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OBLIGATIONS AND CONTRACTS Notes: Extinguishment of obligations Section 2- loss of the thing due Concept: Loss of the thing due means that the thing which constitutes the object of the obligation perishes or goes out of the commerce of man, or disappears in such a way that its existence is unknown or it cannot be recovered. Broad sense It means impossibility of compliance with the obligation through any cause. Impossibility of performance. Manresa The loss of the thing is this part of the code is not confined to the meaning of loss in the strict legal meaning of loss but extends to causes which render impossible the performance of the prestation Tolentino Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a) Effect of loss in determinate obligations to give 1) An obligation to give a determinate thing will be extinguished if the thing should be lost or destroyed without the fault of the debtor and before he has incurred delay. 2) It is evident from this rule that before the loss of the thing due will result in the extinguishment of the obligation, t is necessary that the following requisites must concur: a. The thing which is lost must be determinate b. The thing is lost without any fault of the debtor. If the thing is lost due to the fault of the debtor, the obligation is not extinguished; t is simply converted into an obligation to indemnify the creditor for damages c. The thing is lost before the debtor has incurred in delay. If the thing is lost after the debtor has incurred delay, the rule is that such debtor can still be held liable for indemnity for damages. Effect of fortuitous event 1) The rule declared in the first paragraph of Art. 1262 must always be read in relation to the rule declared in art. 1174 regarding the effect of the failure of the debtor to comply with his obligation through a fortuitous event. 2) If the thing which constitutes the object of the obligation is lost or destroyed through a fortuitous event, the debtor cannot be held responsible a. The obligation is extinguished. 3) Exceptions: a. When by law, the debtor is liable even for fortuitous events b. When by the stipulation of the parties, the debtor is liable even for fortuitous events c. When the nature of the obligation requires the assumption of risks d. When the loss of the thing due is partly to the fault of the debtor e. When the loss of the thing occurs after the debtor has incurred in delay f. When the debtor promised to deliver the same thing to two or more persons who do not have the same interest g. When the obligation to deliver arises from a criminal offense

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h. When the obligation is generic.

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n) Effect of loss in generic obligations to give 1) If the obligation is generic, the loss or destruction of anything of the same kind even without the debtors fault and before he has incurred in delay will not have the effect of extinguishing the obligation. 2) The debtor can still be compelled to deliver a thing which must be neither of superior nor inferior quality. Exception to the rule that genus never perishes 1) If the thing is delimited, that is, where there has been a limitation of the generic object to a particular group of thing, the obligation is extinguished by the loss of that particular group from which the prestation has to be taken Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n) Effect of partial loss Whether or not the partial loss or destruction of the thing is of such importance that it would be tantamount to a complete loss or destruction shall depend upon the sound discretion of the court. Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a) Rule if the thing is in the debtors possession 1) If the thing which constitutes the object of a determinate obligation is lost in the possession of the debtor, there arises a disputable presumption that the loss was due to his fault a. The obligation is not extinguished b. The debtor is still liable for damages c. The burden of proof of absence of fault corresponds to the debtor d. This must be without prejudice to the rule stated in the third paragraph of art. 1165 If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. i. To the effect that if the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible to any fortuitous event until he has effected the delivery ii. In such case, even if the debtor or obligor can prove that the loss or destruction of the thing in his possession was not through his fault or that it was through a fortuitous event, he shall be liable to the creditor or obligee for damages. e. The presumption does not apply in case of earthquake, flood, storm or any other natural calamities. Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a) Rules: 1) Only applicable to obligations to do 2) Same requisite of art. 1262 which is only applicable to obligations to give

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The prestation constituting the object of the obligation must have become legally or physically impossible for compliance without the fault of the debtor and before he has incurred in delay, otherwise, the obligation shall be converted into one of indemnity for damages. The impossibility must have occurred after the constitution of the obligation; otherwise; if it was present before the obligation was constituted, there would be an obligation which would be ineffective from its inception. Two causes of impossibility 1) Legal impossibility a. When the law prohibits the performance or execution of the work agree upon, as where it is immoral or dangerous, or it may be indirect, as where the law imposes duties of a superior character upon the obligor which are incompatible with the work agreed upon, although the latter may be perfectly illicit. 2) Physical impossibility a. Arises principally from the death of the obligor, when the act to be performed requires his personal qualifications or from the death of the oblige, when the act can be of possible benefit only to him. b. Accident or from the acts of 3rd persons affecting the debtors capacity to execute the work agreed upon. Effect: The obligor is released from the obligation. Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n) Effect: 1) The general rule is that impossibility if performance of an obligation to do shall release the obligor 2) When the service has become so difficult as to be manifestly beyond the contemplation of the parities, the court should be authorized to release the obligor in whole or in part. 3) The intention of the parties should govern and if it appears that the service turns out to be so difficult as to have been beyond their contemplation, it would be doing violence to that intention to hold the obligor responsible. Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185) 1) Not only applicable to cases where there is an obligation of restitution of a certain and determinate thing on that part of the person criminally liable as provided for in the penal code, but also to the case where such obligation arises by virtue of reparation or indemnification. 2) Not only applicable to those who are principally liable but also to those who are subsidiarily liable. 3) In all of these cases, if the thing is lost, the debtor shall not be exempted from the payment of the price of the thing, whatever may be the cause of the loss. a. The only cases where is relieved of the severity of the precept is when he had offered the thing to the oblige and the latter had refused to accept it without justification. 4) When the offer is made by the debtor and the creditor refuses to accept it without justification, he may choose either of two courses: a. He may make a consignation of the thing and thereby completely relieve himself of further liability b. He may keep the thing in his possession, in which case, the obligation shall still subsists but with this differencethat if the thing is lost through a fortuitous even, arts. 1262 and 1265 and not art 1268 shall govern. Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186)

