Condition: An event which is both future and uncertain upon which the existence or
extinguishment of an obligation is made to depend. The element of futurity and
uncertainty must concur. The condition must be imposed by the will of a party and must
not be a necessary legal requisite of the act.

PAST EVENTS can be conditions too. The futurity required in past events is the future
knowledge or proof of a past event unknown to the parties, not the event itself.

Example: I will pay you 1,000 if the number of people who died in the 9/11 attack
exceeds 2,000. In past events, the contract or obligation arises not when the event
happened or the fact came into existence, but when the proof of such fact or event is
presented, which would be in the future.

Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at
once. Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of the happening of the event. (1113)

Kinds of Obligations:
a. PURE - When the obligation contains no term or condition whatever upon which
depends the fulfillment of the obligation contracted by the debtor. it is immediately
demandable and there is nothing to exempt the debtor from compliance therewith. If the
debtor does not fulfill his prestation, especially after a valid demand, he is placed in
default.

b. CONDITIONAL – with a condition

CONDITION- is an uncertain event w/c wields an influence on a legal relation.
TERM – is that w/c necessarily must come whether the parties know when it will happen
or not.

INSTANCES WHEN AN OBLIGATION IS DEMANDABLE AT ONCE:

a. when it is pure;
b. when it has resolutory condition.
 CLASSIFICATION OF CONDITIONS
A. SUSPENSIVE - happening of event/condition gives rise to obligation.
RESOLUTORY – happening of event/condition extinguishes the obligation.

B. POTESTATIVE – depends upon the will of the debtor.

CASUAL – depends on chance/will of a 3rd person.
MIXED – depends partly on will of 3rd person and partly on chance.

C. DIVISIBLE – capable of partial fulfillment.

INDIVISIBLE – not capable of partial fulfillment.

D. POSITIVE – an act is to be performed

NEGATIVE – something will be omitted.

E. CONJUNCTIVE – if all the conditions must be performed.

ALTERNATIVE – if only a few of the conditions have to be performed.

Q: What does automatically/immediately demandable mean?

A: Immediate demandability is not impaired when the performance of the obligation is
allotted a reasonable time by the court. It does not imply immediate instantaneous
compliance.

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)
 payment does not depend on debtor’s will for he has promised to pay.
 TIME when payment is to be made depends upon the DEBTOR.
HOW LONG? COURTS will fix the duration of the period.

Article 1180- read in relation with Art. 1197.

- in cases falling under this article, the creditor should file an action to fix a period for the
payment of the obligation. An action to enforce the obligation is premature if the court
has not yet fixed a period.
- covers cases wherein the debtor binds himself to pay when his means permit him to
do so, such as “I’ll pay you little by little; as soon as possible; as soon as I have the
money; in partial payments ”
- Here, the moment of payment is dependent upon the will of he debtor but not the
payment. (or not the performance of the condition)

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)
a. Suspensive – conditions precedent/antecedent. The happening of w/c will give rise to
the acquisition of a right – future & uncertain event.
b. Resolutory -- conditions subsequent – rights are lost once the condition is fulfilled.

Case: Padilla vs. Paredes: there was no obligation to perform since the suspensive
condition did not happen.

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)

3 KINDS OF CONDITIONS
a. Potestative (facultative) b. Casual c. Mixed

POTESTATIVE ON THE PART OF THE DEBTOR

1. IF SUSPENSIVE – both condition and obligation are void.
2. IF RESOLUTORY – valid.
Pure potestative conditions renders the whole obligation void.

o This article applies only to potestative SUSPENSIVE CONDITIONS. Potestative and

resolutory valid since there is immediate performance on the part of the obligor.

o If it depends solely on the will of the creditor, it is valid.

Reason: to allow conditions whose fulfillment depends exclusively on the debtor’s will, is
to sanction illusory obligations; this cannot happen when the fulfillment depends on the
will of the creditor. This is because the creditor is naturally interested in the fulfillment of
the condition which will benefit him.

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)

EFFECTS:
1. If condition is to do an impossible or illegal thing – CONDITION & OBLIGATION ARE
VOID.
2. If condition is negative (not to do) DISREGARD CONDITION BUT OBLIGATION
REMAINS.
3. If condition is negative (not to do an illegal thing) BOTH CONDITION & OBLIGATION
ARE VALID.

