- - - INTRODUCTION TO LAW - - -

Law – rule of action; system of uniformity

 Determines activities of men as rational beings and the movements or motions of all objects of
creation, whether animate or inanimate.

General divisions of law

1. Law (in the strict legal sense) – promulgated and enforced by the state
 State law
2. Law (in the non-legal sense) – not promulgated and enforced by the state
 Divine law  Moral law
 Natural law  Physical law

Subjects of law

 Law as a rule of action – state, divine, natural, and moral law

 Law only figuratively speaking – physical law

1. Divine Law – law of religion and faith; concerns itself with the concept of sin
a. Source – promulgated by God and revealed to mankind by means of direct revelation
i. Old Testament – Ten Commandments; given by God through Moses
ii. Differs by belief; to Mohammedans, the divine law is in the Quoran
b. Sanction – rewards and punishments in the present life or in the life to come

 Out of 10 laws, 365,000 sublaws were created

2. Natural law – divine inspiration by internal dictates of reason

a. Binding force – natural law is ever present and binding on all men everywhere at all
times; basic understanding of right and wrong
b. Compared to divine law – natural law is impressed in man as the core of his higher self
c. Place in state law – natural law is regarded as the reasonable basis of state law

3. Moral law – totality of the norms of good and right conduct growing out of the collective sense
of right and wrong of every community
a. Determination of what is right and wrong – mores or ways of life
b. Sanction
 Disregard of norms – public displeasure, contempt, indignation
 Conformity to norms – public pleasure, approval, joy
c. Binding force – not absolute; moral law varies with the changing times
d. Place in state law – influence or shapes state law

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 4. Physical law – uniformities of actions and orders of sequence; a.k.a. laws of physical science
a. Order and regularity in nature – physical law is addressed to objects which have no
power to disobey
b. Called law only by analogy

5. State law – promulgated and enforced by the state

a. Other terms – positive law, municipal law, civil law, imperative law
b. Binding force – enforced by the state with the aid of physical force
c. Concern of state law – different from those of divine, natural, and moral laws
 Divine law – philosophical ideology
 Natural law – metaphysics
 Moral law – ethics
 Physical law – physics

Concepts of (state) law

1. General sense – all laws taken together; “mass of obligatory rules established for the purpose
of governing the relations of persons in society
 “law of the land,” “rule of law and not of men,” “equality before the law”
2. Specific sense
 Characteristics of law:
i. rule of conduct – what shall be done and what shall not be done; takes
cognizance of external acts only
ii. obligatory – positive command imposing a duty to obey
iii. promulgated by legitimate authority - legislature (for the Philippines); laws are
called “statutes”
iv. common observance and benefit – law is intended by man to serve man

Legal system – sum of rules of social order binding on its members

Sources of law

1. Constitution – fundamental, supreme, or highest law; promulgated by the people and binding
on all
2. Legislation – declaration of legal rules by a competent authority; preponderant source of law in
the Philippines
 Enacted law or statute law – acts passed by the legislature
 Ordinances – enacted by LGUs
3. Administrative or executive orders, regulations, and ruling – issued by administrative officials
under legislative authority; intended to clarify or explain the law and carry into effect its general
provisions

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 4. Judicial decisions or jurisprudence – decisions of the courts, particularly the Supreme Court,
applying or interpreting the laws or the Constitution
 The decisions of a superior court are binding on all subordinate courts (doctrine of
precedent or stare decisis)
 The Supreme Court may reverse or modify its previous rulings.
 Rulings of lower courts apply to specific cases only, but rulings of the SC apply to all.
5. Custom – habits and practices; has the force of law when recognized and enforced by the state.
 May be proved as a fact according to the rules of evidence
6. Other sources – foreign tribunals, opinion of text writers, religion
 Only supplementary; resorted only by the courts in absence of all the other sources
 Not binding on the courts

*No judge or court shall decline to render judgment by reason of silence, obscurity, or insufficiency of
laws.

Justice > Strict implementation of the law

*Law is not an end in itself. It may be viewed as a means of social control.

Sanction

1. Remedial – the object is the indemnification of the person who has suffered damages or injury
2. Penal – the object is the punishment of the violator

Law Other means of social control

Act for Entire citizenry A few members
Termination of membership Leaving the geographical area Termination of membership
Sanctions Varied and complex Simple
Operation of law requires Hearing; due process None, except those provided by their
rules

Organization of courts

 Supreme Court – holds the power to decide actual cases and controversies involving the
interpretation and application of laws according to the Constitution

1. Regular courts – hierarchy of courts

Supreme Court

Court of Appeals

Regional Trial Court

Metropolitan Trial Court / Municipal Trial Court

Municipal Circuit Trial Court

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 a. Supreme Court – final arbiter
b. Court of Appeals
c. Regional Trial Court – in different provinces and cities
d. Municipal Trial Court – in metropolitan areas established by law
e. Municipal Trial Court – in cities not forming part of a metropolitan area, and in
municipalities
f. Municipal Circuit Trial Court – in areas defined as municipal circuits
 Circuit courts exercise jurisdiction over 2 or more cities or municipalities.

Courts of General or Superior Jurisdiction – Supreme Court, Court of Appeals, Regional Trial
Courts

2. Special Courts
 Examples:
a. Sandiganbayan – anti-graft court
b. Court of Tax Appeals – on the same level as Court of Appeals
3. Quasi-judicial agencies – administrative bodies under the executive branch performing quasi-
judicial functions
 Examples:
a. DTI f. Constitutional Commissions
b. MTRCB i. Civil Service Commission
c. SEC ii. Commission on Elections
d. LTFRB iii. Commission on Audit
e. Insurance Commission

Classifications of Law

 As to purpose:
1. Substantive law – creating, defining, and regulating rights and duties which may be
either public or private in character
 Example: Law on obligations and contracts
2. Adjective law – prescribing the manner or procedure by which rights may be enforced
or their violations redressed.
 Also known as remedial law or procedural law
 Governed by the Rules of Court promulgated by the SC and by special laws.
 As to subject matter:
1. Public law – body of legal rules which regulates the rights and duties arising from the
relationship of the state to the people

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  Examples:
a. Criminal law – when violated, the peace and order of the state is
violated
b. International law – governs relations among nations or states
c. Constitutional laws – between the state and citizens; establishes the
fundamental powers of the government
d. Administrative law – governs the methods by which the functions of
administrative authorities are to be performed
e. Criminal procedure – branch of private law (?) which governs the
methods of trial and punishment in criminal cases
2. Private law – regulates the relations of individuals with one another for purely private
ends.
 Example
a. Law on obligations and contracts
b. Civil law
c. Commercial or mercantile law
d. Civil procedure – branch of private law which provides for the means by
which private rights may be enforced
 The state is involved in private law as an arbiter, not as a party.

