Law on Obligations_ Updated Reviewer 2014

8/11/2019 Law on Obligations_ Updated Reviewer 2014

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ATENEO DE DAVAO UNIVERSITYSchool of Business and Governance

CPA Revie Cen!er

BUSINESS "A#

REVIE# ON "A# ON OB"IGATIONS

$Ar!icles %%&'(%)*+ of !he Civil Code,

I- O.li/a!ions 0 General Provisions

1. Meaning of "a on O.li/a!ions and Con!rac!s?

The law on obligations and contracts is the body of rules which deals with the natureand resources of obligations and rights and duties arising from agreements andcontracts.

2. Source of the Law on Obligations and ontracts is the i!il ode of the "hili##ines$%e#ublic &ct 'o. ())*

which too+ e,ect &ugust (- 1/0-. The i!il ode is deri!ed from the i!il ode ofS#ain of 1))/.

(. Meaning of obligationode basis &rticle 110) o.li/a!ion is 1uridical necessi!2 !o /ive !o do or no!

!o do-

3. riticism as to the de4nition of the i!il ode by 5ustice 5.6.L. %eyes.

7t !iews obligation from the debit side. There is no debt with credit and the credit is anasset in the #atrimony of the creditor 8ust as the debt is the liability of the obligor.

6etter de4nition the one gi!en by &rias %amos one of the commentators of the i!ilode

An o.li/a!ion is a 1uridical rela!ion here.2 a 3erson $called credi!or,4a2 de4and fro4 ano!her $called de.!or, !he o.servance of a de!er4ina!iveconduc! $!he /ivin/5 doin/ or no! doin/, and in case of .reach5 4a2 de4andsa!isfac!ion fro4 asse!s of !he la!!er-

0. 9inds of obligations based on its de4nition

%eal obligation obligation to gi!e"ersonal obligation obligation to do or not to do

Two +inds of #ersonal obligationa* "ositi!e #ersonal obligation to dob* 'egati!e #ersonal obligation not to do

:. ;ssential %e. Meaning of6uridical Necessi!2

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Obligation is a 8uridical necessity because in case of noncom#liance the courts of8ustice may be called u#on to enforce its ful4llment or in default thereof the economic!alue that it re#resents. 7n a #ro#er case the debtor may be made liable for damagesfor the in8ury or harm su,ered by the creditor for the !iolation of the latter@s right.

). Other Signi4cant terms

a* O.li/a!ion the act or #erformance that the law will enforce.b* Ri/h! The #ower which a #erson has under the law to demand from anotherany #restation.c* #ron/ $cause of action* an act or omission of one #arty in !iolation of the legalright

$a right recogniAed by law* of another. 7t is also +nown as IN6URY

O3era!iveIllus!ra!ions of an o.li/a!ion

7. 6y !irtue of a contract B obliged himself to shi# the goods of from Manila to ebufor "1- ---. B is the #assi!e sub8ect while is the acti!e sub8ect. The shi##ing ofgoods to ebu is the #restationC the contract between B and is the e=cient cause

or !inculum 8uris.

77. $Obligation to gi!e* 7saac %imando and Moises %eyes signed a contract whereby 7saac %imando obliged

himself to deli!er to Moises %eyes a Toyota orolla 2--) model on 'o!ember 122--).

777. $Obligation to do* %obert DonAales and &ngel Eilamor entered into a contract whereby %obert DonAales

obliged himself to #aint the car of &ngel Eilamor.

7F. $Obligation not to do*

'icanor astro insured himself with the Manila surety and 7nsurance o. The #artiesagreed that 'icanor would not commit suicide during the eGistence of the insurance.

/. 8inds of O.li/a!ions

1. Fiew#oint of sanctions

a. Civil o.li/a!ions gi!e a right of action to com#el their #erformance.b. Na!ural o.li/a!ions not based on #ositi!e law but on e of the i!il ode*& 1. Law

2. ontracts(. Iuasicontracts3. &ct or omission #unishable by law0. Iuasidelicts

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6. "aas source of obligationsO.li/a!ions derived fro4 la are 3resu4ed. Only those eG#ressly determinedin this code or by s#ecial laws are demandable and shall be regulated by the#rece#ts of the law which established themC and as to that has not been foreseenby the #ro!isions of this boo+. $&rt.110)*

a* Obligation eGlege $arising from law* not #resumed.

b* Obligations arising from law are not #resumed. To be demandable and enforceablethe obligation must be stayed by the law which created the obligation. Such beingthe case the agreement of the #arties under this obligation is no longer necessarybecause it is the law which go!erns their obligation.

c* Law go!erning obligations deri!ed from law. Obligations deri!ed from law shall bego!erned by the law which establishes them. 7n case of insu=ciency the#ro!isions of the i!il ode shall su##lement the same.

;Gam#lesa. The obligation of husband and wife to su##ort each other. $&rt.1/0 i!il ode*

b. The obligation of a taG#ayer to 4le his income taG return. $Title F7. Section 33 'L%*c. The obligation of the legitimate ascendants and descendants to su##ort each other.

$&rt 1/0 i!il ode*

7LLHST%&T7F; &S;.SD while em#loyed as a guard of a mo!ie house by O shot and +illed a

gatecrasher J who attac+ed SD with a +nife after ha!ing been refused entrancewithout 4rst #ro!iding himself with a tic+et. SD was criminally charged withhomicide but the trial court dismissed the case. Eor the eG#ense incurred in hisdefense SD demanded reimbursement from the owner. Khen the owner refusedhe 4led his action for the reco!ery of the amount #aid to his lawyer #lus moraldamages.

eld The owner O is not liable because the gi!ing legal assistance to theem#loyee is not a legal obligation.