Note:
o This article applies only to cases where the conditions was already impossible from
the time of the constitution of the obligation, and also to POSITIVE SUSPENSIVE
CONDITIONS.
o The condition must already be existing at the time of the creation of the obligation.
Supervening events which would render the obligation no longer impossible does not
affect the effect of annulling the obligation.
o In order for the condition to be considered as illicit or juridically impossible, it must
consist of an act or fact for one of the parties. The mere mention of a juridically
impossible condition does not annul the obligation. The criterion is the effects upon one
of the parties.
Reason: one who promises something under a condition that is impossible or illicit
knows that it cannot be fulfilled, and manifests that he does not have any intention to be
bound.

o NEGATIVE SUSPENSIVE CONDITIONS have the effect of converting the obligation

into a pure and simple one. It is simply considered not written, thus as if no condition
exists.

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) - positive condition

Effect if Period of Fulfillment is not fixed: the Court considering the parties intentions
should determine what period was really intended.
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. –
Negative Condition

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. (1119)

Requisites:
1. Voluntarily made – the intent to prevent is present.
2. Actual prevention of compliance.
Note: This refers to Constructive Fulfillment/ Implied fulfillment
o Applies to a condition which, although not exclusively within the will of the debtor, may
in some way be prevented by the debtor from happening.
o There is constructive fulfillment only if the act of the debtor had in fact prevented
compliance with the condition.

EXCEPTION: if in preventing the fulfillment of the condition the debtor acts pursuant to
a right, the condition will not be deemed fulfilled. Example: B ordered A to stop building
because it was against the city ordinance.

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)

 In conditional oblig, to give, once fulfilled, shall retroact to the day of the constitution
of obligation.
 In reciprocal oblig. – the fruits and interests during the pendency of condition, shall
be deemed to have been mutually
compensated.
 In unilateral oblig. – the debtor shall appropriate the fruits and interests received
UNLESS from the nature of the obligation it should be inferred that the intention of
person was different.
 In Obligation to do or not to do – the Court shall determine the retroactive effect of
condition that has been complied with.

Remember: between the constitution and the happening of the suspensive condition,
the creditor cannot enforce the obligation.

- The right of the creditor during the period is mere expectancy. (Jovellanos case: The
right of Daniel to the property was merely inchoate and expectant right which would
ripen into a vested right only upon his acquisition of the ownership)

- The moment the suspensive condition happens, the right becomes enforceable and
the debtor may be compelled to perform the obligation. Cause of action accrues, and
prescription is computed from this time.

- The EFFECTS, however, RETROACTS to the moment of constitution of such

obligation. Reason: suspensive conditions are merely accidental to the obligation, they
are not essential elements of the obligation. An obligation is deemed constituted when
all the necessary elements are present. The suspensive condition only prevents the
efficacy of the obligation.
- Case: DBP vs. CA
- Limitations to retroactivity: the right to the fruits or interests of the thing accruing before
the happening of the condition, unless otherwise stipulated by the parties.

Art. 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition. (1121a)

APPROPRIATE ACTIONS FOR CREDITOR TO PRESERVE HIS RIGHTS:

a. action for prohibition restraining the alienation of the thing pending the happening of
the condition
b. petition for the annotation of the creditor’s right, if real property is involved;
c. action to demand security in case the debtor becomes insolvent;
d. action to set aside alienations made by the debtor in fraud of the creditors;

2nd Par: a case of solutio indebiti (undue payment) if creditor is in bad faith,
debtor is entitled to fruits and interests.

IF PAYMENT WAS NOT BY MISTAKE, CAN THERE BE RECOVERY?

a. If condition is fulfilled – NO RECOVERY
b. If condition is not fulfilled, there should be recovery EXCEPT when a pure donation
was intended.

Note:
- Before the happening of the suspensive condition, the debtor cannot alienate the
subject property if it is a determinate thing.
- If the obligor alienated the determinate property to a 3rd person (good faith on part of
the 3rd person), the creditor cannot reclaim the property as the delivery of the thing
vests ownership. His only recourse is damages against the debtor. However, if there
was bad faith on the part of the 3rd person, he may be compelled to deliver the thing to
the creditor.
- Creditors can however, alienate their inchoate right.
- If payment was a determinate thing, the cause of action is accion revindicatoria,
otherwise the provisions of solution indebiti applies.
- If however, payment was made with the knowledge of the condition, there is an implied
waiver of the condition and what has been paid cannot be recovered.
- No express provision regarding fruits and interests, however, there can be recovery by
the provisions of solution indebiti.

Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages;
It is understood that the thing is lost:
a. when it perishes; (physical loss) or
b. goes out of commerce; (legal loss) or
c. disappears in such a way that its existence is unknown or it cannot be
recovered; (civil loss)
(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 applies if:
a. suspensive condition is fulfilled;
b. and if object is specified (not generic)

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 WHEN RESOLUTORY CONDITION IS FULFILLED:

1. Obligation is extinguished;
2. Parties shall return what they have received, including fruits & interests;
3. Courts shall determine the retroactivity of resolutory conditions
4. In case of loss, deterioration, or improvement, apply Art. 1189.
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)
CHARACTERISTICS OF RIGHT TO RESCIND
1. It exists only in reciprocal obligations. If there is a fixed period, no actions can be
done before the expiration of
period.
2. can be demanded only if the plaintiff is ready, willing and able to comply with his own
obligation and the other is
not.
3. not absolute
 slight breach is not sufficient as held in Tayag vs. CA- The right to rescind is
not absolute and will not be granted if there has been substantial performance by
partial payments.
4. it needs judicial approval in some cases – when there has already been delivery of
thing. If there’s no delivery, judicial approval may not be needed; if there has been
delivery, the contract stipulates for rescission in case the other has not performed.
5. the right to rescind is implied to exist;
6. the right to rescind may be waived expressly or impliedly

DAMAGES FOR BREACH OF LEASE CONTRACT:

a) If he selects specific performance as an action, he can demand the accrued rent plus
the future rent for the unexpired term;
b) If lessor demands rescission, he gets only the back rents and ouster the lessee plus
damages but not future rents.
Note: This article is applicable only to reciprocal obligations. Reciprocal
obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of each other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the other. It is
not enough that both parties are creditor and debtor or each other, the reciprocity in the
obligation must arise from the same cause.

Even if there is no corresponding agreement between the parties, the law provides for
such power to rescind. This article does not apply when the parties made a stipulation
providing for the automatic rescission of the contract in case of violation of the terms
thereof without need of judicial intervention or permission.

The breach contemplated is the obligor’s failure to comply with an obligation already
existing, not a failure of a condition to render binding that obligation. There can be no
breach of a non-existent obligation.
Case: “Failure to pay, in this instance, is not even a breach but merely an event which
prevents the vendor's obligation to convey title from acquiring binding force. Hence, the
agreement of the parties in the case at bench may be set aside, but not because of a
breach on the part of petitioner for failure to complete payment of the purchase price.
Rather, his failure to do so brought about a situation which prevented the obligation of
respondent spouses to convey title from acquiring an obligatory force. (Ong vs. CA)
Case: Padilla vs. Paredes : There can be no rescission of an obligation that is non-
existent, considering that the suspensive condition has not yet happened. The right of
rescission of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to
determine the period of compliance, the court shall decree the rescission.

-“Rescission” here is to be understood as “resolution” or cancellation of the contract.

- Who can demand rescission: The party who can demand rescission should be the
party who is ready, willing and able to comply with his own obligations while the other is
not capable to perform his own. A party who has not performed his pat of the obligation
cannot rescind.
- When one party fails to comply with his obligation under a contract, the other party has
the right to either demand performance, or ask for the resolution of the contract. These
remedies/choices are mutually exclusive. One cannot choose specific performance then
rescission.
Case: Velarde vs. CA: when Padilla chose to rescind the contract, although Velarde
opted to pay, the choice had already been made and to allow Velarde to pay the
existing amount would tantamount to a novation of the contract
- In cases of specific performance, there is always a need for judicial action if the other
party refuses to make the delivery of the thing promised.
exception: when the injured party chose specific performance, and the prestation had
become impossible to perform, he may then cancel or rescind the contract. However, 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 previously renounced one of these remedies.

- Where both parties have committed a breach of obligation, and it cannot be

determined who was the first infractor, the contract shall be deemed extinguished and
each shall bear his own damages.
- EXTRAJUDICIAL rescission produces legal effects. Once one of the parties fails to
comply with his obligation, the other is relieved from complying with his, and he may
therefore by his own declaration elect to rescind by not performing his own undertaking.

