OBLIGATIONS OBLIGATIONS 7 Obligation, concept » o An obligation is a i _ do. (Art. 1156, Civil Cod ‘juridical necessity to give, to do or not f th méans that the: court < e Philippines) Juridical seoeenly an obligation if | the debtor-refiises to:perform it. an obligation . iene oe through the courts, it mae be disregarded si mee (Note: Unless otherwise indicated, articles of law refer to _providons | of the Civil Code of the Philippines.) ' Requisites of obligation A +2, 3. 5. Q- Obl J veblor Examples: 97 bbhige Active-subject (creditor.or obligee) — The party who has the ight to demand performance of the obligation. Passive’ subject (debtor or obligor) -:The party who is: obliged to perfor the obligation. Prestation - The object or Subject matterof the obligation. : It may consist of giving; doing 6r not doing’ something. Efficient cause — The vinculum or the legal or juridical tie - which binds the parties to an obligation. The efficient cause of an obligation may be any. of the five sources of obligation. «4 7!. Cantal, Quasi Gontrach, Gime, Guasi> bein 50000 - Prestation itor ive C P50,000.00 with Gotsan to Docombet 31,.2015 pursuant to a inidmmanit loan. D is the passive subject; C is the active subject; the giving of P50,000.00 with 12% interest is the. prestation; and the contract of loan_is the efficient cause. The ‘obligation here is unilateral) i.c., only~one® party(D) is D is obliged to transport the goods: of C:from Manila to. oe ae a ‘Only those expressly determined in the in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen. by the provisions on Obligations. (Art 1158) OBLIGATIONS fehich sais ronk Fes or nto {intemal Revenue Code H a t i Mendicancy Law srhict Sy pament of taxes; the Anti ‘h prohibits the giving of alms to other, to give somethin; 1305), — Obligations arising from contracts have-the force of “complied: with in-Good faith.) (Art. 1159) Examples: A contract of lease which provides for the payment of rental by the lessee; a contract of sale which requires the seller to deliver the thing sold and the buyer to pay the price. cas iF 3. Quasi-cont They refer to cértain-lawful,-voluntary: ofnother. (Art. 2142). There is unjust enrichment “when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” (Locsin Il vs. Mekeni Food Corporation, G.R. No, 192105, December 9, 2013; Loria vs. Muncz, GR. No. 187240, October 15, 2014). Examples: ‘a. __Negotiorum. gestio - This refers to the voluntary: of-another-without~his~consent-or-authority, It necessary-and-usefulexpenses, (Art, 2150) Example: D and C-are the owners’ of adjacent vegetable farms. One day, D was not Ground to tend to his farm. When C noticed that D fad not been around for almost a week, he himself Pultvated the soil and placed fertilizer on it, Catered the plants, removed the weeds and wilted. OBMIGATIONS leaves. C incurred necessary and useful expen; in the Process. D must reithburse C for such expenses. Otherwise, he will be unj iching himeelf at C’s expense. ces Solutio indebiti- This refers i vof an ol which was not due when paid, “creates the obligati: it. i 2154) a Example: D, the payee of check ‘for 5,000.00, cashés it with the drawee bank, a " , but the teller gives him P6,000.00 by mistake. D is duty bound to return the: excess.of P1,000.00, to ths -bank. Otherwise, he will be unjustly enriching himeelf at the bank’s expense. ‘Some cases on tax réfund: a mo UBT Cooperative vs. City of Manila 1-17133, December 31,1965 Facts: — ABC Cooperative paid municipal taxes and license fees to the »city government unaware that under a new law it was exempt “from all taxes and government fees.” Later, it learned of its exemption and sought to recover from the city government the taxes it had paid to the latter. The city government refused to refund said taxes. Held: ABC Cooperative can recover such taxes from the city government which has a duty to return what has been paid by mistake under the principle of solutio indebit (2) Commissioner of Internal Revenue vs. “ Fortuine Tobacco Corporation G.R. No.167274-75, July 21, 2008 ; Held: The Government is not exempt from the application of solutio indebiti. Indeed, the taxpayer expects fair dealing from the Government, and the latter has the duty to refund without any unreasonable delay what .it has erroneously OBLIGATIONS ~ Fefunding excess (or erroneous) payments of such > = = & acudtes taxes, It should not unjustly enrich itself at the Jenene of the taxpayers. x x x Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract. principle, a claim for tax refund may be based on the following: - (a) erroneously or illegally assessed or collected internal revenue taxes; (b) penalties imposed without authority; and (c) any sum alleged to have been-excessive or in any manner wrongfully collected. Other quasi-contracts 1) When, without the knowledge of ‘the person obliged to give support, it is given by a stranger, the latter shall have the right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being paid. (Art. 2164) 2) When funeral expenses are borrie ‘third person, without knowledge of those relatives who were obliged to give support to_the—deceased,said_ relatives shall ‘reimburse thitd person} should the latter claim reimbursement. (Art. 2165) 3) When the ‘person obliged to support an orphan, or an insane or other indigent person unjustly refuses to give support to the latter, po third, pees ey teen rt to the needy individual, with right pris at from the person..obliged oe support. This” provision applies when the father or tnother of a child under eighteen years of age Unjustly refuses to support him, (Art. 2166) ough an accident or other.cause a 4) nee ein injured or becomes scriovely Hy Pett he is treated or helped while he is not in a condition.to give consent to a contract,1nd tmunshtalves OBLIGATIONS che shall be_liable for the services of the physician or other person aiding him, unless the service has been rendered out of. pure generosity. (Art, 2167) 5) When during a fire, flood, storm or other calamity property is saved from destruction by another person without the knowledge of the owner, the latter is bound to pay) the former jlist compensation. (Art. 2168) 6) When the government, upon failure of any person to comply with health or safety regulations concerning property, under- takes to do necessary work, even over his objection, he shall be liable’ to pay the expenses. (Art. 2169) n When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership are applicable, (art. 2170) = 8) When in a small community, a majority of the inhabitants of age decide upon a measure of protection against lawlessness, fire, flood, storm or other calamity, any one ah aymanl doy Bae gs who objects to the plan and refuses to Upaege, ledr Unjura) contribute to the expenses but is benefited by the project as executed. shalll be liable to restiiuyion x ~ ah of (etusiinn gd a pay his share of said expenses. (Art. 2174) semvthing tl "gy Any person who is constrained to pay the lor} p stolen taxes of another shall be entitled to UPR OREN gene /qireteimbGrsement from the later. (Art. 2175) i cree na et cetag. a iilabe . ‘Acts of omissions punishable by law ~ These-are-crimes or felonies. The aye may fe akes the offender: civillyeliable. (Art. 100, Revised Penal Code.) Such civil liability includes restitution;-reparation of the damage caused, and indemnification of consequential damages. (art. 104, R.P.C.) liability consists of Example: If D steals the carabao of C, D’s civil paying for ite resh thon OBLIGATIONS Penalty that may be i y Quasi- delicty — ppoted Upon him by the court. Quasi-deticts (aloo knot! Wied aquitang Theat Town as “tort” or “culpa aquiliana’) — 2176) (See Equitable Banking Corpora ; l king Corporation vs, Speci Steel Products, Inc., G.R. No. 175350, June 3, 2012) Fer @ quasi-delict case to qprospet, the ‘complainant paust establish: (a) damages to the complainant ig by act or omission of the defendant or by some prior ie; Speen some whose act the defendant Maat Tespond, oie ‘guilty; and (c) of cause and — effect between such negligence and damages. With respect to the third element, the negligent act or omission must be the proximate cause of the injury. )(Josefa vs. Meralco, G.R. No. 182705; July-18;2014}- a ° Example: If a person, while cleaning his window, causes a flower pot to fall through his negligence thereby injuring someone passing by, the former is liable for damages to the latter. Mlustrative Case - National Power Corporation vs. Heirs of Noble Casionan = G.R. No. 165969, November 27,2008 _ se oe eae th the transmission lines of the National Power panier (NPC) when he was electrocuted. The high tension wires were sagging around 8 to 10 feet in violation fthe quired distance of 18 to 20 feet. His heirs brought rene i for damages against NPC for his death. In its a claim (pC claimed that Casionan was negligent lefense, NPC “ltarrying aybamboo pole when he was because ted, and that he wasnot supposed to be around electrocutees jing as pocket miner since the Department of the area working "Sf "tural Resources had not issued ‘such place; hence, any award for Environment an¢ : permit to operate al/ OBLIGATIONS damages should be mitigated by reason of the victim’s contributory negligence. , Held: NPC is liable for damages arising from negligence. The sagging high tensions wires were an accident waiting to happen. If they were properly maintained by NPC, the bamboo pole which Casionan was carrying would not have touched the wires. That the pocket miners in the area were icensed was not a justification for NPC to leave oF tones lines ‘dangling. The pocket miners in the area, although they have no permit to do so, are also human beings who have to eke out a living in the only way they know how. The victim should not therefore be faulted for simply doing what was ordinary routine to other workers in the area. The trail was. also only the viable way that was regularly by. the residents in the community. In sum, the victim was not guilty of contributory negligence; hence, NPC is not entitled to a mitigation of its liability for NATURE AND EFFECT OF OBLIGATIONS Determinate thing and generic thing Concept _ a A thing is_determinate~when it is particularly, designated or physically segregated from.all others:of the ‘same-classy (Art. "1460).—Examples: 2015»Toyota»Altis ced oor Stallion” : se A thing is indeterminate’or generic When-it-is-not particularly designated or physically segregated: from: all others.of:the-sameclasspi.e., one of a class. Examples: A. ‘horse, a car, P10,000.00.- Importance of jcnowing whether a thing is determinate or generic the loss of a detetminate thing througha tion. (Art. 1262) OBLIGATIONS lL Obligations of one obliged to give a determinate thing Parties requires another standard of care. (Art, 1163) Diligence of a good father of a family ‘means the 2. Todeliver'the thing. (Art. 1163) This involves placing the thing in the possession or control of the creditor either actually or constructively. 3. To deliver the fruits of the thing. (Art. 1164) a: Kinds of fruits y) Natural fruits - They are ‘the spontaneous net ‘products of the soil and the young and man-made (Art. 442) Thus, ’the cathe soil without the intervention of m a Paliy © 2) Andustrial fruits’ - They refer to those Cultivation) labor are. ——~ __ gultivatiomor-labor. (Art. 442) Examples 3) Civil fruits - They refer to fruits which are the osu of urination such as th slat o> eters nae orlife annuities. (Art. 442) te thin, b. When creditor_has a right to the fruits of ‘a determinat > The creditor has the right to the fruits ofa thing from the time th eae a arises. However, he shall acquire no real right over10 ~ see 4 OBLIGATIONS it until the thing ha been delivered to hin (art, 1164) When obligation to deliver the thing arises 1) If the obligation is a pure obligation or one whose performance is not subject to a suspensive period or suspensive condition, the ‘obligation to deliver arises from 2) If the obligation is subject to.a suspensive period or suspeusive condition, the obligation to deliver arises upon the arrival of the term or upon the fulfillment of the ‘Thus, if D is obliged to give Ca specific car on Christmas day next. year, the obligation to deliver arises only on the arrival of such date. Or if the obligation of D is to give C such car if C passes the CPA Examination, then the obligation to deliver arises only upon the fulfillment of such condition. ut a acquired by the cred h its fruits when they have been delivered to him. This is also called jus in re. ‘To deliver its accessions and accessories even if they have not been mentioned. (Art. 1166) OBLIGATIONS 41 my | Acbecsita! fama, : j Produced by a thing oi incorporcted ey attached share r or arti (Art. 440) Such as alluvium, the soil gradually deposited by the current of a river on a river bank, or whatever is built, planted or sown on a parcel of land. b. Accessories - Thos “orrenjoyment (such as the keys to a car or a house, or the bracelet of a wristwatch). Remedies of the creditor 1. peas d ha to perform his obligation to deliver a a, To compel the debtor to: make the delivery: (Art. 1165) ye rscnal right b. To demand damages from the debtor. (Art. 1170) Example: Indemaificahon D is obliged to give C a specific car. On due date, C demands delivery but D does not deliver. In this case, C can compel D to deliver the car because there is no other person in possession or control of it. C can also demand payment of damages from him. Ifthe debtor fails to perform his obligation to deliver a jeric ‘a. To ask that the obligation be complied with at the expense of the debtor. (Art. 1165) b. To demand damages from the debtor. (Art. 1170) Example; (i4¢mnificatcr D is obliged to deliver 10 sacks of rice to C. If D does not ‘perform his obligation on due date-upon C's demand, C can obtain 10 sacks of rice from.other sources at the expense“of D.C can do so because the thing is _generic and thus can be replaced with the same kind. C sen also ask for damages from D. — Ifthe debtor fails to perform his obligation in obligations Cfodo> gcisonol obligahen12 OBLIGATIONS a. If the debtor fails to perform the obligation or performs it but contravenes the tenor thereof — 1) Creditor may have the obligation executed at the expense of the debtor. (Art. 1167) 2) He may also demand. damiages from the debtor. (Art. 1170) Example: D is obliged to construct a-hollow block fence for C. By.agreement, the fence will be 2 meters high and 10 meters long, fine-finished and painted. If D does not perform’ his obligation upon C's demand, C can ask another person to, or he himself may, construet the fence at the expense of D. Ccan also aisk for dainages from D. C cannot compel _D 10 perfor the - obligation because compulsion “will. violate “D's right against IFD constructs the. fence but did not follow the ‘measurements agreed upon there was contravention of the tenor of the obligation), C will have the'same rights. E b, If the debtor performs the obligation but does it Poorly 1) “Creditor may have the same be undone at “debtor's expense. (Art. 1167) 2) Creditor may also demand damages from the debtor. (Art. 1170) Example: If in the same illustration above, D constructs the fence following the are ‘put it was not properly aligned, the finishing was rough, and materials used’ were substandard, C can have the fence be demolished by another person or even by himself at D’s expense. C can also demand damages from D. If the debtor does what has been forbidden him OBLIGATIONS 13 ~ -@ The creditor may demand that what as been done , be undone. ’ by He ‘may also demand damages from the debtor. (Art. 1168) Example: B ‘bought a farm lot from S. However, the only _abess from the road to B's lot is the lot of D. So B ‘entered into’a contract with D for a right of way over a period of-10 years and paid a’sum therefor. It was agreed that for the duration of the contract. D would not construct any fence between B's lot and his. Sometime ‘thereafter, however, D constructed a fence in violation of the agreement, B may demand that D remove the fence at |. D'sexpense and pay damages. Grounds for liability to pay damages ly Fraud e : 12., Negligence = 3. Delay 4. Contravention of the tenor of the obligation. (Art. 1170+) Damages 1. Concept, distinguished from injury Damages refer to the hharm-done. and the sum of done. (Cinco vs. Canonoy, 50 SCRA 377) jury refers to the wrongful,,unlawful or tortuous: act which causes loss oF harm to another. It is the legal be redressed. (See Zulueta vs. Pan American. Won Airways, Inc., L-28589, January 8, 1973.) 