Section 2. Loss of the Thing Due

The loss of a determinate thing refers to situations where the specific item that is meant to be delivered becomes unavailable or undeliverable. This loss can occur through various means, such as perishing, going out of commerce, disappearing without trace. 

In all these cases, the debtor's obligation to deliver that particular object is extinguished, as it becomes either physically impossible or legally prohibited to fulfill the obligation. This legal principle ensures that individuals are not held accountable for circumstances beyond their control, promoting fairness and practicality in contractual and legal relationships.

• Article 1262 states that if an obligation involves the delivery of a specific thing, and that thing is lost or destroyed through no fault of the debtor and before they have incurred any delay in fulfilling their obligation, the obligation is considered extinguished. This means the debtor is no longer required to fulfill the obligation, as it has become impossible due to circumstances beyond their control.

• However, there are exceptions to the general rule. If, by law or stipulation (possibly contractual agreement), the obligor (the person with the obligation) is made liable even for fortuitous events (events that are unforeseeable and beyond human control), the loss of the thing does not extinguish the obligation. In such cases, the obligor remains responsible for damages. This exception emphasizes that parties can contractually agree to different terms than those provided in the general rule.

• Additionally, the article states that the same rule applies when the nature of the obligation requires the assumption of risk. This means that if the obligation involves a certain level of risk, and the obligor has agreed to accept that risk, they remain responsible for the obligation, even if the specific thing is lost or destroyed. This principle underscores the importance of the parties' intentions and agreements in determining the outcome of obligations.

• When someone is obligated to deliver a specific item due to a crime they committed, such as theft or embezzlement, they are still legally bound to fulfill that obligation despite the criminal act. This means they can be held accountable both for the criminal offense and the civil obligation to return or deliver the item. This legal principle ensures that individuals are held responsible for their actions both in criminal and civil matters, offering a legal remedy for the victim of the crime.

This article specifically addresses situations where a person is obligated to deliver a "generic thing." A generic thing is an object defined by its class or kind, rather than by its specific individual characteristics. For example, a person may be obligated to deliver a certain quantity of rice, wheat, or any other fungible goods.

• Article 1263 establishes that even if there is a loss or destruction of anything of the same kind as the generic thing owed, it does not extinguish the obligation. In other words, if the subject matter of the obligation (e.g., a particular quantity of rice) is lost or destroyed, the obligor is still required to deliver the same quantity of rice, even if it means acquiring it from another source.

• This article is founded on the principle that "genus never perishes" (genus nunquam perit). It means that even if the specific item is lost or destroyed, the debtor is still obliged to provide something of the same category. However, the creditor is not entitled to request an item of better quality, nor can they ask the debtor to provide an item of lower quality.

• The debtor is liable even for a fortuitous event because the law say so.

Partial Loss

If the part lost is so important that the obligation would not have been established without it, the court may decree the extinguishments of the obligation.

Example:

A obliged himself to give B a certain specific pentel pen. If the pentel pen excluding the cover is lost, the obligation is extinguished. If the cover is the one lost and not the pentel pen, the obligation shall subsist.

Question:

What will be the consequence in partial loss of the object of the obligation under Art 1264.

Answer:

The court shall determine the importance of the part as to distinguish the obligation.

• The article establishes a disputable presumption of fault whenever the thing to be delivered is lost in the possession of the debtor. This presumption is reasonable because the debtor who has the custody and care of the thing can easily explain the circumstances of the loss. The creditor has no duty to show that the debtor was at fault.

• Under the third paragraph of Article 1165, the obligor who is not at fault is still liable in case he is guilty of delay or has promised to deliver the same thing to two or more persons who do not have the same interest.

• In case of natural calamities, the presumption of fault does not apply. Lack of fault on the part of the debtor is more likely. So it is unjust to presume negligence on his part.

Cases:

(1) Ben borrowed the car of Bon. On the due date of the obligation, Ben told Bon that the car was stolen and that he was not at fault. That is not enough to extinguish Ben’s obligation. It is presumed that the loss was due to his fault. Hence, he is liable unless he proves the contrary.

(2) Suppose the house of Ben was destroyed because of earthquake. It is admitted that there was an earthquake and it was accidental and that the car was in the house at the time it occurred. Here, Ben is not liable unless Bon proves fault on the part of Ben.