- When can there be extrajudicial rescission? When there has been no performance of
the obligation or whatsoever. If the obligation has not yet been performed, extra-judicial
declaration of rescission by the party who is ready and willing to perform would suffice.
However, if the injured party has already performed such as when property has already
been delivered by him to the other party, he cannot by his own declaration rescind the
contract.

Hence, the court must declare the rescission.

Case: Cannu vs. Galango Limitations/Restrictions on the right to rescind:

1. DUE PROCESS MUST BE OBSERVED- the rescission authorized is judicial
rescission; the other party must be given his day in court. It is the judgment of the court
and not the mere act of the vendor which produces the rescission of the sale (Cannu)
2. The right to rescind is SUBORDINATED TO THE RIGHTS OF 3RD PERSONS who
acquired the thing in good faith.
3. The injured party must respect the power of the court to fix period in lieu of decreeing
rescission. (case: Central Univ- the court may fix the period for the fulfillment of the
obligation, however, in this case, the court held that there was no need to fix the period
since sufficient time had already lapse for the plaintiff to fulfil the condition.)

Note: When the contract, however, is one of lease, and the lessee fails to pay the rents
stipulated within the time agreed upon, the court will have no discretion to grant the
lessee a period within which to pay the rents.

4. Evidence is needed to justify the rescission.

5. Slight breach of the contract will not justify rescission, the breach should be
substantial and fundamental as
to defeat the object of the parties in making the contract.

EFFECTS OF RESCISSION
- Note that the exercise of the power to rescind extinguishes the obligatory relation as if
it had never been created, the extinction having a retroactive effect. The rescission has
the effect of abrogating the contract in all parts and the parties will be brought back, as
much as possible to the status quo before they entered into the contract. Hence, there
is always a need for restitution. The resolution or cancellation shall take effect only after
the creditor has notified the debtor of his choice of rescission.
(case: Laperal vs. Solid Homes. Rescission under Art. 1191 always carries with it the
obligation of mutual restitution. However, in this case, Laperal was not made to pay
restitution since the parties had expressly stipulated the payment for damages in case
of breach.)

In Ong vs. CA, the SC held that Ong was not entitled to reimbursement as regards the
improvements he made on the property because he contracted these improvements in
bad faith.

- In estimating the damages to be awarded in case of rescission or resolution, those

elements of damages only can be admitted that are compatible with the idea of
rescission
- In case of resolution of a contract of sale, the purchaser is entitled to indemnity for
damages. This indemnity, in case of resolution for non-delivery of the thing sold cannot
consist in the fruits, to which he is entitled only when delivery is made. Having chosen
rescission, he is only entitled to the interest on the amount he has paid.

- Tayag case: WAIVER.

Inapplicability of Art. 1191:

1. in obligations of sales of real property by installments since Maceda Law RA 6552
governs;
2. sales of personal property by installments governed by RA 1484 (Recto Law)
3. Contracts of partnerships
4. Contracts of lease

Cases when judicial approval is not needed in rescission:

a. if there is an express stipulation of automatic rescission;
b. if there is no express stipulation of automatic rescission in case of breach, judicial
approval is needed when there has
been already delivery of the object—unless the debtor voluntarily returned the thing.

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)
SECTION 2. - Obligations with a Period

Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the
day certain. A day certain is understood to be that which must necessarily come,
although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section. (1125a)
Period: A certain length of time which determines the effectivity or the extinguishments
of obligations.

PERIOD vs. CONDITION

A. As to their fulfillment –
1. a condition is an uncertain event;
2. a period is an event which must happen sooner or later at a date known
beforehand or a time which cannot be determined.
B. With reference to time
1. Period refers to future;
2. Condition may under the law refer to past.
C. As to Influence on the obligation
1. Condition causes an obligation to arise or to cease;
2. Period merely fixes the time or the efficaciousness of an obligation.

