Ys OBLIGATIONS AND CONTRACTS NATURE AND EFFECTS OF OBLIGATIONS What is an obligation? ‘An obligation is a juridical neceasity to give, to do or not to io, Care. 1156, NCO, What are the sources of obligations? ‘They are: Lew; Gtr Gis its and) unset. re. 1157, NOC Obligations Sry ‘om lta te xecaavbemoe ae partie and should be complied wit go ids Gin Butnlao vs Marion Realty Corp, GX. Nov SLI, hageat 17,3007, What is the basis of the Liability of a school when student is stabbed Inside the campus by a stranger in the school? ‘The basis of the liability of the sehool is contract because Whenever a student enrls ata schoo, there Is contract ‘entered into between him and the achol. In this situation, the stadent binds himself to comply with the rules and regulations and to comply with the school policies especially ‘on academic requirements. The school in tarn assures the student that he will graduate, learn ngs Math, ete, ‘and assures that there wil be peace and erder inthe school fampus.(PSBA, etal vs CA, etal, GR No 84698, Pebrusry 41893), ‘OBLIGATIONS AND CONTRACTS ‘Nati en ees of Ogun What are the basic distinctions betweon natural obligations? ‘They are 1. Givilobligaions derive thoir binding force from positive ‘aw; while natural obligations derive theirbinding force ‘rom equity and justice; 2. Givilabligations cam be enforesd by court aetion; while natural obligations cannat be enforced by court action Dat depend exclasively upon the good conscience of the debtor. ‘What is the degree of diligence required of a person in the performance of an obligation? ‘Every person cbliged to lve something is alzo obliged to take care of it with the proper dligence of a good fathor ofa family, unless the law or the stipulation ofthe pares requites another standard of care. (Art. 1163, NCO). Sinleely, « common caier has to exercise extraordinary ditigence in the performance of its duty to earry goods oF ‘utmost diligence in the transport of persons. (Arts. 1733, 1755, NCO). Define the concept of a good father of a family. In Pcart om, Smith, 91 Phi, 800, the Supreme Court Acer ood aor ay by Bt tating wh Hols not ans not euposed tobe oman of te far; ‘ahr, he Is ge who thes prenaton agalot any harm ‘Ten ere sing Het hi a soguest or ware in Otte dangerr ferns ce, in Ongsito ot JAC, 152 SCRA 621, adver ot ear win nt al oct th a the igen ato tk drvrn eneoncing wpe ane, os nb damages ne lee ys Dustongre of jepoey it. While Be was thal able imam war ned tha he shold have heen mere care in managing te caro prev heswa Ns. What are the remedies of an aggrieved party in case ‘one of the parties falls to comply with his obligation? ‘They are: 2) specific performance to obtain compliance: b) ‘oacesion; orc) damages, exclusively rin addition to either or both ofthe two other remedies. (Art. 1165, NCC). -Aborrowed money from B: He exeeuted a promias note undertaking to pay the ead loan on or before December 1, 1901. If A falled to pay his obligation, can he be considered in defwalt inthe payment of his on? Why? ecauce in ardor that ho canbe considered in default in payment oFhis obligation, there must be demand (Art 1168, NCO) In this ete, no demand has beon made by B hence, A cannot be in default. " ‘Suppose In the question above, the note states that Awould pay the ctligation on or before December 1, 1091, without the need of demand, can he be in defaul ithe would not pay on such date? Why? ANS. (V5 because the contrat between A and B states that there 7 delay without demand. Asa general rule, there can be no delay if there is no demand! One exception to thi rle is when the contract provdas that there is delay even if there ‘no demand. (Art. 1169, NCC), As arule, before delay may be incurred, there must be ‘demand. What are the exceptions to the rule? They are: a ‘When the obligtion or the law expresly so declares; When time is of the essence; © When domand is useless, as when the obligor he eld it beyond his power oper (Ac. 169, 4. When theres acknowledgment of deft, What is required in order that demand may not be necessary? ANS. ANS. UU In order that demand may not be necessary, tis required thatthe, : presey states (hat the obligor shall ifthe Tila to fall che obligation wpon. the arival athe designated date or that upon the arrival of such date, demand shall not be necessary. Bayia vs. Siang ‘Trafic Co, 73 Phil 557) In order to settle once and for all thelr controversy, ‘the parties entered into a compromise agreement one fof the terms of which provided: “b, The balance of P1IM shall be paid, “whether in one hump sum or in installments, {at the discretion of the Foundation, within f period of not more than 2 years from the execution of this agreement.” ‘The agreement was executed on October 26, 1990 and approved on September 30, 1991. What is the reckoning point ofthe 2-year period? Explain. "The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not fon the judicial approval ofthe compromise agroement on September 80, 1901. When creditor wrote a demand letiar ‘tw debtor on October 28, 1952, tho obligation was already flue and demandable. When the petitioner failed to pay its Ale obligation after the demand was made, it incurred delay bocause those oblige to deliver or to do something incur in delay ftom the time the obliges judicially or extrajudicially demands ffom them the fuiSllment of their obligation (Article 1169, NCC). Delay ag used inthis article ie synonymous to default ‘or mora which means delay inthe fulfllment of obligations. ete the non-flfillment ofthe. obligation with respect to time, (Santos Ventura Hocorma Foundation, ne. v. Ernesto Sento, ef cly G3. No. 169008, Novesber 6, 2008). (i) ‘Wo my beable for damageat” 28 Tse “Those who in the performance oftheir obligations ae ily ‘Gand, niece, ebay, ad those who in any reanner enor heres ar Hinbl for damages. (AF 1170, NCO.1m a case, tho petitioner ordered lumber materials from reopondent for ove of constructing the niche for the bt 1 of Mn wie bee : Day In 1980. So on December 21, 1080, he arde materials from Angelito Alvier and followed up it ‘orders the following day saying that the material hed to be dolivered before 80 am. that dey an is laborers were ready to work at the Memoria Cemetery in Dasmarifs, Cavite, The materile wore not delivered despite several houre of waiting ad {otlowsp. He decided to cancel the orders and but the materials from another store. In shor, the niche ‘as not prepared as scheduled forthe Dural of his ‘ite who wae Inid to rest 912 days behind schedule, Tater on, he wrote Aiviar demanding recompense for the damage he satfred, but the latter resisted saying that no speciic time was stipulated for the doivery of the materiaia. The RTC hald Alvar Hable for damages, but the CA reversed, stating tha there ‘was no contractual commitment ao to te exact tne Ut delivery sine it was not indicated inthe invoice. the contention proper? Why? No. Alviar was negligent and incurred in delay fet nde ae Soper ec ‘and those who in any manner contravene the tenor thereof, are liable for damages. (Art, 1170, NCC). : ‘ho argument that no ape ine wae iplted was ‘elegy the vol comatinnt of Ava oreeayar Time wasof he eseucein the delivery ofthe materials to the gravesite especially so that the nishe has to be onsruedon Doster 2, 100i ine forthe bral ef Hs wie on Dooomber 2, Avia dy nto decry af the materials asted so nich tine tht he ensrcton Indo be started on Decetsr 28 J could bo adr the Sehadle aril of he pliner wie This is a cae of noo-prorance of a reepotal obligation, where in a contract of sale, one arty agreed to Buylend pay the prc nd theaters dle ess, Netra Baca of Onan GBazzaga vs. CA, et al, 79 SCAD 378, 268 SCRA 105 {n997p. Private respondent was issued a first-class ticket by PAN-AM as the latter represented that there were fevailable first-class accommodations when he bought his ticket, When he boarded the plane, he was asked to go to the tourist accommodation. He sued PAN-AM. for damages. Is the carrier liable? Why? ‘Yes, nbiding from the private respondent the unavailability of first class aecommedations, PAN-AM. was guilty of fraud, ‘The Supreme Court ea Ghat in misleading the plaintift ino purchasing fisteless tickote in conviction that they hed confirmed reservations when infact they had not, the defendant wilfully and knowingly plaoed himself into a position of having breached the contract. (On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the Treaty. In December 1901, the Philippine Government sent a note Verbale to the US Government notifying it of ‘the termination of the Treaty stating that i shall end fon December 31, 1992 and that the withdrawal of the ‘US military forees should be completed by sald-date. On August 6, 1992, Globe notified Phileomsat of its {intention to discontinue the use of the earth station tffective November §, 1992 due to the withdrawal of the Bases personnel, It invoked the contract which ‘tated that neither party shall be liable or be deemed. {in default for failure to perform its obligation if ‘such failure results directly or indirectly from force ‘majeure of fortuitous event, Philcomsat however asked for payment of the stipulated rentals for the remaining terms of the agreement. Globe refused ‘and failed to pay, hence, Phileomsat sued Globe for Sum of money. Globe interposed the defense of force ‘majeure dae to the nox-concurrence hy the Senate to the ‘Treaty. The RTC rendered a judgment ordering. Globe to pay USS0Z288.00 representing rentals for tthe month of December 1992. On appeal, Philcomsat contended that the non-concurrence to the TreatyG did not constitute force majeure and that Gabe ‘Boul be bl forte remainder o the tr sabe \ figreoment t contended that te agreement deaning i concept of foree majeure canst be given