Law on Obligations and Contracts – body of rules which deals with the nature and sources of
obligations and the rights and duties arising from agreements and the particular contracts.

Civil Code of the Philippines – Republic Act No. 386

 Holds the civil law
 Based on the Civil Code of Spain
 Approved on June 18, 1949 and took effect on August 30, 1950
 Divided in four (4) books

Book IV of the Civil Code – deals with obligations and contracts

 Title I, Articles 1156-1304 – obligations
 Title II, Articles 1305-1422 – contracts
 Title III, Articles 1423-1430 – natural obligations

Conclusive presumption of knowledge of law

 “Ignorance of the law excuses no one from compliance therewith.”
 “Everyone, therefore, is conclusively presumed to know the law.”
 Reasons for presumption:
1. Social life will be impossible
2. Impossible to prove the contrary
3. Absurd to absolve those who do not know it and increase the obligations of those who
know it
4. We carry norms of right and wrong in our conscience
5. Evasion of law would be facilitated, and the administration of justice would be defeated.

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 - - - CHAPTER 1: GENERAL PROVISIONS - - -

Obligation – a tie or bond recognized by law by virtue of which one is bound in favor of another to
render something
 obligatio – tying or binding
 Civil Code definition – duty under the law of the debtor or obligor
 a juridical necessity

Juridical necessity – in case of noncompliance, the courts of justice may be called upon by the aggrieved
party to enforce its fulfillment

Damages – sum of money given as a compensation for the injury or harm suffered by the creditor

Civil obligations – give the creditor a right under the law to enforce their performance in courts

Natural obligations – based on equity and natural law instead of positive law

Essential requisites of an obligation:

1. Passive subject – person who is bound to the fulfillment of the obligation; has a duty
 a.k.a. debtor or obligor
2. Active subject – person who is entitled to demand the fulfillment of the obligation; has a right
 a.k.a. creditor or obligee
3. Object or prestation – conduct to be observed by the debtor
 a.k.a. subject matter
4. Juridical or legal tie – that which binds or connects the parties to the obligation
 a.k.a. efficient cause
 can be determined by knowing the source of obligation

Form of an obligation – manner by which an obligation is manifested or incurred

1. Oral
2. In writing

 could be partly oral and partly in writing

 law does not require any form

Obligation, right, and wrong:

1. Obligation – act or performance which the law will enforce

2. Right – power to demand from another any prestation
3. Wrong – a.k.a. cause of action; act or omission of one party in violation of the rights of another
 In law: injury – wrongful violation of the legal right of another

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  Essential elements:
a. Legal right in favor of a person
b. Correlative obligation on the part of another
c. Act or omission by the obligor in violation of said right with resulting injury to
the oblige

Kinds of obligation according to subject matter:

1. Real obligation – obligation to give; the subject matter is a thing

2. Personal obligation – obligation to do or not to do; the subject matter is an act to be done or
not to be done
a. Positive personal obligation – obligation to do
b. Negative personal obligation – obligation not to do

Sources of obligations:

1. Law – imposed by the law itself

2. Contracts – arising from the stipulation of the parties
3. Quasi-contracts – arise from lawful, voluntary, and unilateral acts which are enforceable to the
end that no one shall be unjustly enriched at the expense of another
4. Crimes or delicts – arise from civil liability which is the consequence of a criminal offense
5. Quasi-delicts or torts – arise from damage caused to another through an act or omission, there
being fault or negligence, but without a preexisting contractual obligation

Classification of sources of obligations:

1. Law
2. Private acts
a. Licit acts – contracts and quasi-contracts
b. Illicit acts – crimes and quasi-delicts

*Actual classifications:

1. Law
a. Quasi-contracts
b. Delicts
c. Quasi-delicts
2. Contracts

Legal obligations – obligations arising from law

 Not presumed
 A burden upon the obligor
 The exception, not the rule
 To be demandable, they must be clearly set forth in the law.
 Special laws – (in Article 1158) all other laws not contained in the Civil Code

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 o Examples:
1. Corporation Code 3. Insurance Code
2. Negotiable Instruments 4. Revised Penal Code
Law 5. Labor Code

Contractual Obligations – obligations arising from contracts or voluntary agreements

 Contracts – meeting of minds between two persons
o Binding force – force of law
o Requirement of a valid contract – not contrary to law, moral, good customs, public
order, and public policy
 In the eyes of the law, a void contract does not exist.
 A contract may be valid but unenforceable.
o Breach of contract – takes place when a party fails or refuses to comply, without legal
reason or justification, with his obligation under the contract as promised
 Compliance in good faith – compliance or performance in accordance with the stipulations
o Sincerity and honesty must be observed.

Quasi-contractual obligations
 Implied in law
 Quasi-contract – juridical relation resulting from lawful, voluntary, and unilateral acts; parties
become bound to each other; no one will be unjustly enriched at the expense of another
o Not properly a contract
o Kinds of quasi-contracts:
1. Negotiorum gestio – voluntary management of the property or affairs of
another without the knowledge or consent of the latter
2. Solutio indebiti – juridical relation created when something is received when
there is no right to demand it, and it was unduly delivered by mistake.
 Requisites:
a. There is no right to receive the thing delivered.
b. The thing was delivered by mistake.

Civil liability arising from crimes or delicts

 Every personal criminally liable is also civilly liable for damages.
 In crimes with no material damage, there is no civil liability.
 A person not criminally liable may still be liable civilly.

Scope of civil liability:

1. Restitution – restoration of something lost
2. Reparation for damage caused
3. Indemnification for consequential damages

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Obligation arising from quasi-delicts
 Quasi-delict
o Requisites:
1. Act or omission
2. Fault or negligence
3. Damage caused
4. Direct relation between the act or omission and the damage
5. No pre-existing contractual relation

Crimes Quasi-delict
Intent Criminal or malicious intent None, only negligence
Purpose Punishment Indemnification of the offended
party
Interest affected Public interest Private interest
Liabilities Criminal and civil Civil only
Compromise Cannot be compromised by the parties Can be compromised
themselves
Proof Guilt of the accused must be proved Negligence of the defendant need
beyond reasonable doubt only be proved by preponderance of
evidence

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 - - - CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS - - -

Specific and generic thing:

1. Specific or determinate – a thing particularly designated or physically segregated from others of

the same class
 Identified by its individuality; cannot be substituted by the debtor with another without
the consent of the creditor
2. Generic or indeterminate – refers only to a class or genus to which it pertains and cannot be
pointed out with particularly
 Identified only by its specie; the debtor can give anything of the same class as long as it
is of the same kind

Duties of debtor in obligation to give a determinate thing:

1. Preserve the thing.

 Obligor has duty to take care of the thing due with the diligence of a good father of a
family
a. Diligence of a good father of a family - a.k.a. ordinary care, or that diligence
which an average person exercises over his own property
b. Another standard of care - If the law or stipulation provides for another
standard of care, such law or stipulation will prevail.
 Extraordinary diligence – required for common carriers
 It is contrary to public policy to stipulate for absolute exemption from
liability of the obligor for any fault or negligence on his part.
c. Factors to be considered – depends on the nature of the obligation
 Debtor is not liable if his failure to preserve the thing is caused by a
fortuitous event or force majeure.
d. Reason for debtor’s obligation – to ensure that the thing to be delivered would
subsist in the same condition as it was when the obligation was contracted.
2. Deliver the fruits of the thing.
3. Deliver the accessions and accessories.
4. Deliver the thing itself.
5. Answer for damages in case of non-fulfillment or breach.