DIFFERENT KINDS OF TERMS/PERIODS

a. DEFINITE – exact date/time is known and given
INDEFINITE – something that will surely happen, but date of happening is unknown.

b. LEGAL – a period granted by law

CONVENTIONAL/VOLUNTARY – period agreed upon or stipulated by parties.
JUDICIAL – period or term fixed by Courts for the performance of an obligation, or for
its termination.

c. EX DIE or SUSPENSIVE PERIOD– a period with suspensive effect. Obligation begin

only from a day certain; upon arrival of period.
IN DIEM or RESOLUTORY PERIOD– a period/term with a resolutory effect.
Termination of obligation upon the arrival of said period.
REQUISITES FOR A VALID PERIOD/TERM
1. Must refer to the future;
2. must be certain but can be extended;
3. must be physical and legally possible otherwise it is void.

NOTE: An action may be brought to immediately enforce an obligation originally with a

term if:
a. the contract in which the terms is imposed has been cancelled by mutual
agreement of the parties; or
b. When the non-fulfillment of the terms of the contract resolves the period and
authorizes the creditor to immediately demand performance. (the obligation is
converted into a pure obligation)

Art. 1194. In case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules in article 1189 shall be observed. (n)

Article 1194- Article 1189 is applicable in cases of loss, deterioration, and

improvement during the pendency of condition.

Thing Is Lost When –

1. It perishes.
2. It goes out of commerce.
3. It disappears in such a way that its existence is unknown.
4. It disappears in such a way that it cannot be recovered.
Note: “Genus nunquam perit” – in an obligation to deliver generic thing the loss or
destruction of anything of the same kind does not extinguish the obligation.

• If the thing is lost through the fault of the debtor, he shall be obliged to pay damages.
• If the thing deteriorates through the fault of the debtor, the creditor may choose
between (1) rescission of the agreement or obligation plus damages, or (2) fulfillment of
the obligation plus damages.
• If the thing is improved by nature, or by time, the creditor gets the benefit.
• If the thing has improved through the expense of the debtor, he shall have the rights
granted to a usufructuary for improvements on a thing held in usufruct.

Art. 1195. Anything paid or delivered before the arrival of the period, the obligor
being unaware of the period or believing that the obligation has become due and
demandable, may be recovered, with the fruits and interests. (1126a)
PERIOD W/IN W/C RECOVERY MAY BE MADE Without Debtor’s knowledge –
1. Before the debt matures ( Art. 1194)
2. Even after maturity – if creditor is in bad faith – the right prescribes in 5 years after
premature payment

With Debtor’s knowledge – NO RECOVERY (implied waiver)

Note: the law presumes that the debtor knew of the prematureness.

Art. 1196. Whenever in an obligation a period is designated, it is presumed to

have been established for the benefit of both the creditor and the debtor, unless
from the tenor of the same or other circumstances it should appear that the
period has been established in favor of one or of the other. (1127)

Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix
the duration thereof. The courts shall also fix the duration of the period when it
depends upon the will of the debtor. In every case, the courts shall determine
such period as may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be changed by them.
(1128a)

WHEN THE COURT MAY FIX A PERIOD

1. When the duration depends upon the will of the debtor.
2. When although the obligation does not fix a period, it can be inferred that a period
was intended.

INSTANCES WHEN THE COURT MAY NOT FIX THE TERM:

1. When no term was specified because no term was ever intended;
2. When the obligation or not is “payable on demand”;
3. When specific periods are provided for in the law;
4. When what appears to be a term is really a condition;
5. When the period w/in which to ask the court to have the period fixed has itself already
prescribed.

PRESCRIPTIVE PERIOD: ACTION MUST FIX THE PERIOD – 10 YEARS

Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has
promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4)When the debtor violates any undertaking, in consideration of which the creditor
agreed to the period;
(5) When the debtor attempts to abscond. (avoid legal process) (1129a) – actual
absconding, intent to do so is sufficient.

Note: the insolvency referred to does not have to be judicially declared; it is sufficient
for him to find a hard time paying off his obligations because of financial reverses that
have made his assets less than his liabilities.

SECTION 3. - Alternative Obligations

Art. 1199. A person alternatively bound by different prestations shall completely

perform one of them. The creditor cannot be compelled to receive part of one and
part of the other undertaking. (1131)
Alternative Obligation is one where out of the 2 or more prestations which may be given,
only one is due.

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly
granted to the creditor. The debtor shall have no right to choose those
prestations which are impossible, unlawful or which could not have been the
object of the obligation. (1132)

In obligation with a term – general rule: term is for both parties’ benefit
In obligation/alternative oblig – general rule: Debtor has the right of choice.