fleck beesuse i unduly expanded te concept afm foes tajoure under Arle 1174 NCO. the conenaien comet Explain ANB, Ne-Tecontaton ht the nn cneurenc othe Tey tot bec mae isnot once Atle ts NOG wo cepts a gr fn iy osu of eens rents orc mien, rear ns only aera ht at nfreanae bat alo toe whieh are fren Sk Inevale Arete ret under rie 14 aay hes bean at of Gel or naar onc such ae Seo trphons a ans onan sacha sen — tomag(ltszly, the foregoing are cither unforeseeable, or foreseeable but beyond the control of the parties. There is nothingin theenumeration that rans contraty to or expande, the concept ofa fortuitous event under Avtice 1178, Furthermore, under Article 1206 of the Civil Cod parties toa contract may establish euch stipulations, clauses, ‘terms and conditions as they may deem ft, as loag as the ‘same do not run counter tothe law, morals, good customs, public order or publi policy " 1h et I te Cl ne te pt tt {viatns sing fom contrast ae Sven tn emiacng sure et as fe ree il i ameenee sinner ects vy mot ol etn pac aeerorgois a {edoso wot be ater tho rel nen afte pte et sald in contrary ite encln te cans ne mice ae” eee ahi ord or plc poliy, Secon et tn ote Ean or vera offer afew whi Peet tnd Ge fay treat upoeha ec en et — thn pin Sete ee a” nes ‘on OH Nb Ma Sa Se o & 4 order in Nye oes Livondie “~ pauiauntons axo conernacts May carnapping or robbery be considered fortuitous ‘event? Explain. Robbery pers, like carnapping, i not fortuitous event it does not forelose the possibility of negligence. To be ‘considered os such, earnapping entails more than the mere fbreeful taking of another's property. It must he proved and totablished thet the event was an act of God and was done Solely by third parties and that neither the claimant nor the ‘person alleged ta be negligent has any participation, (Co vs. A, $58 Phil 305 (1996}: Sicam, ef al. v. Jorge, e al, OR. No. 189637, August 8, 2007) ‘When may a party to a contract be exempt from com pliance with its obligations due to force majeure? In order that a party to a contract may be exempt from ‘non-compliance with ite obligations due to foree majeure, the following elements eouat be established: (1) the event ‘ust bo independant of human wil (2) the occurrence most Fender it impossible for the debtar to fll the obligation in {normal manner, (2) the obliga be fre of participation in, tor aggravation of, the injury tothe creditor. Phileomsat and (Globe had no control over the non-renewal ofthe term of the Treaty when it expired in 199, because the prerogative to ratify the Treaty belonged to the Senate. Neither did ‘they have control over the mubeoguent withdrawal of the ‘US military foroes and personnel from the bases. The sforementioned events made it impossible the continuation ofthe Agreement unt the end ofits Syear term without fault on the part of either party, Hence, the CA was corect {im holding that the nonralication of the Treaty was a fortuitous event which rendered Clabe exempt from payment ofthe rentals forthe remainder ofthe term ofthe Agreement, (Phil, Communiéations Satelite Corp. vs. Globe Telecom, Ine, GR. Nos, 147924; 47834, May 25, 2004; Sicam, el. ‘ye dorge, eal, GR. No, 159617, August 8, 207). On November 4, 1967, typhioon Wehiting hit Central Duron, passing’ through the NPC's Angat Hydro- Hlectric Project and Dam at Tpo, Bulacan. Strong winds struck the project area and heavy rains Tatermittently fell, Due to the heavy downpour, theANS, ‘water inthe reservolr of the dam was rising perilously al the rate of 60,contimeters per hour. To prevent au, overflow of watek from the dam, since the water level hhad reached the danger height of 12 meters above sen level, NPC caused the opening of the spillway gates, ‘An extraordinarily large volume of water rushed out ofthe gates and hit the installations and construction ‘works of RCI at the Tpo sito with terrific impact, as a result of which, the lateer's stockpile of materials and. supplies, camp facilities and permanent structures and accessories were either washed away, lost, or destroyed. Sued for damages, NPC interposed the defense of fortuitous event. Is the defense proper? Why? No. because, duo to the negligent manner with which the spillway gates of the dam were opened, an extranedinarly large volume of water rushed out of the gates. Maintainers ‘of the dam knew that it was far more safe to open them ‘gradually. But the spillway gates were opened enly when ‘the typhoon was already at its height. Action could have been taken as early as Novernber3, 1967, when the water in the reservoir was cil ow. Atthat time the ents ofthe dams ‘ould have been opened in a regulated manner. And even though the typhoon was an act of God or what we may eal force majeure, NPC canna escape liaility Decause its negligence was the proximate ease ofthe las and damage ‘Thus, if upon the happening ofa fortuitous event or an act of God, there concurs a corresponding fraud, negligence, slay or violation ar contravention in any meiner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the ebigor cannot escape lilt. ‘The principlsembodiedin the act of God doctrine strictly ‘requires thatthe act must be one occasioned exclusively by. ‘he violence ofnatare, and human agencies are tobe excluded from creating or entering into the eause of the mischief ‘When the effect, tho cause of which is tobe considered, is found to be in part the result ofthe participation of man, ‘whether it be ffom active intervention or neglect, or falare ans. ~atzoxtions ax costnacts a ‘Nate an bese OD ct the whole ocureces thereby humana, ait was, {Seated tom the rule applicable tothe at God vith an ‘Thus, when the nogligonce of person concurs act of God in producing a ls, ouch person ie not exam from liability by showing that the immediate cause of Gamage wes the act of God. To be exempt from lia for lose because ofa act of God, must be free from any ‘Rrovious negligence or misconduct by which the lois oF amage may have been eceasioned. (NPC va. CA, 147379, May 16, 1988) na tranacion inotrng 2 ilegranh company, ta ata aatars wore included by an employee in & Maco ma Tee conpent oft sen cng aan tr the tlogaph company none meget Wis? ve, peace te tleaph companys elves as yes ee neligenestshard prov he peatle eg ely Breiner eee es Ean of corprion a oer sing and wesmiting eet! aE el ns pn eno the ese 5 Sis npraen undevabsts ant te Tete sour =“ TROP nC ase, Angus! 2,285 the Cs ee i et only hgh sons, ei nt ura ot sen se ge tein Ted tn corpo te Se a tienes in pr ~ fas business isto deprive the general public availing of ts evvies of en effective and adequate remedy. ‘money from a bank secured by a real dttguge over a real property. He failed to Py, Ponck je entered into n Contract of Sele. with [ASeumption of Mortgage with B and C for the fall ‘hount of A's obligation of P250,000.00, On the sane ny ant © togeor with A executed an agroninent Sey. cying the real consideration of the land in smbesY pa s0,00040. Then, they mogotiated-for the {imimptiowottetona towhich thebank agreed. TheyAns. ANS, ‘did not however, show the second agreement. After partial payments, the hank released the mortgaye sad ave its consent fo the transfer of the title fo B and C ‘and to the payment of the balance of A's obligation on terms. When the bank learned of the second agreement, it went to court seeking to annul the same ‘on the ground of fraud contending that had it known, the real consideration of the property, it would not ‘have agreed to the assumption of the mortgage by B ‘and C asit placed their capacity to pay in the dark for ‘aside from paying the bank, they have to pay 24M to ‘Is the contention of the bank correct? Why? ‘No,becausenon-disclosurebyB and Cofthereal consideration ‘ofthe land isnot the kind of fraud thet could have induced ‘the bank in giving its consent to the agreement, The lind of fraud that vitiates consent to a contract refers to those ‘insidious words or machinations resorted toby one of the contracting partes to induce the other into a contract which without them he would not have agreed to. (eyes vs CA, 216 SCRA, 152). The fraud must be the determining cause af the contractor must have eaused the consent tobe given, (ural Bank of St Maris, Pangasinan va, CA, etal, GR, ‘No, 110672; Rayandayan, ef al,CA, etal, GR. No, 111201, September 14, 199) Turn form of damages i debtor in tal alo A.debtor who incurs in delay or default i abe fx Gg terest as mentioned under Articles 1169, 1170~an ofthe Civil Code in the fora of interest: (Malaya ins, Co, Tne. ve: CA, GR. No, 59019, November 26, 2980). Mia te ett of the leniency ofthe creditor im ‘None. The capacity of a contracting partyin enforcing its ight under the contract does not, in any manner, diminish its rights thereunder. A party clearly commits’ « breach of contract by filing to eompletely deliver on its contract despite the leniency of the ather partyin enforcing its rights. (NPC vs, EIN Chemical Corp, 1-24856, November 14, 1986), a Ans. “Sariaxmions’ann oovraacrs: ‘Nasu end Bato Obes at does the phrase “in any manner contravone ton” ofthe abligaion au fated under Art. 3170 cover? hich impir the set Teincludes any ict act or omison whic imp. to th inst ft eatin nd every Hd of fective periormnce. Arita ve, Nat om Gasp To Boma TO; Maga ve. Meine, £97320, Apri 2, 1985). ‘Are there distinctions between dolo causante and ddolo incldente? ANS. Yes, Dolo cautante or causal fraud in Art. 1888, NOC are te Sie dak Sg, Dante 4 Oe pest ae va ee eter eter nsteneratios ote scriouy tmmployed by one party end without which the other party SBUTaae have uted inte the enna, Dolo intent wsdl fed in ht 1244, NCC, ae those which are Sens characer end witout wish the ober arty ‘ould ah etred nother canons etermins crate snets meat the conse edo