Kinds of diligence
1. Contractual – agreed upon by the parties
2. Ordinary – diligence of a good father
3. Extraordinary – for common carriers

Duties of debtor in obligation to give a generic thing:

1. To deliver a thing which is of quality intended by the parties
2. To be liable for damages in case of fraud, negligence, or delay

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Different kinds of fruits:

1. Natural fruits – spontaneous products of the soil, and the young and other products of animals
2. Industrial fruits – produced by the lands of any kind through cultivation or labor
3. Civil fruits – derived by virtue of a juridical relation

Right of creditor to the fruits of the thing – from the time the obligation to deliver the thing arises

When obligation to deliver fruits arises:

1. Generally - the time of the “perfection of the contract,” or the birth of the contract, or the
meeting of the minds.
2. If subject to a suspensive condition - upon the fulfillment of the condition or the arrival of the
term
3. In a contract of sale – from the perfection of the contract, even if subject to a suspensive
condition, if the price has been paid.
4. In obligations arising from law, quasi-contracts, delicts, and quasi-delicts – time of performance
is determined by specific provisions of law

Personal and real right:

1. Personal right – right or power of a person to demand from another

 Has definite active and passive subjects
 Enforceable only against a particular person
2. Real right – right or interest of a person over a specific thing
 Has only a definite active subject
 Directed against the whole world

Acquisition of ownership and other real rights – by delivery

 “He shall acquire no real right over it until the same has been delivered to him.”

Remedies of creditor in real obligation

1. In a specific real obligation:
a. Demand specific performance with a right to indemnity for damages
b. Demand rescission with a right to recover damages
c. Demand payment of damages, if it is the only feasible remedy

 The very thing itself must be delivered.

 Only the debtor can comply with the obligation.
 Rights to demand fulfillment and rescission are alternative, not cumulative.

2. In a generic real obligation:

 Can be performed by a third person

*An indeterminate thing cannot be the object of destruction of a fortuitous event because genus
nunquam perit (genus never perishes).

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Accessions and accessories:

1. Accessions – necessary to the principal thing

2. Accessories – additions or improvements upon a thing

*All accessions and accessories are included in the obligation to deliver a determinate thing.

Problems regarding the performance of a positive personal obligation:

1. Debtor fails to perform an obligation to do

2. Debtor performs an obligation to do contrary to the terms
3. Debtor performs an obligation to do in a poor manner

Remedies of creditor in positive personal obligation:

1. If the debtor fails to comply, the creditor has the right

a. To have the obligation performed by himself or another, at the debtor’s expense
b. To recover damages
2. If the obligation is done contrary to the terms or in a poor manner, it may be ordered that it be
undone, if possible.

 Performance by a third person

o Specific performance cannot be ordered in a personal obligation, since involuntary
servitude is prohibited under the Constitution.
o If performance by another would be impossible, the only remedy is indemnification for
damages.

Remedies of creditor in negative personal obligation:

 Remedy: undoing of forbidden thing plus damages

o If undoing is not possible physically or legally, then the remedy is only an action for
damages.
 Debtor cannot be guilty of delay (in this obligation).

Delay

1. Ordinary delay – failure to perform an obligation on time

2. Legal delay or default or mora – failure to perform an obligation on time which constitutes a
breach of the obligation

Kinds of delay or default:

1. Mora solvendi – debtor’s delay to fulfill his obligation
2. Mora accipiendi – creditor’s delay to accept the performance of an obligation
3. Compensatio morae – delay of obligors in reciprocal obligations; delay of the obligor cancels the
delay of the obligee; no actionable result

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Requisites of mora solvendi:
1. Failure of debtor to perform his obligation on date agreed upon
2. Demand made by the creditor to comply; either judicial or extrajudicial
3. Failure of debtor to comply with such demand

Effects of delay:
1. Mora solvendi
a. Debtor is guilty of breach or violation
b. Debtor is liable to the creditor for interest
c. Debtor is held liable for a fortuitous event if the obligation is to deliver a determinate
thing.
2. Mora accipiendi
a. Creditor is guilty of breach of obligation
b. He is liable for damages suffered by the creditor
c. Creditor bears the risk of loss of the thing due
d. Debtor is not liable for interest from the time of creditor’s delay
e. Debtor may release himself from the obligation by the consignation or deposit in court
of the thing or sum due
3. Compensation morae – no default or delay on the part of both parties
 If delay of one party is followed by the other party, the liability of the first infractor
shall be equitably tempered or balanced by the courts.

When demand is not necessary to put debtor in delay:

1. When the obligation so provides
2. When the law so provides
3. When time is of the essence
4. When demand would be useless
5. When there is performance by a party in reciprocal obligations
 When a party fulfills or is ready to fulfill his obligation, delay of the other begins.

Grounds for liability:

Breach – a person fails or refuses to perform his obligation without legal justification

1. Fraud (deceit or dolo) – deliberate or intentional evasion of the normal fulfillment of an

obligation
 Implies malice or dishonesty
 Cannot cover cases of mistake or errors of judgement made in good faith
 Synonymous to bad faith

a. Incidental fraud (dolo incidente) – committed in the performance of an obligation

already existing because of a contract
b. Causal fraud (dolo causante) – fraud employed in the execution of a contract,
which vitiates consent

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 2. Negligence (fault or culpa) – any voluntary act or omission, not involving bad faith or malice,
which prevents the normal fulfillment of an obligation
3. Delay
4. Contravention of the terms of the obligation – violation of the terms and conditions stipulated
in the obligation; the contravention must not be due to a force majeure.

Fraud vs Negligence
Deliberate intention No intention
Waiver of liability for future fraud is void Waiver of liability for future negligence is
allowed
Must be clearly proved Presumed from the violation of contractual
obligation
Liability for fraud cannot be reduced or Liability for negligence may be reduced
mitigated by courts

Similarities of fraud and negligence:

a. Voluntary
b. Committed with volition

Other notes for fraud:

a. Responsibility arising from incidental fraud is demandable.
b. Waiver of action for future fraud is void.
c. Waiver of action for past fraud is valid.