The Debtor Shall Have No Right To Choose Those Prestations Which Are:
1. Impossible.
2. Unlawful.
3. Or which could not have been the object of the obligation.

Art. 1201. The choice shall produce no effect except from the time it has been
communicated. (1133)
Means of Communication to other party – oral, written, implied, express
EFFECT OF NOTICE THAT CHOICE HAS BEEN MADE
 Obligation becomes a simple obligation to do or deliver the object selected.
 PURPOSE: To inform the creditor that the obligation is now a simple one, no longer
alternative and if already due, for the creditor to receive the object being delivered, if
tender of the same has been made.

REQUISITES FOR MAKING A CHOICE

1. Made properly so that creditor or agent will know;
2. made with full knowledge that a selection is indeed being made (if there is error –
choice can be annulled)
3. made voluntarily and freely (no force, coercion etc. )
4. made in due time and that is before or upon maturity;
5. made to all the proper persons;
6. made w/o conditions unless agreed to by the creditor;
7. may be waived, expressly/impliedly.

Art. 1202. The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable. (1134)
Example: Objects A,B & C. A&B are destroyed; C can only be delivered- if C is
destroyed (fortuitous event) obligation is extinguished.

Art. 1203. If through the creditor's acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the contract with
damages. (n)

Art. 1204. The creditor shall have a right to indemnity for damages when, through
the fault of the debtor, all the things which are alternatively the object of the
obligation have been lost, or the compliance of the obligation has become
impossible. The indemnity shall be fixed taking as a basis the value of the last
thing which disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
(1135a)

Art. 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation
by delivering that which the creditor should choose from among the remainder, or that
which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may
claim any of those subsisting, or the price of that which, through the fault of the former,
has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall
fall upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all
of the prestations should become impossible. (1136a)

 if contract does not state to whom the right to choose is given, THE DEBTOR
MAY CHOOSE.

Effect if Creditor delays in making the choice:

 he cannot hold the debtor in default for the debtor does not know what to deliver;
 if debtor wants to relieve himself from the obligation, he may petition the court to
compel Creditor to accept in the alternative, at the petitioner’s option with damages.

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

FACULTATIVE OBLIGATION – it is one where only one prestation has been agreed
upon but the obligor may render another in substitution.

DISTINCTIONS
ALTERNATIVE FACULTATIVE
1. various things are due, but giving of one is enough; 1. only one thing is principally
due but may be substituted.
2. if one prestation is illegal, others may be valid and the obligation remains;
3. if principal obligation is void, giving of the
substitute is no longer necessary. (NULLITY OF PRINCIPAL CARRIES WITH IT THE
NULLITY OF SUBSTITUTE.)
4. if it is impossible to give all except one, the one left must still be given.
5. If it is impossible to give the principal, the substitute does not have to be given; if vice
versa, the principal must be given.
6. the right to choose may be given either to debtor/creditor 4. The right to choose is
given only to the debtor.

SECTION 4. - Joint and Solidary Obligations

Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation
requires solidarity. (1137a)

JOINT SOLIDARY
 Each of the debtors is liable only for a proportionate part of the debt and each creditor
is entitled to a proportionate part of the credit.
 Each debtor – entire obligation; each creditor is entitled to demand the whole
obligation.

GENERAL RULE: When there are 2 or more debtors or creditors, the obligation is
JOINT.

EXCEPTIONS:
1. when there is a stipulation in the contract that the obligation is solidary;
2. when the nature of the obligation requires liability to be solidary;
3. when the law declares so

INSTANCES WHERE LAW IMPOSES SOLIDARY LIABILITY

a. obligation arising from torts;
b. quasi-contracts;
c. legal provisions re: the obligation of legatees and devisees;
d. liability of principals, accomplices and accessories of a felony;
e. bailees in commodatum.
a) There may be plurality of creditors
b) Plurality of both debtors and creditors;
c) Plurality of debtors.
EFFECTS OF JOINT LIABILITY
a. Demand by one creditor upon one debtor produces effects of default only with
respect to both parties but not with respect to the others;
b. Interruption of prescription by judicial demand of one creditor upon one debtor does
not benefit the other creditors;
c. Vices of each obligation arising from personal defect of a particular debtor or creditor
does not affect the obligation or rights of the others;
d. Insolvency of a debtor does not increase the responsibility of his co-debtors nor does
it authorize a creditor to demand anything from his co-creditors;
e. In joint divisible obligation, the defense of res judicata is not extended from one
debtor to another.