Khile is may be true it may be considered as a moral obligation. 7t does not at#resent count with the legal sanction of any manmade law. 7f the owner with is notlegally obliged to gi!e legal assistance to the em#loyee then the latter cannotreco!er the amount #aid cannot be #resumed it must be stated before it becomeobligatory.

. Con!rac!as a source of obligation

Obligations arising from contracts ha!e full force of law between the contracting#arties and should be com#lied with in good faith. $&rt.110/*

a* Falidity of ontract.7n contract as to their general formation this is what we call freedom to contract orautonomy of will,the contract entered into between the #arties shall ha!e theforce of law between the #arties. &ny !iolation by either #arty shall #roduce a causeof action against the !iolator. owe!er in order for a contract to be !alid andenforceable it must not be contrary to law morals good customs #ublic order or#ublic #olicy otherwise the contract is !oid. $&rt.1(-: 13-/ i!il ode*

b* ;,ect if #art of the contact is !oid.

7f #art of the contract is !oid but the contract is susce#tible of di!ision the #artwhich is not a,ected may be enforced disregarding the #art which is !oid. Suchthat if the contract is falsi4ed by the unauthoriAed insertion of additional sti#ulationthis falsi4ed insertion shall be considered ineGistent and #art una,ected shall beenforced.

B. 9uasi(Con!rac!s as source of con!rac!.

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7t is 8udicial relation which arises from certain lawful !oluntary and unilateral actsto the end that no one may be un8ustly enriched or bene4ted at the eG#ense ofanother. $&rt. 2132 of the i!il ode*

Two #rinci#al +inds of Iuasicontracts.

1. Negotiorum Gestio (unauthorized management) !oluntary administration of the

#ro#erty business or a,airs of a third #erson without the consent or authority of itsowner.

2. Solutio Indebiti (undue payment) #ayment by mista+e of an obligation that wasnot due when #aid.

Bistinction between contract and


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of 8ustice howe!er when they are !oluntarily #erformed or ful4lled they can already beretained and the debtor cannot reco!er what has been #aid or #erformed.

;Gam#le 7f the debtor #ays by mista+e or not +nowing that the condition or #eriodhas not yet arri!ed he can reco!er based on undue #ayment $> of the i!il ode.

2* ha#ter 77 "reliminary Title on uman %elations of the i!il ode.(* i!il ode on damages Title 1) of 6oo+ 7F

c, Civil "ia.ili!2 Arisin/ fro4 Delic!s or Ac!s or O4issions Punisha.le .2 "a:

a. %estitution The thing itself shall be restored.b. %e#aration of the damage caused The court determines the amount of

damage ta+ing into consideration the !alue of the thing im#ro!ements andfruits and re#aration shall be made accordingly.

c. 7ndemni4cation for onse


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6.* %e) also 3rovides5 if !he la or con!rac! doesno! s!a!e !he dili/ence hich is !o .e o.served in !he 3erfor4ance5 !ha! hichis e


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sti#ulation must #re!ail $&rt. 11:(*

Other names for Biligence of a Dood Eather of the Eamily a* Ordinary Biligenceb* Biligence of a "rudent Manc* Biligence that de#ends on the nature of the obligation and corres#onds with

the circumstances of #erson of time and of the #lace.

Khen ;JT%&O%B7'&% B7L7D;'; 7S %;IH7%;B? 7f it is sti#ulated or re s#eci4cally in a contract of law the right to the fruits begins from the day on which the contract was #erfected. 7t clearly de4ned themeaning of obligation to deli!er arises as far as the contract of sale is in!ol!ed.

The vendor is .ound !o deliver !he !hin/ sold and i!s accessions andaccessories in !he condi!ion in hich !he2 ere u3on !he 3erfec!ionof !he con!rac!-All !he frui!s shall 3er!ain !o !he vendee fro4 !he da2 on hich !he

con!rac! as 3erfec!ed.

b. Khen does the obligation to deli!er arises?- if there is no term or condition from the #erfection of the contract.- 7f there is a term or condition from the moment the term arri!es or the

condition ha##ens.

c. "ersonal right $8us in #ersonam* #ower demandable by one P#erson to another to gi!e to do or not to do.

d. %eal right $8us in re* #ower o!er a s#eci4c thing.

9inds of fruitsa. 'atural fruits s#ontaneous #roduct of nature without human inter!ention.b. i!il fruits $li+e rents* a result of ci!iliAation arising from 8uridical

transactions.c. 7ndustrial fruit #roducts of nature bolstered with human inter!ention.

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(. Du!2 !o deliver !he accessories and accessions $Ar!- %%'', 0 The o.li/a!ion!o /ive a de!er4ine !hin/ includes:

a* &ccessories Those 8oined to or included with the #rinci#al for the latter@sbetter use #erfection or en8oyment.

b* &ccessions additions to or im#ro!ements u#on a thing.

&s a rule accessories and accessions are included in the deli!ery of the thing e!enif they are not mentioned.

;,ect of sti#ulation 7f there is a sti#ulation and accessories are not included suchsti#ulations are !alid and binding u#on the #arties.

3. Deliver of !he !hin/ i!self $Ar!icle %%'&,

9inds of Beli!ery

Beli!ery may be either actual or constructi!e.