ince reer nyt some pastel Tact he ation "hw efits of dlo count ae te malty ofthe cra sn th inet of aes da iio a the penn employing pay damage, Gerlaae SER etl C1 No, 10008, ebury 23,1094, 48 SCAD soa, Koga pcs be contrat species YeqaeT Sis oer enantiomers ohn the tigr promi elie fo of tre perms who do Soe same flere sa 117¢ and 168, NCO A turtle heeause jeepney carying passeagers turned . {oof ster Hew ot. One of the pantngers ded ncn, hers Beda eutfor damages. Tho owner {info ted un answer contending tat the cause of the accident was a fortultous event. Decide.oe ANS. The owner of the joep is lable. The blwring out of a tire") ANS. |B not a fortuitous event because with the use of proper | Ailgene, the owner could have inspected the ire to pevent_| the blowout. Juntila vs, Pontanar, 136 SCRA 624; Necesito ‘ve Paras, 104 Phil. 75. A executed a deed of assignment over his interest {in a pending application for a timber Heense. His application, however, has been denied by the Department of Natural Resources. Can he compel B, ‘the assignee, o pay the consideration? Why? No, beeause the eliacy ofthe deed of assignments subject to the condition that the applieation ofA for timber license ‘be approved. Since A was not able to obtain the approval, said deed produced no effect, When the contracts subject to ‘8 suspensive condition, ite birth or offetivity can take place only when the event which constitutes the eondition happens or is fulfilled. Ifthe saspensive condition does not happen, the parties would etand as if the conditional obligation ned never existed, Javier va. CA, 18196, March 15, 199). ‘What are the requisites of a fortuitous event? ‘They are () The cause of the breach of the obligation must be Independent ofthe will ofthe debtor, (©) ‘The event must be either unforseeale or unavoidable (© The ovent muct he such as to render it impossible Yor the debtor to fall his obligation in a normal manner, and (@ The debtor must be free from any participation in, or aggravation of the injury to the creditor. (Juan F. Nakpil and Sons, ofa. vs. Court of Appeals, etal, G.- No. 47851, October 8, 1986; Vasquee va, CA, 138 SCRA 559; Sicam, et al, ve Jorge, etal, G:R, No. 159617, August 8, 2007) ‘The building contractor and the architect made sub- ‘stantial deviations from tho plans and specifications and failed to observe the requisite workmanship in the emi of ne "Natare aad Kies of Obkatioes ‘construction, The building contractor also neglected to exercise the requisite degree of supervision, while ‘he plans and specifications prepared by the architect contained inadequacies and defects. The defects in the construction and in the plans and specifications ‘were the proximate causes that rendered the bulld- {ng unable to withstand the earthquake. ‘Sued for damages, they interposed fortuitous event ‘as their defense. Is It proper? Why? No the contractor and the architect cannot claim exemption from liability. The wanton negligence ofboth the building contractor nnd the architect in ffecting the plans, designs, Specifeations, and construction of the building is such ‘epligence ae to amount to bed faith in the performance of their respective tasks. One who negligentiy creates a ‘dangerous condition eannat escape liability forthe naturel Sni'proebleconsequenoes theres, thug the act of @ ‘third person, ‘or an act of God for which he is not responsible, intervenes to precipitate the loss. (Nakpil and Sons vs. CA, L-47851, October 3, 1986). [No. The evidence shows that the jeepney was running at a ‘ety fast speed before the accident, to that it Jamped into 2 ditch when its rear right tre Dew oat, which would not Ihave happened had tho jeep boen running ata regular and fale speed. While it may be true that the tire that blew frat waa atl good because the grooves ofthe tire were still “isble, this fact alone doesnot mal the explosion of the ire {fortuitous event. And since no evidence was presented toshow that the accident was due to adverse road conditions oF that precautions were taken by the jeepney driver to liminate any conditions liable to cause accidents, the ‘sudden tre explosion “could ave been caused by to much, air pressure injected into the tire coupled hy the fact that the jeepney was overloaded and speeding atthe time ofthe accident” (untila vs. Fontanar, 196 SCRA 624; Necesito vi. Paras, 104 Phil. 75), ‘There was a lease contract over a 6 x 6 truck. Tt suffered some transmission trouble and it was stalled in the place where it suffered the trouble for two weeks. It was shown that there was a guard posted to take care of the truck during day tne, but there ‘was none during the night. ft wae allegedly burned by those employees who were dlamissed by the company. When sued for damages, the lessee was held liable for damages but it appealed to the Supreme Court invoking fortuitous event. Is the contention correct? Txplain. No, because the lessee filed to employ the reasonable care and foresight in taking eare ofthe truck, The law bolds the lessees responsible for the deterioration aloes ofthe thing leased, unless they prove that it tole place without thelr fault. The fault ofthe lesse ean be traced tothe failure to ost a guard to take care ofthe track. Article 1687, NCC). Inorder for fortuitous event to exempt one from liability it is necessary that one ha committed no negligence oF risconduct that may have occasioned the Jos, (Fan Chiang ‘Sian vs. Inchaust\ and Co. 22 Phil, 152, Mareh 81812; Juan ‘Nakpil and Sons vs. CA,'144 SCRA 596, Octaber 3, 196, ‘Metal Forming Corporation vs, Ofice ofthe Presiden, 247 SCRA 731). An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of auch a Toss. Ong negligence may hhave concurred with an ac of Godin produbing damage and injury to another; nonetholes, showing thatthe immediate or proximate cause of the damage or injury was a fortuitous ‘event mould not exempt one from Hability. When the effct is found to be-party the result ofa person’ participation = whether hy active intervention, neglect or failure to act | ANS. ‘the whole occurrence is humanized and removed from the ‘rules applicable to acts of God. (Nakpil and Sons vs. CA, supra. ion ce amp on enhanc stacy aie renmetcratetci ara saa am caer ee an entire exclusion of human agency from the cause of the Sonu’ vr nt ine ann cra at seats {evel roured 9 exerine due ligne to prevent oF Peter ere sere coltetaeatarcarse forthe os he goa 1798, NCO) common SSS fet erree du generat ordinary are See chcunslonec of th mex eve dma Fuser an pete tne gonde cay tom te encaon ot tee dur, wb dosed to hae been niet, Sn the ly wl st be cosdeed as hang bee du oa ‘Mun dsser under Ss 724 (Palipine Amerian nen nora Go MG Marine Servis, nes OX No, 135646, March 8, 2002). oe ee ee Ernst tins engn cron pete 1a meh eign god ret oS ce st wel souseran? soe een ee Te BeesP tor th law, the rest ofthe principal by the ie a eet sei wth eran eee oer oe aes What is the effect if the obligation is payable from Samuary 1998 to October 1998 and X did not pay thefor June 1999 hut when hé paid in July (©) Divisible and indivisible; ~ (0 Obligations with a penal clause” PURE AND CONDITIONAL OBLIGATIONS ‘Define the following: pure and conditional obligations; ‘suspensive and resolutory condition. (a) Puro obligations are those which aro demandable at once, There are no conditions imposed, except iPthey srerGaluay.> (©) Conditional obligations are those where the sequisiton ‘ofa right or the extinguishment or las of those already acquired shall depend upon the happening of an event ‘Which constitute the condition (O,_Besolutory condition is one which is demandable at ‘ance, bt the happening ofan event would extinguish the obligation. Ago nin entertain fan ta an ‘iro ia aholder of an ordinary timber license covering 2,638 hectares. He executed a dood assigning to ‘Javier all his shares of stocks for P120,000.00. He also executed a deed of assignment over his interest in a pending application for additional forest concession ‘covering 2,000 hectares, but which was disapproved. Is Javier liable to pay? No, The efcacy of the deed of assignment is subject to the condition that the application of Tro for an additional area ‘of forest eonceasion be approved by the Bureau of Feresty. Since Tire did not obtain thet approval, sald deed produces, no effet. ‘When a contracts ubjec os suspensive condition, its birth o effetvitycan take place only ifand when the event ‘hich constitutes the condition happens or is fulilled. Ifthe ‘suspensive condition doesnot take place, the parties would Stand ae if the conditional obligation had nover existed. Gavier vs. CA, 1-48104, March 15, 1990) A and B entered into a contract of loan, providing ‘hat B shall pay when his means permit him to do so. Discuss the remedy of A in cage of non-payment by B. Cite your bases. Since the obligation is deemed to be one witha period, the remedy of Ais to go to court and ask the court to fx the period, The period Will then depend upon the circumstances ofeach cae, (Arts, 1180, 1197, NCC). Whit Is the offoct if sn obligation depenilé upon the sole will of the debtor? Its void, Under tholaw, when the fulllment ofthe condition depends upon the sole will of the debtor, Uhe conditional obligation shall be vid. (Ar. 1189, NCO). ‘The contract between A and B provides: “That the torm or period of this contract shall be as Jong as the party ofthe first part hhas need for the electric light posts of the party of the second part.”0 vn LAW REVIEWER, Is the contract valid? Why? ANS. No, because the condition is potestative, as it depends ‘upon the sole wil ofthe debtor. potestative condition is ‘condition, the fulfillment of which depends tipon the sole will of the debtor, in which cas, the conditional obligation is vid. (Art. 1182, NCO; Naga Telephone Coy Ine, et al vs. GA, etal, GR. No, 107112, February 24, 1994, 48 SCAD 539), ‘But suppose in the contract above, there isa provision that states “Ie being understood that this contract shall terminate when for any reason ‘whatsoever, the party of the second parti forced to stop, abandon its operation as a Public service and it becomes necessary to ‘remove the electric light post.” 1s the contract valid or void? Why? ANS. It is valid, because the fulalment of the obligation does rot depend upon the solo wil ofthe debtor. The eanitions Imposed are easual conditions, since they depend upon. chance, hazard, or the vil of third person, In sum, the fantratt is subject to mixed conditions, (Naga Telephone (Coy Ine, et al. v5. CA, etal, GR. No. 107112, February 24, 1994, 49 SCAD 539), ‘When do the effects of the flfillment ofa condition in an obligation fo give refroact? Explain. ” ANS. ‘Tho cffects of a conditional cbigation to give, once the condition has beon fulfilled, shall retract tothe day of the ‘ansitatin ofthe obligation (Art. 1187, NCC)-The peinelple of retroactivity applies only to consenstal contract, In real tontracs, there is immediate delivery. In consensual ones, delivery may be done on another day. @ What is the eftect if in an obligation, impossible ‘conditions, te. are imposed? ‘ANS.