Art. 1208. If from the law, or the nature or the wording of the obligations to which
the preceding article refers the contrary does not appear, the credit or debt shall
be presumed to be divided into as many shares as there are creditors or debtors,
the credits or debts being considered distinct from one another, subject to the
Rules of Court governing the multiplicity of suits. (1138a)

Art. 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
proceeding against all the debtors. If one of the latter should be insolvent, the
others shall not be liable for his share. (1139)

Indivisible joint obligation – requires the consent of all debtors

CHARACTERISTICS
 Obligation is joint but since it is indivisible, creditor must proceed against all the joint
debtors.
 Demand must be to all joint debtors;
 In case of insolvency of one debtor; others are not liable for his share;
 If there are joint creditors, delivery must be made to all unless authorized by others;
 Each joint creditor may renounce his share

Art. 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility. (n)
 Solidarity ---the tie between parties
 Indivisibility --- subject matter

KINDS OF SOLIDARITY
1. ACTIVE – on the part of creditors/obliges
2. PASSIVE – debtors/obligors part
3. MIXED – both
4. CONVENTIONAL – agreed by parties
5. LEGAL – imposed by law

Art. 1211. Solidarity may exist although the creditors and the debtors may not be
bound in the same manner and by the same periods and conditions. (1140)

Art. 1212. Each one of the solidary creditors may do whatever may be useful to
the others, but not anything which may be prejudicial to the latter. (1141a)
Art. 1213. A solidary creditor cannot assign his rights without the consent of the
others. (n)

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

Art. 1215. Novation, compensation, confusion or remission of the debt, made by

any of the solidary creditors or with any of the solidary debtors, shall extinguish
the obligation, without prejudice to the provisions of article 1219.

The creditor who may have executed any of these acts, as well as he who collects the
debt, shall be liable to the others for the share in the obligation corresponding to them.
(1143)

NOVATION; EFFECT
 Modification of an obligation by changing its object or principal conditions; by
substituting the person of debtor; subrogation

COMPENSATION
 Is that w/c takes place when 2 persons in their own right, are creditors and debtors of
each other.

CONFUSION/ MERGER
 W/c takes place when the characters of creditor and debtor are merged in the same
person, as when a check issued by A, in the course of negotiation, is eventually
endorsed to him.
 The solidary obligation is extinguished; but the other is still indebted to the other for
his share.

REMISSION (WAIVER)
 That act of liberality whereby a creditor condones the obligation of the debtor; that
where the creditor tells the debtor to “forget about the whole thing.”

Art. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected. (1144a.)
Effect of not proceeding against ALL – there is no waiver against those not yet sued;
they may be proceeded against later.
 Applies only to solidary obligation, not joint.

PASSIVE SOLIDARITY & SURETYSHIP (similarities)

1. both the solidary debtor and the surety guarantee for another person.
2. both can demand reimbursement

Differences:
1. Solidary debtor indebted for own share only; SURETY is indebted only for the share
of the principal debtor;
2. Solidary debtor can be reimbursed with what he has paid less his own share;
SURETY can be reimbursed for everything he has paid.
3. SD receives an extension of period of payment, others are still liable for the whole
obligation minus the share of the debtor who has extension. If the principal debtor
receives extension w/out surety’s consent, the surety is released.

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

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement
from his codebtors if such payment is made after the obligation has prescribed or
become illegal. (n)

Art. 1219. The remission made by the creditor of the share which affects one of
the solidary debtors does not release the latter from his responsibility towards
the co-debtors, in case the debt had been totally paid by anyone of them before
the remission was effected. (1146a)

Art. 1220. The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co-debtors. (n)

Art. 1221. If the thing has been lost or if the prestation has become impossible
without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor,
for the price and the payment of damages and interest, without prejudice to their action
against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible
after one of the solidary debtors has incurred in delay through the judicial or extrajudicial
demand upon him by the creditor, the provisions of the preceding paragraph shall apply.
(1147a)

PAYMENT
Payment is one of the ways by which an obligation is extinguished and consists in the
delivery of the thing or the rendition of the service which is the object of the obligation

EFFECTS OF LOSS/ IMPOSSIBILITY

1. if w/out fault – no liability
2. if w/ fault – liable + damages and interest
3. fortuitous event after default – there is liability because of default.
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of
all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible. (1148a)

KINDS OF DEFENSES
a. Those derived from the nature of the obligation
b. Those personal to the debtor sued.