7. &ctual deli!ery $tradition* where #hysically the #ro#erty changes hands. ;Gam#le 7f & sells to 6 a fountain #en the gi!ing of the fountain #en by & to 6 is

actual tradition.77. onstructi!e Beli!ery That where the #hysical transfer is im#lied. This may bedone by

a. Traditio symbolica $symbolic tradition* as when the +eys of a bodega aregi!en.

b. Traditio longa manu $deli!ery by mere consent or the #ointing of the ob8ect.c. Traditio bre!i manu $deli!ery by short handC that +ind of deli!ery whereby

a #ossessor of a thing not as an owner becomes the #ossessor as an owner.;Gam#le when a tenant already in #ossession of the house buys the house

from the owner.d. Traditio onstitutom "ossessorium the o##osite of bre!i manuC thus the

deli!ery whereby a #ossessor of a thing as an owner retains #ossession nolonger as an owner but in some other ca#acity $li+e a house owner whosells a house but remains in #ossession as tenant of the same house*

e. Tradition by the eGecution of legal forms and solemnities.

0. Anser for da4a/es in case of non(ful@ll4en! of !he o.li/a!ion

Hnder the i!il ode what are the di,erent acts or omissions of the obligor ordebtor that will result in the breach of the obligation for he can be held liable fordamages?

a. Befault $Mora* delay on the #art of the debtor $ See discussions ofmora below*

b. Eraud $Bolo* in the #erformance of the obligation.

9ind of Bolo

a* 7ncidental Eraud $dolo incidente* referred to under &rticle11>-.

b* ausal Eraud $ dolo causante* fraud em#loyed in theeGecution of the contract under &rticle 1(() which !itiate

consent.

'ote The law refers to incidental fraud only as reiterated in&rticle 1(33 2nd#aragra#h incidental fraud obliges the #ersonem#loying it to #ay damages.

c. 'egligence $ul#a*

d. ontra!ention of the tenor of the obligation $&rt. 11>-*

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8INDS O= DA7AGES

7 Moral damages referring to mental and #hysical anguishCE ;Gem#lary correcti!e or to set eGam#leN 'ominal to !indicate a right when no other +ind of damages may bereco!ered.T Tem#erate when the eGact amount of damage cannot be determined

A &ctual losses as well as unrealiAed #ro4t" Li* unless act is #ersonal in character andQorb. e may also demand damages from the debtor. Bamages only when obligation

is #ersonal in character.

7f debtor #erforms it but in contra!ention of the tenor of the obligation or done in a#oor manner creditor may

a. a!e the same be undone at the debtor@s eG#ense $&rt. 11:>* andb. Bemand damages from the debtor $&rt. 11>-*

7f debtor does what has been forbidden creditor may

a. Bemand what has been done be undone.b. Bemand damages from the debtor

#ha! is !he re;uire4en! .efore a de.!or is lia.le of dela2F

Hnder &rticle 11:/ of the i!il ode de4and$8udicial or eGtra8udicial* is re


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;Gtra8udicial demand when oral or written demand was con!eyed or sent to thedebtor.

Khat is the meaning of Mora?

Defaul! or 4orasigni4es the idea of delay in the ful4llment of an obligation. 7nother words it is the nonful4llment of an obligation with res#ect to time.

The di,erent +inds of default or mora

&. 7ora solvendi or delay of the obligator or debtor to #erform his obligation. Thisdelay is called mora sol!endi eG re when the obligation is an obligation to gi!e ormora sol!endi eG #ersons when the obligation is an obligation to do.

6. 7ora Acci3iendi or delay of the obligee or creditor to acce#t the deli!ery of thething which is the ob8ect of the obligation.

. Co43ensa!io 7orae or delay of the #arties or obligors or debtor incur in delay.

In o.li/a!ions !o /ive or !o do5 hen does !he o.li/or or de.!or incur indela2F

The debtor incurs in delay from the time the creditor 8udicially or eGtra 8udiciallydemands from him the ful4llment of the obligation. &nd in s#ite of demand he isunable to obser!e the obligation. $&rt. 11)/ #ar. 1 *

#hen is de4and .2 !he credi!or no! necessar2 in order !ha! dela2 4a2e1* %eason Eraud is absolutely not encouraged by the law becauseof its e!il e,ects. "ast fraud because the act was already done. Suchwai!er is an act of liberality on the #art of the creditor.

b* 7f negligence is #resent in the obligation it is li+ewise demandable. Kai!erof future negligence may be allowed eGce#t where the nature of theobligation re2*

#ha! is for!ui!ous even!?

& fortuitous e!ent is an e!ent which cannot be foreseen or which thoughforeseen is ine!itable $&rt 11>3 *. Ordinarily the terms fortuitous e!ent andforce ma8eure are used interchangeably.

There is howe!er a technical di,erence. Eorce ma8eure is a term that isa##licable only to those fortuitous e!ents which are de#endent u#on humaninter!ention such as wars stri+es riots etc. while fortuitous e!ent is the general

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term that is a##licable regardless of whether the e!ent is inde#endent of orde#endent u#on human inter!ention.

D;';%&L %HL; 'o liability for EO%TH7TOHS ;F;'T $&SO EO%TH7TO &TOE DOB EO%; M&5;H%; N H'&F7OB&6L; &7B;'T* if obligation refers to gi!e adeterminate thing and debtor acted without fault.

;Gce#tions- Khen eG#ressly declared by sti#ulation or contractC- Khen the nature of the obligation re-*d. Khen the obligation to deli!er arises from a criminal o,ense $ &rticle

12:)*C ande. Khen the obligation is generic $&rt. 12:(*

;ssential haracteristics of a Eortuitous ;!enta* The cause must be inde#endent of the will of the debtorC

b* 7m#ossibility of foreseeing or im#ossibility of a!oiding ite!en if foreseenC

c* The occurrence must be such as to render it im#ossible forthe debtor to ful4ll

his obligation in a normal manner.

