b. Loss of the Thing Due

A thing is considered as lost

GR: It is understood that the thing is lost when it:

• Perishes;
• Goes out of commerce; or
• Disappears in such a way that its existence is unknown or cannot be recovered. [NCC, Art. 1189(2)]

Effect on generic obligations: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (NCC, Art. 1263)

Purpose

To have the same reproduced, after proper proceedings, in the same form they were when the loss or destruction occurred (Heirs of Pedro Pinote v. Dulay, G.R. No. L-56694, Jul. 2, 1990.)

Loss of Determinable Thing Due or Impossibility or Difficulty of Performance

Includes partial or total loss of thing (CIVIL CODE, arts. 1262 & 1264)

LOSS OF THE THING DUE

• When the object perishes (physically)
• When it goes out of commerce
• When it disappears in such a way that: its existence is unknown or it cannot be recovered (CIVIL CODE, art. 1189)

Effect of Loss in Obligation to Deliver a Specific Thing

If a determinate thing is lost without the debtor’s fault and before the debtor incurs delay, the obligation is extinguished, unless the law, a stipulation, or the nature of the obligation makes the debtor liable even for fortuitous events (Civil Code, Art. 1262).

If the determinate thing is lost through the debtor’s fault, the debtor is liable for damages; any claim against a third party requires a separate legal basis (Civil Code, Arts. 1189(2), 1262).

Effect of Loss in Obligation to Deliver a Generic Thing

General rule: Loss does NOT extinguish obligation. Genus numquam perit: “Genus never perishes.”

Exceptions:

• Loss of the entire genus is distinct from a legal prohibition that takes the promised class of things out of commerce. The loss of individual things of a genus does not extinguish an obligation to deliver a generic thing; if the promised class goes out of commerce, delivery becomes legally impossible. (Civil Code, Arts. 1189(2) and 1263)
• Loss of entire group of limited generic obligation (e.g., I will deliver “one of my cars” and all cars are lost through force majeure.

Effect of Partial Loss

• The court determines whether, under the circumstances, the partial loss is so important as to extinguish the obligation. (CIVIL CODE, art. 1264)
• When loss insignificant – NOT enough to extinguish obligation

NOTE: When thing is lost in the possession of the debtor, it is presumed to be due to debtor’s fault.

Exceptions: natural calamity, earthquake, flood, storm. (CIVIL CODE, art. 1265)

NOTE:

• Judicial determination of extent is necessary
• Doctrine of Unforeseen Events: The court is authorized to release the obligor, in whole or in part, when the service has become so difficult as to be manifestly beyond the contemplation of the parties. (CIVIL CODE, art. 1267)
• Doctrine of Subjective Impossibility: Another person’s ownership alone does not make delivery impossible or automatically establish liability for damages; whether delivery can still be performed and whether the obligor is liable depend on the applicable rules on nonperformance and loss. (CIVIL CODE, arts. 1165, 1262)
• Rebus Sic Stantibus: A valid agreement remains binding despite changed circumstances. Obligor may be released in whole or in part if the service has become so difficult as to be manifestly beyond the contemplation of the parties. (CIVIL CODE, art. 1267)