SECTION 5. - Divisible and Indivisible Obligations

Art. 1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does not alter
or modify the provisions of Chapter 2 of this Title. (1149)

 Divisible obligation – capable of partial performance;

 Indivisible – not capable of partial fulfillment.

INDIVISIBILITY vs. SOLIDARITY

SOLIDARITY INDIVISIBILITY
1. refers to the tie between parties;  Refers to nature of obligation;
2. needs at least 2 debtors or creditors;  May exist even if there is one debtor and one
creditor;
3. fault of one is fault of others  Fault of one – not fault of others

CLASSES/KINDS OF INDIVISIBILITY
1. Conventional – agreed to by parties;
2. Natural/absolute – nature of obligation
3. Legal – by law

KINDS OF DIVISION
1. Quantitative – depends of quantity
2. Qualitative – depends of quality
3. Intellectual/ moral – one that exists merely in the mind and not in physical reality
Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from
the time anyone of the debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their promises shall not contribute to
the indemnity beyond the corresponding portion of the price of the thing or of the
value of the service in which the obligation consists. (1150)

EFFECT OF NON-COMPLIANCE – the obligation is converted into a monetary one for

indemnity.

Art. 1225. For the purposes of the preceding articles, obligations to give definite
things and those which are not susceptible of partial performance shall be
deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work,
the accomplishment of work by metrical units, or analogous things which by their nature
are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of

the prestation in each particular case. (1151a)

OBLIGATIONS THAT ARE DEEMED INDIVISIBLE

1. Obligations to give definite things.
2. Those which are not susceptible of partial performance.
3. Even if the thing is physically divisible, it may be indivisible if so provided by law.
4. Even if the thing is physically divisible, it may be indivisible if such was the intention
of the parties concerned.

OBLIGATIONS THAT ARE DEEMED DIVISIBLE

1. When the object of the obligation is the execution of a certain number of days of
work.
2. When the object of the obligation is the accomplishment of work by metrical units.
3. When the purpose of the obligation is to pay a certain amount in installments.
4. When the object of the obligation is accomplishment of work susceptible of partial
performance.

SECTION 6. - Obligations with a Penal Clause

Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation. The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code. (1152a)

• PENAL CLAUSE – a coercive means to obtain from debtor compliance. It is an

accessory undertaking to assume greater liability in case of breach.

KINDS OF PENAL CLAUSE

a. legal;
b. conventional/ voluntary
c. Subsidiary – when only penalty may be asked.
d. Joint – when both the principal contract and penal clause can be enforced
*** be noted on this points (read the book)

 Penal Clause constitutes an obligation although an accessory

 May become demandable in default of the unperformed principal obligation

PURPOSE: to insure performance and also to substitute for damages and the payment
of interest in case of non-compliance
EXCEPTIONS:
1. Expressly stipulated – to the effect that damages and interests may still be recovered
despite the presence of Penal clause
2. When debtor refuses to pay the penalty imposed in the obligation.
3. When debtor is guilty of fraud or dolo in the fulfillment of the obligaton. (reason: no
waiver of future action for fraud)

Art. 1227. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor demand the fulfillment of the
obligation and the satisfaction of the penalty at the same time, unless this right
has been clearly granted him. However, if after the creditor has decided to require
the fulfillment of the obligation, the performance thereof should become
impossible without his fault, the penalty may be enforced. (1153a)
Art. 1228. Proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded. (n)

Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. (1154a)

WHEN PENAL CLAUSE CANNOT BE ENFORCED:

a) The breach is the fault of creditor;
b) Fortuitous event intervened unless the debtor expressly agreed on his liability in case
of fortuitous event.;
c) When debtor is not yet in default.

Art. 1230. The nullity of the penal clause does not carry with it that of the principal
obligation. The nullity of the principal obligation carries with it that of the penal
clause. (1155)
 MODULE 4: Extinguishment of Obligation
Extinguishment of Obligations:
1. Payment
2. Loss
3. Condonation
4. Confusion
5. Compensation
6. Novation