~Imposible conditions, those contrary to good customs, oF ‘public policy and those prohibited by law shall annal the VY ‘OBLIGATIONS AND conTRASTS ‘1 ‘Pur and Condtonl Osan obligation which depends upon them. If the obligation Js divisible, that part thereof which is not affected by the Jmpessible or unlawful condition shall be vali. (Art. 1188, NCO, ‘What rules shall be followed in cases of improvement, Joss, or deterioration of the thing during the pendency. ‘ofa condition in an obligation to give? When the conditions have been imposed with the intention of suspending the effeacy of an obligation to give, the allowing rules shall be observed incase ofthe improvement, loss or deterioration ofthe thing during the pendency of tho condition: (A) Ththe ehing is lost without the faut of the debtor, the obligation shall be extinguished; (2) Ifthe thing ie lt through the fault of the debtor, ha shall be obliged to pay damages; itis understood that the thing is lost when it perishes, or goes out of ‘commerce ordisappearsin sucha way thatitecxistence ‘unknown ori cannot be resovered; (@) When the thing deteriorates without the fault of the debtor, the impairment isto be borne by the creditor, (@)_ 168 deteriorates through the fault of the debtor, the ereditar may choose between the rescistian of the obligation and its fulfillment, with indemnity for eters (S) Ifthe thing is improved by its nature, or bj time, the improvement chall inure to the benef ofthe eredito, (©) Cit is improved at the expense of the debtor, he shall have no other right than that granted to'the ‘usuiructuary. (Art. 1168, NCO). ‘X-old and delivered acar to with the agrecinent that after five days, Y would pay the amount of P200,000.00 to X. X filed an action for reselasion of the contract ‘on the ground that ¥ failed to pay the price. Will the Action prosper? Why? ‘Yes, because in cases of reciprocal obligations, the power to rescind is implied ifthe obligor should not comply with whatNs, ANS. {is incumbent upon him while the other is willing and ready to comply. (Aré. 1191, NCO). In this case, ¥ failed to pay bis obligation, hence, X has the right to atk for neacasion, (Caiwide Holdings, Inc. vs. Jandecs Transpertation Co, Ine, GR. No, 168522, December 19, 2007. Suppose the delay in the payment was for only one day, will the answer be the same as above? Why? No, because tis a rale that in order that rescission may be availed ef, the breach must be substantial and fundamental ‘a to defuat the objective af the parties. (Song Fo and Co. ve Hawaiian Phil. Co, 89 SCRA 1), The breach on the part of Yis ony a simple one and should not be made to defeat the objective of the parties in entering into the contract because the law is nol concerned with trifes. (Bill Refinery Corp. v5. Mendoza, Juno 18, 1987) Suppose in the contract referred to above, there is ». reservation of the right to rescind in ease of breach of the obligation, is there a need to ask for judicial intervention in the rescission of the contract? Why? [No, Judicial intervention is not necessary forthe purpose of obtaining a judicial declaration rescinding a contract ‘where thore is a reserved right to rescind. (Luna vs Abrige, January 18, 1990). But the extrajudicial rescission fs contestable in court because i is the final award of the court of competent jurisdiction that ean conclusively settle ‘whether the resistion wan proper or not. (UP vs. De los ‘Angeles, 35 SCRA 102), X entered into-a contract for the purchase of two {ots from ¥. Each lot costs P100,000.00. xX had already ‘paid P70,000.00 for each lot when he failed to pay his ‘monthly installment because he had beon removed from office. ¥ filed an action for rescission of both contracts contending that there was a breach of the ‘obligation, Will the action prosper? Why? No, because rescission of both contracts would result in unfaimess. One contract should subbist considering that the payments made if added would be more than sufficient ta answer for the purchase price of one of the lots. In GO ‘obLicaTioNs ax Gonreacrs «3 ‘Osos witha Psat Legarda Hermanos vs. Suldano, 26578, January 28,1974, tho Supreme Court said that the installments paid were sufficient to answer for one of the late, hence it would be "unfair to rescind both. Rescision of one would be suftcent, OBLIGATIONS WITH A PERIOD ‘There were two @) purchase ordersofeylinder liner on November 2, 1989 and January 15, 1990 respectively. ‘The purchase orders did not state the dato of delivery. On April 20, 1990, there was delivery of the orders which wore accepted. There was however no payment. Instead, the buyer proposed to pay less considering the delay in the delivery and the scrapping of the vessel, (MIV Dadiangas Express. Demands were made to pay but to no avail, hence, a complaint for sum of money ‘was filed. The complaint was dlamissed but on appeal, the CA reversed the decision. The CA held that there could have been no delay since there was no demand. for the delivery of the oylinder liners. Petition with, the Supreme Court was filed which raised the laste of ‘whether the seller incurred in delay in performing its obligation considering that time was of the essence ‘and whether the contract was validly rescinded. Decide. No. Time was not ofthe essence. The delivery of the cylinder liners on 20 April 1990 was made within reasonable period of time considering thet seller had o place the order for the tylinder liners with te principal i Japan and thatthe latter Was, at that timo, beset by heavy volume of work, In determining whether time is of the essence in contiad, the ultimate criterion ia the actual or apparent Intention of th parties and before time may be so regarded. bya cour, there must be a suffelent manifestation, either in the contract itself or the surrounding circumstances of that intention, (Lorenzo Shipping Corp. vs. BJ Marthel Intl, Ine, G.R. No. 145488, November 19, 2004), X and ¥ entered into a contract of loan whereby X extended to ¥ the amount of P1,000,000.00 secured by a mortgage. The contract does not provide when,payment shall be made. After a period of one (1) year, foreclosed the mortgage. ¥ filed an action to nullify the foreclosure contending that there was no lsie for the foreclosure since the obligation has not yet ‘become due and demandable as the contract did not ‘provide for a period within which to pay. Decide. ‘The foreclosure is void because there was no basis as the contract did not provid forthe period of payment. In that ‘aso, as ofthe time of the forecloeure, the obligation has not ‘et become due and demandable, If there isn period forthe ‘ontract, there can be no demand for the enforesment ofthe ‘obligation. Ad since there eam be no demand, there can be ‘no default. (Art, 1169, NCC; Pacific Banking Corp. ve. CA, ‘May 5, 1980) Te foreclosure was premature. In the problem above, since there is no period provided for in the contract, what is the remedy of the parties? ‘Theremedyistogotacourt and ask: the cou to ithe period. Under the provisions of Art. 1187, NCC, if tho obligation oes not fx a peed, bat from its nature and circumstances {vean be inferred that a period has been intended, the court say fi the duretion thereat. Petitioner sold two parcels of land to the rospondent- vende without any formalagreement,Therespondent ‘paid P150,00.asinitial payment and paid four monthly installments of P740.56 each. Later, he failed to pay 1 the other installments aside from his refusal to sign a contract. He contended that he has the option to pay the lots any time within 10 years. An action for rescission was Sled. The lower court rendered Judgment in favor of the plaintiff which was upheld hy the Court of Appeals. He contended that the court ‘should fx a period for him to pay. Is the contention correct? Why? 