Libro Quinto · Título II Capítulo VII. Incumplimiento de las obligaciones

The debtor's non-performance of the obligation is presumed to be due to his fault until he proves otherwise.

Fault consists in a harmful action or omission to another, incurred through ignorance, lack of skill or negligence, but without intent to harm.

Liability for fault must be graduated taking into account the nature of the obligation and the circumstances of the persons, time and place.

The debtor is not liable for failure to perform the obligation due to fortuitous event or force majeure, unless at the time it occurred, he had been in default.

The debt of a determined thing arising from unlawful acts shall bind the liable party even for fortuitous event or force majeure, unless, having offered the thing to the person who should have received it, the latter has been placed in default.

The debtor of an enforceable obligation is placed in default upon demand by the creditor.

The creditor also incurs default when without legal cause he does not accept the performance offered to him, or refuses to perform the preparatory acts incumbent upon him to enable the debtor to fulfill his obligation.

The requirement to place the debtor or the creditor in default must be judicial or notarial. The notification of the claim for payment is equivalent to the requirement.

No demand is necessary:

1.When the law or the agreement expressly so declare;

2.When from the nature and circumstances of the obligation it results that the designation of the time at which the performance was to be rendered was a determining reason for establishment thereof;

3.When performance of the obligation has been made impossible through the fault of the debtor, or the latter has declared that he does not wish to perform it; and

4.When the obligation arises from an unlawful act or fact.

In reciprocal obligations, none of the obligors incurs in default except from the moment one of them performs his performance or guarantees its performance in the part that concerns him.

Once the situation of default has been legally established, the debtor is obliged to pay to the creditor the damage and losses resulting from the delay, and all risks of the thing shall be borne by him.

The damage, which consists of the losses that the creditor suffers in his patrimony, and the lost profits, which are the lawful gains that he fails to receive, must be the immediate and direct consequence of the breach, whether they have been caused or must necessarily be caused.

If the obligation consists of the payment of a sum of money and the debtor incurs in default, the compensation for damage and losses, there being no stipulation to the contrary, shall consist of the payment of the agreed interest and, in the absence of agreement, of the legal interest until effective payment.

The parties may fix in advance an amount to be paid by whoever fails to perform the obligation, or does not perform it in the agreed manner, or delays its performance; which, in such cases, compensates for the damages and losses.

The creditor may demand performance of the obligation or payment of the agreed amount, but not both, unless the latter is demanded for mere delay or for imperfect performance.

If the obligation has been performed in part, imperfectly or with delay, the proportional reduction of the indemnity amount shall proceed, and if the parties do not reach agreement, the judge shall fix it.

If compensation is demanded, the creditor is not obligated to prove the damage and losses, nor may the debtor exempt himself from paying it by attempting to prove that there were none.

The compensation agreed in advance by the parties may not exceed the amount of the principal obligation.

The compensation clause shall be ineffective when it seeks to secure thereby performance of obligations that cannot be judicially enforced, except in the cases expressly set forth by law.

The earnest payments given as guarantee of performance of an obligation constitute the equivalent of the damage and losses arising from non-performance, provided fault intervened; and if the non-performance should proceed from the party who received them, the latter shall return twice what he shall have received.