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OBLIGATIONS AND CONTRACTS
Chapter 1 GENERAL PROVISIONS
Art. 1156
- Definition of Obligation -a juridical necessity to give, to do or not to do. -a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinate conduct (the giving, doing, or not doing), and in case of breach, may demand satisfaction from the assets of the latter.” ( Arias Ramos, p. 74)
- “Judicial necessity” because non-compliance can result in judicial or legal sanction.
- Elements of Obligation:
- an active subject (obligee or creditor): the possessor of a right; he in whose favor the obligation is constituted;
- a passive subject (obligor or debtor): he who has the duty of giving, doing or not doing;
- the object or prestation: the subject matter of the obligation; it may consist of giving a thing, or doing or not doing a certain act;
- the efficient cause (vinculum or juridical tie): the reason why the obligation exists and
- Causa ( causa debendi/causa obligationes) - why obligation exists
Requisites of Object: a. licit - if illicit, it is void b. possible - if impossible, it is void c. determinate or determinable - or else, void d. pecuniary value
- Kinds of Obligations
- From the viewpoint of sanction a) civil obligation (perfect obligation) : defined in Art. 1156, Civil Code, and sanctioned by judicial process b) natural obligation: the duty not to recover what has voluntarily been paid although payment was no longer required : it is sanctioned by law, but only because conscience had originally motivated the payment Example: Knowing that it already prescribed, a debtor still paid his debt to the creditor. c) moral obligation: sanctioned by conscience or morality, or the laws of the church. Example: the duty of a catholic to hear mass on Sundays
From the viewpoint of subject matter a) real obligation: the obligation to give b) personal obligation: to obligation to do or not to do
From the affirmativeness and negativeness of the obligation a) positive or affirmative obligation: the obligation to give or to do
b) negative obligation: the obligation not to give or not to do
- From the persons obliged a) unilateral: when only one of the parties is bound b) bilateral: where both parties are or may be bound i) reciprocal: the performance of one is dependent upon the performance of the other ii) non-reciprocal: the performance of one is not dependent on the performance by the other
Article 1157, Articles 1158- Art. 1157
- Sources of Obligation (LCQAQ) 1) Law, ( OBLIGATION EX LEGE ) - Must be expressly or impliedly set forth and cannot be presumed 2) Contracts, (OBLIGATION EX CONTRACTU ) - Must be complied with in good faith because it is the “law” between parties; neither party may unilaterally evade his obligation in the contract, unless: a) contract authorizes it b) other party assents Parties may freely enter into any stipulations, provided they are not contrary to law, morals, good customs, public order or public policy
- Quasi-contracts ( OBLIGATION EX QUASI-CONTRACTU ) - That juridical relation resulting from a lawful, voluntary and unilateral act, and which has for its purpose, the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another
- Acts or omissions punishable by law/Delicts ( OBLIGATION EX MALEFICIO OR EX DELICTO ) and
- Quasi delicts/Torts ( OBLIGATION EX QUASI-DELICTO or EX QUASI MALEFICIO ) - It is a fault or act of negligence ( or omission of care ) which causes damage to another, there being no pre-existing contractual relations between the parties
Art. 1158 : law
- Obligations derived from law are
- not presumed but must be expressly determined in this Code or other special laws;
- regulated by the precepts of law which establishes them; and as to what not has been foreseen, by the provisions of this book.
Art. 1159 : contracts
- Obligations arising from contracts:
- have the force of law between the parties; and
- meaning that neither party may unilaterally and upon his own exclusive volition, escape his obligations under the contract, unless the other party assented thereto, or unless for causes sufficient in law and pronounced adequate by a competent tribunal. (p. 81) 2) should be complied with in good faith.
- Requirements before a Person can be held Liable for a Quasi Delict
- There must be fault or negligence attributable to the person charged;
- There must be damage or injury;
- There must be a direct relation of cause and effect between the fault or negligence on the one hand and the damage or injury on the other hand (proximate cause).