'No, since the respondent-vendee was in bad faith and there ‘was malice on his part. To allow hiro an additional period to pay the Balance of the purchase price which is about 92% would be tantamount to excusing his bad faith and ANS. sanctioning his deliberate infringement of a contractual obligation that is repugnant and contrary to tho stability, security, and obligntary free of contracts. The failure to ay fhe succooding installments war a substantial and material breach on his part, not merely casual. The respondent failed to comply with the suspensive condition of fall and pPunetual payment of the price, hence, rendering petitioner's Dbligation ta sell ineffctive. Furthermore, the Supreme Court rule that to grant the respondent-vendee time ta pay would pace the vendar at the marcy of the vendee, who ean. Sasly construct substantial improvement on the land but beyond the vendor's capacity to reimburse in case he elects to rescind the contract, Under that design, testogem, and. Scheme, the vendoe ean cleverly and easly improve oat the ‘vendor of island. Xis indebted to in the amount of P100,000.00 payable ‘on or before December 31, 1992. On December 10, 1903, he gave an extension to X until January 80, 1998. Another extension was granted in February 1998 and two extensions more were given up to March 1998. When X asked for another extension, ¥ refused and ‘asked you whother he can still exercise his reserved Fight of rescission. Advise Y. ‘¥-can no longer exercise the right of rescission because he waived it when he granted a sories of extensions for X to pay. (Pilipinas Bank vs. 1AC, June 30,1987). ABC Realty Corp. sold Idié to several persons with certain conditions ike the completion of the development of roads within one year; completion of tho installation of water, light, and playground facilities within (1) year from the purchase by the Jot buyers. Two (@) years have passed since then, but no roads, etc. have been constructed, hence, the Jot buyers decided not to pay their amortizations. Can the Realty Company rescind their contracts? Why? 'No, boone the Realty Company that fails to develop cannot rescind because of mutual guilt Mutual guilt ofthe parties {is equivalent to good faith. (Antipolo Realty Corp. vs. NHA, ‘August $1, 1987) A party to a contract cannot demandANS. ANS. performagee of the other party's obligations unless he iain a position % comply with his obligation, Similar, the right forescindfa contract ean be demanded only ifa party thereto is realy, willing, and able to comply with his own obligations ‘thereundde (Bineloagan Tech, ine. ve. CA, eal GR. No. 100504, March 10, 1998), ‘To whatlcontracts is the remedy of reseission appli- cable? Tt is appliable to contracts that have been validly agrood ‘upon by the partes in the eases established by law, (Art 41880, NOG; Causapin vs. CA, e al, GR. No, 107489, June 14,1905, #25CAD 280 Within what period should an action for annulment of a contract entered into by minors or other {incapacithted persons be bromght? 1 should be brought within four (4) years from the time the guardjanship ceases. (Ar. 1991, NCC; Causspin vs, CA, et ai, |supre). If brought thereafter, the action ean be considered as having presribed, sfulshed, and each shall bear his own damages. ico). le effect ifthe parties agree that in case of a fortuitops event, the contract shall be suspended? Explain, in contrac that in ease of fortuitous event, shall be doomed suspended docs not mean that the happen|ng of the fortuitous event shall top the running of the perifé agreed upon. Its only effect isto relieve the ‘enntracting parties from the fulflment oftheir respective obligations Haring the term ar period, (Victorias Planters vs, ‘MC, 97 Phil. 318) ANS, peicd a uabscl ijh ie pane is @ Ns. ‘What isa day certain? ‘Aday certain is understood tobe that which must necessarily ‘ame, although it may not be nok Wen. (AFC 1188 [par ai Neo. — ‘What isthe remedy of the parties to a contract if the period has not been fixed? i thie obligation does not fx a period, but from its nature tnd the cireupotapess it can be inferred that a period was intanded the Qoursymay fe the duration erent The courts shall alo fx the duration ofthe period when 4 depends upon the will ofthe debtor. In evry cate, the courts shall determine such peiod ss may under the crcumstancet have been probly contemplsed by the partis. Once zed by the court, the tid canna. changad ye TA. 1107, NCC). Pacific Banking Corp. foreclosed the mortgage executed by Insular Farms, In. despite the extension te pay without a fixed period. War the act proper? why? Non Pacific Banking Corp va. CA, e a, L566, May 5, 1969, the Supreme Court said that an agreement extend indefinitely the payment of the installment of PEO,00.00 in July 1057 as provided in the promiatry aoe To valid Consequently, Pace Banking Corporation was presided from enforsing the payment of the said installment of Sly 1957 beter the expiration ofthe indefinite period of textension, which period had tobe fa a Provide in Art. 1197 ofthe Gv Code. (10 O45, p. 713, ‘ting Drake va, Publo National Bank, 96, p. 99, 44 Cole. . ‘The date of maturity of the indebtedness should be as such as may be determined by the proper eourt provided under Art, 1197, NCC. The disputed foreclosure and the subsequent sale were premature and in bad faith, hence, ‘the bank should be liable for damages arising from quasi Ache,“Harada ve Ifthe does not provide for a period, onthe / creditor i its fulfillment? Explain. 'No,becsuap an ation fr the court to fix the period has yet io be led. Inthe meantime, no one can ak for the flfliment af the obligation until aftr the opurt has Gxod the period for its eomplishce. (Vda. de Ungson va. Lope, [CA] L10180-8, Mareh 10,1954). Ina contspet which purported tobe a sale, there was an agreesfent on the purchase prie, The manner of payment Yas not, however, stipulated May the seller fio complaint to enforce the same? Why? No. A requlsito forthe judicial enforcement of an obligation 4 that the same ie due and demandable. The absence of od by wh ae pres should be paid e complaint the the blunt op-ed a deena, ees, ‘There could not have been any breach of obligation because onbhe date the action was filed, the alleged naturity deter tha payment ofthe balance had nt yet are In order that tho sulle could have a valid cause of ‘ction, it iofsental Unt there must ave bon aatipulated period witlin which the payment would have becme-due ‘snd damanfiaBle, I the parties themselves eould not come {nto agretbent, ihe courts toa be asked to fix the period ofthe sundae Article 117 of the Civil Cod (Ss. 3. ames, No, 154413, August $1, 2005). Give the cpnoept and eect of granting a grace period names ‘grace peti is ip not an sbiation, of tu Goon, ‘When onofditionaly-confered, its fisctve 3 further nef of demand eter calling fore payman ofthe sbligation gr for honoring the rit Te bees p77 ‘erative upon arrrl othe pre. Temas not be ied to'an obligation. the ‘ompetamance of which, ner ‘rile 110f- NCC, would general sl require oda or xtra demand bare dena ean be ad aan {Priektown)Pevt Corp, ow Malintinal Der. Corp ve. e pe cease Seat eve ne mo Yeas fly ase | | we ‘Amor Terra Devt. Corp, ef al, GR. No. 12182, December 12,1904, 57 SCAD 487) ‘Within what period should the action tox the period. bo filed? Explain. Iemust befiled within (Gonzales vs. Jose, 66 18246, March 30, 1960). otherwise, it would presribe. 3; Calero ve, Carrion, etal Le Oye ‘When shall «debtor lose the right to make use of the period? cplantin euniss cus an) donanduite, ‘Th dete shal ose every right to make use ofthe pera QS When after the obligation bas been contracted, he ecomes insolvent, anlees he gives @ guaranty or security for the debt; - Y When be dosnt furnish othe creditor he guaranties or acerca which he has promised, 95. When, by his own acts, ho has impaired said guaranties or secttes eer their establishment and when through a frtuitous event they disappear unless he dnmoditely gives new ones equally eaifactary, © Wheo the debtor violates sny undertaking, in consideration of which the creditor agreed to the period (S, When the debtor attompts to sbscond. (Art. 1198, NCO) — Xontescted a loan with ¥ whereby he was granted a. pporiod within which to pay the obligation. As security. for the payment, X promised to deliver to Y his ear within three (8) days from the consummation of the contract. He failed to do #0. Can he still make use of the period granted to him? Why? No more, because the obligation has become due and demabdable at one, X having lost the right to make use of ‘the period. When a debtor does not furnish to the creditor ‘the guaranties or securities which he has promised, he loses the right to make use ofthe period. (Art. 1188(2}, NCC).‘Xmortgaged his house as seourity for the payment of inis obligation to the latter. The obligation is payable ‘on oF before December 1, 1995. In the meantime, X ‘thandoned his house and made no necessary repairs to maintain it in tenantable condition. What is the remedy of ¥? Why? Ho can demand the flfillment ofthe obligation or foreclose the mortgage because X hae lost the right to make use of the period when, by hie own acts, he hat impaired said guaranties or securtis after their establishment, unless fhe immediataly gives new ones equally satisfactory, (Art. 1188(3], NCO). ALTERNATIVE OBLIGATIONS, / ‘When is an obligation alternative? facultative? It ig altornative if ho is bound alternatively by different ~ prestations but shell completely perform only one of thom. Gare. 1198, NCO), 1 is facultative when only one presentation has ‘bean agreed tipon, but the obligor ay’ render another in substitution. (Ar. 1206, NCO). Who chat the right of choice in an alternative obligation? — ‘The right of choice belongs to the AGbtaP unless it has been cexprealy granted tothe editor. (APCT200, NCO). ‘When shall the choicé become elfective? shall become effective from the time it s communicated. (Art. 1201, NCO), a ‘The choice has been given to the ereditor and the ame has been communtoated. What rules shall be ‘observed in case of loss of the thing? ‘When the choics has been expressly given to the creditor, tho obligation shall ccase to be alternative from tho day ~ ‘when the selection has boon communiented tothe debtor. ea ee ‘| ANS. pont OBLIGATIONS AND CONTRACTS Until thon, the responsibility of the debtor shall be governed