2.. Kinds of damages Telating te monty . .pensatory damages - These refer to ae ae si (such as loss in business or 7 brofescion) that may be recovered: It includes the: Pinte of the lose suffered, and profits not realized, (Art. 2199)“4 OBLIGATIONS shew that 2217) emething W Ig Ne damages - They refer to damages=to (Art. 2221) a. damages, but may be recovered if the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be “proved with certainty. (Art. 2224) e iquidated damages'- Those agreed upon»by. the ‘Parties to.a contract, to be:paid in case of breach. (Art. 2226) Exemplary. or corrective damages - These~are i f. eweninenera . Uquidated-or- compensatory damages. (Art. 2229) Proof of pecuniary loss equired at earl of ag a ‘Actual damages i i f : - (Art. 2199) b. Other damages ~ Proof isnot required in order that P ‘moraly~-nominal;temperate™”or™ liquidated’ or The assessment of such damiages, except. liquidated ones, is left to the discretion of the court, according to the circumstances of each case. (Art. 2216) Fraud 1 Concept" Fraud is the deliberatevor intentional"evasion "by ‘thesdebtor ‘ofthe normal'compliance: of his obligation. Under Art. 1170, this actually refers to the fraud committed by the debtor at the time of the performance of *hisiobtigation. Kinds of fraud in general ‘Temperate or moderate damages — They-are-more> OBLIGATIONS 15 @. According to meaning 1) Fraud in obtaining consent Voivnete a) #Causal fraud>or dolo causante - This-refers to frauid:without»which FRAWO ‘consent would not have been given. b Fraud in Chaining wneent _Abtendersithe contraevvoidable. + tdusal froud | dole re Example: B bought a ring couse from S who told him that the ring sincdental fraud] was’ ‘embellished with diamond. 2 Fidud in pe tormane!® "4 44 fowever, S knew all along that the ciddng # fimty@mniegjen embellishment was not diamond but 2D ALtordiag Kmtylamnitien gaa. BD hare ane his + Fuh i consent because , of , the fraud 7 Puke FR AWD employed by S; hence, the contract is voidable, -— Vottp ) 4 Macidental fraud or dolo incidente - ‘This refers to fraud without which’ . buf thie 1f consent,would-have.still-been:giveny IND EMILE ICA Ton] DUtethesperson:givingsit;»would: have | aT Gucmeniiientinice te +e bh anaes 7 employing it’ shall be liable for: sdamages. = * Example: C hired D to teach n : in the school of C. D placed in his : application that he had earned units 2 in MBA. However, D had actually dropped the subjects for the said . units. If C would have hired D even if D did not complete the said units but that he would have given a lower salary to D, the fraud committed by D was only incidental but it would entitle C to recover 7 damages. « 2). Fraud in the performance of the obligation ‘es ba gays This is the deliberate act ofvevading. hats — bligation in anormal « ‘manner, This presupposes an existing16 OBLIGATIONS obligation; hence, the fraud has no effect- on the validity, of the contract since it was employed after perfection. However, the party employing. it shall be liable for damages. (Art. 1170) Example: ~B ordered 10 bags of powder soap from S.who agreed to deliver the same after 2 days. On due date, S delivered 10 bags of powder soap which he mixed with chalk. “This is-fraud in the performance of.an obligation which entitles B to recover damages. The fraud, however, does not have any effect on the’ validity of the contract. According to time of commission 1) Puture fraud. 4019 7 9 ; (Art. 1171) Thusy*the"debtor-will-stillsbe" any waiver made by his.creditor. 2) Past fraud =~ Wbthnun). A-waiver of an action for past fraud) with the’ cireumstances'of the person, of the time, and of sthe-place. (Art. 1173). It is the failure.to-observeyfor'the ‘protection of the interest of another person,-thatdegree of souoepreowntionsencdanisiiajsssvhish~ (leanne ; ‘OBLIGATIONS . 17 (National Power Corporation vs. Heirs of Noble Casionan, ‘supra; Guillang vq. Bedania, G.R. No. 162987, May 21, 2009) It is the omission ‘to do something which a Teasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something, which a’ prudent and reasonable man, would not do. (Perena vs. Zarate; G.R. No. 157917, August 29, 2012) “the same situation (Guillang vs. Bedania, supra) Diligence to be observed which is-to-be observed in the performance of the obligation, the debtor must observe the diligence of a good father of a family, as. required~by- the-nature -of the” ; and which corresponids with the circumstances of the person, of the time or of the place. Examples: ‘a. If the obligation is to deliver a specific window glass, the debtor must ensure that the glass, considering its fragility, is well-protected, say with cushions, when he transports it as required by the nature of the obligation. Otherwise, he will be negligent. b, ‘A baby-sitter, 21 years old, strong and healthy, will be negligent if ahe while on duty considering that the circumstances of her person were considered when she was hired for the job. c. If the driver of a car drives at night without headlight, he will be considered negligent considering that the circumstances of nighttime require such light.” z a. If the same car driver drives at 50 kilometers per hour-along a busy street where many people are crossing, he will be negligent because the18 o- Kinds OBLIGATIONS circumstances of the place require that he should drive slowly. Culpa contractual (contractual negligence) - This is negligence in the performance of a contract (such as- the negligence committed by the driver of a bus when a passenger is hurt during a trip because ‘there is here a breach of contract of carriage). Here, the master-servant rule applies, i.e., the negligence of the servant is the negligence of the master. Accordingly, the defense of a good father of a family in the selection and supervision of employees is not a defense on the part of the employer although it may mitigate the liability. Thus, in the example, the negligence of the bus driver is also the negligence of the bus owner. Mlustrative Case; Saludaga ve. Far Eastern University G.R. No. 179337, April 30, 2008 _ Facts: S, a student of U University, was shot and wounded by G, a security guard of the school, while inside the campus. S sued U University for damages on the ground that it breached its obligation under the enrollment contract to provide students with a safe and secure environment and an atmosphere conducive to learning. _In defense, U_ University pleaded fortuitous event on the ground that it could not have reasonably foreseen nor avoided the accident since G was not its employee, and that it complied with its obligation to ensure a safe environment for its students by having exercised due diligence in selecting the security services of the-SA Security Agency. Held: Respondent school is liable for damagés for breach of contract due to negligence in providing a safe learning environment. . It is settled that in culpa contractual, the mere proof of the existence of the contract.and the failure of its OBLIGATIONS 19 compliance justify, prima facie, a corresponding Tight of relief, The Schoot failed to prove that it undertook steps to ascertain that the security guards assigned to it actually possessed the required qualifications. A‘ learning | institution should not be allowed to completely relinquish security matters in its premises to the security agency it hired. To do so would result in contracting away its inherent obligation to ensure a safe learning environment for its students. The defense of. fortuitous event,or force majeure must also fail. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of the Joss sustained. Culpa aquiliana (civil negligence or tort or quasi- delict or culpa extra-contractual) ~ These are acts or omissions that cause damage to another, there being no contractual relation between the parties. (Art. 2176) ‘The master-servant rule does riot apply. Hence, the defense of a good father of a family in the selection and supervision of employees is a defense on the part of the employer to escape liability. Thus, if a pedestrian is hit by a bus through the reckless driving of the driver, the latter's negligence is not the negligence of the owner. Gulpa criminal (criminal negligence) -. This is negligenge that results in the commission of a cfime) Defense of a good father of a family is not Proper because the employee's guilt. is automatically the employer's civil guilt if the former is insolvent. ‘The passenger of the bus may bring a court action not only for culpa contractual against the bus owner, but also one for culpa criminal againet the bus driver for reckless imprudence resulting in Physical injuries. In the same way, the pedesttan20 OBLIGATIONS may bring not only a suit for culpa’ aquiliana -against the driver and the owner, but also one for culpa criminal against the bus driver for reckless imprudence resulting in physical injuries. Delay or default or mora 1 Concept Delay or default or mora is the non-fulfillment of an obligation with respect to time. 2. Kinds @. Mora solvendi~ Delay on the part of the debtor. y Ex re— Delay in real obligations (obligations to give). 2) Ex persona ~ Delay in personal obligations (cbligations to do). ipiendi — Delay on the part of the creditor. This exists when the creditor refusés to 1 accept the thing due without justifiable reason. ©. Compensatio morae'- Delay in reciprocal obligat- ions, i., both parties are i i if there ia no delay, in default. Here, it is as When debtor incurs in ‘i otaieats 2 do, requisites delay in obligations to give or to General rule: The debtor incurs in del time the creditor demands fulfilment of te obligation (cither judicially or extra-judicially) but the debtor fails to comply with such demand (no demand, -no-delay, as a rule). The following are the requisites ofdelay: a. That the obligation be demandable and already liquidated. b. The debtor does not perform the obligation, The creditor demands the performance either judicially or extra-judicially. (See Gilat Satellite Networks, Ltd. vs. UCPB General Insurance, Inc., GR. No. 189563, April 7, 2014 for similar requisites.) b. Mora c OBLIGATIONS 21 d. The debtor fails to comply with such demand. Example: . D owes C P5,000.00. The obligation is due on May 15. If D does not pay on May 15, he is not yet in delay. But if C makes a demand on him to pay on that date or within a reasonable time thereafter and D does not comply, then D will be in delay. . Exceptions, i.c., delay will exist even without demand in the following cases (Art. 1169): a. When the law so provides. Thus, where ‘the law provides for the payment “of penalty if the obligation is~not performed on due date (such as jin the case of taxes), then demand shall not be necessary. ‘b. When the obligation expressly so declares. Hence, no demand is necessary stich as when a lease contract provides that “(he rental shall be paid by the lessee within the first five days of the month in advance without need of demand.” c. When time is of the essence of the contract. Thus, where a rent-a-car company is obliged to provide for the bridal car during a wedding at a particular date, time and place, the said company is liable if it fails to perform the said obligation notwithstanding the absence of demand since time was a controlling motive for the establishment of the contract. . d. When demand would be useless. Thus, the debtor will be in delay even without demand from the creditor if the thing he is obliged to deliver has been destroyed through his fault or he has delivered it to another person. e. In reciprocal obligations; ‘where the obligations arise out of the same cause and must be fulfilled at the same time, from the moment one of the parties fulfills his obligation, delay by ‘the other begins notwithstanding the absence of demand.OBLIGATIONS 22 Notes: In (a) and (b) above, it is not sufficient that the law « tention fixes a date for performance; it must further state expressly that after the period lapses, default will commence. (Rivera vs. Sps. Chua, G.R. No. 184458 and 184472, January 14, 2015) b. There is no delay in an obligation not to do as one cannot be in delay for not doing something. 4. Effects of delay a. On the part of the debtor 1) The debtor shall be liable for the payment of damages. (Art. 1170) 2) If the oblifation consists in the delivery of a determinate thing, he shall be responsible for any fortuitous event until he has effected the delivery. (Art. 1165) b. On the part of the creditor 1) He-shall bear the risk of loss and shoulder the expenses for the preseryation of the thing. 2) ‘The debtor may resort to the consignation of the thing due. (Art. 1258) |), Fortuitous events 1. Concept * Fortuitous events are those events that coy I p not) be foreseen, or which, though foreseen, are inevitable. (Art. 1174). It is not enough that the event should not been foreseen or anticipated, but it must be one impossible to foresee or avoid. (Sicam vs. Jorge, G-R. No. 159617, August 8, 2007) Examples: Natural calamities or acts of God such as earthquake, typhoon and lightning; and acts of man (‘force majeure\/such as war and armed robbery. _ 2. Elements OBLIGATIONS 23 es cause must be independent of the debtor's There must be impossibility of foreseeing the event or of avoiding it even if it can be foreseen. ¢ The occurrence of the event must be.’of such, ‘character as to render it impossible for the debtor to perform his obligation in a normal manner. (See Sicam vs. Jorge,. supra, for similar elements or characteristics.) Liability for fortuitous events General rule: No person ‘shail be liable for fortuitous events, i.e., his obligation will be extinguished. Exceptions to the rule (Art, 1174): a. When the law expressly provides for-liability. even in’case of fortuitous eventts (such as that provided in Aft. 1165 where the- obligor is liable for fortuitous events if Hie delays or has promised to deliver the same thing to-two-or more persons who } do not have the same interest). 5 b. When the parties have declared liability even in case of fortuitous event. c. When the nature of the obligation requires the assumption of risk (such as the obligation of an insurer who, must pay the policy holder even if the Joss is. caused by a fortuitous event if the cause thereof is the risk insured against). Burden of proving loss due to fortuitous event ‘The burden of proving that the loss was due to fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it ig necessary that he must have committed no negligence.) or misconduct'that may have occasioned the loss. (Sicam vs, Jorge, supra) Case Roberto C. Sicam, et al., va. Spouses Jc G.R. No. 159617, August 8, 200724 OBLIGATIONS Facts: LJ pawned several pieces.of jewelry with ‘Agencia de R. C. Sicam to secure a loan. Armed robbers: entered the pawnshop and took away the jewelry of LJ’ and other clients of the pawnshop from the vault which was | left open since it was a Saturday. ‘There was no showing | that a security guard was stationed at the pawnshop, | When “LJ demanded the return of the jewelry she had | pawned, the pawnshop failed to do so because it was lost | in the robbery, and raised, among other defenses, non- liability due to fortuitous event.. Is the defense tenable? Held: No. In order for a fortuitous event: to exempt one from liability, it is necessary that he has committed no negligence or misconduct that may have occasioned the loss. When the event is found to be partly the result of a person’s participation - whether by active intervention, neglect or failure to act - the whole occurrence is humanized and removed from the Tules applicable to acts of God: The pawnshop failed to show that it-was free from any negligence by which the loss of -. _ the pawned jewelry may have been occasioned.._Its failure to provide a station a security guard at the pawnshop and its leaving the vault open constitute acts of negligence which made the loss no'longer independent of its will. Presumptions on receipt of.principal or of later installment {these are disputable presumptions and evidence, may be introduced to the contrary by the creditor) (Art. 1176) 1. The receipt of the principal without reservation as to interest, shall give rise to the presumption that the interest has been paid. The receipt of a later installment without reservation as to prior installments, shall give rise to the presumption that such prior installments have been paid. The above presumptions are disputable; hence, they may be rebutted by the creditor with contrary evidence. Thus, the creditor may show proof that interest or a prior installment has not been paid.” If the presumption is conclusive, then no.evidence to the contrary may be admitted. OBLIGATIONS Remedies of creditor against debtor (Art. 1177) 1 25 to. enforce payment of his claims Pursue the property in the possesion of the debtor, except those exempt by law. This is usually by attachment where the creditor files @ court action to exact fulfillment with a prayer that the court set aside a property belonging to the debtor. If the court decides in favor of the creditor and the debtor does not pay, the property attached will be ‘ordered sold and the proceeds thereof applied to the payment of the obligation. Exercise all the rights and bring all the actions of the debtor except those personal to him (accion subrogatoria). Example: A owes D. D owes.C. If C files.a court action against D to collect, tie may ask the court to order A not to pay D so that in the event that the court rules in favor of C, A will be required to pay C. In effect, C is exercising the right to collect from A which is a right that belongs to D. Impugn the acts which the debtor may have done to defraud his éreditors (accion pauliana).