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Effect of extinguishment of obligation 1) All of the rights of action which the debtor may have against third persons by reason of the loss are transmitted by operation of law to the creditor. a. Such transmission is made from the moment of the extinguishment of the obligation Consequences of Extinguishment of obligation by loss of the thing 1) When the obligation has been extinguished by the loss of the thing, there shall be a sort of subrogation whereby the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss 2) The transfer of the rights is by operation of law starting from the moment of extinguishment of obligation. _________________________________________________________________________________________________________________________________________________ SECTION 3. - Condonation or Remission of the Debt Concept Remmision is the act of liberality by virtue of which the obligee, without receiving price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or in that part or aspect of the same which the remission refers. Condonation is an act of liberality by which the creditor renounces the enforcement of the obligation contracted in his favor. To condon is to forgive or remit a debt Sanchez Roman 1) It is the gratuitous abandonment by the creditor of his rights Requisites: 1) It must be gratuitous 2) It must be accepted by the obligor 3) The obligation must be demandable Requisites Pineda 1) 2) 3) 4) 5) Kinds: 1) As to form: express or implied a. It is express when it is made in accordance with the formalities prescribed by law of donation b. It is implied when, although it is not made in accordance with the formalities prescribed by law for donations, it can be deduced from the acts of the obligee or the creditor 2) As to extent: total or partial a. It is total when the entire obligation is extinguished b. It is partial when it refers only to the principal or to the accessory obligation or to an aspect thereof which affects that debtor as for instance solidarity. 3) As to constitution: inter vivos or mortis causa Existence of demandable debt Renunciation of the debt is pure gratuitous Acceptance of the condonation or remission by the debtor Formalities required by law on donation must be complied with What has been condoned or remitted must not by inofficious

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a. b. The first refers to that which is constituted by agreement of the oblige and the obligor in which case it partakes of the nature of a donation inter vivos Mortis causa refers to that which is constituted by last will and testament in which case it partakes of the nature of a donation mortis causa

Abandonment of credit 1) If the debtor does not accept the remission but does not pay and the creditor does not enforce the payment of the credit within the prescriptive period, the abandonment will result in the prescription of the credit. Remissions or waivers are not presumed 1) Remissions or waivers being abandonment of rights are not presumed 2) Their existence, if denied, must be established by clear, strong and convincing evidence. Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly. One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187) The most essential characteristic of remission is that it is gratuitous Before it can be said that an obligation has been condoned by the creditor, it is essential that it must be an act of pure liberality of the creditor for the benefit of the debtor, in other words, the creditor should not have received any price or equivalent from the debtor as a result of his act in renouncing the enforcement of the obligation. Necessity of acceptance by debtor 1) Because in reality the remission or condonation of an obligation is by its very nature a donation, the code required that it must be accepted by the debtor. Extent of remission 1) Whether express or implied the extent of the remission or condonation shall be governed by the rules regarding inofficious donations 2) Rules: a. Art. 750. The donations may comprehend all the present property of the donor, or part thereof, provided he reserves, in full ownership or in usufruct, sufficient means for the support of himself, and of all relatives who, at the time of the acceptance of the donation, are by law entitled to be supported by the donor. Without such reservation, the donation shall be reduced in petition of any person affected. (634a) b. Art. 751. Donations cannot comprehend future property. By future property is understood anything which the donor cannot dispose of at the time of the donation. (635) c. Art. 752. The provisions of Article 750 notwithstanding, no person may give or receive, by way of donation, more than he may give or receive by will. The donation shall be inofficious in all that it may exceed this limitation. (636) d. Art. 771. Donations which in accordance with the provisions of Article 752, are inofficious, bearing in mind the estimated net value of the donor's property at the time of his death, shall be reduced with regard to the excess; but this reduction shall not prevent the donations from taking effect during the life of the donor, nor shall it bar the donee from appropriating the fruits. For the reduction of donations the provisions of this Chapter and of Articles 911 and 912 of this Code shall govern. (654) Forms of express remission