by the following rules: (0) one ofthe things i lot through a fortuitous event, he shall perform the obligation hy delivering that which ‘the creditor should choose from among the remainder, or that which remains i only one subals the los of one ofthe things oocurs Uhrough the fl of the debtor, the ereditor may claim any of those subsisting, or tho price of that which, through the fault of the former, bas disappeared, with a right to damages; ‘fal the things are lost through the fault of the debtor, the chaice by the ereditor shall fal upon the price of ‘ny one of them, also with indemnity for damages. (art 1205, NCO). ® ® JOINT AND SOLIDARY OBLIGATIONS etc BU 41 Od 14 alt ene tere allt not Arse a ow a estgnon stte y 1 Weel er darts Whoa the nature ofthe obligation requires solidarity (art 1207, NCO). “At there are several ersdltors or debtors in one bligation,isthere prorumption of eolidary liability? Explain ‘None. When there is a concurrence of several creditors or tf mveral debtors or of veal code and debtors in Sie fd the same obligation, tis presumed thatthe clgation {icine pat not solidary. The most fundamental eet of ink divisible obligations is that each creditor eas demand ‘lyr the payment ofhis proportionate share othe red thle each Setor ean be eld Hable only forthe payment ‘this proportionate share of the debt Asa corliary to this ‘ule, dh credit o debt shall be presumed, inthe aboenceof any law or stipulation to the contrary, to be divided into ‘as many shares as there are creditors and debtors, the ‘credits o debts boing considered distinct from one another He necestarily follows that a joint creditor cannot act in representation of the others. Nolther can a joint debtor ‘be compelled ta answer forthe lability ofthe others. The pertinent rules are provided in Articles 1207 and 1208 of the Gfril Code, (Cambrano, al vs. City of Butuan, etal, G1 'No, 169605, September 20, 2006) ‘Three persons acted as surety in an obligation of another: The debtor filed fo pay bat two of the ‘made @ partial payment to the creditor. Thereafter, they asked for relmburaement but the remaining debtor refused to make reimbursement, ‘contending that there was only a partial payment to the extent of thetr proportionate shares. Hecontondod that there must be full payment before they can ask for rrelmbursement. Is his contention correct? Explain. Yes. Payment of any amount wil not automatically result inrelmbursement.Ifxsolidary deblor paye the obligation in pert he can recover reimbursement from the eo-debtors only Insofar as his payment exceeded his share inthe obligation. ‘This is precisely because ia solidary debtor pays an amount equal to his proportionate char in the obligation, then he {effect pays only what ia due from him. Ifthe debtor pays Tess than bia share in the obligation, he cannot demand relinbursement becaute his payment isles than his atl ‘debt, (Republic Glass Corp, eal vs. Que, GR. No. 144419, Sly 30, 2004) In a case the contract states that RGC, GERVEL ‘and QUA each covenant that sach will respectively relmburse the party made to pay the Lenders to the extent and subject to the limitations set forth herein, fall gums of money which the party made to pay the Lenders shall pay or become liable to pay by reason ‘of any of the foregoing, and will make such payments ‘within five (8) days from the date that the party made to pay the Lenders gives written notice to the parties ‘oauioaTions ano cowrnacts 00 Sent and Stary Obgtons hereto that it shall have become liable therefore and hhas advised the Lenders of ite willingness to pay ‘whether ornot it shall have already paid out such sum. ‘or any part thereof to the Lenders or to the persons ‘entitled thereto. What is the nature of the contract? Explain. tiem contract of indemnity not only against actual Joss but against liability as well In Associated Insurance & Surety Gow Inc, vs. Chua, 7 SCRA.62, a distinction was made ‘between a contract of indemnity agains loss and a contract of indemnity against liability. Wail the frst doesnot render ‘the indemnitor Hable until the person to be indemnified ‘makes payment or sustaina lass, the second becomes parative as toon aa the liability ofthe parson indemnified troee irrespective of whethor oF not he has sfered actual loss . ‘Therefore, whether the soléary debtor has paid the creditar, the other solidary debtors should indemnify the former once hie Hsbilty becomes absolute. (Republic vs Glase Corp. etal. vt. Qua, GR. No. 144418, July 80,2008). The contract provides that the “guarantors jointiy and severally guarantee as primary obligors and not merely as sureties, the due and punctual payment of the principal interest, ee. on the loan of the debtor” Tewas contended that the Liability is one of guarantor hhased on the words “guarantee” and “guarantors” in the contract Is the contention correct? Why? _ No, While referring to the party es a guarantor, the ‘Agreement specifically stated Ubal the corporation’ was ‘Sntly and severally” Mable To put emphasis on the nature ofthat Liability, the Contract further stated that party was ‘primary obligor, not a mere surety. Those stipulations ‘meant only one thing; that at bottom, and tall legal intents and purposes it was a surety. Hanes, the party bound itself to’be solidarity Liable swith the other for the laters obligations under the Losn ‘Agreement. It thereby brought itself to the level of the principal debiar and could not be doomed merely secondarily"acto make the contract one of guaranty. (B.Zabe, Ine. v8, (CA, 352 Phil. 618 (1996); International Finance Corp. vs Imperial Textile Mills, Ine, GR. No, 160824, November 15, 2008). ‘4B, and Cboremed money fom Xin the amount of Tggea ‘P5,000.00obligating themselves topay on June30, 1991. When the abligation became dus and demandable,X |-DIUT demanded from A the fall amount of the obligation. Is J ‘the action of X correct? Why? No, because the obligation is only a joint one. Ther is no ‘resumption of solidarity; there is ony a presumption that ‘the obligation is joint. lence, the amount af P3,000.00 is presumed to be divided into as many equal shares as there fare deblors unless there is an agreement to the contrary. ‘There is solidarity only when the obligation says ao or that tho nature ofthe obligation requires aoliarity. Tn this caso, since there is no agrooment of solidarity, X cannot compel ‘Ato pay the fall amount of the obligation. Pimentel vs, ‘Gutierrez, 14 Pil 49) In June 1988, X obtained a loan from A and executed with Y, as solidary co-maker, a promissory note in favor of A for the sum of P200,000.00. The loan was payable at P20,000.00 with monthly interest within the first week of each month beginning July 1988 ‘until maturity in April 1989. To secure the payment of the loan, X put up as security a chattel mortgage om his car, a Toyota Corolla sedan. Because of X and Y's — failure to pay the principal amount of the loan, the car was extrajudicially foreclosed. A acquired the car at A's highest bid of P120,000.00 during the auction fale, After several fruitless letters of demand against Xand ¥, A sued ¥ alone for the recovery of P80,000.00 constituting the deficiency. Y resisted the suit rais the following defons- 42) That ¥ should not be liable at all because X was not sued together with Y. ANS, ANS. ‘onuiaxatoxe snp contmacts sas Vein an lidary Oblate 1) ‘That Y should not be held lable for the deficiency ‘of P0,000.00 heeause he was not a co-mortgagor in the chattel mortgage of the car, which contract was exeouted by X alone as owner and ‘mortgagor. © That assuming that ¥ i Uable, he should only ‘pay the proportionate sum of P40,000.00, Decide each defense with reasons. 2) Y's contention is untenshle because tho liability is salidery. Under the Taw, the creditor may proceed fagainst aay one of the solldary debtors. (Art. 1216, NCO). b) The contention of ¥ ie untenable because he is liable for the fll amount ofthe obligation, even without the security, a chattel mortgage. ©) ‘Thocontention of ¥is untenable beceuse the lability is soldary. ‘What isthe nature ofthe liability ofa franchise holder ‘and the owner of a vehicle under the kabit system? Explain. ‘The nature oftheir liability olidary. In Peres ve. Gutierre, September 28, 1973, it was held that under the habit system, ifs veicle uted fur transporting passengers meets fn aveiden, the ostensible owner shall be liable, but he has fright of recouree agsinat the true owner ofthe vehicle. In fact, the Supreme Court held that their ability is saidary. ‘Accontract was entered into with a performance bond ‘executed by Stronghold Insuranee Company, Inc. The principal obligor died, hence, the surety of the debtor ‘contended that the death of the debtor extinguished its obligation. Is the contention correct? Why? No, A surety company’s liability under the perfomance bond ‘it Isgues is slidary. Th death of the principal obligor does rot at a rua, extinguish the obligation and the solidary ature ofthat bil. ya clay vcd equ ALaakn acd Lo stideny wplaaDeath isnot defense that he or his estate can set up to wipe out the obligations under the performance bond. Consequently, petitioner as eirety cannot use his death to scape its monetary obligation under its performance bond. (Stronghold Insurance Company, Inc. vs. Republic ~ Asahi Glass Corp, GR No. 147561, June 22,2006), ‘What is the nature of a suroty’s obligation? Explain, ‘The surety’s obligation ia not an original and direct one for the performance of his own ack, but marely accessory or collateral to the obligation contracted by the prineipal ‘Nevertheless elthough the contrac of a surety isin essence secondary nly toa valid principal obligation, hie Lilt to the creditor or promiso ofthe principal is suid to be direct, primary and