| This remedy must be of last resort. The creditor must have taken successively \the~foregoing measures (Nos. 1 and 2) before he can bring this action. (Metrobank vs, International Exchange Bank, G.R. No. 176008, August 10, 2011) Example: D owes C P50,000.00. To defraud C, D sells his lot, his only property, to B who knows of the fraudulent intention of D. C may ‘ask the. court to order the rescission of the ‘sale made by D.' Once the sale is rescinded and the lot is returried to D, C may ask the court to order its attachment and its sale at Public suction, and the proceeds of the sale applied in paymient of his claim. [Note: | This remedy is not available if the third person (B, in this illustration), was not aware of the debtor's fraydulent intention, i.c., he was in goof faith |26 OBLIGATIONS Rule on transmissibility of rights and exceptions thereto (Art. 1178)- General rule: “All rights acquired in virtue of an obligation are transmissible. (Thus, a creditor may assign his credit to a third person or such right is transmitted to the heirs upon his death.) Exceptions: 1, If the law prohibits the transmission of the right. Thus, the rights of a general partner in a Partnership are not transmitted to his heirs upon his death as provided by law. If the parties agreed against transmission. Thus, the right is not transmitted to an assignee or to the heirs if there was a stipulation to that effect between the parties. 3. If the right is by nature not transmissible, Example: S was granted a scholarship grant by a school after a series of examination and interviews. S, however, dies with two years still remaining before he finishes his studies. The right of S to enjoy the scholarship grant is not transmitted to his heirs because it is strictly personal.- DIFFERENT KINDS OF OBLIGATIONS Primary classification under the Civil Code 1. Pure obligation 2. Conditional obligation 3. Obligation with a period 4, Alternative obligation ~ 5. Facultative obligation 6.. Joint obligation 7. Solidary obligation 8: Divisible obligation OBLIGATIONS, 27 9. Indivisible obligation 10. Obligation with a penal clause Pure and Conditional Obligations Pure obligation, concept A pure obligation is one without a term or condition and is demandable at once. a a. Example: I promise to give you P5,000.00. This is immediately demandable since there is no tenn that must expire or a. condition that must happen for the obligation to be demandable. Conditional obligation, concept —~ ‘!/"! '““'' . tesowmny A con obligation is one whose’ de extinguishment depends upon the happening of a co1 Examples: (1) “I will give you my car if you pass the CPA Examination.” The condition here isstspensiveyYou may not demand the delivery of my car until you pass the CPA ‘Examination. (2) "I will let you use my car until you pass the CPA Examination.” The condition here is resolutory. You may demand the delivery of my car now but you must return it to me when you pass the CPA Examination, sees Aye Condition 1. Cencept : coe It is an uncertain event which wields an influetice on a.legal rélationship. (Manresa) , " 2. Classification a. Suspensive and resolutory 1) Suspensive'- This is a condition” the happening of which will give rise to the obligation. This is also called condition antecedent or condition precedent. Hiere, the demandability “of the obligation’ isy 28 2). OBLIGATIONS suspended until the happening of the When an obligation is subject to a suspensive condition, its birth takes placé or its effectivity commences only if and when the event that constitutes the condition happens or is fulfilled. (Gidwani vs. People, G.R. No. 195064, January 15, 2014) Resolutory - This is a condition the happening of which extinguishes the obligation. This is also called condition ‘Subsequent. The obligation is demandable at once but it shall be extinguished upon’ the happening of the condition. Potestative, casual and mixed y) Potestative - A condition that depends ‘upon the will of one of the contracting parties. a) Potestative on the part of the debtor (1) If suspensive ~ The obligat- ion is void. (Art. 1182) Even if the condition is fulfilled, the’ obligation is not demandable. (Example: D is Ao give C P50,000.00 if D goes to Baguio:) (2) If resolutory - The obligation is valid, (Example: D is to allow the use of his car by C until D returns from Baguio.) b) —-Potestative on the part of. the creditor — The obligation is valid -whether the condition is suspensive or resolutory. {(Examples: (1) D is to give C 50,000.00 if C goes to Baguio. (2) D is to allow the use of his car by C until C retums from Baguio.] OBLIGATIONS 2) 3) 29 Casual - A condition that depends upon Chance or upon the will of a thitd pérson.— (Examples: (1) D is to give CP50,000-00 if D wins first prize in the lotto on the bet he Placed this morning. (2) D is to give C 50,000.00 if X.goes to Baguio.] Mixed - A condition that depends partly upon the will of one of the parties and partly upon chance or upon the will of a third person. (Example: D is to give C 50,000.00 if C will marry X.) ©. Possible and impossible y) 2) Possible - One that is capable of fulfillment in its nature and by law. Impossible - One that is not capable of fulfillment in its nature, such as “if you can ‘swim across the Pacific Ocean,” or due to operation of law, such as “if you kill X". In this case, the obligation and the condition are void. (Art. 1183). Note: If the condition is not to do an impossible thing, it shall be deemed as not having been agreed upon. (Art. 1183) Thus, the obligation is immediately demandable. (Example: D is to give C P50,000.00 if C does not swim across the Pacific Ocean,) d. Positive and negative 3) Positive - This is a condition’ that some event happen at a determinate time. Here, the obligation is extinguished as soon as the time expires or it has become indubitable that the event will not take place. (Art. 1184) Example: D is to give C P50,000.00 if C will marry X on or before June 30, 2016. The obligation will be extinguished on July 1, 2016 if C has not yet married X30 4 OBLIGATIONS as of June 30, 2016. If, X dies on June 1, 2016 before C has married her, then tne obligation is extinguished on such date because there is no more doubt that the marriage will not take place. . Negative - This is a condition that some event will not happen at a determinate time. Here, the obligation becomes effective as soon as the time indicated has elapsed or it has become evident that the event will not occur. (Art. 1185) Example: ‘D is to give C P50,000.00 if C will-not marry X on or before June 30, 2016. The obligation becomes effective on July 1, 2016 if C has not yet married X as ‘of June 30,.2016. If X dies on June 1, 2016 before C has married her, then the obligation ‘becomes effective on such ‘date because -there is no more doubt that the marriage will not take place. 7 .. Divisible and indivisible y) Divisible - One that is capable of partial performance. Under Art. 1183, if the obligation is, divisible, that part thereof which is not’ affected by the impossible or unlawful condition shall be valid. ; Examples: (a) D is to give Ca can}! if\C finishes his law course, and | P1,000,000.00 if, C tops the Bar | Examination. If D finishes his law course, | he’ may demand the delivery of the car. However, he may not demand the payment of P1,000,000.00 if he does not top the Bar. (b) D is to give C’a car if C finishes his la course and P1,000,000.00 if C can get a copy of the test questions in the\Bar Examination in advance. _ Even if both conditions are fulfilled, C can only ask for ; OBLIGATIONS = 7 31 the delivery of a car from D because the second condition is unlawful. 2) —_Indivisible - One that is not capable of partial performance by its nature or by law or agreement of the parties Example: D is to give C a car if C finishes his law course and tops the Bar.. C must comply with both conditions before he can ask for the delivery of a car from D. Effect of fulfillment of suspensive condition (Art. 1187) General rule: The effect of the fulfillment of the suspensive ‘condition retroacts to the day. of the constitution of the obligation. “Exceptions: There shall be. no retroactive’ effect with’ respect to the fruits arid interests as follows: 1. In reciprocal obligations, the fruits and interests shall be deemed to have been mutually compensated, i.e. each party shall keep the fruits and interest received by him prior to the fulfillment of ‘the condition. Example: On May 1, 2011, S agreed to sell his | land to B and B agreed to pay the price of P50,000.00 if X finishes his Accounting degree on March 15, 2015. X finished his Accounting degree as stipulated. It was as if ‘S was entitled to the price and B to the land beginning on May 1, 2011. However, S shall keep the fruits on the land and B the interest on the price during the pendency of the condition. 2. In unilateral obligations, the debtor keeps the fruits and interests received before the fulfillment of the condition. Example: - On May 1, 2012, S promised to give B his land if B passed the Bar Examination in February, 2015. B passed the Bar Examination as stipulated. it was as if B was entitled to the land beginning on May 1,) 2012. However, S will keep the fruits on the land during’ the pendency of the condition. Cawaitiad of setffencef32 OBLIGATIONS Rights of the parties (art. 1186) before the fulfillment of the condition OBLIGATIONS 33 in a fire without the fault of D before C_passes the CPA Examination, D’s obligation is extinguished even if C, 1. Creditor — He may briny ‘s thereafter, passes the CPA Examination. But if the house Preservation of hie righ, SSeieporoprists ‘actions Sor. the is destroyed through the fault of D such as when he Bat ae ge ae RE ch a8 registering his claim placed inside the house highly flammable chemicals which third persons, or asking the debtor to peoviie's securit a caused the fire, then D shall be obliged to pay damages the debtor is about to become insolvent. a ‘should © pass the CFA Examination. 2. Debtor — He may recover what tie has paid by mistake. Effect when the debtor voluntarily prevents fulfillment of the condition 5 ‘The condition is deemed fulfilled if the debtor voluntarily prevents its fulfillment (Art. 1186), hence, the obligation becomes immediately demandable. Here, there must be an intent on part of the debtor to prevent compliance with the condition and actually prevents its fulfillment. Example: D promised to give P10,000.00 to-C, a marathon athlete, if C finishes the race during the athletic meet. However, on the Deterioration of the thing a. Without debtor’s fault - The impairment ‘shall be borne by the creditor, i.e., no liability on the part the debtor to pay damages. : b. With “debtor's fault - The creditor may’ choose between : of age Cmnd needed om | LOL WIFTC 1) ___Restission, plus damages, and. 2) Fulfillment, plus damage: Example: D is obliged to give a specific car to C if C finishes his eponomics degree. The deterioration of the car due to wear and tear before C finishes his economics degree will eve of the scheduled race, D put & substance on the drink of C who-experienced weakening after taking the drink, and hence, was not able to join the race. Here, D must give P10,000.00 to C since the condition is deemed fulfilled. ‘be borne by C if C later finishes the said degree. However, if the car is damaged in an accident due to D’s fault,-C, if he finishes his economics degree, may rescind the contract and ask for damages, or ask D to deliver the car Rules in case of loss, deterioration or improvement of in its deteriorated condition plus damages. determinate thing before the fulfillment of the suspensive condition (Art. 1189) 1 Loss of the thing tx1 pa Without debtor's fault - Obligation is extinguished. 3. Improvement of the thing a. _By nature or by time - The improvement shall inure to the benefit of the creditor. Example: D is obliged to give his violin'to C ith debtor's fault - Debtor is obliged to pay if C finishes his course in music. If the quality of pA of b. With det the tone produced by thé violin had improved damage: between the time that D's obligation was Concent of loss constituted and the completion by C of his course- ‘A thing is considered lost when it perishes, or goes out init then such by | course is i that its ben 7 provement shall * ce of disappears in such a way Sistence’ fg unknown or it cannot be recovered. b, At the expense of the debtor - The debtor will haye e give C a specific house if the rights granted to a usufructuary, i¢., he can Example: D is obliged to give C8 specie tered have enjoyment of the use of the improved thing c passes the CPA Examination.34 oBLications | and its fruits. He may remove the improvement if! no damage is caused to the principal thing. .If the improvement cannot be removed without causing damage to the principal thing, the thing and the improvement shall “be delivered to the creditor without any right on the part of the debtor to indemnity. He may, however, set off ‘the improvements against any damage to the thing. (arts. 579 and 580)" Example: _D is obliged to'give his only car to C if C finishes his economics degree. Before C: finished the said degree, D had the car repainted. In this case, D can continue using the car in its improved condition. Upon the completion by C of his economics degrée, D cannot remove the paint because it will cause damage to the car. However, if he had caused a dent on the car due to.his fault, ‘he may set off the cost of damage brought by such dent against the cost of repainting. = y ‘Rule|in case of falfillment of resolutory condition (Art. 1190) 1 2. Upon the fulfillment of the resolutory condition, the obligation is extinguished. The parties shall return to each other what they have received. 3. In case of loss, deterioration or improvement of the thing, the provisions in the above rule (Art. 1189), which pertain to the debtor shall be applied to the party who is bound to return. Reciprocal obligation, concept A reciprocal ‘obligation is one that arises from the same cause and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. (Goldloop Properties, ‘Inc. vs. Government Service Insurance System, G.R. No. 171076, August 1, 2012). Reciprocal obligations are to be performed simultaneausly so that the performance of one is conditioned upon the simultanedug fulfillment of the other. (Jalandoni vs. Cabalum Commercial School, 61216-R, July 15, 1980) OBLIGATIONS 35, Example: — § sold his Toyota car to B for P200,000.00. ‘The delivery of the car by S is dependent upon the payment of the price by B and vice-versa. Remedies of the injured party in reciprocal obligation 1, _. Rescission with damages. 