Other notes for negligence:

a. Responsibility arising from negligence is demandable.
b. Waiver of action arising from negligence is valid, except from those required to exercise
extraordinary diligence.

Kinds of negligence according to source of obligation:

1. Contractual negligence (culpa contractual) – negligence in contracts resulting their breach.

 This kind of negligence is not a source of obligation.
 Makes the debtor liable for damages in view of his negligence in the fulfillment of a pre-
existing contract.
2. Civil negligence (culpa aquiliana) – source of obligation between the parties not so related by
any preexisting contract.
 Also called tort or quasi-delict
3. Criminal negligence (culpa criminal) – negligence resulting in the commission of a crime

 The aggrieved party may choose between a criminal action or a civil action for damages.
However, the law prohibits recovering twice for the same negligent act.

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Effect of negligence on the part of the injured party:

 If the creditor is guilty of negligence, can he recover damages?

o If the plaintiff’s own negligence was:
a. immediate and proximate cause of his injury - he cannot recover damages
b. contributory – he may recover damages, to be mitigated by the courts.

Fault or negligence – failure to observe a degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such another person suffers injury.

Factors to be considered in the issue of negligence:

1. Nature of the obligation

2. Circumstances of the person
3. Circumstances of time
4. Circumstances of the place

Damages – money compensation awarded to a party for loss or injury resulting from breach of contract
or obligation by the other

 In contracts and quasi-contracts, if the obligor acted in:

1. Good faith – he is responsible only for damages that are the natural and probable
consequences of the breach of the obligation
2. Bad faith – he is responsible for all damages attributed to the non-performance of the
obligation

Fortuitous event – any event which cannot be foreseen, or which, though foreseen, is inevitable
 Impossible to foresee or impossible to avoid

Kinds of fortuitous events:

1. Acts of man – events independent of the will of the obligor but not of other human wills
2. Acts of nature – events which are totally independent of the will of every human being

Kinds of fortuitous events according to the Civil Code (in speaking of the contract of lease):

1. Ordinary fortuitous events – events that are common and can be reasonably foreseen by the
parties
2. Extra-ordinary fortuitous events – uncommon and could not have been reasonably foreseen by
the parties

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Requisites of a fortuitous event

1. Independent of debtor’s will

2. Could not be foreseen, or if foreseen, is inevitable
3. Renders it impossible for the debtor to comply with his obligation in a normal manner
4. Debtor must be free from any participation in the injury to the creditor

 The absence of any requisite would prevent the obligor from being exempt from liability.
 Poverty and mere difficulty to foresee the happening of the event are not excuses for the non-
fulfillment of an obligation.

Rules as to liability in case of fortuitous event

 As a rule, a person is not liable for loss or damage caused to another resulting from the non-
performance of his obligation due to a fortuitous event. His obligation is extinguished.
 Exceptions to the general rule:
1. When expressly specified by law – except for the following cases, the special strictness
of the law is justified
a. Debtor is guilty of fraud, negligence, delay, or contravention
b. Debtor has promised to deliver the same specific thing to 2 or more persons
who do not have the same interest
c. The obligation to deliver a specific thing arises from a crime
d. The thing to be delivered is generic
2. When declared by stipulation
3. When the nature of the obligation requires the assumption of risk

Simple loan or mutuum – contract whereby one of the parties delivers to another, money or other
consumable thing, upon the condition that the same amount of the same kind and quality shall
be paid
 May be gratuitous or with stipulation to pay interest

Usury – contracting for or receiving interest in excess of the amount allowed by law

Requisites for recovery of interest

1. Payment of interest must be expressly stipulated
2. Agreement must be in writing
3. Interest must be lawful

Presumption – inference of a fact not actually known arising from its usual connection with another
which is known or proved

Kinds of presumption:
1. Conclusive presumption – cannot be contradicted
2. Disputable (or rebuttable) presumption – can be contradicted by presenting proof to the contrary

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When presumption in Article 1776 (about interest and debt installment) do not apply:

1. With reservation as the interest – there is a reservation that no payment has been made on the
interest or prior installments
2. Receipt without indication of particular installment paid – if the receipt does not state that it
was issued for a particular installment (ex. When the receipt is only dated (?))
3. Receipt for a part of the principal – implies that the creditor waives his right to apply the payment
first to the interest and then to the principal.
4. Payment of taxes – there is no presumption that previous taxes have been paid
5. Non-payment proven – non-payment of prior obligations has been proven. A presumption cannot
prevail over a proven fact.

Remedies available to the creditors for the satisfaction of their claims

1. Exact fulfillment (specific performance) with the right to damages

2. Pursue the leviable property of the debtor
3. Exercise all rights and bring all the actions of the debtor except those inherent in or personal to
the person of the latter
4. Ask the court to rescind or impugn acts or contracts which the debtor may have done to defraud
him

 The debtor is liable with all his property, present and future, for the fulfillment of his obligations,
subject to exemptions provided by the law.

Transmissibility of rights – all rights acquired in virtue of an obligation are generally transmissible or
assignable, except for the following:

1. Prohibited by law – rights in a partnership, agency, and commodatum which are purely personal
in character
a. By the contract of partnership – 2 or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing profit among
themselves.
b. By the contract of agency – a person binds himself to render some service on behalf of
another, with the latter’s consent
c. By the contract of commodatum – one of the parties delivers to another something not
consumable, so the latter may use it for a certain time and return it; essentially gratuitous
2. Prohibited by stipulation of the parties – must be clearly proved or clearly implied

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 - - - CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS - - -

Classifications of obligations

1. Primary classification under the Civil Code:

a. Pure and conditional obligations
b. Obligations with a period
c. Alternative and facultative obligations
d. Joint and solidary obligations
e. Divisible and indivisible obligations
f. Obligations with a penal clause
2. Secondary classification under the Civil Code:
a. Unilateral and bilateral obligations
b. Real and personal obligations
c. Determinate and generic obligations

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 - CH 3 – SECTION 1: PURE AND CONDITIONAL OBLIGATIONS -

Pure obligation – no condition, no specific date, immediately demandable

Conditional obligation – consequences are subject to the fulfillment of a condition

Condition – future and uncertain event or past but unknown event; must NOT be impossible
 Characteristics:
1. Future and uncertain
2. Past but unknown

Two Principal Kinds of Condition:

1. Suspensive condition (condition precedent/condition antecedent) – gives rise to an obligation

2. Resolutory condition (condition or subsequent) – extinguishes an existing obligation

Suspensive condition Resolutory condition

Fulfillment Obligation arises Obligation is extinguished
If it does not take place, the Does not appear Is consolidated
juridical tie
Existence of obligation Mere hope Effects flow, but hovers on the
possibility of termination

An obligation is demandable at once when:

1. It is pure
2. It is subject to a resolutory condition
3. It is subject to a resolutory period

Period – future and certain event

When duration of the period depends upon the will of the debtor:
1. Debtor promises to pay when his means permit him to do so
2. Other cases – when the debtor binds himself to pay:
a. “little by little”
b. “as soon as possible”
c. “from time to time”
d. “at any time I have the money”
e. “in partial payments”
f. “when I am in a position to pay”

Effect of happening of a condition:

1. Acquisition of rights
2. Loss of rights already acquired

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Classification of conditions:
1. As to effect:
a. Suspensive – happening of condition gives rise to the obligation
b. Resolutory – happening of condition extinguishes the obligation
2. As to form:
a. Express – clearly stated
b. Implied – merely inferred
3. As to possibility:
a. Possible – capable of physical and legal fulfillment
b. Impossible – not capable of physical and legal fulfillment
4. As to cause or origin:
a. Potestative – condition depends upon the will of one of the parties
b. Casual – condition depends upon chance or the will of a third person
c. Mixed – condition depends partly upon chance and partly upon the will of the third
person
5. As to mode:
a. Positive – performance of an act
b. Negative – omission of an act
6. As to numbers:
a. Conjunctive – several conditions and all must be fulfilled
b. Disjunctive – several conditions and only one or some of them must be fulfilled
7. As to divisibility:
a. Divisible – condition is susceptible of partial performance
b. Indivisible – condition is not susceptible of partial performance

Potestative condition – dependent upon the sole will of one of the parties
 Suspensive condition depends upon will of debtor:
o Conditional obligation void – validity and compliance are left to the will of the debtor
o Only the condition void – if obligation is preexisting; condition is imposed on the
fulfillment of the obligation, not on its birth
 Suspensive condition depends upon will of creditor:
o Valid
 Resolutory condition depends upon will of debtor:
o Valid
o Example: Pacto de retro – right to repurchase in a sale

Casual condition – depends upon chance or upon the will of a third person

Mixed condition – partly upon chance and partly upon the will of a third person

 Suspensive condition depends partly upon will of debtor (and partly upon will of third
person/chance:
o Valid

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Two kinds of impossible conditions:
1. Physically impossible conditions – cannot exist or cannot be done in the nature of things
2. Legally impossible conditions – contrary to law, morals, good customs, public order, or public
policy

Effects of impossible conditions:

1. Conditional obligation void – impossible conditions annul the obligation which depends upon
them
2. Conditional obligation valid – “not to do an impossible thing”; as if there were no condition
3. Only the affected obligation valid – if obligation is divisible, the part thereof not affected by the
impossible condition shall be valid
4. Only the condition void - if the obligation is preexisting and does not depend on the fulfillment
of the condition

Positive (suspensive) condition – the happening of an event at a determinate time

 The obligation is extinguished:
1. As soon as the time expires without the event taking place
2. It has become indubitable that the event will not take place although the time specified
has not expired

Negative condition – an event will not happen at a determinate time

 The obligation is effective and binding:
1. The time has elapsed without the event taking place
2. It is evident that the event cannot occur although the time has not yet elapsed

Constructive fulfillment of suspensive condition:

1. Condition is suspensive
2. Obligor prevents the fulfillment of the condition
3. Obligor acts voluntarily

Constructive fulfillment of resolutory condition:

1. Condition is resolutory
2. Obligee prevents the fulfillment of the condition
3. Obligee acts voluntarily

Retroactive effects of fulfillment of suspensive conditions:

1. Obligations to give – to the day the obligation was constituted
2. Obligations to do or not to do – no fixed rule

Retroactive effects as to fruits and interests in obligations to give:

1. Reciprocal obligations – no retroactive effects
2. Unilateral obligations – no effect because they are gratuitous

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Rights pending fulfillment of suspensive condition:
1. Rights of creditor – preservation of his right
2. Rights of debtor – recover what he has paid by mistake prior to the happening of the
suspensive condition

Article 1189 applies if:

 The obligation is a real obligation
 The object is a specific or determinate thing
 The obligation is subject to a suspensive condition
 Condition is fulfilled
 There is loss, deterioration, or improvement

Kinds of loss:
1. Physical loss – when a thing perishes
2. Legal loss – a thing goes out of commerce; a legal thing becomes illegal
3. Civil loss – a things disappears in such a way that its existence is unknown, or even if known, it
cannot be recovered, whether as a matter of fact or of law

Rules in case of loss:

1. Loss without debtor’s fault – obligation is extinguished

2. Loss with debtor’s fault – damages
3. Deterioration without debtor’s fault – creditor suffers
4. Deterioration with debtor’s fault
a. Rescission
b. Fulfillment
5. Improvement by nature – benefit of creditor
6. Improvement by debtor – right granted to a usufructuary

Usufruct – right to enjoy the use and fruits of a thing belonging to another

Effects on fulfillment of resolutory condition:

1. In obligations to give – the obligation is extinguished; parties are obliged to return to each other
what they have received
a. Return to status quo – the effect of the fulfillment of the condition is retroactive
b. If the things to be returned is legally in the possession of a third person who acted in
good faith, the remedy for the party is restitution
c. Mutual restitution – absolute; also applies to the fruits and interests
d. If subject to suspensive condition, retroactivity admits exceptions according as the
obligation is bilateral or unilateral
2. In obligations to do or not to do – courts shall determine the retroactive effect; it may even
disallow retroactivity, according to the circumstances

22
Kinds of obligation according to person obliged:

1. Unilateral – one party is obliged

2. Bilateral – both parties are mutually bound
a. Reciprocal – arise from same cause
b. Non-reciprocal – do not impose simultaneous and correlative performance

Remedies in reciprocal obligations:

1. Choice of remedies – if one obligor does not comply, the aggrieved party may choose between:
a. Specific performance
b. Rescission
2. Rescission for non-compliance – principal action for rescission for non-performance should be
distinguished from subsidiary action for rescission by reason of lesion or damage, and from
cancellation of a contract based (?)

*Court may grant guilty party term for performance.

*Remedies are alternative.