Usur2 "a /overned .2 s3ecial la-

The law go!erning usurious transactions is &ct 'o. 2:00 otherwise +nown asthe Hsury Law as amended by &ct 'os. (2/1 (//) 3->- ommonwealth &ct 'o.((/. owe!er the Monetary 6oard of the entral 6an+ is em#owered to changethe rates of interest from time to time whene!er economic and social conditionswarrant or may eliminate eGem#t or sus#end the same. The ceiling of interestmay not be uniform.

entral 6an+ circular /-0& dated Becember 1- 1/)2 sus#endeda##lication of the Hsury law when it #ro!ided that rate of interest and other chargesin loan or forbearance of money goods or credits regardless of maturity and whethersecured or unsecured that may be charged or collected shall not be sub8ect to any

ceiling #rescribed under the Hsury law.

'ote Hsury law has not been re#ealed but merely sus#ended. Only ongress canre#eal laws.

Rules on in!eres! 3a24en!s

The rule is no interest shall be due unless it has been eG#ressly sti#ulated inwriting.

There being a sti#ulation as to interest but the rate is not 4Ged then the creditormay only reco!er the legal rate.

Meaning of legal %ate Legal rate of interest is that rate which will #re!ail in theabsence of any s#ecial agreement as to the rate of interest between the #arties toa contract.

entral 6an+ ircular on 7nterest %ates.

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"re!iously the Monetary 6oard of the entral 6an+ issued Becember ( 1/)2ircular 'o. /-0 4Ging the rates of interest on loans or forbearance of moneygoods or credit. Section 1 of the circular #ro!ides as follows

The rate of interest including commissions #remiums fees and other charges ona loan or forbearance of any money goods or credits regardless of maturity and whethersecured or unsecured that may be charged or collected by any #erson whether natural

or 8uridical shall not be sub8ect to any ceiling #rescribed under or #ursuant to the HsuryLaw as amended.

Ne Rule on "e/al In!eres!:

The 6ang+o Sentral 7ssued ircular 'o. >//Series of 2-1( dated 5uly 1 2-1(. 7t #ro!ides

The Monetary 6oard in its %esolution 'o. >/: datedMay 1: 2-1( a##ro!ed the following re!isionsgo!erning the rate of interest in the absence ofsti#ulation in loan contracts thereby amending

Section 2of ircular 'o. /-0 Series of 1/)2

Section 1. The %ate of interest for the loan orforebearance of any money goods or credit and therate allowed in 8udgments in the absence of aneG#ress contract as to such rate of interest shall besi< 3ercen! $', 3er annu4

Section 2. 7n !iew of the abo!e Subsection J(-0.1of the Manual of %egulations for 6an+s and Sections3(-0I.1 3(-0S.( and 3(-(".1 of the Manual of%egulations for 'on6an+ Einancial 7nstitutions are

hereby amended accordingly.

This Circular shall !ae eHec! on 6ul2 %5 *%)

A33lica.le Presu43!ions

Meaning of Presu43!ion 6y #resum#tion is meant the inference as to theeGistence of certain facts which if not contradicted is considered true.

To inds of Presu43!ion

a* Conclusive one which cannot be contradicted

b* Dis3u!a.le $%ebuttable* one which may be contradicted by #resentingsatisfactory #roof to

the contrary.

Presu43!ions&. %ecei#t of the "rinci#al without %eser!ation would gi!e rise to a

#resum#tion that interest has been #aid. $&rt. 11>:*6. %ecei#t of the later installment without reser!ation as to #rior

installment shall li+ewise raise the #resum#tion that the #riorinstallments ha!e been #aid. $11>:*

Remedies which are available to the creditors in order to protect his rightsagainst the debtor act defrauding the former $&rt. 11>>*

a* ;Gact #ayment $s#eci4c #erformance* with right of damagesb* ;Ghaust or #ursue debtor@s #ro#erties generally by attachment $eGce#t #ro#ertieseGem#ted by law*c* after ha!ing #ursued the #ro#erty in #ossession eGercise all rights and besubrogated by all the rights and actions of the debtor sa!e those that are inherent his#erson $accion su.ro/a!oria*

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d* To as+ the court to rescind or im#ugn all acts which the debtor may ha!e done todefraud the creditor $accion 3auliana*

Princi3le of Trans4issi.ili!2 of Ri/h!s $Ar!icle %%>?,

Deneral %ule

Sub8ect to the laws all rights ac


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;Gam#le 7@ll buy you a land for " 1M if you #ass the "& 6oard ;Gam inOctober 2--/.

$This is sus#ensi!e for the result has to be awaited* See &rticle 11)1 b* Resolu!or2 the ha##ening of the condition eGtinguishes theobligation.

;Gam#le 7@ll gi!e you my land now but should you fall in the "&6oard this coming October

2--/ your ownershi# will cease and it shall re!ert bac+ tome. $&rticle 11)1*

Therefore there are three $(* instances when an obligation and demandable atonce thus

a* Khen it is a #ure obligation andb* Khen the obligation has a resolutory condition.c* Khen the obligation is sub8ect to a resolutory #eriod.

C"ASSI=ICATION O= CONDITIONS

&s to e,ect

1. Sus3ensive the ha##ening of the condition gi!e rise to the obligation.2. Resolu!or2 the ha##ening of the condition eGtinguishes the obligation.