2. Fulfillment of the obligation with damages. ‘The above remedies may be availed of by the injured party in the alternative.. He cannot ask for both. (Verceluz vs. Edano, 44 Phil 801) If he has chosen rescission of the obligation, he can no longer ak for fulfillment. However, he may also seek rescission, even after he has. chosen fulfillment, if the latter ‘becomes impossible. Obligations with a Period Obligation with a period, concept ‘An obligation with a period is one whose demandability or extinguishment is subjected to the,expiration of the term which | must necessarily come. In other words, there is a day certain | when the obligation will arise or cease. Examples: (1) D is obliged to give his car toC on May i, 2016. On May 1, 2016, the obligation becomes demandable by Teason of the expiration of the term or period. The period here is. one with a suspensive effect or ex die. (2) On January 1, 2016, D allowed C to use his car until May 1, 2016. The obligation ie demandable on January 1, 2016 but on May 1, 2016, D's obligation to let C use his car is extinguished by reason of the expiration of the term. The peri iod here is one with a resolutory effect or in diem. C must therefore return the car. Concept of period and day certain Period is a space of time which determines the effectivity ; i CE Extinguishment of an obligation. Thus, the space of tian between January 1, 2015 and Janu oa ae ary 1, 2016 is i lapse of which will cause an obligation to arise or cease SE a ta i 136 OBLIGATIONS A day certain is that which must necessarily come although it may not be known when. (Art. 1193) An example is the death of a person which will necessarily come. Thus, if the obligation of D is to give C P10,000.00 when X dies, the obligation is one with a period. Period. distinguished from condition 1, As to fulfillment - A condition is an’ event that may or may not happen; a period is an event that must necessarily come, at a date known beforehand, or at a time that cannot be determined. 2. Asto time - A condition may refer to the future or to a past event unknown to the parties; a period always refers to the future. 3. As to influence on the obligation - ‘A condition causes an obligation to arise or. to cease; a period merely fixes the time for. the efficaciousness of an obligation. (8 Manresa #53, 154) 4. Asto the will of the debtor A period that depends upon the: will of the debtor authorizes the court to fix its duration. (Art. 1197; par. 2), while a condition that depends upon the will of the debtor which is suspensive shall annul the obligation. (Art. 1182). , Kinds of period 1. __ Ex die - This is a period with a suspensive effect. Here, the obligation becomes detnandable upon the lapse of the period. (Art. 1193) (Ex die, Latin for “from a certain day.”) In diem — This is a period with a resolutory effect. Here, the obligation is demandable:at once but is extinguished tipon the lapse of the period. (Art. 1193) (In diem, Latin for “until a certain day.”) Other kinds are: OBLIGATIONS 37 1, Legal A period that is fixed by law. 2. Voluntary ~ This is fixed by the partie 3. Judicial - One that is fixed by the court. Problem “I will pay you my debt when my means permit me to. do so.” Is this an obligation with a period or with a condition? Answer: — This is. an obligation with a remedy of the creditor is to ask the court to fix-the period. (Art. 1180, 1197) Once the court has fixed the period, it may no longer change it as it becomes a part of the agreement by the parties. When the court may fix the period (Art. 1197) 1. If the obligation do¢s not fix a period, but from its nature and circumstances it can be inferred that a period was intended Example: D is obliged to construct the mansion of C. However, no period was indicated in the agreement as to when D ‘must complete the construction of the mansion. Here, it is clear that a period was intended since the construction of the mansion will take some time to complete. C-may thus go the court and ask it to fix the duration of the construction of the mansion. 2. When the duration of the period depends upon the will of the debtor. Example} a. “when my means permit me to do so” (Art. 1180) b. “little by little” (Seone vs. Franco, 24 Phil 309) c. as soon as I have the money” (Patente vs. Omega, G.R. No. L-4433, May 29, 1953) d. ‘as soon as possible” (Gonzales vs. Jose, 66 Phil 369) e. ‘in partial payments” (Levy Hermanos vs. Paterno, 18 Phil 353)“ y 38 OBLIGATIONS \Pesumption as to who has the benefit of the period Whenever a. period is designated in an obligation, it shall be presumed to have been established for the benefit of both the creditor_and the debtor, unless from the tenor of the obligation or other circumstances, it should appear that it has been established for the benefit of only one of the parties. (Art. 1196). ‘Therefore, the debtor cannot be compelled to perform, and the creditor cannot be compelled to accept performance, before the term expires. Example: D borrowed P10,000.00 from C on.January 1, 2015. The loan bears: interest at 10% per annum with both principal and interest being due 6n December 31, 2015. Before December 31, 2015, C cannot compel D to pay and deprive him of the use of the money until the said date. Neither may D compel C to accept payment before December 31, 2015 and deprive C of the interest for remaining term. ~ 7 Period is for the benefit of one of the parties 1. For the benefit of the debtor — He cannot be compelled to perform his obligation before the expiration, of the term, ‘but he may choose to perform before such expiration ‘at his option. Example: D is obliged to pay C P10,000.00 on or before December 31, 2015. D cannot be compelled to pay before December 31,2015. However, he may pay at any ‘time before December 31, 2015 or on December 31, 2015. at his option. 2. For the benefit of the creditor - He cannot be compelled to accept performance before the expiration of the term, but fhe may choose to demand performance before such expiration at his option. _ Example: On November 1, 2015, D borrowed from C P10,000.00 “collectible” on or before June 30, 2016. C may demand payment on June 30, 2016 or at any time before the said date. However, D cannot compel him to accept the payment at any time before June 30, 2016, OBLIGATIONS 39 When debtor loses his right to make use of the’ period if it is for his benefit; (Art. 1198),-Le., the creditor may*demand immediate payment 1, When he becomes insolvent, unless he gives a guaranty or security for the debt. Here, since the debtor does not have sufficient property, the security may be provided by a third person such as a guaranty or by a pledge or mortgage by such third person. 2. . When he fails to furnish the guaranties or securities that he has promised. Example: D borrowed P20,000.00 from C promising to pledge his ring to C-to secure the debt within one month. _C gave D one year to pay the loan. D, however, failed to pledge his ring within the period agreed upon. In this case, C can demahd immediate payment even before the agreed due date thereof. 3. When he impairs the said guaranties or securities by his ‘own acts, or when through a fortuitous event they disappear, unless he gives new ones equally satisfactory. Example: . D obtained a loan from C, the same being secured by-a chattel mortgage on D’s car. The loan is payable within one year. On the seventh month, the car was razed by fire without D's fault. C can demand immediate payment unless D gives another security that is equally satisfactory. This is true even if the cause of the loss or impairment was not due to the fault of D. 4. When he violates any undertaking in consideration of which the creditor agreed to the period. Example: granted a loan of P50,000.00 to B-- giving D one year to pay provided D did not engage in gambling until he has paid-the debt. If D entera'a casines to play in the slot machine, say after one month, G\can already demand immediate payment. §. When he attempts to abscond.40 OBLIGATIONS, Thus, if the debtor has been disposing all his Property with an attempt to leave his place of business or residence to escape his creditors, such creditors can demand immediate payment of his debts although their maturity date is not yet due. Alternative Obligations and Facultative Obligations Kinds of obligations according to the number of prestations 1, Simple - One where there is only ong prestation. 2. Compound ~ One when there are several prestations. This may be: ~ a. Conijunctive ~ Here, several prestations are due but all must be performed. Example: D jis to give C a specific ring, a 4 specific watch and a specific bracelet to C. D must deliver all the items to C. b. _ Distributive or disjunctive - This may either be alternative or facultative: Alternative obligation, concept _ , An alternative obligation is one where éeveral prestations “ aré due but the complete performance of one of them is sufficient Ao-extinguish the obligation. (Art. 1199) a Example: _D is obliged to give ‘a.specific ring, a specific watch or a-specific bracelet to C. The delivery of any of the three articles “all ‘extinguish the obligation. Right to choose prestation ‘The right of choice belongs to the debtor, unless it has been expressly given to the creditor. (Art. 1199) Limitations on debtor's right to choose debtor must completely perform the prestation a sen, He cannot compel the creditor to receive part of chosen. 1. ne and part of another undertaking. (Art. 1199) ° OBLIGATIONS 41 os He cannot choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (Art. 1199) When obligation ceases to be alternative and becomes a simple obligation. . 1. When the debtor has communicated his choice to the creditor. (Art. 1201) 2. . When among the .prestations whereby the debtor is alternatively bound, only one is practicable. (Art. 1202) 3.° When-the creditor has communicated his choice to the debtor, if the creditor has been expressly given the right of choice. (Art. 1205) Rules in case of loss of things or impossibility of services which are alternatively the object of the obligation before the choice is communicated 1. When right of choice is with the debtor (Art. 1204) a. If only one or some are lost through a fortuitous event or through the debtor’s fault, the debtor may deliver any of the remainder, or that, which remains if only one subsists, b. If all are _lost through a fortuitous event, the obligation is extinguished (based on the rule that no person shall be responsible for fortuitous event). c. Ifallare lost through the debtor's fault, the debtor shall pay the value of the last thing that was lost. plus damages. - d. fall except one are lost through the debtor's fault, and the remaining item is subsequently lost through a fortuitous event; then the debtor's obligation is extinguished. e. __ Ifall except one are lost through a fortuitous event, and the remaining item is subsequently lost through the debtor's fault, the debtor shall pay damages. Examples:OBLIGATIONS Dis to give C a specific ring, a specific bracelet or a specific wristwatch. The obligation is silent as to who will choose the item to be delivered. Therefore, the right of a. Ifthe ring is lost through a fortuitous event, -D may deliver the bracelet or the wristwatch. The same rule applies if the ring is lost through the fault of D. In the case of the latter, D shall have no liability for damages because he can still perform his obligation by choosing to deliver the br’ the wristwatch. : b. If the ring and the bracelet are lost'through a “fortuitous event or through D’s fault, the obligation ‘is converted into a.simple obligation to:deliver the wristwatch. There is no liability for damages'on the: part ‘of D even if the loss is due to his fault ‘becstuse he'cain still perform his'obtigation. It was as if D chose to deliver the wristwatch. +" c. —If-all things are Jost da¢'to a fortuitous'event, D's t obligation ie extingujehed. a if the ring andthe “bracelet are logt through a fortuitous event, the obligation becomes a simple obligation :-to “Weliver’ the wristwatch. . If the wristwatch ie thereafter lost due to the fault of D, D chal pay damages. = e. - If thering, the bracelet and the wristwatch are lost ane after the other due to D’s fault, D shall pay the value of the wristwatch, the last item that was lost, plus damages. f. If the ring and the bracelet are lost through :D’s ~ fault, the obligation becomes a simple obligation to deliver the wristwatch. If the | wrlatwatch is thereafter lost through a fortuitous event, D’s obligation is éxtinguished. When right of choice is.expressly granted to'the creditor {Art. 1205) a. If only one or some are lost through a fortuitous event, the debtor shall deliver that which the _& OBLIGATIONS 43, creditor should choose among the remainder, or that which remains if only one subsists. If all are lost through a fortuitous event, the obligation shall be extinguished. If only_one or some are lost through the debtor’s fault, the creditor may claim any of those subsisting, or the price of any of those which were lost through the debtor's fault plus damages. If all are lost through the. debtor’s fault, the creditor may claim the price of any of them plus damages. Examples: Dis to give C a specific ring, a specific bracelet or a specific wristwatch. The parties agreed. that C shall have the right of choice. If the ring is lost through. a fortuitous event, D shall deliver either the bracelet or the wristwatch at the choice of C. If all are lost through a fortuitous event, D's obligation is extinguished. If the ring and the bracelet are lost through a fortuitous event, D shall deliver the wristwatch which is the remaining item. The obligation becomes, a simple obligation to deliver the wristwatch. If the wristwatch is thereafter lost due to D’s fault, D shall pay damages. If the ring and the bracelet are lost due to D’s fault, the obligation does not become a simple obligation to deliver the wristwatch. C cari still choose from the payment of the price of the ring or the bracelet with damages, or the delivery of the wristwatch. If all are lost due to the fault of D, C may claim the price of any of them plus damages. Facultative obligation, concept ‘An obligation where only one prestation is due but the debtor may render another in substitution. ;44 OBLIGATIONS Example: D.is obliged to give a specific ring to C with the agreement that D may deliver a specific watch'as a substitute. Rules in case of loss of principal thing and substitute. 1: Before substitution (i the creditor of the substitution) 1), - fost due to fortuitous event, the obligation _ is extinguished. 2) If lost due to the debtor’s fault, debtor shall pay damages. Substitute ‘The loss of the substitute whether through @ fortuitous event or through the debtor's fault imposes no additional obligation on, the debtor because Jit, is not due. . The debtor has still to deliver the principal thing. However, the obligation /seases to be-a facultative obligation and becomes a ‘simple obligation to deliver the principal thing. After substitution a Principal thing ‘The Joss ofthe principal thing whether through a fortuitous event or through the debtor's. fault imposes no additional obligation on the debtor because the thing due is already the substitute.- After the substitution has been communicated; the thirig due is the substitute. The ‘obligation also ceases to. be a facultative obligation and becomes a simple obligation. Substitute 1) If lost through a fortiitous event, the obligation is extinguished. 2) If lost through the debtor's fault, the debtor shall pay damages. before the debtor has iriformed: OBLIGATIONS 45 Alternative distinguished Alternative obligation _ ____ Facultative obligation _ 1, Several prestations are 1.- Only‘one prestation, the due, but the perform- principal obligation, is ance of one is sufficient due. - to extinguish the debt. 2, If thete ‘are ‘void 2. . If the principal oblig- prestations, the others ation is void, the debtor may still be valid, is not required to give hence, the. obligation the substitute. remains 3. The right of choice is 3. The right of, choice with the debtor, unless belongs. to the debtor expressly given to the only. creditor. . 