- “Proximate cause” is that adequate and efficient cause, which in the natural order of events, necessarily produces the damages or injury complained of. (p. 102)
In Sagrada v. Naccoco, the Supreme Court held that the sources of obligation in Art 1157 is exclusive. Many commentators believe, however that it should not be. At present, there is one more possible source of obligations - PUBLIC OFFER (Public Offer is in fact a source of obligation in the German Civil Code)
Chapter 2 NATURE AND EFFECT OF OBLIGATIONS
EFFECTS OF OBLIGATION
- Obligation to give - obligation to deliver the thing agreed upon
- Obligation to do/not to do - obligation to do/not to do the service agreed upon
ACCESSORY OBLIGATIONS:
- Exercise diligence / Preserve the thing (Art. 1163) EDD
Art. 1163 : The obligation of every person to take care of a DETERMINATE/SPECIFIC THING with proper diligence of a GOOD FATHER OF A FAMILY.
- standard of care : that of a good father of a family – unless the law or stipulation requires another standard of care
- Delivery of fruits (Art. 1164) Art. 1164 : Nature of the rights of the creditor
The creditor has the rights 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.
- When does the right begin to exist : from the time to deliver arises a) when there is no term/condition – from the perfection of the contract b) when there is a term/condition – from the moment the term or condition arises
- Delivery of accessories & accessions ( obligation to deliver determinate thing, even if the stipulation does not mention delivery of accessories & accessions)
- Accessories - those joined to or included with the principal for the latter’s better use, perfection or enjoyment
- Accessions – additions to or improvements upon a thing
When does right to fruits arise? – from the time the obligation to deliver arises a) Conditional – from the moment the condition happens b) With a term/period – upon the expiration of the term/period c) Simple – from the perfection of the contract
IT DEPENDS! A. If there is no term or condition, then from the perfection of the contract B. If there is a term or a condition, then from the moment the term arrives or the condition happens.
PERSONAL RIGHT – jus in personam or jus ad rem Power demandable by one person of another (obligation to give, to do or not to do)
REAL RIGHT – jus in rem A power over a specific thing and it is binding on the whole world.
KINDS OF DELIVERY A. ACTUAL OR TRADITION – physically, the property changes hands B. CONSTRUCTIVE DELIVERY – where the physical transfer is implied
- Traditio Simbolica (symbolical tradition) – as when the keys to the bodega are given
- Tradition Longa Manu (delivery by mere consent or the pointing out of the object) – like pointing out to the car, which is the object of a sale.
- Tradition Brevi Manu (delivery by short hand) – a possessor of a thing not as an owner, becomes the possessor as owner – like when a tenant already in possession buys the house he is renting.
- Tradition Constitutum Possessorium – opposite of Brevi Manu – the delivery whereby a possessor of a thing as an owner retains possession no longer of a thing as an owner but in some other capacity.
- Tradition by the Execution of Legal Forms and Solemnities – like the execution of a public instrument selling land.
Art. 1165 “DELAY” in this article means LEGAL DELAY or DEFAULT a. ORDINARY DELAY - merely the non-performance at the stipulated time
EQUIVALENT
PERFORMANCE X X
Can only be demanded if obligation is not very personal
X
SUBSTITUTE PERFORMANCE X X
Undo the things already done at debtor’s expense RESCISSION/ CANCELLATION X X X A. CAUSES ATTRIBUTABLE TO DEBTOR
**1. Contravention of tenor
- Delay/ Mora** - Non performance with respect to time
a. Mora solvendi – default on the part of the debtor; 2 kinds: (1) Mora Solvendi Ex re – default in real obligations (2) Mora Solvendi Ex persona – default in personal obligations
Elements: (1) The obligation must be due, enforceable and already liquidated or determinate in amount (2) There must be non-performance (1) There must be a demand, unless demand is not required
Effects: a. if determinate thing - debtor bears risk of loss (even when there is fortuitous event) b. debtor liable for damages/interest c. resolution (art 1170, in proper cases)
b. Mora accepiendi – default on part of creditor; Creditor is guilty of default when he unjustifiably refuses to accept payment or performance at the time payment/performance can be done
Effects: (1) responsibility of debtor is reduced to fraud and gross negligence (2) debtor is exempted from risk of loss of thing / creditor bears risk of loss (3) expenses by debtor for preservation of thing after delay is chargeable to creditor (4) if obligation bears interest, debtor does not have to pay from time of delay (5) creditor liable for damages (6) debtor may relieve himself of obligation by consigning the thing
c. Compensatio morae – both parties are in default (in reciprocal obligations); the effect: is as if there is no default
Art 1169
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra-judicially demands from them the fulfillment of their obligation.