&s to cause or origin

1. Po!es!a!ive de#ends u#on the will of the one of the contracting#arties.

a* 7f it is sus#ensi!e and de#endent on the will of the debtor$;Gam#le 7@ll sell you my car if 7 li+e* both the condition and obligation

are FO7B. $&rticle11)2*

b* Khere the condition de#ends u#on will of creditor obligation is !alid.;Gam#le 7 will #ay you u#on your demand.

c* Khere resolutory condition de#ends u#on the will of the debtor theobligation is !alid.

;Gam#le is #acto de retro sale. The #osition of the debtor whenthe condition is

resolutory is eGactly the same as of the creditor when thecondition is sus#ensi!e.

2. Casual de#ends on chance or haAard or the will of third #erson F&L7B ;Gam#leC 7@ll gi!e you " 1---- if 7 win 1st#riAe in the lotto.

(. 7i


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2. Ne/a!ive something will be omitted. 7f condition is negati!e which means the e!ent will not ha##en at a determinatetime. The obligation shall become e,ecti!e and binding from the moment thetime indicated has la#sed without the e!ent ta+ing #laceC or from the moment ithas become e!ident that the e!ent cannot occur although the time indicated hasnot yet ela#sed. $art. 11)0*

&s to form

1. E


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reditor may bring a##ro#riate actions of #reser!ation of his right.

Bebtor may reco!er what has been #aid by mista+e in case of a sus#ensi!econdition. $&rticle 11))*

7f sub8ect to a #eriod and there is #ayment by mista+e &rticle 11/0 #ro!ides thataside from reco!ery of what was #aid by mista+e debtor can also reco!er fruits

and interests if any.

!"" #E$ER%!R&$%!' &'# %()R!*E(E'$ #+R%', $-E )E'#E'C !FC!'#%$%!'.

$The same rule a##lies for both obligations with sus#ensi!e and resolutory condition andobligation with a #eriod* &rticle 11)/

a. Eor conditional obligation if sus#ensi!e it is re


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&rt. 11/2. 7n case both #arties ha!e committed a breach of the obligation the liabilityof the 4rst infractor shall be e


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EiGes the time of e=caciousness of anobligation.

auses the obligation to arise or tocease.

&s to time

%efers to the future. %efers future or a #ast e!ent un+nowntot he #arties.

Period is /enerall2 for !he .ene@! of .o!h 3ar!ies5 unless o!herise s!i3ula!ed $&rt.11/:*Meaning The debtor cannot #ay #rematurely and the creditor cannot demand

#rematurely.

7f term is for the bene4t of the debtor alone. e may only be re


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7f the choice is gi!en to the debtor the loss of the thing is go!erned as followsa* Loss of all obligation is eGtinguished #ro!ided debtor is without faultb* Loss of some the debtor may deli!er any of the remainder or that which

remains ifonly one subsists without obligation to #ay damages. $7f

debtor iswithout fault*

7f loss was due to debtor@s fault

Loss of all debtor shall #ay the !alue of the last thing lost #lus damages.owe!er if all of them were lost at the same time the debtor

may choosethe !alue of any of them #lus damages.

Loss of some debtor may without incurring any liability to #ay damagesdeli!er

any of the remainder or that which remains if only onesub8ects.

Loss of some due to debtor@s fault and the last thing due to fortuitous

e!ent.

Erom and after the lost eGce#t one of the !arious things whether due tofortuitous

e!ent or the debtor@s fault the debtor shall loss the right of choice.$&rt.12-2* and

the obligation is con!erted to a sim#le obligation. ence the loss of thelast

subsisting #restation due to fortuitous e!ent eGtinguishes the obligation.

7f %ight of hoice is gi!en to the %;B7TO%

Loss of things

Bue to fortuitous e!ent

a* Loss of all obligation is eGtinguished 7E B;6TO% 7S 'OT &T E&HLT. b* Loss of some the debtor shall deli!er that which the creditor shouldchoose any

of those subsisting 7E B;6TO% 7S 'OT &T E&HLT. Otherwise

he shall any of thosesubsisting or the #rice of any of those that ha!e been lost

through the fault of the debtor #lus #ayment of damages.

=ACU"TATIVE OB"IGATION obligation where only one #restation has beenagreed u#on but the debtor may ender another substitution.

;Gam#le B obliged himself to gi!e a s#eci4c %oleG watch with theunderstanding that B

could gi!e a diamond ring as a substitute

Loss of the #rinci#al things

a* Bue to fortuitous e!ent the obligation is eGtinguished and the debtor isnot

obliged to gi!e the substitute.b* Bue to debtor@s fault the debtor shall answer for the loss of the thing

due to hisfault.

Loss of the substitutea* 6efore substitution

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&s a general rule the mere concurrence of two or more creditors or two ormore debtors in one and the same obligation does not im#ly solidarity. 6y#resum#tion of the law the obligation is 8oint unless

a* Solidarity is eG#ressly agreed u#on $on!entional Solidarity*b* Solidarity is declared by law $Legal Solidarity*c* Solidarity is re


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Rules Governin/ Solidar2 O.li/a!ions:

Solidarity does not im#ly indi!isibility. &n obligation may be di!isible e!en if it issolidary.