4. If all prestations are 4. ‘If the principal oblig- impossible except one, ation is impossible, the that which is possible debtor is not required to ‘must still be given. give the substitute. obligation and facultative obligation, Joint and Solidary Obligations Joint and solidary obligations, concept In a joint or solidary obligation, there is'a concurrence of int obligation, each debtor is liable only for a» ‘proportionate part of the debt, and each creditor is entitled only ‘toa proportionate part of the credit. Examples: (1) A and B are indebted to X for P10,000.00. Ais liable only for P5,000; B is liable only for P5,000.00. (2) A owes X and Y P8,000.00. X can collect only P4,000.00; ¥. can collect.only P4,000.00. In a solidary obligation, each debtor i r the whole obligation, and each creditor is entitled to demand payment of the» ‘whole obligation. (Please see succeeding topics for examples.)46 OBLIGATIONS Kinds of solidary obligation 1. Passive solidarity - This is solidarity..on-the»part-of the, debtors. Example: A and B, solidary debtors, are indebted to X for P10,000.00. X can demand payment of 10,000.00 from either A or B. If A pays X P10,000.00, the obligation extinguished. A -can demand reimbursement of 5,000.00 from B representing the latter’s share in the debt. 2. Active solidarity - This is ‘solidarity on the part of the creditors. ‘Example: A owes X and Y, sélidary creditors, 8,000.00. Either X or ¥ may demand payment’ of 8,000.00 from A. If A pays X P8,000.00, the obligation is extinguished. X must give P4,000.00 to Y representing the latter’s share in the credit: 3. Mixed solidarity or solidarity on the part of both debtors Example: A and B, solidary debtors, owe X and ¥, solidary creditors, P12,000.00. X or Y may éollect from A or B the total sum of P12,000.00. If A pays X P12,000.00, the obligation is extinguished. B must reimburse A 6,000.00. On the other hand, X must give P6,000.00 to v; Other terms for solidary obligation 1. ~ Jointly and severally ‘2. Individually and collectively 3. Insolidum P 4. Mancomunada solidaria 5. Juntos o separadamente Other terms for joint obligation 1, Proportionately 2. Prorata ' 3. Mancomunada OBLIGATIONS 47 4. Mancomunada simple Rule if there is a concurrence of two or more debtors and/or two or more creditors in one and the same obligation. As a general rule, the obligation is presumed to be joint | when there is a concurrence of two or more debtors and/or two or more creditors in one and the same obligation. There is solidary liability only in the following cases: 1, When the obligation expressly so states. 2. When the law requires solidarity. Examples: a When two or more persons have appointed an agent fora commen transaction or undertaking, they shall be solidarily liable for the consequences of the agency. (Art. 1915) b. Where the instrument containing the words ‘I promise to pay” is signed by two or more persons, they are deemed to be jointly and severally liable thereon. (Sec. 17, Negotiable Instruments Law.) c ‘The responsibility of two or more persons who are liable for a quasi-delict is solidary. (Art. 2194) Illustrative case: Ruks Konsult and Construction vs. Adworld Sign and Advertising Corp., ét al. G.R. No. 204866, January 21, 2015 Facts: Transworld contracted the services of Ruks for thé construction of the billboard structure of the former. Both Transworld and Ruks knew that the billboard had a weak and poor | foundation, and yet they allowed the construction to push through. Later, the billboard structure collapsed causing damage to the adjacent billboard structure owned by Adworld. Adworld now demands the payment of damages for the impaired billboard and loss of rental income. (a) Are Transworld and Ruks guilty of negligence? (ht May Adworld hold either Transworld or Ruks48 OBLIGATIONS liable for the whole obligation to pay damages and loss of rental? Held: (a) Yes. Transworld ’and Ruks are ~ guilty of negligence in the construction of the collapsed billboard as they knew that the . foundation supporting the same ‘was weak and would pose danger to the safety of the motorists and other adjacent properties, such as that of Adworld’s billboard, and yet they did not’ do anything to remedy the situation.. Both are negligent because of their “failure to observe for the protection of the ‘interest of. another person that | degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury.” (b) Yes, since the liability of two or’ more persons who are guilty of quaai- delict is solidary, 3. ‘When the nature of the obligation requires solidarity. Example: SG, a secyrity guard of AB Partnership, was killed by criminal element in line of duty.’ The heirs of S demanded com under the —Workmen’s Compensation Law. (WCL) for.the whole amount from A, partner. A claimed that he should be liable only for one- half thereof, the other half to be shouldered by B, his Partner, since their liability’ is only joint as the law was silent on the nature of liability. The court ruled that the partners’ liability is solidary since the nature of their obligation requires solidarity. The evident intention of the WCL is to give full protection to workers. This purpose would be defeated if the employers’ liability were only joint. (See Liwanag, et al vs. WCC, L-12164, May 22, 1959.) A, B and C are obliged to give X, ¥ and Z P27,000.00. How | _many distinct debts are there in the obligation? ‘Answer: Since the obligation is presumed to be joint, there are 9 distinct debts as follows: 1, Aowes X P3,000.00. SeErnawagon OBLIGATIONS a9 A owes ¥ P3,000.00, A owes Z P3,000.00. Bowes X P3,000.00. Bowes Y P3,000.00. Bowes Z P3,000.00. Cowes X P3,000.00. Cowes-¥ P3,000.00. Cowes Z 3,000.00. (Computation: P27,000.00/3 creditors = P9,000.0¢; P9;000.00/3 debtors = P3,000.00) A, B and C, joint debtors, are obliged to give X, Y and Z, solidary creditors, P18,000.00. How much may X collect and from whom? Answer: X, being‘a’solidary creditor, may collect the sum of P18,000.00. However, since the debtors are joint debtors, he may dollect only P6,000 from each of them. After collecting the sum of P18,000.00, X must give Y and Z’s share of P6,000-00 each. A,B and C, solidary debtors, are obliged to give X, ¥ and Z, folat creditors; P18,000.00. How much may A be held > Answer: A, being a solidary debtor, may be held liable for P18,000.00. However, since the creditors are joint creditors, each of them may collect only P6,000.00 from A. If A pays the whole amount of P18,000.00 to the creditors, A can demand reimbursement of P6,000.00 each from B and C. A, B and C, solidary debtors, are obliged to give X, Y and Z, solidary creditors, P18,000.00. How much may Z collect ang from whom? Answer: Z may collect P18,000 fram any of the solid debtors each of whom may be held liable for the ee obligation. If Z collects P18,000.00 from A, Z must give X and Y 6,000.00 each. A, on the other hand, can demand reimbursement fra, and C at P6,000.00 edch. i fa —OBLIGATIONS Some problems when there is unequal sharing in the debt and/or credit ‘ A and B owe X and Y P10,000.00. The share of A in the debt is 40%, while that of B is 60%. The share of X in the credit is 70%, while that of ¥ is 30%. Joint debtors and joint creditors A can be held liable for not more than P4,000.00 (40% of P10,000.00), while B, not more than P6,000.00 {60% of P10,000.00). X can collect not more than P7,000.00 (70% of P10,000:00), while Y, not more then P3,000.00 (30% of P10,000.00.) a. How much may X collect from A? from B? From A, X may collect P2,800.00 (40% of. P7,000.00.). From B, X may collect P4,200.00 (60% of P7,000.00.) (Alternative computation: A, (P4,000.00 x 70% = P2,800.00); B, (P6,000.00 x 70% = P4,200.00) b. How much may Y collect from A? from B? From A, ¥ may collect P1,200.00 (40% of 3,000.00). From B, Y may collect Pt,800.00 (60% of P3,000.00°) (Alternative computation: A, (P4,000.00 x 30% = 1,200.00); B, (P6,000.00 x 30% = P1,800.00) Joint debtors and solidary creditors (active solidarity} a. How much may X collect from A? from B? X, being a solidary creditor, may collect the whole amount.of P10,000.00. However, since the debtors are joint debtors, he cannot collect more than 4,000.00 from A, and not more than 6,000.00 from B; After collecting the amount of 10,000.00, ‘he must «give P3,000.00 to representing the latter’s share in the credit b. How much may Y collect from A? from B? If Y is the one collecting, may collect the whole amount of P10,000.00. However, since the Gebtors are joint debtors, he cannot collect more OBLIGATIONS SL than P4,000.00 from A, and not more than P6,000.00 from B. After collecting the amount of 10,000.00, he must give P7,000.00 to X representing the latter’s share in the credit. Solidary debtors and joint creditors (passive solidarity) a. How much may A be held liable and by whom? ‘A may be held liable for the whole amount of P10,000.00. However, since the creditors are jointly ‘bound, X can collect from him not more ‘than P7,000.00, and Y, not more. than P3,000.00. After A’ has paid the debt, he can demand reimbursement from B in’ the amount of 6,000.00. b. How much may B be held liable and by whom? B may be held liable for the whole amount of P10,000.00. _ However, since the creditors are jointly bound, X can collect from him: not more ‘than P7,000.00, and Y, not more than P3,000.00. ‘After B has paid the debt, he can demand reimbursement from A in the amount of-P4,000.00. Mixed solidarity . Here, either X or ¥ may collect from either A or B the whole amount of P10,000,00. If A is the one paying, he can demand reimbursement from B in the amount of 6,000.00. If the B is the one paying, he can demand reimbursement from A in the amotint of P4,000.00. If X is the one collecting, he must give P3,000.00 to Y. If Y is the one collecting, he must give P7,000.00 to X. the amount of P20,000.00.. A.and B are solidary debtors of X and Y, solidary creditors, in 1 If X renounces or remits the whole obligation without the consent of Y, will the obligation be extinguished? = Answer: Yes, because the remission made by any solidary creditor extinguishes the whole obligation. (Art 1215) However, X has to give Y’s share of P10,000.00 since a solidary creditor may not do anything prejudicial to inet te tc Nil52 * OBLIGATIONS his co-solidary creditors. (Art.’ 1212) A-solidary creditor who has caused the: extinguishment of the obligation by remission, novation, ion or confusion, or who has collected the ‘debt, shall be liable to the others for the shares corresponding to them. (Art. 1215). 2. Suppose: the remission of the whole obligation was obtained by A, may A demand reimbursement from B? ‘Answer: No, betause tlie remission of the whole obligation obtained by one of the solidary debtors does not entitle him to.reimbursement from His co-debtors (Art 1220), remission being, the. gratuitous: qbandonment by the creditors of their rights to the obligation, 3. Suppose that X fenounces or remits’A’s ‘share amounting to P10,000.00.” However, it turned out'that'B, had-already paid P20,000:00 to ¥ two days before.. May B still collect P10,000.00 from A representing A's share? (és, B:may still callect from A P10,000.00. The: remissign: made by: the creditor of the share which affects one ofthe solidary debtors does. not release the latter from: responsibility to his co-debtors, in,case the debt has: been totally paid by anyone of them before. the remission was effected. (Art. 1219). A’s remedy will be:to 90 after X or ¥ to collect the sum he paid to B. A is indebted. to X, Y and Z, solidary creditors, for 24,000.00. Suppose X makes a demand against A, to whom shall A pay? Answer: A must pay to X. J A pays to another solidary creditor, say Y, the sum of P24,000.00, the payment, as a rule, valid only with respect to Y’s share of P8,000.00. Thus, if X and Z do not receive their respective shares. from Y, A can still be held liable for P16,000.00. (See Art. 1214.) x. and C, solidary debtors, borrowed P30,000.00 from A: B Soligation is evidenced by a promiseory note signed bY the debtors X demands paytnent from A. However, A pays only 12,000.00. May X-still go after B and/or C? OBLIGATIONS 53 Answer: | Yes, X may still B or C or both of them for the balance ‘of IB 000 00. The creditor may Proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of ‘them shall not bean obstacle to those ‘which may subsequently be directed against the others, so long as the debt has rot been fully collected. (Art. 1216). 2. If A pays X P30,000.00, what are the rights of A? ‘Answer: "A can demand reimbursement from B and Cat P10,000.00 each together with interest from the date of payment. However, if payment is made by A before due date, he cannot collect interest during the intervening Period, i.e., from date of payment to due date. (Art. 1217) A pays X P30,000:00. However, C has become insolvent. How much may A demand from B as reimbursement? Answer: A may demand PI5,000.00 from B. If an insolvent debtor-cannot reimburse his share to the debtor who paid the obligation, ‘suich share shall be borne by all his co-debtors, in: proportion to the debt of each. (Art. 1217). ‘Thus, A and B shall bear C’s share at P5,000.00 each. 4. If A pays X P30,000.00 more than 10 years after the note had become due, can he still demand reimbursement from Band C? Answer: No, he can no longer demand reimbursement.» Payment by a sotidary debtor after the obligation has prescribed does not entitle him to reimbursement. ‘The same rule applies if payment is made Gfter the obligation has become illegal. (Art. 1218). A, B, C.and D are solidarily Hable to X for the delivery of ¢ specific ring valued at P20,000.00. What is the rule if the ring is lost: 1, through a fortuitous event? 2. through the fault of D? Answers:56 OBLIGATIONS 5. If one of the debtors is insolvent, the others shall not be liable for his share. (Art. 1209) Ilustration A,B and C-are jointly indébted. to deliver a specific car valued at P900,000.00 to X, Y and Z. 1. X, ¥ and Z must:make a demand against A,'B and.C for the delivery of the car. 2. IfA i not-ready to’ coniply- with fis andertaling, the ‘obligation to deliver. the car is converted into an obligation ‘to:paiyite-value plus damages. Band C sitall be obliged to P300,000.00 each., A, the. defaulting debtor, shalt be for P300,000.00 plus damages; 3. “If Ads“insotvent,"B and:C shall be liable only for their respective shares of P300,000.00 each. 4. ~ if’X: zenounces his right to the obligation without the consent of Y and Z, then only his proportionate share is extinguished. The obligation, however, is converted into monetary obligation to pay P600,000.00 which must be given to ¥ ‘at P300,000.00 and Z at P300,008,00 by A, B and C who will give P200,000.00 each. Indtetaiiiey wed ootiearity, concept and distinctions ‘Tne indivisibitity of an-obligation refers to the subject matter. 72 object ‘not being susceptible of ‘performance. Solidarity, on the other hand, refers to tie the parties. One therefore; does not imply, or give rise, to the other. (Art 1210) Thus, there may be the following obligations: 1. Joint divisible obligation Example:' A and B are jointly obliged to C construct a pavement 2 meters wide and 10 meters long. 2. Joint indivisible obligation Example: A and B are jointly obliged to give ® \ specific horse to C. 3, __ Solidary divisible obligation OBLIGATIONS 57 Bxample: A’and B are solidarily liable to pay C 10,000.00 in two equal installments. Solidary indivisible obligation. Example; A and B are solidarily liable to give a specific horse to.C. Divisible and Indivisible Obligations Divisible and indivisible obligations, concept A divisible obligation is one capable of partial performance {euch as-the obligation to deliver 10 sacks of rice). The following obligations are deemed divisible (Art. 1225): ny When the obligation has for its object the execution of a certain number of days of work (such as an obligation to work for-1 week). - 66 the following: OBLIGATIONS inguishers available, He wants to complete the Saeky ae there is no more-stock available. -§ fan recover the cost of 20 fire extinguishers less ‘suffered by B. (Note: The damages suffered by B includes the cost of the two fire extinguishers not delivered.) b. When the obligee accepts the performance knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. (Art. 1235) Example: D agreed to repair the car of C and to paint it red. D repaired the car but painted it maroon. C accepted: the car without any objection. D's obligation is fully complied with notwithstanding the irregularity . of the performance. When partial payments may be made ‘The creditor cannot be compelled to receive, and the debtor cannot be compelled to make, partial payments, except: @ When there is an agreement.to that, effect. (Art. 1248) 3 However, the payment must still be made in full at some future time in’ accordance with the ‘agreement, to extinguish the obligation. When. the debt is in part liquidated (i.e:, the amount is fixed) and in part unliquidated, the creditor may demand and the debtor may effect the Payment of the former without waiting for the liquidation of the latter. (Art. 1248) The unliquidated part, once it is finally determined, must also be paid, to extingui: rete Paid, to extinguish the Who must make the payment Payment must be made by thie debtor who must possess ‘The free disposal of the thing due. OBLIGATIONS 67 Free disposal of the thing due me 4 eans that the Property delivered should not be subject to any claim by, or encumbrances in favor of, third persons. Thus, if a property mortgaged is used as payment by the debfor'to a creditor other than the mortgagee, the payment is not valid. The said property can be made to answer for the debt secured in case of foreclosure of the mortgage. ‘The capacity to alienate the thing. ‘The debtor must, not be incapable of giving consent. Effect on payment in obligations to give if debtor does not have jree disposal and capacity to alienate The payment shall not be valid except, in cases provided by law (Art. 1239). if the payment is made, the guardian ‘of the incapacitated person .