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Art. 748. The donation of a movable may be made orally or in writing. An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated. If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing, otherwise, the donation shall be void. (632a) Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. (633) Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (1188) Art. 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189) Effect of delivery of evidence of credit to debtor 1) If the creditor voluntarily delivers the private document evidence the credit of the debtor, there is a presumption that he renounces his right of action against the latter for the collection of said credit. 2) Requisites: a. That the document evidencing the credit must have been delivered by the creditor voluntarily b. The document must be private i. It cannot apply to public documents evidencing credits because such instruments ordinarily have other copies in the hands of the notary public who had to notarize them. They are required to submit copies of documents the have notarized to the notarial section of the RTC where they secured their commissions as notaries public. ii. There are other functionaries who administer oaths and act as notaries. Defense of debtor and his heir when waiver of action is challenged. 1) If the remission is claimed to be inofficiousmeaning excessive as it cannot be totally covered by the disposable free portion of the estate of the deceased creditor, or that its revocation or reduction is sought under articles 750, 752, 760 and 761 Presumption of voluntary delivery of the private document If the private document evidencing the credit is found in the possession of the creditor, the presumption arises that the said document was delivered voluntarily to the said debtor. The presumption is rebuttable The presumption of voluntary delivery of the private document to the debtor is that it implies the remission of the debt evidenced by the document

Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190) Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a)

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Effect of remission 1) The effect of remission is to extinguish the obligation in its entirety or in the part thereof to which the remission refers. 2) If the obligation is joint, the remission can only affect the share of the creditor who makes the remission and thee corresponding shares of the debtor in whose favor the remission is made, since the peculiar feature of this type of obligation is the division of the credit or of the debt into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from each other 3) Solidary obligations a. Arts. 1215, 1219 and 1220 shall govern. Effect upon accessory obligations 1) If the remission refers to the principal obligation, al the accessory obligations are extinguished since the latter depend upon the former for their existence or efficacy 2) If the remission refers to the accessory obligation, the principal obligation continues to subsists. Rule in pledge 1) It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor or of a third person who own the thing

SECTION 4. - Confusion or Merger of Rights Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (1192a) Concept: 1) Confusion may be defined as the merger of characters of creditor and debtor in one and the same person by virtue of which the obligation is extinguished. 2) Confusion may be defined as the meeting in one and the same person the qualities of the creditor and debtor with respect to one and the same obligation. Requisites: 1) That the merger of the characters of creditor and debtor must be in the same person 2) That it must take place in the person of either the principal creditor or the principal debtor 3) That it must be complete and definite a. It merely means that whether the merger refers to the entire obligation or only a part thereof, it must be of such a character that there will be a complete and definite meaning of all of the qualities of the creditor and debtor. Kinds 1) As to casue or constitutions: Inter vivos or mortis causa a. Inter vivos when it is constituted by agreement of the parties b. Mortis causa- when it is constituted by succession 2) As to extent or effect- total or partial a. Total- if it results in the extinguishment of the entire obligation b. Partial- if it results in the extinguishment of only a part of the obligation i. When the confusion or merger refers only to a part of the obligation

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ii. When the obligation is join Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. (1193) Effect upon accessory obligations 1) If the confusion or merger of rights will take place in the person of either principal creditor or the principal debtor, the effect is the extinguishment, not only of the principal obligation but even of the accessory obligation. 2) If the confusion or merger will take place in the person of a subsidiary creditor/debtor, such as a guarantor, it is evident that there is no extinguishment of the principal obligation, there will be only a substitution of creditor/debtor. 3) If there are several guarantors and the characters of creditor and guarantor are merged in the person of any of the guarantors, such guarantor-creditor can demand the performance of the obligation from the debtor, and in case of default, even from his former co-guarantors. 4) If the characters of debtor and guarantor are merged, the creditor can demand the performance of the obligation directly from the gurantor. Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. (1194) Effect upon collective obligations 1) Partial extinguishment of debt 2) The creditor can proceed against the other debtors. 3) Solidary obligations a. Art. 1215 will apply. b. The entire obligation is extinguished without prejudice to the rights and obligations of the solidary creditors and solidary debtors themselves. Effect upon revocation of confusion 1) May be revoked by rescission, annulment, nully or inexistence of contracts or by some special cause such as redemption 2) Inheritance a. Nullity of the will b. By the subsequent appearance of an heir with better right or by any another cause that will nullify the merger. In all of these cases, the original obligation, as a general rule is recreated in the same form and under the same condition in which it was found before the merger took place. The period which has elapsed from the moment the merger took place until its revocation cannot be computed in the determination of the period of prescription, because during such period the creditor could not have possibly have made a demand for the fulfillment of the obligation.