Limitations on right to demand rescission:

1. Resort to the courts – the rescission stated by Article 1191 is a judicial rescission
2. Power of court to fix period – period for the debtor to perform the obligation
3. Right of third person – if the thing (subject matter) is in the hands of the third person who acted
in good faith, rescission cannot be a remedy
4. Substantial violation – rescission will not be granted for slight breaches of contract
5. Waiver of right – the right to rescind may be waived, expressly or impliedly

Rescission without previous judicial decree:

1. Where automatic rescission expressly stipulated – it is stipulated in the contract that violation
of the terms would case cancellation
2. Where contract still executory – when one party is ready and willing to comply and the other is
not, the willing party may declare to rescind the contract

Where both parties are guilty of breach:

1. First infractor known – the liability of the first infractor should be equitably reduced
2. First infractor cannot be determined – contract is extinguished, and each party shall bear his
own damages

23
 - CH 3 – SECTION 2: OBLIGATIONS WITH A PERIOD -

Obligation with a period – obligation whose effects are subjected to the expiration or arrival of said
period

Period – future and certain event

Period Condition
Fulfillment Certain event Uncertain event
Time Future only Can also refer to a past but
unknown event
Influence on the Cannot prevent the birth or invalidate Causes and obligation to arise or
obligation the existence of the obligation cease
Effect when left on Empowers the court to fix the Invalidates the obligation
debtor’s will duration thereof
Retroactivity of effects No retroactive effect Has retroactive effect

Similarity of period and condition:

 Must be possible – if not, the obligation is void

Kinds of period:
1. According to effect:
a. Suspensive period (ex die) – obligation begins upon the arrival of the period
b. Resolutory period (in diem) – obligation terminates upon the arrival of the period
2. According to source:
a. Legal period – provided by laws
b. Conventional or voluntary period – agreed to by the parties
 a.k.a. contractual period (?)
c. Judicial period – fixed by the court
3. According to definiteness:
a. Definite period – when it is fixed, or it is known when it will come
b. Indefinite period – when it is not fixed, or it is not known when it will come

Payment before arrival of period – the debtor can recover what has been paid by mistake
 Presumption: debtor is presumed unaware (?) of the period
 If the period depends upon the will of the debtor, his payment means the period has arrived.

*There is no recovery in personal obligations if the obligation was performed before the arrival of the
period.

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Benefit of the period – presumed to be for both the creditor and debtor; parties cannot fulfill/demand
fulfillment of the obligation before the expiration of the period
 Exceptions:
1. Term is for the benefit of the debtor – debtor cannot be compelled to pay prematurely,
but he can do so if he wants to.
2. Term is for the benefit of the creditor – creditor may demand fulfillment but may not be
required to accept payment before the expiration of the period.

Computation of term or period:

 Year – 12 calendar months
 Month – 30 days, unless a specific month is specified
 A day – 24 hours
 The day – sunrise to sunset
 Night – sunset to sunrise
 Score – 20 years
 Fortnight – 3 weeks

Courts generally without power to fix a period – if no period is intended in an obligation, the court is
not authorized to fix a period
 Exceptions:
o No period is fixed but a period was intended
o Duration of the period depends upon the will of the debtor

Legal effect where the following depend upon will of debtor:

1. Suspensive period – existence of obligation is not affected
2. Suspensive condition – conditional obligation is void

Period fixed cannot be changed by courts:

1. Period agreed has lapsed – court cannot fix another period
2. Parties accept and consent to the period fixed by the court – said period acquires nature of
contract, but can still be modified by a new agreement

When obligation can be demanded before lapse of period:

1. Debtor becomes insolvent
2. Debtor does not furnish guaranties or securities promised
3. Guaranties or securities given have been impaired or have disappeared
4. Debtor violates an undertaking
5. Debtor attempts to abscond

25
 - CH 3 – SECTION 3: ALTERNATIVE OBLIGATIONS –

Kinds of obligation according to object:

1. Simple obligation – there is only one prestation
2. Compound obligation – there are 2 or more prestations
a. Conjunctive obligation – there are several prestations and all of them are due
b. Distributive obligation – 2 or more of the prestations are due (?)
i. Alternative obligation – several prestations are due but the performance of
one is sufficient
ii. Facultative obligation – one prestation is due but the debtor may substitute
another

ALTERNATIVE OBLIGATIONS

Right of choice – given to debtor, as a rule

 May be exercised by:
o creditor - when expressly granted to him
o third person – when the right is given to him by common agreement

Limitations to the right of choice of the debtor:

1. The debtor cannot choose the following void prestations:
a. Impossible
b. Unlawful
c. Could not have been the object of the obligation
2. The debtor has no more right of choice when only one of the prestations is practicable. The
obligation becomes simple.
3. The debtor cannot choose part of one prestation and part of another prestation.

Communication of notice that choice has been made:

1. Effect of notice – until the choice is made, the obligation remains alternative
a. Once notice of election has been given to the creditor, the obligation becomes simple.
b. Such choice properly communicated cannot be changed by either party without the
consent of the other.
 Concurrence of the creditor to the choice made by the debtor is not required.
2. Proof and form of notice – the burden of proving that communication has been made is upon
him who made the choice. The notice may be given orally or in writing, expressly or impliedly.

When debtor may rescind contract:

 Debtor may choose to rescind and recover damages if, through the creditor’s fault, he
cannot make a choice according to the terms of the obligation.

26
Effects of loss of objects of obligation:
1. Some of the objects – debtor is not liable because the obligation can still be performed
2. All of the objects – if through debtor’s fault, all objects have been lost, creditor shall have the
right to indemnity for damages.
 If the cause of loss is a fortuitous event, the obligation is extinguished.
 Basis of indemnity – the last thing which disappeared or the last service which became
impossible

*The debtor may expressly give the right of choice to the creditor.
 Before the creditor makes the selection, the debtor cannot incur delay.

Rules in case of loss before creditor has made choice:

1. A thing is lost through a fortuitous event – creditor can choose among remaining items
2. A thing is lost through debtor’s fault – creditor may:
a. Claim a remaining item with a right to damages
b. Claim the price of lost item with a right to damages
3. All things are lost through debtor’s fault – creditor can demand payment of the price of any one
item with a right to indemnity for damages
4. All things are lost through a fortuitous event – obligation is extinguished

 The rules above are also applicable to personal obligations.

FACULTATIVE OBLIGATIONS

Effect of loss:
1. Before substitution – if the principal thing is lost through a fortuitous event, the obligation is
extinguished
2. After substitution – if:
a. principal thing is lost - debtor is not liable
b. substitute is lost – liability of the debtor depends upon whether the loss was due to his
fault or not

*Once the substitution is made, the obligation is converted into a simple one.
*The substitution becomes effective from the time it has been communicated.

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 Alternative obligation Facultative obligation
Number of prestations Several are due but compliance Only one is due but debtor is
with one is sufficient allowed to substitute it
Right of choice Debtor, creditor, or third person Debtor only
Loss through a fortuitous Loss of one or more alternatives Loss of the thing due
event does not extinguish the extinguishes the obligation
obligation
Loss through the fault of
debtor:
a. Loss of one of the alternatives Loss of the thing due through
due to the fault of the debtor the debtor’s fault makes him
does not make him liable liable
b. If choice belongs to the creditor Loss of the substitute before
– loss of one alternative the substitution through the
through debtor’s fault gives rise fault of the debtor does not
to liability make him liable

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 - CH 3 – SECTION 4: JOINT AND SOLIDARY OBLIGATIONS –

Kinds of Obligations according to the number of parties:

1. Individual Obligation – one obligor (and (?)) or one obligee
2. Collective Obligation – 2 or more debtors and/or 2 or more creditors
a. Joint Obligation – the whole obligation is fulfilled or demanded proportionately by the
different debtors and creditors
 Words used:
o mancomunada
o mancomunadamente
o pro rata
o proportionately
o “We promise to pay” signed by 2 or more persons
b. Solidary Obligation – each one of the debtor is bound to render and/or each one of the
creditor has a right to demand from any debtor entire compliance
 Words used:
o jointly and/or severally
o solidaria
o in solidum
o together and or separately
o individually and/or collectively
o juntos o separadamante
o “I promise to pay” signed by 2 or more persons

*Collective obligation is presumed to be joint.