(during the incapacity), or the incapacitated person himself when he regains or attains his capacity, may seek the annulment of the payment. (Art. 1997) In case the debtor does ‘aot have the free disposal of the thing due, the injured party ‘may seek to recover the payment. Paymént made by the debtor after court has ordered him to retain debt = Payment made to the creditor by the debtor after the debtor has been judicially ordered to retain the debt shall not be velid. (Art. 1243) ‘The court order is ‘Jenown as garnishment. / Example: D owes C P50,000.00, On due date, C ‘demands payment but D cannot pay. C, however, learns that D has a receivable from X so he files'a court action against D and asks the court to order X not to make any payment to D. The court issues the order. If X pays D, the payment wil not be valid because there is an order of retention from the court. Should the court favor C in its judgment in the case filed by C against D, X can be required to pay again, this time to C.7 68 OBLIGATIONS Payment by a third person 1. Creditor not bound to accept payment by a third person ‘The creditor is not bound to accept payment or performance by a third person except in the following cases: a b. a When there is a stipulation to that effect. When the third person has an interest in the fulfillment of the obligation such as a guarantor or a.co-debtor. (Art. 1236) Example: D borrowed P20,000.00 from C with G as guarantor. G, asa person who has an interest in the fulfillment of the obligation, may compe! C to accept the payment from him, Rights of a third person. who makes the payment Payment with knowledge and consent of the debtor 1) He-can recover what -he has paid. (Art. 1236) He is entitled to be subrogated in the rights of the creditor such as thos¢ arising from mortgage, guaranty or penalty, (Art. 1237) Example: 2) D owes C 10,000.00. The obligation is secured by a mortgage of D’s lot. T, a third person, pays C the amount of P10,000.00 with the consent of D. T can recover the amount of P10,000.00 from D. If D cannot pay, T, having been subrogated in the rights of C, can foreclose the mortgage. Payment without the knowledge or against the wil of the debtor a ine mt He can recover only insofar as the payment hhas been beneficial to the debtor. He is not entitled to subrogation. (Arts. 1236 and 1297) Example: D borrowed P24,000.00|frox with G as guarantor. D pays C 2,000.00. T, a third person, pays C P20,000.00 jbelieving that D still owed C P20,000.00. The payment ig, without OBLIGATIONS, 3. 69 the consent of D. In this case, T can only recover 18,000.00 from D, the amount that was beneficial to D. IfD cannot pay, T cannot go after G because he is not entitled to be subrogated in the rights of c. Payment by a third person who does not want to be reimbursed ae b. ‘The payment shall be deemed to be a donation which requires the debtor’s consent. If the debtor does not consent, the payment shall nevertheless be valid:to the creditor who has -accepted it. (Art. 1238) In such a case, the third person can only recover insofar as the payment has been beneficial fo the debtor; “he is also not entitled to'subrogation. (Arts. 1236 and 1237) To whom shall payment be made a ‘To the creditor (the person in whose favor the obligation has been constituted) Payment to.an incapacitated creditor ‘The creditor must be capacitated to receive the payment. Payment to an incapacitated creditor is not valid ‘except in the following cases: If. has kept the thing delivered. Example: D borrowed P10,000.00 from C. On due date, D paid the debt to C who had become insane. If'C kept only P4,000.00 and threw away 6,000.00, then payment will be valid only up to 4,000.00. Insofar as the payment has been beneficial to him. (art. 1241) Example: In the above example, if C used P3,000.00 to buy his food, and lost the balance, payment will be valid only up to P3,000,00, the amount beneficial to him. To the creditor’s successors in interest, such as his'heirs or assignsé OBLIGATIONS 70 ‘To any person authorized to receive payment Payment to an unauthorized third person As a general rule, payment to an unauthorized third person is not valid, except in the following cases: If the payment has redounded to the benefit of the, creditor, which benefit neéd not be proved in the following cases (Art. 1241): 1) If after the payment, the third person acquires the creditor's rights (such as when the third person becomes the assignee of the instrument evidencing the credit). 2) If the creditor ratifies the payment to the third petson. 3) If by the creditor’s conduct, the debtor has been led to believe that the third person had the authority to receive paymént (such as when a water service company gives a collector's uniform to a third person who is not its employee and the debtor gives his payment to such third person believing that he is the authorized collector). b If the payment is made in good faith to a third Person in possession of the credit. (Art. 1242) In this case, the third person should be both in possession of the instrument and the credit. Examp! M makes a note payable to bearer and delivers it to P. The note, however, is lost by P and is picked up by A. A goes to M to collect on the note. M pays A believing in good faith that A is the intended bearer. M is released from liability. Jhere payment must be made If there is a stipulation, then in the place designated. If there is no stipulation - OBLIGATIONS . n a. If the obligation: is to give a determinate thing, wherever the thing might be at the time the obligation was constituted. b. If the obligation is to give a generic thing or an obligation to do, then at the domicile of the debtor. (art. 1251) Bpecial forms of payment 1. Dation in payment 2. Application of payment 3. Payment by cession 4. Tender of payment and consignation Dation in payment, concept ation in payment (dacion en pago, adjudicacion en pago or datio in solutum), is a special form of payment where the ownership of property is transferred io hie cei a debt in money. 1245) It is governed by the law s since it partekes ype na nature of a sale with the creditor in effect buiying the property of the debtor. What actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered.as the object of the contract of sale, while the debt is considered the purchase price. In any case, common consent is ari essential Prerequisite, be it sale or novation, to have the ,effect of totally extinguishing the debt or obligation. (Banco De Oro Universal Bank vs. Laigo, G.R. No. 173856, November 20, 2008.) (A similar ruling was earlier held in Bank of the Philippine Islands vs. Securities and Exchange Commission, G.R. No. 164641, December 20, 2007.) Example: D owes C P10,000.00. On due date; D. proposes to C to accept a ring in payment of D’s debt of P10,000.00. C agrees to D's proposal and accepts the ring. D's monetary obligation is extinguished by dation in payment.72 OBLIGATIONS Application of payment 1. Concept . It is the designation of the debt to which payment shall be applied when the debtor owes several debts in favor of the same creditor. (Art. 1252) 2. Requisites of application of payment a. There must be two or more debts. b, The debts must be of the same kind. c. The debts are owed by the sartie debtor to the same creditor. d._ Alldebts are due, except: 1) When the parties have stipulated that payment may be applied to a debt not yet due, or 2) When the application is made by the party for whose benefit the term has been constituted. (Art. 1252) How application is made a. The debtor who is given the preferential right to apply the payment, designates the debt to be paid. b. If the debtor does not make the designation, the creditor makes it by indicating the debt being paid in his receipt. If the debtor accepts the receipt from the creditor, the debtor cannot complain unless there is a just cause of invalidating the contract. c. If neither the debtor nor creditor makes the designation, or application cannot be inferred from the circumstances, payment shall be applied by operation of law as follows: 1) Payment shall be applied to the debt, among those due, which is the most onerous to the debtor. 2) If the debts are of the same nature and . burden, payment shall be applied to all due debts proportionately. (Arts. 1252, 1254) OBLIGATIONS 73 Note: In all instances, if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (Art. 1253) Illustration 1: D owes C the following distinct debts: P1,000.00 due-on May 1, P1,000.00 due on May 5, P1,000.00 due on May 10, P1,000.00 due on May 15, and P1,000.00 due on May 20. a. If today is May 16, and D has only P1,000.00 but wants to pay C, D may apply the payment to any of the debts due on May. 1, May 5, May 10 or May 15. He cannot apply the payment to the debt due on May 20 because it is not yet due unless he is allowed by stipulation with C or ‘the benefit of the period.was given to him (D). If D does not apply the payment, the right to apply it is shifted to C. C may apply the payment to any of the debts due on May 1, May 5, May 10 or May 15. He cannot apply the payment to the debt due on May 20 because it is not yet due unless he is allowed by stipulation with D or the benefit of the. «period was given to him (C). If neither D nor C applies the payment, payment shall be applied propértionately to the debts due on May 1, May 5, May 10 and May 15 at P250.00 each. Incase the debt due on May 5 is secured by a pledge, ‘then payment shall be applied to such debt because it is the most onerous to D. Illustration 2: D owes C P7,000.00 due.on May 1, 5 sacks of rice worth P5,000.00 on May 5; and P5,000.00 due on May 8. If none of the debts have been paid as of May 8 and D has P5,000.00, D cannot apply the payment to ‘the debt consisting of 5 sacks of rice because it is not payable in money, ic., it is of different kind. -D may not apply the payment to the debt due on May 1 because the payment would not be complete unless C consent 2 D however, apply the payment to the debt due on May een:74 OBLIGATIONS Payment by cession 1. Concept Payment by cession is the abandonment or assignment by the debtor of all his property in favor of his creditors so that the latter may sell them and recover their claims out of the proceeds. (Art. 1255) ‘The cession or assignment operates only to authorize the creditors to sell the debtor’s property, hence, ownership is not transferred to them. Unless agreed upon, the ‘cession releases the debtor from his responsibility only to the extent of the net proceeds of the things assigned. (Art. 1255)" Kinds of payment by cession a. Voluntary or conventional -. Agreed upon by the parties. b. _° Legal - Cession by operation of law. Requisites of payment by cession a. There must be two or more creditors. . b. ‘The debtor is insolvent. c. The debtor abandons all his properties except those which are exempt from execution. d. The creditors accept the abandonment. Illustration D_owea X, 50,000.00; ¥,’ P20,000.00; and 2, P30,000.00. All the obligations are due but D has asset? worth P80,600.00 only. D offers to assign his assets to X, Y and Z 60 that they may-sell them and apply the proceeds to their respective claims. X, ¥ and Z accept the offer. the assets are sold for 70,000.00, then D will be releaset from his obligations only up that amount, unless the creditors agreed to release him completely of his debts: OBLIGATIONS 6 Payment by cession and dation in payment distinguished Payment by cession Dation in payment 1. There must be two or 1. Plurality of creditors is more creditors, not required. 2. The debtor is insolvent. 2. The debtor may not be insolvent. 3. Affects all the debtor's 3. Does not affect all the properties, except those debtor’s properties. exempt from execution. 4. The creditors ere authorized to sell only 4. The creditor becomes the owner of the the debtor's properties. properties given as payment. 5. The debtor is not 5. The debtor is released released as a rule. asa rule. Tender of paynient and consignation aS Concept Tender of payment is the act of the debtor of offering to his creditor what is due him. Consignation, on the other hand, is the act of depositing the sum or thing due with the judicial authorities whenever the creditor refuses without just cause to accept the same, or in the cases when the ' creditor cannot accept it. Mlustration of tender of payment and consignation. D borrowed P50,000.00 from C. On due date, D tendered payment in P20.00 bills totalling P50,000.00 to C. C refused to accept the payment demanding that he be paid in higher denominations. Since the payment tendered by D was legal tender, C was not justified in refusing to accept it. D may thus consign the payment. 2. Requisites (steps) for tender. of payment and consignation to extinguish the obligation a. There must be a valid tender of payment. (Art. 1256) Thus, the payment being tendered must be the thing contemplated, in legal tender, complete,76 OBLIGATIONS, on the day it falls due, among other requisites for a valid payment. { ‘The creditor’ refuses without just cause to receive the payment. (Art. 1256) ‘The persons interested in the fulfillment of the obligation must be notified by the debtor of-his intention to deposit the sum or thing due with the judicial authorities. (Art. 1256}- The notice will enable the creditor, -mortgagées, guarantors, sureties, solidary debtors, among others, to reconsider accepting the payment and avoid litigation. The notice is also required to give. the creditor the opportunity to accept the payment ‘because the expenses of consignation will be charged to him for his non-acceptance of the payment. This notice is mandatory. Without it, the consignation is void. (Dalton vs. FGR Realty and Development Corp., G-R. No. 172577, January 18, 2011) ‘The: sum or thing due is deposited with judicial authorities.: (Art. 1258) ‘The- persons interested in the fulfillment of the obligation must again be notified by the debter that the consignation has been made. (Art. 1258) Without this’ subsequent notice, the consignation is void. [Tiaoqui vs. China Insurance Surety Company, Inc. (CA),45 OG 2558] Effect of consignation duly made If the consignation’ has been duly made, the debtor gay ask the judge fo order the cancellation of the obligation. The obligation shall be extinguished after the Creditor has accepted the consignation or the judge has Geclared that the consignation has been properly made. (Art. 1260) 4 Debtor's right to withdraw the sum or thing consigned 8: OBLIGATIONS a. 7 Before acceptance by the creditor of the consignation or-,the declaration by the judge that the consignation has been properly made — ‘The debtor may withdraw the sum or thing consigned as a matter of right, i.e., the creditor’s consent is not required. Such withdrawal produces the following effects: 1) ‘The obligation shall remain in force. (Art. 1260) 2) ‘The co-debtors, guarantors, and sureties are not released. (Art. 1261) After acceptance by the creditor of the consignation or the declaration by the judge that the consignation has been properly made — ‘The debtor may withdraw the sum or thing ‘consigned only with the consent of the creditor. ‘Such withdrawal produces the following effects: 1) _The obligation shall be revived. (Art. 1260) 2) ‘The creditor shall lose every preference which he may have over the thing. 