However, the demand from the creditor shall not be necessary in order that delay may exist: a. When the obligation or the law expressly so declares. ONU b. When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered to the service is to be rendered was a controlling motive for the establishment of the contract c. When demand would be useless, as when the obligor has rendered it beyond his power to perform In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
- Extra-judicial demands may be written or oral-but best if written because it can be presented as evidence.
- AS A RULE-to put a debtor in default, DEMAND is needed.
- Demand is not Needed to Put Debtor in Default When: a. When the law so provides b. When the obligation expressly so provides c. When the fixing of the time was the controlling motive for the establishment of the contract d. When demand would be useless e. When the obligor has expressly acknowledged that he really is in default
- BUT IN THE PHILIPPINE LAW, THIS IS NO LONGER SO because it is expressly provided that in reciprocal obligations, neither party incurs default if the other does not comply with what is incumbent upon him. Even if there were (written) demands from both sides, there is no default when neither has done his obligation.
- It is only when one party fulfills his obligation, delay by the other begins (assuming that there is no date set in the contract for his performance).
- Fraud / Dolo – Voluntary execution of a wrongful act or willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission a. Causante ( causal ) - makes contract voidable b. incidente – ( incidental ) - fraud in performance of obligation; does not affect validity of obligations
Remedies of Person in fraud under obligations are: a. insist on specific performance (art 1233) b. resolve contract (art 1191) c. claim damages, in either case
4. Negligence /Culpa - absence of due diligence Elements: a) Omission of diligence required b) Diligence required – per nature of obligation, circumstances of persons, time and place Art 1170
Kinds of Diligence Under the Civil Code a. That agreed upon by the parties b. In the absence of that agreed upon by the parties, that required by law c. In the absence of that required by law, that expected of a good father of a family.
FRAUD DISTINGUISHED FROM NEGLIGENCE
FRAUD NEGLIGENCE
There is deliberate intention to cause damage.
There is no deliberate intention to cause damage.
Liability cannot be mitigated. Liability may be mitigated. Waiver for future fraud is void. Waiver for future negligence may be allowed in certain cases: a) gross – can never be excused in advance; against public policy b) simple – may be excused in certain cases
Art 1174
Concept: Fortuitous Event - event which could not be foreseen, or which though foreseen, were inevitable Refers to as caso fortuito, act of God, force majeure, unavoidable accident Eg. Natural calamities
Essential Characteristics of a fortuitous Event (Nakpil & Sons vs. CA)
- The cause of the breach of the obligation must be independent of the will of the debtor
- The event must be either unforeseeable or unavoidable
- The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner
- The debtor must be free from any participation in, or aggravation of injury to the creditor
Liability for fortuitous events
- General Rule for Fortuitous Events - No person shall be liable for fortuitous events; i.e., his obligation will be extinguished: Exceptions to the General Rule- when the debtor shall be held liable for a fortuitous event (Art. 1174) a) when expressly declared by law ( bad faith, subject matter is generic, debtor is in delay ) b) when expressly declared by stipulation or contract c) when the nature of the obligation requires assumption of risk (eg. obligation of an insurer)
FORTUITOUS EVENTS CANNOT EXEMPT ONE FROM COMPLIANCE IF:
- The obligor defaults
- The obligor is guilty of Bad Faith (for having promised to deliver to two or more persons who do not have the same interest).
EXAMPLE: Jaypee is obliged to give Jaboom his car on Dec. 7, 1991. If on that said day, Jaypee does not deliver, he is in ordinary delay. If on Dec. 8, 1991, an earthquake destroys the car, he is not liable because the obligation is extinguished.
Art 1175
Usurious transactions shall be governed by special laws.
- Usury-contracting for or receiving something in excess of the amount allowed by the law for the loan or use of money, goods, chattels (estate inheritance, personal property) or credit
Art 1176 – Presumptions on receipt of principal or of later installment (these are disputable presumptions and evidence may be introduced to the contrary by the creditor.)
1. The receipt of the principal by the creditor without reservation as to interest, shall give rise to the presumption that said interest has been paid.
- The receipt of a later installment without reservation as to prior installments, shall give rise to the presumption that such prior installments have been paid.