7ndi!isibility does not im#ly solidarity. 7t is the intention of the #arties that#ro!ides for the

nature of obligation $&rt. 121-*

Solidarity may eGist although the creditor and debtor may not be bound in the samemanner

same #eriod and conditions. $ &rt. 1211*

;ach one of the solidary creditors may do whate!er may be useful to others but notanything that is #re8udicial to the others $ &rt. 1212*. & solidary creditor cannotassign his rights without the consent of the others $&rt. 121(* ;ssential feature isMutual &gency.

The debtor may #ay any one of the solidary creditorsC but if any demand 8udicial oreGtra8udicial has been made by one of them #ayment should be made to him. $&rticle1213*

'o!ation com#ensation confusion or remission of the debt made by any of the solidarycreditors or with any of the solidary debtors shall eGtinguish the obligation without#re8udice to the #ro!isions of &rticle 121/. The creditor who may ha!e eGecuted any ofthese acts as well as he who collects the debt shall be liable to the others for the sharein the obligation corres#onding to them. $ &rticle 1210*

Solidary creditors can collect from some or all of the debtors at one gi!en time. 7f thecreditor fails to collect from one debtor he can go against the other or others until thewhole obligation is #aid. 7t was held that the creditor may sue any of the solidary debtors

or all of them simultaneously. &n action instituted against one shall not a bar to thosewhich may be subse


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Defenses 3ersonal !o !he o!her co(de.!ors 0which will constitute a#artial defense for the solidary debtor being sued thus eGem#ting him from#aying the #ro#ortionate share of the codebtor whose #ersonal defense heis in!o+ing. e is eGem#ted to #ay the #ro#ortionate share of the in!o+ingcodebtor but is still liable of his share and of those codebtors whose sharesare not in


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&ccording to sourcea* "e/al #enalty im#osed by lawb* Conven!ional #enalty agreed u#on by #arties

&ccording to eGtent of liabilitya* Su.sidiar2 when only the #enalty can be reco!ered in case of non#erformanceof the

obligationb* 6oin! when in case of non#erformance of the obligation both the #rinci#alobligation and

the #enalty can be reco!ered.

"roof of actual damages su,ered by the creditor is not necessary in order that the#enalty may be demanded $&rt. 122)*

%ight to reco!er damages and interest in addition to the #enalty

The #enalty shall substitute the indemnity for damages and interest in case theobligation is not ful4lled. ence as a general rule the creditor cannot demanddamages and interests in addition to the #enalty eGce#t

a* Khen the #arties so agreedCb* Khen the debtor refuses to #ay the #enaltyCc* Khen the debtor is guilty of fraud in the ful4llment of the obligation.

'ullity of the #rinci#al carries with it the nullity of the accessory.

( Penal!2 4a2 .e reduced .2 !he cour! hen !here is 3ar!ial or irre/ular

3erfor4ance of !he o.li/a!ion or Even hen !here has .een no 3erfor4ancehen !he 3enal!2 a/reed u3on is ini;ui!ous or unconsciona.le- $Ar!icle%,

7ODES O= EKTINGUIS7ENT O= OB"IGATIONS

1. Obligations are eGtinguished by $;numeration under &rticle 12(1 of the i!il ode*a* Pa24en! or 3erfor4ance., "oss of !he !hin/ duec, Condona!ion or re4ission

d, Confusion or 4er/er of ri/h!s of !he credi!or and de.!ore, Co43ensa!ionf, Nova!ion

Other causes of eGtinguishment of obligations are $h* annul4en! $7* rescission $8*ful@ll4en!of a resolutory condition and $+* 3rescri3!ion. The following are found inother cha#ters of the i!il ode.

Other forms of ;Gtinguishment of the obligationa* Beath of a #arty in case the obligation is #ersonalb* Mutual desistance or withdrawal from contract or agreementc* om#romise

PAY7ENT OR PER=OR7ANCE

Pa24en! $&%T.12(212:1* means not only the deli!ery of money but also the#erformance in any other manner of an obligation. $&rt.12(2*

Deneral %ule om#leteness of "ayment. "ayment should be com#lete. $&rt. 12((*

;Gce#tions

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a. %eco!ery allowed in case of substantial #erformance in good faith. $&rt. 12(3*b. %eco!ery allowed when incom#lete or irregular #erformance is wai!ed.

$&rt.12(0*c. 7nstances when #artial #erformances are allowed. $art. 123)*

- when there is an eG#ress sti#ulation to that e,ect.- Khen the debt is #art li


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>. &rt. 123(. "ayment made to the creditor by the debtor after the latter has been8udicially ordered to retain the debt shall not be !alid.

). &rt. 1233. The debtor of a thing cannot com#el the creditor to recei!e a di,erentone although the latter may be of the same !alue as or more !aluable than thatwhich is due. 7n obligations to do or not to do an act or forbearance cannot besubstituted by another act or forbearance against the obligees will.

/. "ayment of debts in money shall be made only in the "hili##ine currency which thelegal tender #ursuant to &rt. 123/ of the i!il ode in relation to %e#ublic &ct 'o.)1)(. Obligation shall now be #ayable in the legal tender in the "hili##ines. Legaltender means the currency which the debtor may com#el his creditor to acce#t#ayment of his debt. owe!er the #arties may sti#ulate that the #ayment may bemade in currency under than the legal tender of "hili##ines at the time of #ayment.$ %.&. 'o. )1)(*

"re!iously coins are legal tender under the 'ew entral 6an+ &cta. enta!o $-.20* and abo!e is legal tender u# to " 0-.--b. enta!o $-.1-* and below is legal tender u# to " 2-.--

c. &ll coins " 1.-- and abo!e including bills are legal tender u# to any amount

6ut #ursuant to Section 02 of %e#ublic &ct 'o.. >:0( $The 'ew entral 6an+ &ct*Legal Tender "ower &ll notes and coins issued by the 6an+ shall be fullyguaranteed by the Do!ernment of the %e#ublic of the "hili##ines and shall be legaltender in the "hili##ines for all debts both #ublic and #ri!ate. This might meanall notes and coins being ser!ed or issued by the entral 6an+ of the "hili##inesKhen O,ered in #ayment eGtinguishes the debt is legal tender.One "eso coin is no longer !alid tender of #ayment to any amount.