absolute; in other words, he is directy and equally bound with the principal. (Garcia ve, CA, 191 SCRA 1439 (1990); IFC ve. Imperial Toutile Mills, Ine, GR. No. 160824, November 15, 2008) Under the aw and jurisprodence, the reditr may sue, separately or together, the prinipal debtor andthe surety, ‘iow ofthe solidary nature of thelr lability. The death ofthe ‘rineipal debtor will nt werk to convert, decreas or lily the substantive right of the solidary creditor, Evidenty, despite the death of the principal debtor, the erediter nay still sue petitioner alone, in accordance with the soidary nature ofthe lati’ liability under the perfamanee bond. (Stronghold Insurance Co, Tne. ve. Republic Asahi Glass Corp, supra) a wo State the basie rales in case an obligation is (oii is ™ ‘The base rules in eat an obligation aint are (0) The demand for th flliment made by the eeitor ‘upon on of debtors does na place the oer debtors indafnlt (@) Theinterruption ofthe prescriptive period wih repsit to ono debtor does not alec the rights of others (Geom vs Javier, 38 Pil. $24 (©) The dtense of one debtor not a vali defense ofthe others. a State the rules in ease there is payment by one of the solidary debtors. ANS. Payment made by one of the slidary debtors extinguishes a the obligation. (Art. 1217, NCO). He who made the payment may claim from his co- debtors only the share which corresponds to each, with the Interest for the payment already made. Ifthe payment is rade before the debt isd, no interest forthe intervening period may be demanded. (At. 1217, NCO), Suppose one of the solidary debtors cannot pay his share to the debtor who paid, state the rule. ANS. The shore ofthe debtor who cannot reimburse the solidary a debtor who paid shall be ehouldered by all is co-debtos, in proportion tothe debt of each. (Art. 1217, NCC). XY, and Z bound themselves solidarlly to pay A the ‘amount of P5,000.00. Suppose X paid the obligation, what is his right as against his eo-debtors? Why? 1058, Kem ko Gre fom ¥ te Pa mae @ ‘by one ofthe sBIRiRT bors extinguished the obligation. ‘He who made the payment may claim from hie e- debtors nly the share which corresponds to each, with the Interest for the payment already made. (Art, 1217, NCO). % ¥, and Z bound themselves solidarily to pay A ‘the sum of P10,000.00. When the obligation became ‘Gue and demandable, A sued X for-the payment of the P10,000.00. moved to dismiss on the ground that there was fallure to implead Y and Z who are indispensable parties, Will he motion prosper? Why? ANS. No,beeause he eaditar my proved agnintGipone of te solidary debtors or some or all of When SmTTERSousy. The demand made agsint one of them shall not be an ebstacle ‘to those which may subsequently be directed against the ‘others, eo long asthe debt has not boen fully collected. (Art 3216, NCO). As a mattorof fact, eolidary cowebtors are not indispensable parties.ANS. pores A,B and Care solidary debtors ofX. fasied yearslater, ‘after the obligation became due and demandable, A. aid X and later on asked for reimbursement of B's ‘and C's shares. Is A correot? Why? No, because the obligation has alzady prescribed. The law says that payment by a slidary debtor shall not entitle him to reimbursement from his codebtore if euch payment is ‘made after the obligation has preseibed or become illegal. (re 1218, NCO). XY, and Z are solidary co-tebtors of A. X obtained emission of the total amount of the obligation from ‘A.CanXask forreimbursement of Puand Zs shares? / Way? No, becanso the remission ofthe whole obligation, obtained by one of the solidary debtors, docs not entitle him to reimbursement from his codeblors (Art. 1220, NCO) What is the effect of tho(foss bf the thing due without 1817 the fault of solidary co-dabtors? ‘Tho obligation is extinguished. Under the lew, ifthe thing thas heen lost or if the prestation has become impoesble without the fault of the slidaryco-debtors, the obligation is extinguished. (rt. 1221, NCC). ‘Whats the effec ithe lose was due tothe fault of one ofthe solidary debtors? Tein tho fault ofall I hore was fault onthe part of any nw of tho soliary co-dbtoc al shall b-rspanai to the eeitor, for the price end the faymentofdamagty snd Intern, without prejudice to chei en agains Te lly orneligent debtor. (Art. 1221(par. 2], NCO. ‘OBLIGATIONS WITH A PENAL CLAUSE ‘Stato the rules in cases of obligations with a penal clause, (1) Im obligations with a"penal claus, the penalty shall substitute the indemnity for damages and’ wt oe peer lad, ‘ ant we" aa ner a ‘tention witha Penal Clase of interests in case of non-compliance, if there is no Stipulation to the contrary. Nevertheless, damages Shall be paid the obligor refuses fo pay the penalty or js guily of frau inthe fulfillment ofthe obligation. ‘The penaiy may be enforced only when iti de smandable in acsoniance with the provisions of this Gade. aF1228, NCO") ‘Thedebio¥eannoverSxpt himself the perfermance Cf the obligation by paying the pent, save inthe case wrhere this right has been expresly reserved for him. [Neither ean the erditor demand the fulfillment ofthe ehligation and thesatistctionofthe penalty atthe came time, unless this rit has been clearly granted him. However, if after the creditor hes decided to require the fuldiiment of the obligation, the performance thereof ahould become impssibe without his fal, the penalty may be enforced, (Ast. 1227, NCC) Proof af actual damages sued hy the creditor isnot ‘ecessary in order thatthe penalty may be demanded. (het 1228, NCO), ® Whats the purpose ofthe penalty clause? ‘The penalty clause in an obligation is designed to Gasp) perrlanos ofthe obligation (Country Bankers Is, Corp. 12 CA, September 9, 1980. ‘What are the kinds of penalty clauses? ‘There are-two kinds of penalty causos like (1) penalty clase imposed essentially a8 pe It {a ponally having for ite principal object the ebforcement fod compliance with the contract, and (2) pénalty clause {imposed as indemnity for damages should there be neither partial nor ireguiar compliance with the terms of the fontract. The principal purposs ofthe indemnification agreed: ‘apon appears to have been to provide for the payment of fchual anticipated and liquidated damages rather than the penalization of a broach ofthe contract. (Lorenzo Shipping orp. ve, BY Marthel nt, Ine, G.R. No. 188989, November 19, 2004).‘When is there a need to distinguish the two kinds of penalty clauses? ‘There ie a neod to distinguish the two kinds of penalties if there is no performance at all ofthe obligation. In eases ‘where there has been partial or irregular compliance, there will be no substantial difference between a penalty and liquidated damages insofar os legal results axe concerned. GLaureano vs. Kilayo citing Lambert ve. Fox, 26 Phil 588) ‘The settled rule is that there is no difference between ‘penalty and liquidated damages insofar as logal result are ‘concerned and that either may be recovered without the necessity of proving actual damages and both may! ‘when proper. Paasintuan vs. CA, 94 Phil 656 Land, Ine. vs. CA, eal, GAR, No. 138980, Septemaber 20, 3008). ‘Thepartiesenteredintoacontractfor thedevelopment. and sale of two (2) subdivision ots. Under the contract, {in ease of delay, the contractor would pay « penalty ‘of P15,000.00 per day of delay out of the contract price of P12,470,000.00. The penalty was the subject of a controversy where tho owner contended that it ‘is valid since itis the product of a mutual agreement of the parties. The contractor contended that it is ‘excessive. Whose contention is correct? Explain, ‘The contention ofthe contractor is correct, ‘There is no question tit the penalty of P15,000.00 pa ay of delay was mutually agreed upon by the partes ad that the same is sanctioned by law. A penal rlause is an seven undertaking fo asune gest ily fn case each. Iti attached to an obligation in_ardar to insure performance GL, Carles Construction, Ine. ve. Marina ‘Properties Corp, GR. No. 147614, January 29, 2004, 421 SORA 428) and ‘has a double function: (1) t provide for liguideted damages, and (2) to strengthen the eoereive fore ofthe obligation by the threat of greater responsibility inthe event of reach. (S8S vs. Moonwalk Dev. & Housing Corp., 221 SCRA 119 (2909), Courts may oquitsbly reduoe a stipulated penalty in a Yauioxrions ano contracts a Ihas been partly or irregularly complied; and (2) even if there has been no compliance ifthe penalty is inequitows ‘or unconscionable, (Art. 1228, NCC; Filinvest Land, Ine. vs, Ga, eta, GR. No, 188980, September 20, 2008). When is a penalty reasonable or inequitous? ANS. The question of whether apensltysreasonableorinequitous a ean be partly subjective and partly objective asta resolution ‘would depend on such factors ike the type, extent and purpose ofthe penalty the nature of thecbligation, the mode Of breach and its consequences, the cupervening realities, the standing and relationship of the parties, and the like, ‘the application of whieh, by and large, is addressed to the found discretion ofthe court (Co v8. CA; Ligutan va. CA, ‘826 SCRA 660 (2002). X borrowed money from ¥ with a stipulation that ~ the amount shall ear interest a 6% per month, and fa ponalty clause of 4% per month in case of default. X Wetaulted; hence, ¥ demanded the performance of the obligation, and having failed to pay, Y sued X. X interposed the defense that the penalty imposed in the contract is excessive and Inequitous, hence, the ‘court must reduce it. Is the defense proper? Why? [ANS. Yes. The law proves chat the judge shal equitably reduce a ‘he penalty when the principal obligation has been partly or {regularly complied with by the debtor. Bven if there has ‘been no performance, the penalty may also be reduced by the courts if ti inegutous