3) The guarantors, and sureties are released unless they consented. If there are several debtors and their obligation is solidary, such obligation will’ become a joint obligation. Thus, the creditor can no longer proceed against the guarantor or surety if later on the debtor cannot pay. As regards the co-debtors, they are not released from liability they ‘being i t principal debtors. Their obligation becomes joint if it was previously solidary. When consignation, without:a i n 7 previous te: pay will produce the same effect : menneioecuen When the creditor is absent o: F unkné not appear at the place of payment.” °% 40esva OBLIGATIONS. b. When he is incapacitated to receive the payment at the time it is due. | c. When, without just cause, he refuses to give a receipt. ; 4. When two or more persons claim the same right to collect. ©. When the title of the obligation has been lost. (Art. 1256) Loss of the Thing Due ‘Loss, concept A thing is considered lost when it perishes, or goes out of Smeaton) disappears in such a way that its existence is unknown or it cannot be recovered. (Art. 1189, par. 2) Loss includes the physical or legal impossibility of the service in which the obligation consists. Loss, effect on the obligation 1, Loss of a determinate thing As a general rule, the loss of a determinate thing extinguishes the obligation. (Art. 1262). The following are the exceptions: @. When the loss is due to the fault of the debtor. (art. 1262) Loss of the thing while in the possession of the debtor shall be presumed to be due to his fault, unless proved otherwise. This presumption does not apply in case of earthquake, flood, storm or other natural calamity. (Art. 1265) When the debtor has incurred in delay. (Art. 1262) ¢. When 80 provided by law, (Art. 1262) as when the debtor has promised to deliver the same thing to two or more persons who do not have ihe same interest. (Art. 1165) a. When it is stipulated by the parties. (Art. 1262) OBLIGATIONS 79 When the nature of the obligation requires the assumption of risk. (Art. 1262) When the debt proceeds from a criminal offense {unless the person who should receive it refuses to accept it without just cause. (Art. 1268) Loss of a generic thing The loss or destruction of anything of the same Kind does not extinguish. the obligation. (Art. 1263) because a generic thing does not really perish (“genus nunquam perit’. Exception: In the case of a “delimited generic. thing,” such as *100 cavans of rice from my harvest this year” when such harvest is completely destroyed. Loss in personal obligations (obligations to do) a. When the prestation becomes legally or physically impossible without the fault of the debtor, the obligation is extinguished. (Art. 1266) When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released in whole or in part (art. 1267). Effect of partial loss 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. (Art: 1264). Creditor’s right if the loss is caused by a third person If the obligation has been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third person: 's by reason of the loss. (Art. 11269) e loss. (Art. Example: D is obliged to give a specific carabao to C. Seals the carabao and slaughters it. D's obligation ig the nguished. C has a right to proceed against X. Assignment of the Tight by D to C is not required since it is the law that gives C e right. io80 OBLIGATIONS Condonation 6r Remission Condonation or remission, concept Condonation or remission is the gratuitous abandonment by the creditor of his right (4 Sanchez Roman 422). In plain language, this refers to the forgiveness of an indebtedness. To extinguish the obligation, it requires the debtor's consent. (Art. 1270) Example: D owes C P3,000.00. The debt is evidenced by a promiseory note. C informs D that he will no longer collect te Soot and delivers the promissory note to D. D accepts C's generosity. D's obligation is’ extinguished by condonation or remission. Kinds of condonation or remission 1. ‘As to amount or extent ‘Total - When the total obligation (both principal and accessory obligations) is remitted. b. Partial - When only a part of the obligation, or only the accessory obligation is remitted. a. 2. As to form a. Express - One made orally or in writing. ft must: Expo valid, comply with the formalities of donation as follows: 1) When the remission involves an immovable property, the remission. and the acceptance Tnust be in a public instrument. public document must specify the property vemitted and the value of the charges that the debtor (donee) must satisfy. (Art. 749) 2) ‘When the _ remission involves @ movable/personal property ~ a) If the value of the property exceeds 5,000.00, the remission and the acceptance must be in writing (public or private). OBLIGATIONS al b) Ifthe value of the property is 5,000.00 or less, thie remission and the acceptance may be in any form, ie., oral or in writing (public or private). The remission, however, if made orally, requires _ the simultaneous delivery of the thing or the document representing the right remitted. (Art. 748) b. Implied - One inferred from the conduct of the parties, such as when the creditor voluntarily delivers the private document evidencing the credit to the debtor. (Art. 1271) Presumption when private document evidencing debt is found in the possession of the debtor ___ When the private document evidencing the debt is found in the possession of the debtor, the same is presumed to have been delivered voluntarily by the creditor to the debtor (so as to remit the obligation) unless the contrary is proved. (Art. 1272) ‘Thus, there is no such presumption if the document is a public document which is easily available being a public record. Presumption when 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 When the thing pledged after its delivery to the creditor is found in the possession of the debtor, the accessory obligation of edge te presumed remitted, but not the principal obligation. Effect of remission/renunciation of principal obligatic the accessory obligation and vice-versa ee aie 1, ‘The ‘remission of the principal debt extinguishes the accessory obligation (based on the accessory follows’ the principal rule). 2. ‘The remission of the accessory obligation carry doe: _With it that of the principal debt. (Art. 1273) cae82 “ OBLIGATIONS Confusion or Merger Confusion or merger, concept is the meeting i f the Confusion or merger is thé meeting in one person o! qualities or the characters of creditorand debtor, (Art. 1275) Example: M makes a promissory note’ payable to P or order, Pindorses. the note to A, A to B, B to C.-On due date, C indorsed the note back to M. ‘The obligation here is extinguished because M is now the creditor of himself. Effect of metger when there is a guarantor jerger_which takes’ place in the priticipal. debtor or - TT etstis te gemaabien. {Art: 1276) Here, bath the principal obligation and the guaranty ere extinguished... : Example; ‘M owes P 10,000.00. The debt which is evidencest oy @veouteeeey fete, guatanteed by G.P assigns the note to A, A to B,-B to C, and C back to M. saat a aegis | poaracny Herries extinguished since the principal obligation-it been extinguished. The guaranty, being an accessory contract, cannot stand by itself. ‘Merger which takes place in the persori.of the guarantor does not extinguisti the obligation. (Art: 1276} Here, only the guaranty is extinguished. 7 Example: If in the immediately preveding example, C assigns the note to G instead of M, ’s guaranty is extinguished because the qualities of debjor-und creditor are merged in his person. However, M’s obligation is not extinguished. G, as the new creditor, may-still go after him but with the obligation no longer having a security. Merger in a joint obligation extinguishes only the share of the joint debtor or creditor in" whom the characters of debtor and creditor concur. (Art. 1277) OBLIGATIONS 83 Example: A, B and C are joint debtors of X for P9,000.00. The promissory note evidencing the-debt is assigned by X to Y, Y to Z, and. Z to A. A’s share of 3,000.00 is extinguished by the merger of the qualities of debtor and creditor in his person. B Fes co. uG, Til liable on the note with A now aa the creditor for Merger in a solidary obligation Merger in one of the solidary debtors or solidary creditors extinguishes the whole obligation” (Art: 1215) The solidary debtor in whom the characters of debtor and creditor concur can demand reimbursement from his co-debtors. (Art. 1217) In the case of the solidary creditor, he shall be liable to his co-creditors for the share corresponding to each of them (Art. 1215). Example: A, B and C are solidary debtors of X for P9,000.00. The promissory note evidencing the debt is assigned by X to Y, ¥ toZ, and Z to A. The whole obligation is extinguished by confusion with all the debtors now being the creditors. A may demand reimbursement from B and C at 3,000.00. each. Compensation Compensation, concept Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278) It is a mode of‘extinguishing obligations whereby two persons in their capacity as principals are mutual debtors and creditors of each other with respect to equally liquidated and demandable obligations to which no retention or controversy has-been timely commenced and communicated by third parties. (Union Bank of the Philippines vs. Development Bank of the Philippines, G.R. No. 191555, January 20, 2014). Example: D owes C P5,000.00. C owes D P5,000.00. Both debts are due and demandable. The parties do not need to Pay each other as their obligations are extinguished - by compensation. Kinds of compensation a As to amount or extent aeOBLIGATIONS Total --When the debts are of the same amount. (art. 1281) Partial - When the debts are of different’ amounts. (art. 1281) 2. As to cause or origin a Legal - This takes place by operation of law and extinguishes both debts to the concurrent amount (Art. 1279) even though the debts are payable at different places (Art. 1286) and the creditors and debtors are. not aware of the compensation. (Art. 1290) Legal compensation operates even against the will of the interested parties and even without their consent. Such compensation takes effect, ipso jure {which means “by the law itself”), its effects arise on the very day on which all the requisites concur. (See Nisce., vs. Equitable PCIBank, Inc., G.R. No. 167434, February ‘19, 2007.) It has the following requisites (Art. 1279): 1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other. Examples: (a) D owes C P5,000.00. © owes D P5,000.00. Legal compensation takes place because D and C are principal debtors and creditors of each other. (b) D owes C P5,000.00 with G as guarantor. C owes G P5,000.00. Legal compensation may not take place between D and C because while D is aprincipal debtor of C, C is not even a debtor of D. Legal compensation may not take place between G and C because although C is a principal.’ debtor of G, G is only a subsidiary debtor of C. Exception to first requisite A guarantor may set. up compensation as regards what the creditor may owe the principal debtor. (Art. 1280) ,OBLIGATIONS 2) 3) 4) 5) 85 Example: D owes C P5,000.00 with G as guarantor. C awes D P4,000.00. On due date, C demands payment from D but D no longer has any assets so C goes after G. G may set up compensation up to P4,000.00 so C can collect from him 1,000.00 only. That both debts consist in a sum of money or if the due are consumable, they be of the same kind, and also of the same quality if the latter has been stated. The term ‘cofsumable’ actually refers to things that are‘fungible or capable of substitution. Thus, there can be legal compensation if ‘D is obliged to give C a fountain pen and C.is obliged to. give D a fountain pen,” since the objects, being generic, are fungible although not consumable. However, there can be no legal compensation if “D is obliged to give C @ specific Parker fountain’ pen and C is obliged to give D a specific Cross fountain pen,” because the objects are not capable of substitution. That the two debts be due. The maturity date of both debts must have arrived for legal compensation to take place. Here, it is not required that both debts have the same due date. That both debts be liquidated and demandable. “Liquidated” means the amount of the debts has already been determined or is easily determinable. On the other hand, “demandable’ means both debts must’ be enforceable, so if one of them has prescribed, legal compensation cannot take place. That over neither of them there be any retention or controversy commenced by a anna rN SSNOBLIGATIONS third persons and communicated in due time to the debtor. Example: D owes C P10,000.00. c owes D PI10,000.00 C also owes X P10,000.00. X sues C and asks the court to order D not to pay C so that in the event the court renders judgment in favor of X, D will have to pay X. The court issues the order to D. There can be no legal compensation between D and C because there is an order of retention to D with respect to his debt to C." (See Art. 1243) Voluntary or conventional - This takes place by agreement of the parties, such as when they agree to the compensation of debts which are not yet due. (Art. 1282) Example: D owes C P5,000.00 due on September 20, 2015, while C owes D P5,000.00 due on September 30, 2015. On September 1, 2015, for instance, D and C may agree that their debts be compensated. Judicial (or set-off) - This is compensation ordered by the court. In Art. 1283, if one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amqunt thereof. Example: T, a travel agent, sued P for- collection of P10,000.00 representing the balance of P for a guided tour in-Bangkok which T arranged. In his answer, P claimed that T owed him damages amounting to P10,000.00 which he (P) and his family sustained as a result of the substandard hotel accommodations that T booked for them. P was able to prove his right to said damages and the amount thereof. Any compensation declared by the court in this case is one of judicial compensation. OBLIGATIONS 87 Facultative ~ This claimed or opposed when not all thi are present). Example: D owes C P5,000.00 which is due and payable on September 1, 2015, while C owes D P5,000.00 which is due and payable on or before September 30, 2015. On September 1, 2015, C may claim compensation because he was given the benefit of the period, i.e., he may choose to pay on or before September 30, 2015. Should D claim compensation on. September 1, 2015, C has the right to oppose it because he cannot compelled, although he may opt to pay, before\ is compensation that may be by one of the parties (such as i¢ requisites for legal compensation September 30, 2015. Following are instances of facultative When one of the debts arises from a deposit. (Art. 1287). A deposit is a contract where a person receives a thing belonging to another for safely keeping it and of returning the same. (Art. 1962) The depositor may .claim compensation, or oppose one that is being claimed by the depositary. The deposit referred to here is different ‘from a bank deposit which is actually a contract of loan. In a bank deposit, the bank and its client. have a debtor-creditor relationship. Either one therefore may claim compensation. Example: C is the depositary of D's ring, Previously, D made a promise to give aring to C. If D demands the return of the ting he deposited with C, C cannot refuse to return it by claiming that D owes him‘a ring. However, if C demands the deli : ivery of a ring from D as D had promised, D may ot his option, set off the claim of C against ‘hi own claim for the return of the ring he deposited with C.2) 3) 4) OBLIGATIONS When one of the debts ‘arises from the obligations of a bailet in commodatum. (Art. 1287) Commodatum is @ contract whereby the baile acquires the use without compensation of the thing loaned Dut not its fruits. (Art. 1935) Here, the claim. compensation, or oppo cana rat is being claimed by the borrower, Example: C borrowed D's bicycle. D has a promise to give a bicycle to C. If D demands the return of the bicycle he lent to C, C cannot refuse to return it by claiming ‘that D owes him a bicycle. However, if'C demands the delivery'of a bicycle from D as D had promised, D may, at his option, set off the claim of C against his own claim for the return