Distinction of Types of Impossibility

1.  Impossibility existing at the time the obligation is constituted brings about the nullity of the contract.

2. Impossibility which supervenes at the time of the performance  brings about a modification or extinguishment of the obligation.

NATURE OF IMPOSSIBILITY

There is Physical Impossibility when the act by reason of its nature cannot be accomplished.

There is Legal Impossibility when the act by reason of a subsequent law is prohibited.

There is Objective Impossibility when the act or service in itself, without considering the person of the obligor, becomes impossible.

There is Subjective Impossibility when the act or service cannot be done by the debtor himself, but it can be accomplished by others.

Both objective and subjective impossibility produce the same effect (extinguishment of obligation) so long as  it is not  imputable to the debtor (presence of fault or negligence)

Effect of Impossibility

• The impossibility of performance releases the debtor from his obligation.

• Where, however, it is not the prestation that has become impossible, but an act to be performed after the fulfillment of the prestation, the obligation is not extinguished.

Partial Impossibiity

• Since it cannot be subjected to inflexible laws, the attention must be directed to the importance and purpose of the obligation in each case. Thus, it may indicate that the partial impossibility may be considered equivalent to total impossibility.

Temporary Impossibility

• Temporary obstacles to the performance of prestation, expected to disappear in the future, do not extinguish an obligation but merely delays its fulfillment unless by its nature or will of the parties set its performance at a determinate time.

• But if obstacles are of unknown and unforeseen duration, it is extinguished  and is not revived by the fact that it becomes possible later when circumstances changed. 

Reciprocal Obligation

 The release of the debtor due to impossibility of performance, also releases the creditor from the counter-prestation, because obligation depends upon the other. 

Effect of difficulty of performance

• The general rule is that impossibility of performance releases the obligor. This is also referred as doctrine of “the frustration of the commercial object” or “frustration of enterprise”. This article refers to moral impossibility or impracticability due to change of certain conditions.

Note: This article speaks of “service” a personal obligation not a real obligation which is to give.

Example: 

Victor together with other construction workers, agreed to construct a road near a mountain. A hurricane caused landslide making the construction of the road dangerous to human lives.

• In this case, Victor may be released, in whole or in part, from his obligation to continue with the construction.

• In view of the non-construction of the railroad, failure to grind sugar does not give rise to damages. This is moral impossibility. (Labayen versus Talisay-Silay Milling Co.)

• The article applies only to an obligation to deliver a certain thing which is determinate, and which the obligation arose out of the commission of a criminal offense committed by the debtor. If the thing is lost for whatever reason the debtor shall pay for the value of the thing.

• If the obligor had offered or tendered the delivery of the thing to the obligee, but the latter had unjustifiably refused to accept it, and the thing got lost, the former is not liable anymore because the latter is in mora accipiendi.

Offer of Payment

When debtor offers a payment and the creditor refuses to receive it.

1.To consign the thing and there by relieving himself from any responsibility for such thing

2.To keep it in his possession, with  due diligence subject to general rules of obligation

Example:

D stole C’s car, D has the obligation to return it to C. the obligation of D arises from an act punishable by law. Even if the car is destroyed without the fault of D, he shall be liable for the payment of its price. The exception to the rule is when is C in mora accipiendi. In either case, D is liable if the loss is due to his fault.

MORA ACCIPIENDI (mora of the creditor) – the delay of the obligee or creditor to accept the delivery of the thing which is the object of the obligation.

What requisites must concur in order that an obligation shall be extinguished by the loss or destruction of the thing due?

a) The thing which is lost is determinate;
b) The thing is lost without any fault of the debtor. If the thing is lost through the fault
of the debtor, the obligation is transformed into an obligation to indemnify the oblige
or creditor for damages;
c) The thing is lost before the debtor has incurred in delay (Article 1262).

• Although the obligation is extinguished by loss of a thing without the debtor’s fault, nevertheless, whatever action the debtor may have against the third person by reason of the loss is transferred to the creditor in order to safeguard the interest of the latter. 

• The right of action includes the insurance indemnity that may have been received from the third person.

EXAMPLE:

MNM obliged himself to deliver to Cadbury a specific carabao. Without the permission of MNM, his neighbor, Ferrero, took the carabao and used the same for plowing. Later the carabao was lost through Ferrero’s fault. MNM’s obligation was extinguished but Cadbury acquired the right to file an action against Ferrero to recover the damages for the lost carabao.