- The condition not to do an impossible thing shall be considered as not having been agreed upon: a. If condition is to do an impossible of illegal thing=condition and obligation are void b. If the condition is negative/not to do the impossible=just disregard the condition but the obligation remain c. If the obligation is negative/not to do= both condition and obligation are valid
Art. 1177 Remedies of creditor to enforce payment of his claims against debtor
- Exact performance - specific, substitute, equivalent
- Attach and execute debtor’s property which is not exempt (art 2236) - pursue the property in the possession of the debtor, except those exempt by law.
- Accion subrogatoria (Art 1171)- exercise all the rights and bring all the actions of the debtor except those personal to him.
Requisites: a. Creditor must have right of return against debtor b. The debt is due and demandable c. There is a failure of the debtor to collect his own debt from 3rd^ persons either through malice or negligence d. Debtor’s assets are insufficient e. The right of account is not purely personal
- Accion directa (arts 1729 & 1652)
CHAPTER III
DIFFERENT KINDS OF OBLIGATIONS
CATEGORIES:
a. Demandability - pure, conditional or with a term b. Plurality of object - simple, alternative or facultative c. Plurality of subject - simple, joint or solidary d. Performance - divisible or indivisible e. Sanctions for breach - with or without a penal clause
Primary Classification
- Pure obligation
- Conditional Obligation
- Obligation with a period
- Alternative Obligation
- Facultative Obligation
- Joint Obligation
- Solidary Obligation
- Divisible obligation
- Indivisible Obligation
- Obligation with a Penal Clause
PURE AND CONDITIONAL OBLIGATIONS:
1. Pure obligation– demandable at once, with no term and no condition Eg. I will give you ten pesos. 2. Conditional Obligation- one whose demandability or extinguishment depends upon the happening of a condition. A condition is a future and an uncertain event or a past event unknown to the parties eg. I will give you one million pesos if you pass the Bar. Definition of Condition: It is an uncertain event which wields influence on a legal relationship (Manresa)
Kinds of Condition
- Suspensive and Resolutory
- Potestative, Casual and Mixed
- Possible and Impossible
- Positive and Negative
- Divisible and Indivisible
i. Suspensive – happening of condition gives rise to obligation; also called as condition antecedent or condition precedent. Effects:
- effectivity is retroactive
- no retroactivity with reference to fruits or interest & prescription
- creditor may preserve rights
- debtor – recovery of payment by mistake or even w/o mistake
ii. Resolutory – happening of condition extinguishes the obligation, referred to as condition subsequent Effects:
- no retroactive effect
- obligation extinguished
- restore to each other what was received plus interest/fruits
iii. Potestative – dependent on sole will of a party; if on part of debtor & suspensive – the obligation is void. Art. 1182 Even if the condition is fulfilled, obligation is not demandable.; eg. Debtor will give creditor P10000 if debtor goes to US If potestative on the part of the creditor, obligations is valid whether condition is suspensive or resolutory- eg. Debtor is to give Creditor P10000 if creditor goes to US
iv. Casual – dependent upon chance or hazard, or upon the will of a third person eg. Ill give you P1000 if I will win first prize in the lotto which I bet today
v. Mixed – dependent partly upon chance and upon the will of one of the parties, or upon the will of a third person. Eg. I will give you P1million if you marry A.
vi. With term - Positive – extinguished if time expires or indubitable of condition to happen Negative – effective from moment of time elapsed or evident it can’t happen
vii. Possible and Impossible Possible- capable of being fulfilled in its nature and by law. Impossible- incapable of being fulfilled by its nature and due to operation of law.