of the bicycle that he loaned to c ‘When one of the debts arises from a claim for support by gratuitous title. (Art. 1287) ‘The support referred to here is future support, not support in arrears. (Art. 301) ‘The party entitled to rective support may claim compensation, or oppose one that is being claimed by the party required to give support. Example: H, husband, was ordered by the court in a case of legal separation to give a monthly support of P20,000.00 to W, his wife. H has not yet given the amount to W for the present month. On the other hand, W owes H P20,000.00 by way of loan. ‘W may claim compensation but not H. When one of the debts consists in civil liability arising from a penal offense. (Art. 1288) Here, the offended party may claim compensation but not the offender. Example: D owes C P50,000.00 by way of loan. One day, C_ intentionally rammed his jeep on the fence of D, causing OBLIGATIONS 89. damages thereon amouitting to PS0,000.00. C was charged ’and convicted of the crime of’ malicious mischief. He was ordered to pay D P50,000.00 for the damages on the fence. Mf D demands the payment of such damages, C cannot claim compensation on the ground that D owes him P50,000.00 by way of loan. However, if C demands the Payment of the loan from him, D may claim compensation .by offsetting it against his claim for damages against C. Compensation when one or both. di 7 pen ‘both. debts are rescissible or When one or both.debts are rescissible or voidable, they may be compensated against each other before tht judicial Fescinded or avoided. (Art. 1284) uauially Compensation when the debts are payable at different places Rule on application of payment to when several debts susceptible Sftompensation there-are Example: D owes C the following de > ; ig debts on account of various Gonrchandise purchases which he made from the store of due on March 1, 2015; P3,000.00, due on ‘ . ; P3,000.00, Mi 35, 2015; P3,000.00 due on March 31, 2015; and 9,000.90 due on April 15, 2015. .C, on the other hand, on April 5, 2015. On April 5, 2015, D may claim comencaces 5, D may claim i for any of the debts due on March 1, March 15 and Macc 31 mcoes Rot designate the debt to which compensation shall appl of ett fo appl is shilted to C, and if C also fas to avail himself i compensation shalll be appli tion: | three debts due at P1,000,00 each, FP“ Preportionately to the a of assignment on compensation of debts * When the assignment was with the di lebtor’ fannot set up against the assignee the comesoe ne ye iAte 90 OBLIGATIONS, i. in i less he in to him against the assignor unl woud Dini right to the compensation, Example: D owes C P20,000.00 due on March 15. Cowes D a 90.00 due on March 10, On March 12, ¢ weed his credit right to T with the consent of D. On assigned Nt can collect: from D P20,000.00, but D can sieve P8,000.00 from C. If D reserved his right to the Compensation that would pertain to him against C Gmounting to P8,000.00 when he consented to the assignment, then T can collect only P12,000.00 from him @). debtor was notified of the assignment but he did not phy his consent -thereto, the debtor may set up compensation of debts maturing before the assignment but not of subsequent ones. , March 15. Example: D owes C P20,000.00 due on } C, on the other hand, owes D the following debts: 8,000.00 dueon March 1; P3,000.00 due on March 8; and P5,000.00 on March 14. On March 12, c impr his credit right-to T with notice to D but D did not give his consent to the assignment. In this case, T may collect , from D 9,000.00 because D can set up ‘compensation with respect to the debts due on March 1 (P8,000.! ” ha | March 8 (P3,000.00) which had already matured time of the assignment. If the assignment was without knowledge of the debtor, he can set up compensation of all debts maturing ‘before the time he obtains knowledge of the assignment. Example: D owes C P20,000.00 due on March 25. ©, on the other hand, owes’ D the following dete: 8,000.00 due on March 1; P3,000.00 due on March 5,000.00 due on March 14; and P2,000.00 due on Marci 31. On March 12, C assigned his eredit right to 7 witht the Imowledge of D. On March 16, D learned ob tte assignment, In this case, T may collect from D P4,000.00 beeatise D may set up compensation with respect 16 debts due on March 1 (P8,000.00), March 8 (P3,000.00), and March, 14 (P5,000.00), which debts have bec as of March 16 when D learned of the assignme’ OBLIGATIONS a1 Compensation in solidary obligation A is indebted to X,Y and Z, solidary creditors, for P30,000.00 due on June 1, 2015. X in turn owes A P30,000.00 due on June 1, 2015. Both obligations being due, they .are extinguished by compensation. However, X has to give ¥ and Z their respective shares at P10,000.00 each because compensation made by any of the Solidary creditors shall render him liable to the others for the share in the obligation corresponding to them. {See Art. 1215.) Novation Novation, concept Novation is the modification or extinguishment of an obligation by another, either by changing the object or principal condition, substituting the person of the debtor, or subrogating a third person in the rights of the creditor. (Art. 1291) Novation serves two functions — one is to extinguish an existing obligation, the other to substitute a new one in its place. (Starbright Sales Enterprises, Inc. vs. Philippine Realty Corporation, et. al., G.R. No. 177936, January 18, 2012) Examples: D owes C P10,000.00. (1) If the parties later agree that D should give instead a ring to C, there is novation by changing the object or prestation. (2) If the parties agree that T Shall take the place of D as the new debtor, there is novation by Substituting the person of the debtor. (3) If the parties late: Sere that X shall take-the place of C as the new creditor, there is eae by ‘subrogating a third Person in the rights of the r. . Requisites of novation y There must be a previous valid obligation. 2. ‘There mus\be an agreement between the parties.to modify or extinguish the obligation, except in the following: a @. When the person of the debtor can be made even if it i is changed which debtor, or is against the will of the eeOBLIGATIONS a OBLIGATIONS 93, . another person is subrogated in the place of & Ge eredltor to the debtor. (Arts. 1236, 1237, | 1293) 1) When a creditor pays another creditor who | | ) Jp preferred, even without the debtors Effect if new debtor is insolvent or does not fulfill obligation knowledge; When, even without the knowledge of the The new debtor’s insolvency 7) Gebeer, a person interested in the or non-fulfiliment of the obligation. fulfillment of the obligation pays, without shall not give rise to any liability on prejudice to the effects of confusion as to the part of the original debtor. (Art. the latter’s share. 1294) The original debtor is ; reledsed from liability. This is true 3. There must be the extinguishnrent of the old obligation. Wicther the aubstitation was 4. There must be validity of the new obligation. (See Sueno writhaiets the lasted of ch tae vs. Land Bank of the Philippines, G.R..No. 174711, consented to by hint September 17, 2008; and Transpacific Battery Corp. vs. J Security Bank: and Trust Co., G.R. No. 173565, May. 8, b) —_Delegacion - Here, it is the debtor 2009, for similar requisites.) who initiates the substitution, which requires the consent of all parties (original debtor, creditor, new Kinds of novation ‘ , debtor). 1 According to object or purpose fons ithe | a. Real or objective - Novation by changing the object Rights of the new debtor if he makes or principal condition. (Art. 1291) b. Personal or subjective. Novation by change of the parties (debtor or creditor) He can recover what he has paid and is entitled to subrogation. (Arts. 1236, 1237 and 1293) 1) Substituting the person of the debtor os . (always with the creditor’s consent) Pife ofa ee insolvent ik j e. creditor’s right to a) Expromision - Here, a third person : a initiates the substitution and is ceed eae the original debtor assumes the obligation even without except: the knowledge or against the will of (2). When the insolvency of the the debtor. new debtor was already . 2 existing and of public Rights of the new debtor if he makes knowledge when the original Pee debtor delegated his debt. If the substitution was without the knowledge or against the will of.the original debtor, the new debtor can only recover insofar as the payment has been beneficial (2) When the insolvency of the new debtor was already ~ existing and known to the original debtor at the time he delegated his debt.94 2) OBLIGATIONS ‘Subrogating a third person in the rights of the creditor. Subrogation -trarisfers to the person subrogated the credit with all the rights appertaining thereto, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to ‘stipulation in conventional subrogation. (Art. 1303) Kinds of subrogation Conventional, subrogation - Change of creditor by the agreement of the parties (the original parties and the new creditor) Legal’ subrogation — Subrogation by operation of law. It is presumed that there is legal subrogation in the following cases: a) b) Q (2) When a creditor pays another creditor: who is preferred, even without the debtor’s knowledge. Example: D. owe: PS50,000.00. The debt is ‘secured by a real mortgage. D also owes X P40,000.00 which is unsecured. If X pay D's debt to C amounting to 50,000.00, X is subrogated in the rights of C. Hence, if D cannot pay the debt of P50,000.00,.X can foreclose the mortgage. When a third person, not interested in the obligation, Pays with the express or tacit approval of the debtor. Example: D owes C 100,000.00. The debt is secured by a mortgage on D's lot. If T pays C with D's OBLIGATIONS ced consent, T is subrogated in the rights of C. Thus, T can collect the amount he had paid from D, and if D cannot pay, T can foreclose ‘the mortgage on-the lot. (3) When, even.. without the knowledge of the debtor, a person interested in the fulfillment ‘of the obligation pays, without prejudice to the effects of confusion as to the latter's share. (Art. 1302) Example: D owes C P10,000:00 with G as guarantor. If G pays C, G is subrogated in the rights of C. However, G’s guaranty. is extinguished because the qualities of debtor and creditor are merged in his person. : Mixed ~ Change of object and parties to the obligation. Example: D owes C P50,000.00. Later, the Parties agree that a ring will be used to pay the debt with X making the payment. novation declared in unequivocal terms. (Art. 1292) Here, the parties incontrovertibly disclose that their object in executing'the new contract is to extinguish the old one. (Sueno vs. Land Bank, supra) Example: D and C entered into a contract whereby D would construct a 3-storey building for Con a certain lot. Later however, D and C entered into @ contract whereby they expressly agreed thatOBLIGATIONS i 3-storey D would not be constructing anymore a building on the lot but a bungalow. ied — When the old and the new obligation are * Se point incompatible with each other. (Art. 1292) No specific form is required for an ‘implied novation. All that is prescribed by law would be an incompatibility between the two contracts. (Sueno vs. Land Bank, supra) Example: In the same example, if D and C entered into the second contract whereby D agreed to construct a bungalow on the lot but without the parties expressly stipulating that D would no longer construct a 3-storey building, then the parties aré deemed:to have impliedly novated the first contract because construction of the two structures on the same lot would not be possible. According to extent a. Total or extinctive - Here the old obligation is totally extinguished, such as when an obligation to Pay a sum of money is replaced with an obligation to give a diamond ring. b. "Partial or modificatory - Here, the old obligation still remains in force -except as it has been’ modified, such as when the place of payment is changed or when there is a variation in the amount of installment payments. The change would ‘be merely modificatory and insufficient to extinguish the original obligation if the incompatibility does not take place in any of the essential clements of the obligation, such as its object, cause or principal conditions. (Transpacific Battery Corp. vs. Security Bank and Trust Co., supra; see also Philippine National Bank vs. Soriano, G.R. No. 164051, October 3, 2012) The new agreement will not the effect of extinguishing the first but would. merely supplement it or supplant some but not all of its Provisions. (Saludo vs. J.V. Brothers Marketing Corp., G.R. No, 171998, October 20, 2010) OBLIGATIONS oa Effect of novation on accessory obligation When the principal obligation is extinguished in consequence of a novation, accessory obligations shall also be extinguished, except in the following cases: 1. When the accessory obligation was established for the benefit of third persons who did not give their consent. (Art. 1296) Example: D borrowed PS0,000.00 from C. The obligation is secured by a chiattel mortgage on D’s car and bears interest at 10% per annum. which the parties stipulated would be paid by D to T, a student whom C is sending to school. Subsequently, D and C agreed that D would give C a diamond ring instead of money. The novation here extinguishes the accessory contract of chattel mortgage. However, the accessory obligation to pay.interest to T will subsist unless T gave his consent to the novation. 2. When there was a stipulation that the accessory obligation will subsist notwithstanding the novation 3: When the novation is one where a third person is ‘subrogated in the rights of the creditor. Effect if new obligation is void If the new obligation is void, the novation is void: In such ‘ case, the original one shall subsist, unless the parties intended >= the former relation will be extinguished in any event. (Art. 1297) Effect if original obligation is void The novation is void if the original obligation is void. (Art. 1298) If the original obligation is void, there is no obligation to extinguish since it is non-existent. Effect if the original obligation is voldable imed tn’, novation is valid provided that annulment may be claimed only by the debtor or when ratification extinguishes acts Which are voidable. (Art. 1298) The novation here cure > whatever defects present in the original obligation. 708 OBLIGATIONS "Example: D executed a promissory note for P50,000.00. representing the price of a car which C, by.means of violence, forced D to buy. Later, when the violence has ceased, D proposed to C that he.would give his ring instead of P50,000.00. C accepted the proposal. The novation here is valid. Whatever defect in the consent present in the original one is deemed cured by the new obligation to give the ring. Effect if original obligation, is subject to a suspensive or resolutory condition The new obligation shall: be subject to the: same condition unless otherwise stipulated by the parties. (Art. 1299) Example: D promised to give C a specific ririg if -C finishes his degree in Accountancy with honors. Later, the parties agreed that D. would give C a specific bracelet instead of a specific ring: Here, the obligation. to give a specific bracelet is subject to the same condition that C must finish his Accountancy degree with honors, unless they stipulated otherwise: Preference to creditor in case of partial payment A creditor, to whom partial payment hag been made, may exercise his right for the remainder, and he shall he preferred, to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (Art: 1304) ’ Example: D owes C .P100,000.00. With the consent of both, T, a third person pays C P50,000.00. Thus, C and T are now creditors of D at P50,000.00 each. If D has only P50,000.00, C will be preferred over T. = Novation in solidary obligation : A is indebted to X, Y and Z, solidary creditors, in the amount of P30,000.00. Thereafter, X, without the knowledge of Y and Z, agreed with A that instead of A paying P30,000.00, A would instead give a specific ring to the creditors. The obligation of A to give P30,000.00 is extinguished by the obligation to. give a specific ring. However, ‘X has to give Y and Z their respective shares at P10,000.00 each because novation executed by any of the solidary creditors shall render him liable to the others for the share in’ the obligation corresponding to then. (See Art. 1215.)