&ccording to 6S" ircular 'o.. 0(> issued by the entral 6an+ of the "hili##ines on

5uly 1) 2--: #ursuant to Section 02 of %& >:0( $'ew entral 6an+ &ct* and theMonetary 6oard %esolution 'o.. ):2 dated : 5uly 2--: the maGimum amount ofcoins to be considered as legal tender is ad8usted as Eollows

1. One thousand #esos $"1 ---.--* for denominations of 1 "iso "iso 0 and 1-#esos coinsC and2. One hundred #esos $"1--.--* for denominations of 1cent 0cent 1-cent 20cent coins.

1-. 7n case of e

2. Falue of the currency at the time of the establishment of theobligation is com#uted by using the following formula.

&mount to be #aid at maturity U &mount of the obligationG &mount of Obligation

Falue at the date of Maturity

;Gam#le

B borrowed " 1 Million from c #ayable at the end of 1- years. Su##ose that beforematurity of the loan an eGtraordinary ination su#er!ened causing the !alue of thedebt to fall to " 0----- on the date of maturity. Eollowing the abo!e formula

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& U $ 1 millionQ0-----.--* G " 1Million U 2 G " 1 M

U " 2 Million is the e


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- Khere the debtor is bound as solidary debtor in one and as a sole debtorin another the former is more onerous.

b* 7f the debts due are of the same nature and burden the #ayment shall bea##lied to all of them #ro#ortionately

13- Pa24en! .2ession or Assi/n4en! it is a s#ecial form of #ayment wherebythe debtor

abandons all of his #ro#erty for the bene4t ofhis

creditor in order that from the #roceedsthereof the latter may obtain #ayment of

theircredits. &lso +nown as !oluntary cession or

insol!ency.

There is no transfer of ownershi# but merely grants the creditors of a debtor to sell#ro#erties of said insol!ent debtor and a##ly the #roceeds to their res#ecti!e credit.Bebtor is released only u# to the net #roceeds of the sale. e remains liable to thecreditor as to the remaining balance unless otherwise agreed to release him to his

entire obligation.

om#are ession from 7nsol!ency under &ct 'o. 1/0:. ession has no courtinter!ention while 7nsol!ency either Foluntary or 7n!oluntary re


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b* That the consignation has been made either because the creditor to whom tenderof #ayment was made refused to acce#t the #ayment without 8ust cause or becauseany of the stated by law for e,ecti!e consignation without #re!ious tender of#ayment eGists. $&rt.120:*c* That #re!ious notice of the consignation has been gi!en to the #ersons interestedin the ful4llment of the obligation. $&rt.120:*d* That the thing or amount due had been #laced at the dis#osal or 8udicial authority

$&rt.120) #ar. 1*e* That after the consignation has been made the #erson interested in the ful4llmentof the obligation had been noti4ed thereof. $&rt. 120) #ar. 2*

f* 5udicial declaration that the consignation is #ro#er with #rayer on the #art of thedebtor to be discharged from the obligation.

h* "ayment by the creditor of the eG#enses for consignation if #ro#erly made by thedebtor.

;!en without Tender of "ayment onsignation may be !alidly #ursued in thefollowinga* Khen the creditor is absent or un+nown or does not a##ear at the #lace of#aymentC

b* Khen he is inca#acitated to recei!e the #ayment at the time it is dueCc* Khen without 8ust cause he refuses to gi!e a recei#tCd* Khen two or more #ersons claim the right to collect andCe* Khen the title of the obligation has been lost. $&rt.120:*

Bebtor can withdraw the thing de#osited as a matter of right before the creditoracce#ts or before a 8udicial declaration is made by the court. 7n e,ect obligationremains $&rt. 12:-*. 7f the consignation has been made #ro#erly creditor shouldauthoriAe the debtor to withdraw the same and he shall lose e!ery #reference whichhe may ha!e o!er the thing. The codebtor guarantors and sureties shall bereleased. $ &rt. 12:1*

1:- "OSS O= TE TING DUE $&rts. 12:212:/* means that the thing whichconstitutes the ob8ect of the obligation #erishes or goes out of the commerce of manor disa##ears in such a way that its eGistence is un+nown or it cannot be reco!ered.$&rt. 11)/. 'O. 2* 7n its broad sense it means im#ossibility of com#liance or#erformance with the obligation through any cause.

9inds of Loss

a. "hysical loss when a thing #erishes as when the house is burned and reduced toashes.

b. Legal loss when the thing goes out of commerce.c. i!il loss when the thing disa##ears in such a way that its eGistence is un+nown

or e!en if +nown it cannot be reco!ered whether as a matter of fact or of law.d. "hysical or legal im#ossibility

&rt. 12::. The debtor in obligations to do shall also be released when the#restation becomes legally or #hysically im#ossible without the fault of the obligor.

e. Bi=culty of #erformance&rt. 12:>. Khen the ser!ice has become so di=cult as to be manifestly beyond thecontem#lation of the #arties the obligor may also be released therefrom in wholeor in #art

7n order that an obligation shall be eGtinguished by the loss or destruction of thething if is essential that the following re3 and 12:2 #ar 2*

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been renounced. This howe!er does not eGtend to the #rinci#alcontract. ;Gam#le of 7m#lied remission

1). CON=USIONO% 7ERGER$&rts. 12>012>>* Merger of the characters of creditorand debtor in the same #erson by !irtue of which the obligation is eGtinguished.Meeting in the same #erson of the :*c* That it must be com#lete and de4nite.