(1) To do - both the condition and the obligation are void (2) Not to do –disregard the condition, the obligation is still valid; Condition not to do an impossible thing, deemed to have been not agreed upon. Art. 1183
Impossible condition – physically not feasible Illegal condition – prohibited by law, good custom, public policy and morals
a. Resolutory ( in diem ) – takes effect at once but terminate upon arrival of the day certain;
Day certain – that which must necessarily come, although it may not be known when
b. Suspensive ( ex die ) – takes effect on the day stipulated
WHEN COURTS MAY FIX PERIOD:
a) art 1197
b) art 1197, 2nd^ paragraph
c) art 1191, 3rd^ paragraph
d) art 1687, 2nd, 3rd, 4th^ sentence
e) art 1180
WHEN DEBTOR LOSES RIGHT TO PERIOD:
a. insolvency of debtor, unless security provided
b. did not deliver security
c. impaired security- thru fault or fortuitous event
d. violate undertaking in consideration of extension of period
e. attempts to abscond
(4). Facultative – only one prestation has been agreed upon but another may be given in substitution
Effect of loss or deterioration thru negligence, delay or fraud of obligor:
a) of thing intended as substitute - no liability
b) of the substitute after substitution is made – with liability
(5). Alternative – bound by different prestations but only one is due
Right of choice: General rule: right of choice belongs to debtor
a. the choice is with debtor
(1) If only 1 is left either because of fortuitous events or due to debtor’s acts , perform what is left. The effect is that the debtor loses the right of choice
(2) if the choice is limited because of the creditor’s acts , the debtor has the right of resolution and damages
(3) if all are lost due to debtor , the creditor is entitled to damages
(4) if some are lost , the debtor can choose from the remaining
b. the choice is with creditor
(1) if one or some are lost due to fortuitous event , the creditor chooses the remainder
(2) if one or some is lost because of the fault of debtor , the creditor may choose either the remainder or the value of any which disappeared, and damages in either case
(3) if all is lost due to the debtor’s fault, the creditor may choose the value of any if some is lost due to debtor’s fault, the creditor chooses the remainder
(4) if all is lost due to fortuitous event , obligation is extinguished
(5) if all is lost due to creditor’s fault , the obligation is extinguished
Requisites for making the choice:
a) Made properly so that creditor or his agent will actually know
b) Made with full knowledge that a selection is indeed being made
c) Made voluntarily and freely
d) Made in due time – before or upon maturity
e) Made to all proper persons
f) Made w/o conditions unless agreed by the creditor
g) May be waived, expressly or impliedly
DISTINCTIONS BETWEEN ALTERNATIVE AND FACULTATIVE OBLIGATIONS
ALTERNATIVE FACULTATIVE
a) Various things are due but the giving principally of one is sufficient
a) Only one thing is due but a substitute may be given to render payment/fulfillment easy b) If one of prestations is illegal, others may be valid but obligation remains
b) If principal obligations is void and there is no necessity of giving the substitute; nullity of P carries with it nullity of S c) If it is impossible to give all except one, the last one must still be given
c) If it is impossible to give the principal, the substitute does not have to be given; if it is
- obligations arising from tort
- obligations arising from quasi-contracts
- legal provisions regarding obligation of devisees and legatees
- liability of principals, accomplices, and accessories of a felony
- bailees in commodatum
Effects: a. payment made before debt is due, no interest can be charged, otherwise – interest can be charged
b. insolvency of one – others are liable for share pro-rata
c. if different terms & conditions – collect only what is due, later on collect from any
d. no reimbursement if payment is made after prescription or became illegal
d. remission made after payment is made – co-debtor still entitled to reimbursement
e. effect of insolvency or death of co-debtor – still liable for whole amount
f. fault of any debtor – every one is responsible – price, damage & interest
g. complete/ personal defense – total or partial ( up to amount of share only ) if not personal to him Effect of loss or impossibility of the prestation:
a. if without fault – no liability
b. if with fault – there is liability (also for damage and interest)
c. loss due to fortuitous event after default – there is liability (because of default)
(8). Divisible – obligation that is capable of partial performance
a. execution of certain no of days work
b. expressed by metrical units
c. nature of obligation – susceptible of partial fulfillment
(9). Indivisible – one not capable of partial performance
a. to give definite things
b. not susceptible of partial performance
c. provided by law
d. intention of parties
(10). With penal clause - an accessory undertaking to assume greater liability in case of breach;
CHARACTERISTICS OF PENAL CLAUSES
- Subsidiary - As a general rule, only penalty can be demanded, principal cannot be demanded, except : Penalty is joint or cumulative
- Exclusive - takes place of damage,
damage can only be demanded in the ff. cases: a. Stipulation – granting right
b. refusal to pay penalty
c. with dolo ( not of creditor )
Causes for reduction of penalty:
a. partial/irregular performance
b. penalty provided is iniquitous/unconscionable
Art 1184
The condition that some event will 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.
- If the period is not fixed in the contract, 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 ender 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 been contemplated, bearing in mind the nature of the obligation.
- This article refers to negative conditions.
Art 1186