If the obligation is an individual obligation, there is no problem in determining:

a. Person liable to pay
b. Person entitled to demand payment
c. Extent of liability of debtor
d. Extent of the right of the creditor

Consequences (or Characteristics (?)) of a joint obligation:

1. As many debts as many debtors
2. As many credits as creditors
3. Debits and credits are distinct and separate from one another
4. Each debtor is liable only for a proportionate part of the debt
5. Each creditor is entitled only for a proportional part of the credit

 Insolvency of one of the debtors shall not make the others liable.

29
Prima facie - based on the first impression; accepted as correct until proved otherwise

Rules on multiplicity of suits – seek to prevent the filing of two or more suits or complaints for a single
cause of action

When obligation is solidary:

1. When the obligation expressly so states
2. The law requires solidarity
3. The nature of the obligation requires solidarity

 When imposed in a final judgment against several defendants.

Kinds of solidarity:
1. According to the parties bound:
a. Passive solidarity – solidarity on the part of the debtors; mutual guaranty
b. Active solidarity – solidarity on the part of the creditors; mutual representation
c. Mixed solidarity – solidarity on both the part of the debtors and the creditors

2. According to source:
a. Conventional solidarity – agreed upon by the parties. If nothing is mentioned, the
obligation is joint
b. Legal solidarity – imposed by law
i. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full
powers.
ii. All partners are solidarily liable with the partnership for any crime or quasi-
delict committed by any partner acting in the ordinary course of business of the
partnership or with the authority of his co-partners.
iii. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences
of the agency.
iv. When there are two (2) or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily.
v. The responsibility of two (2) or more payees, when there has been a payment of
what is not due, is solidary.
vi. The responsibility of two (2) or more persons who are liable for a quasi-delict is
solidary.
vii. If an engineer or architect supervises the construction of a building, he shall be
solidarily liable with the contractor for damages for any defect in the
construction.

30
 viii. In a felony (crime), the principal, accomplices, and accessories, each within their
respective class, shall be liable severally (in solidum) among themselves for their
quotas, and subsidiarily for those of other persons liable.
 Principal – did the crime
 Accomplices – assisted in the crime
 Accessories – benefitted from the crime

c. Real solidarity – imposed by the nature of the obligation

Joint divisible obligation – parties are joint, but the object or subject matter is not physically divisible
 Joint as to liabilities but indivisible as to compliance
 If there are 2 creditors and one of them refuses to accept the performance, the debtor can
legally refuse to perform the obligation

Indivisibility Solidarity
Refers to Prestation Juridical or legal tie
Liability due to the Only the debtor guilty of breach is All debtors are liable
breach of one debtor liable
Number of debtors and Can exist with only 1 debtor and 1 There must be at least 2 debtors
creditors required creditor or 2 creditors
Liability due to Others are not liable Other debtors are proportionately
insolvency of one debtor liable

*Indivisibility does not give rise to solidarity. Solidarity does not imply indivisibility.
*Money is divisible.

Kinds of solidary obligation according to legal tie:

1. Uniform – parties are bound by the same stipulations
2. Non-uniform or varied – parties are not subject to the same stipulations

 The creditor may bring his action in toto against any of the solidary debtors less the shares of
the other debtors with unexpired terms or unfulfilled conditions.
o However, the parties may stipulate that any solidary debtor already bound may be
made liable for the entire obligation.

*A solidary creditor may do any act beneficial or useful to other creditors, but he cannot perform any
act prejudicial to them.

Assignment by solidary creditor of his rights:

a. To a third person – needs consent of the other creditors
b. To a co-creditor – does not need the consent of other creditors

31
Payment to solidary creditors:
a. Default: the debtor may pay any creditor
b. When demand is made by one solidary creditor to a debtor (including mixed solidarity):
i. The debtor demanded upon: may pay only to the creditor who made the demand
ii. Debtors not demanded upon: may still pay to any of the creditors

 If two solidary creditors demand payment from a debtor at the same time, the debtor may pay
either of them.

Liability of solidary creditor in case of novation, compensation, confusion, or remission:

 Modes or causes of extinguishment of obligations:
1. Novation - substitution of a new contract in place of an old one
2. Compensation - something, typically money, awarded to someone as a recompense for
loss, injury, or suffering
3. Confusion - when the qualities of obligee and obligor are united in the same person
4. Remission - extinguishment or release of a debt; essentially gratuitous; a donation
 The solidary creditor who executes any of the above acts should be liable to others for their
corresponding share.

Effect of novation, etc. where obligation joint:

 Does not extinguish or modify the obligation except with respect to the creditor or debtor
affected

Effect of payment by a solidary debtor:

1. Between the solidary debtors and creditors – full payment by one of the solidary debtors
extinguishes the obligation. A creditor can choose which offer to accept if two or more solidary
debtors offer to pay.
2. Among solidary debtors – the paying solidary debtor can demand reimbursement from his co-
debtors with interest from the time of payment
 A joint obligation of reimbursement is created on the part of the non-paying debtor
 If a solidary debtor becomes insolvent, the others assume his share pro rata.
3. Among solidary creditors – the receiving creditor is jointly liable to the others for their
corresponding shares.

Effect of payment after obligation has prescribed or become illegal:

 Cases when the paying debtor cannot get any reimbursement:
1. Obligation has prescribed
2. Obligation has become illegal
 The above situations cause the obligation to be extinguished. Hence, there is no more
obligation to be complied with.

32
Prescription – one acquires ownership and other rights through the lapse of time
 Rights and actions are also lost by prescription.

Prescriptive periods of actions:

1. Actions must be brought within 10 years from the time the right of action accrues:
a. Upon a written contract
b. Upon an obligation created by law
c. Upon a judgment
2. Actions must be commenced within 6 years:
a. Upon an oral contract
b. Upon a quasi-contract
3. Actions must be instituted within 4 years:
a. Upon an injury to the rights of the plaintiff
b. Upon a quasi-delict

Effect of remission of share payment:

 If payment is made first, the remission or waiver is of no effect.
 If remission is made before the payment, solutio indebiti arises.
o It is incumbent upon the solidary debtor to prove the priority of the remission to
release him from responsibility towards his co-debtors.