'otes

Merger in the #erson of the guarantor does not eGtinguish the obligation. Only the

contract of guaranty is eGtinguished. There is in fact a no!ation where the guarantornow becomes the new creditor of the debtor.

Merger in the #erson of one of the solidary debtor shall eGtinguish the entireobligation because it is also merger in the other solidary debtors. Merger in 8ointobligation #ertains only to the share of the debtor to which merger ta+es #lace. Onlythe share corres#onding to the creditor or debtor in whom the characters concur. Thecreditor or debtor whose share was sub8ect to confusion actually becomes the newcreditor of the other 8oint debtors #ertaining to their share in the original obligation.

1/. CO7PENSATION om#ensation may be de4ned as a mode of eGtinguishing intheir concurrent amount those obligations #ersons who in their own right are creditors

and debtors of each other.

%e/a* There must be two #arties who in their own right are #rinci#al creditors and#rinci#al

debtors of each other. $&rts. 12>) 12>/. 'o. 1*b* 6oth debts must consist in money or if the things due are fungibles $consumables*they

must be of the same +ind and /. 'O.2*c* 6oth debts must be due $&rt. 12>/. 'O. (*d* 6oth debts must be li/ 'O. 3*e* There must be no retention or contro!ersy commenced by third #ersons o!er either

ofthe debts and communicated in due time to the debtor $&rt.12>/ 'O. 0 *

f* The com#ensation must not be #rohibited by law $&rts 12>) 12))*

Hnder &rticle 12/- Khen all the re/ are #resentcom#ensation ta+es e,ect by o#eration of law and eGtinguishes both debts to theconcurrent amount e!en though the creditors and debtors are not aware of thecom#ensation.

7nstances when legal com#ensation is not allowed by lawa. Khen one of the debts arises from de#ositum or from the obligation of a

de#ositary or of a bailee in commodatum.

b. Khere one of the debts arises from a claim for su##ort due by gratuitous title.c. Khere on of the debts consists in ci!il liability from a #enal o,ense.

Bi,erent classi4cation of om#ensationa* Legal when it ta+es #lace by o#eration of law from the moment all of there) N 12>/*b* Foluntary when the #arties who are mutuality creditors and debtors agree to

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com#ensate their res#ecti!e obligations e!en if the re*

"erson obliged to gi!e su##ort cannot also set u# com#ensation unless su##ort hasde!elo#ed into arrears. 7n such case com#ensation is #ossible.$&rt. 12)>*

'either shall there be com#ensation if one of the debts consists in ci!il liability arisingof a crime. The one whose obligation arose from said liability cannot set u#com#ensation against the other but the latter can. $&rt. 12))*

&rt. 12):. om#ensation ta+es #lace by o#eration of law e!en though the debts may be#ayable at di,erent #laces but there shall be an indemnity for eG#enses of eGchangeor trans#ortation to the #lace of #ayment.

&S TO ;EE;T

Total when the debts to be com#ensated are e


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%e


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$delegacion* the new debtor is entitled to reimbursement and subrogationunder &rt.12(>

;,ect of new debtor@s insol!ency or nonful4llment of the obligation indelegacion

Deneral %ule Original debtor is not liable to the creditor in case of

insol!ency of the new debtor. The eGce#tions area* The said insol!ency was already eGisting and of #ublic +nowledge $although it

was not+nown to the old debtor* at the time of the delegacionC or

b* The insol!ency was already eGisting and +nown to the debtor $although it wasnot of

#ublic +nowledge* at the time of the delegacion.

The eGce#tions are intended to #re!ent fraud on the #art of the old debtor.

Other #ertinent #ro!isions

&rt. 12/:. Khen the #rinci#al obligation is eGtinguished in conse


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ases of Legal Subrogationa* Khen a creditor #ays another creditor who is #referred $see arts. 22(: 2201*b* Khen a third #erson without interest in the obligation #ays with the a##ro!al

of thedebtorC

c* Khen a third #erson with interest in the obligation #ays with the a##ro!al ofthe debtor.

Khat com#rises subrogation?

&rt. 1(-(. Subrogation transfers to the #ersons subrogated the credit with all therights thereto a##ertaining either against the debtor or against third #erson be theyguarantors or #ossessors of mortgages sub8ect to sti#ulation in a con!entionalsubrogation. Hnder article 12(0 subrogation includes rights arising from

a. Mortgage or #ledge or other forms of securityb. Duarantyc. "enalty or #enal clause

;,ect of Total Subrogation7t transfer to the new creditor the credit and all of the rights and actions that

could ha!e been eGercised by the former creditor either against the debtor or againstthird #ersons be they guarantors or mortgagors. $&rt. 1(-(*

;,ect of "artial Subrogation

The creditor to whom #artial the new creditor has made #ayment remains acreditor to the eGtent of the balance of the debt. 7n case of insol!ency of the debtorold creditor is gi!en #referential right to reco!er the remainder as against the newcreditor. $&rt 1(-3*

/gbdfabrero01234

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Law on Obligations_ Updated Reviewer 2014

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