*Remission of the whole obligation obtained by one of the solidary debtors does not entitle him to
reimbursement from his co-debtors.

*In case of novation, compensation, or confusion, the debtor with whom it is effected is entitled to
recover from his co-debtors.

Rules in case thing has been lost or prestation has become impossible:
1. Loss is without fault and before delay – obligation is extinguished
2. Loss is due to fault on the part of a solidary debtor – all solidary debtors are liable to the
creditors, and the debtor who lost the thing is liable to his co-debtors.
3. Loss is without fault but after delay – same as loss due to fault of solidary debtor (?)

Defenses available to a solidary debtor:

 In actions filed by the creditor, a solidary debtor may avail himself of the following defenses:
1. Defenses derived from the nature of obligation
 Complete defense – nullifies the obligation or renders it ineffective
2. Defenses personal to, or which pertain to a share of debtor sued
 Partial defense – can only be set up with respect to the share of one of the
solidary debtors
3. Defenses personal to other solidary debtors
 A solidary debtor may avail himself a defense for the part of the debt which
other debtors are liable for.

33
 - CH 3 – SECTION 5: DIVISIBLE AND INDIVISIBLE OBLIGATIONS –

Divisible obligation – object is capable of partial fulfillment

Indivisible obligation – object is not capable of partial fulfillment

Test for distinction:

 The controlling circumstance is not the possibility or impossibility of partial prestation but the
purpose of the obligation or the intention of the parties
 Object: physically divisible = obligation: divisible or indivisible
 Object: physically indivisible = obligation: indivisible only ---> Absolute rule

Kinds of division:
1. Qualitative division – based on quality, not on quantity
2. Quantitative division – based on quantity, not on quality
3. Ideal or intellectual division – exists only in the mind of the parties

Kinds of indivisibility:
1. Legal indivisibility – stated by law
2. Conventional indivisibility – stated by the parties
3. Natural indivisibility – nature of the object does not admit of division

Effect of non-compliance by a debtor in a join indivisible obligation:

 If any one of the debtors does not comply, the obligation is converted into one for damages.
 Creditor cannot ask for specific performance or rescission because there is no cause of action
against the other debtors.

Obligations deemed indivisible:

1. Obligations to give definite things
2. Obligations which are not susceptible of partial performance
3. Obligations provided by law to be indivisible
4. Obligations intended by the parties to be indivisible

Obligations deemed divisible:

1. Obligations which have for their object the execution of a certain number of days of work
2. Obligations which have for their object the accomplishment of work by metrical units
3. Obligations which by their nature are susceptible of partial performance

Divisibility or indivisibility in obligations not to do:

1. Indivisible obligation – obligation should be fulfilled continuously during a period
2. Divisible obligation – the period for the fulfillment of the obligation is not continuous

 Obligations “to do” and “not to do” are generally indivisible.

34
 - CH 3 – SECTION 6: OBLIGATIONS WITH A PENAL CLAUSE –

Principal obligation – can stand for itself

Accessory obligation – attached to a principal obligation; cannot stand alone

Obligation with a penal clause – obligation which contains an accessory undertaking to pay a previously
stipulated indemnity

Penal clause – accessory undertaking attached to an obligation to assume greater liability in case of
breach

Purposes of penal clause:

1. Reparation - To insure performance by creating an effective deterrent against breach
2. Punishment - To substitute a penalty for the indemnity for damages and the payment of
interests

Penal clause Condition

Obligation Constitutes an obligation Does not constitute an obligation
Demandability Demandable in default of the Never demandable
unperformed obligation

Kinds of penal clause:

1. As to origin:
a. Legal penal clause – provided by law
b. Compensation penal clause – provided for by stipulation
2. As to purpose:
a. Compensatory penal clause – penalty takes the place of damages
b. Punitive penal clause – penalty is imposed merely as punishment of breach
3. As to demandability or effect:
a. Subsidiary or alternative penal clause – only the penalty can be enforced
b. Joint or cumulative penal clause – both the principal obligation and the penal clause
can be enforced

*Proof of actual damages suffered by the creditor is not necessary to enforce the penalty.

When creditor may recover damages (damages and interest in addition to the penalty):
1. When so stipulated by the parties
2. When the obligor refuses to pay the penalty, in which case the creditor may recover legal
interest thereon
3. When the obligor is guilty of fraud, in which case the creditor may recover damages caused by
such fraud

35
When penalty may be enforced:
 The penalty may be enforced only when it is demandable in accordance with the Civil Code.
o Penalty is demandable:
a. If there is a breach
b. If it is not contrary to law, morals, good customs, public order, or public policy
o If the obligation cannot be fulfilled due to a fortuitous event, the penalty is not
demandable.
o Reduction of penalty:
a. Penalty is iniquitous or unconscionable
b. There is partial or irregular fulfillment

Penalty not substitute for performance:

 Generally, the debtor cannot just pay the penalty instead of performing the obligation.
o This would make the obligation an alternative one.
 The debtor can exempt himself from the non-fulfillment when this right is expressly reserved
for him.

Penal clause presumed subsidiary:

 Generally, the creditor cannot demand fulfillment of the obligation and satisfaction of the
penalty at the same time.

1. Where there is performance

 Obligation is fulfilled  purpose is attained  no need for demanding the penalty
2. When there is no performance
 Creditor may ask for penalty or specific performance
o Remedies are alternative
o Penalty may be enforced if after the creditor has required fulfillment, it would
become impossible without his fault.
 If there was fraud on part of the debtor, the creditor may recover penalty as well as
damages.

When penal clause joint:

 Debtor has the right to pay in lieu of performance when this right has been expressly reserved
for him.
 Creditor has the right to demand performance and payment of penalty jointly when this right
has been clearly granted to him.
o Right does not have to be expressly reserved.
o Implied grant clearly deducible from the evidence or the nature of the obligation is
sufficient.

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Penalty demandable without proof of actual damages:
 To enforce penalty, the creditor only has to prove the violation of the obligation by the debtor.
o Proof of actual damages is not necessary.
 Creditor cannot recover more than the stipulated penalty even if he proves that the amount of
damages exceeds the penalty.

*Damages recoverable in addition to penalty must be proved, and must be meet the three exceptions
mentioned above (when creditor may recover damages).

When penalty may be reduced by the courts:

1. When there is partial or irregular performance
2. When the penalty agreed upon is iniquitous or unconscionable

Effects of nullity of the penal clause and the principal obligation:

 If only the penal clause is void, the principal obligation remains valid and demandable.
 If the principal obligation is void, the penal clause is also void.
o If the nullity of the principal obligation is due to the fault of the debtor, the penalty
may be enforced.

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