oF unconscionable. (Art. 1229, NCO. A orrowed money from B with interest and penalty ‘charges imposed in the contract. A failed to pay his Obligation; hence, B mued A for collection of sum of money. A compromise agreement was entered into land approved by the court, with a stipulation that in ‘ase A falls to pay, he would pay a penalty of 4% per month, He failed to pay, hence, a motion for execution ‘was fled. A opposed the motion on the ground that ‘he penally Is excesrive or inequitous. Rule on the motion. =ANS. The motion shouldbe granted. While it i true thatthe court + can reduce the penalty if itis inequitows, the samo rule is applicable only in contracts that are subjects flitigation, not ‘to. case where there has already boon judgment rendered ‘and the anme has alrendy bscome final and exceutory. Under the facts, therefore, A eannot invoke the power ofthe court to educe the penalty. (Commercial Credit Corp. of Cagayan 4 Oro vs. CA, January 2, 1989), What are the exceptions to the rule that a penalty ‘lause shall bea substitute for the payment of interest ‘They are: (1) when there is no stipulation ta the contrary, (@) when the Gbligor Se sued for refusal to pay the agreed penalty; or) when the obligor is guilty of fund. (Art. 1226, co, ‘State the rules in case the principal obligation or the penal clause is void. ‘The nullity of the panel clause doesnot carry with it that of the principal obligation ‘The mullity ofthe principal obligation carves with it ‘that ofthe penal clause, (Art, 1280, NCC). ‘There was a contract of loan between SBTC and the ptitioners with a stipulated penalty of 5% per mont, ‘When the obligation beeame due and demandable, no Payment was made, hence, a sult was filed, Judgment ‘was rendered by the RTC holding defendants liable {imposing 5% per month penalty, The CA reduced it to ‘8% per month. Before the Supreme Court, they sought to have it erased totally contending that itis grossly excessive, exhorbitant and unconscionable, Ie the ‘contention proper? Why? No, The question of whether a penalty is reasonable or inequitous can be partly subjective and party objective Its resolution would depend on euch factors ae, bub not necessarily confined to, the type, extent and purpose ofthe penalty the nature ofthe obligation, the mode of breach and iis consequences, the supervening realities, the standing pel 6 @ / v Q | ans cle died Som @ Ns. ‘~ optucattons aNp conraacts nis “nga! Ogee and relationship of the parties, and the like, the application ‘of which, by and large, is addressed tothe sound diseretion of the court. In Rizal Commercial Bank Corporation vs. CA, 289 SCRA 242, the Supreme Court has tempered the penalty charges afer taking into account the debtors pitiful Station and its afer to etile the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor, Casula Bank of Asia and America vs. Sps Salazar, 169 SCRA 111; Ligutan vs. CA, ef al, GR. No. 1138677, Febroary 12, 2002). ‘When may the court delete penalty clause? Ixplain. ‘The stipulated penalty might oven be deleted such as when. ‘here bao been substantial performance in good faith by the obligr, (Article 1234, NCC), when tho penalty cause ‘Mooi? afore from tal’ infirmity, or when exceptional ‘drcumstancea a0 exist as to warrant. Garcia vs. CA, 167 ‘SCRA 616; soe Palmares vs. CA, 288 SCRA 423; Ibarra vs ‘Aveyro, 37 Phil. 278; Ligutan vs. CA eal, GR. No. 138677, February 12,2602), EXTINGUISHMENT OF OBLIGATIONS. (Obligations are extinguished: ‘By payment or performance; (By the loss ofthe thing dues (By the condonation or remission of the debt; (G39 th confusion or merger heights of he rotor ptt Ass compensation © By nanton. Other causes of extinguishment of obligations, such as a ment ofa resolutory condition, Peerplimaregvemol aiswarer Coda. (Ne 1231,PAYMENT OR PERFORMANCE ag ged pessoa ay ths etilgntion ot emote? ‘Asarule,no, Under the law, # third person cannot erdinaily pay the abligation ofa party in a contract. This is based on the principle that there is no privity of contact belmeen the third person and a party toa contract. The exceptions are: (@) When there isa stipoation slowing i; and (©) When tho tid person has an interest as oo-debior or guarantor. (Monte de Piedad ve. Radrigo, 62 Phi 212), ‘Xand ¥ entered into two 2) written contracts entitled “Conformity of Agreement” whereby X authorized ¥ to negotiate with the Land Bank of the Philippines and the Ministry (now Department) of Agrarian Reform for the sale of 270 hectares of land, tobe done within 120 days. X bound himself to pay Y atleast 26 percent of the gross sales of said property which was Inter reduced to 17 12 percent. The sale was approved, thus, there was part release of the proceeds. But X did not pay ¥ his share, hice, a suit for collection of. ‘sum of money was filed. The RTC decided for Y and ‘it was affirmed by the CA. It was contended that Y {is not entitled to-a share because there was no full, ‘Payment yet, therefore, there has been no compliance ‘with the terms and conditions of the'sontract. Is the ‘contention proper? Why? : a ‘No, because there’has been substantial compliance in good faith; hence, the obligor may recover as though there had Deen a strict and complete flfllment (Art, 1234, NCO). ‘When the obliges accepts the performance, knowing its ‘incompleteness or iregularty, and without expressing any protest or objection, the obligation is deemed fully complied with. (Art. 1285, NCC), The ealletion ofthe proceeds from the LBP was not among the matters contemplated by tho parties in the said agreement. All they had in mind wes ‘that the preparation, processing, and filing ofthe necsaary documents ware noeded to effect the recovery ofthe proceeds \ oaticantons ano cowmmacts on from the LBP, Intestate Bstate ofthe LateRicardoPresbitero ve. CA, etal, GR. No, 102482, January 21, 198). State therules when a third person pays the obligation ite examples. ANS. fof" payment was made with the kupwledge ofthe debtor, the ed erson san ak for Felnbursegst Age from Gat, MEE orogenic ab dhe ftieng fom © gUBPEREY Fonaly Cause or morenge Gare a7, NCC. ample Xisindebied to Yin the amount of PEO 00000. As secant for the pastentof the obligation, exeeted feu etate morgage ovr a parc of land elnging fo'bim, Za fend of X, pai he obligation with the coment of, ore, Zana for rtbursement fom X. Ase fiom tint he can be subrogated te such rights a8 8 mortgage. JS Wee payment was made without the kanwladge of tne debion, there can be a AGB of reimburesment or Strato, tothe extent of the benefit oro the Aeon (Art 1296, NCC) Bxample X ia indebted to Y for P10,000.00, Under the contrast, X would pay only P5,000.00. Without his ‘consent paid the amount of P10,000.00 to Z-~ In this eave, Z can recover only P5,000.00 since hhe is entited only to m beneficial reimbursement X benefited out of the payment to the extent of only 5,000.00, (© Ifpaymentis made by a Sr person who does not intend ‘abe bound, its deemed tobe donation it needs the tongent of the deblor because nobody ext be compelled to necepe the liberality of another (Art. 1288, NCC). ‘The reason for tho rule is that payment made by a third person without the intention tobe reimbureed withsuch payment it considered as a donation. The law, however, requires tho accoptance by the deblor been no on cau be compelled to acopt the liberality of another. Iisa rule that, {ora donation tobe valid, it must be aceptad bythe done, ‘To whom should the payment be made? Payment must be made te (@) The person in whose behalf the obligation was consti tuted, (©) The person authorizad to reesive, (Art. 1240, NCC), May the obligation of the debtor be pald by a third person? Asa rule, no, because ther is no privity of contract between, ‘the third poreon and the creditor. There are, however, exceptions to the rule as when: a) there Is stipulation to ‘he contrary; b) when tho third person hasan interest as a coulebtor or a guarantor. (Monte de Piedad vs, Rodrigo, 62 Pll 312), Xis indebted to Yin the amount of P10,000:00 payable fon or before December 1, 1981. In the contract, Y agreed to be paid only to the extent of 5,000.00 ‘when the obligation is due. Unkmown to X, Z paid the amount of P10,000.00 to Y. Subsequently, Z asked for reimbursement for the fall amount of the obligation. Is Zs action proper? Why? ‘No, because Zs entitled to rosover only P5,000.00 since that isthe extentto which Xwas benefited by the payment ade by Z Under the law, whoever pays for another tay demand fiom the debtor what he has paid except that if payment ws ‘without the knowledge or agzinst the wil of the deblor he ‘cn recover only insofar asthe payment as been beneficial to the debtor. (Art. 1236(per. 2} NCC). ‘They are: a) When the obligation i « facltative obligation. Hire, one prestation has been agreed upon; but the abigar Comparer 7 ‘may render another in substitution of the same(Art. 1206, NCC}, 1b) When there ie another contract entered into between the parties resulting in dacion en pago oF ‘ovation; When there is a waiver made by the exeditar as when he aoopted «thing other than what was agreed upon This constitutes estoppel. ‘A deposit with BPI was opened by Lim and Velasco, ‘ut the trath is that it belonged to Eastern Plywood. Corporation, BPI allowed the heirs of Velasco to ‘withdraw it. Was there payment so as to relieve the Dank? Why? None, beceuse the real creditor is Eastern, The payment ‘hat fe considered as awful under the lav is payment to the ‘person ofthe creditor or the one authorized by him or by the law to reealve it. (Art. 1240, NCC). Payment made by the debtor tothe wrong party does not extinguish his obligation towards the ereiter who is without fault or negligence even. ifthe debtor acted with wimost good feith and by mistake fs to the person ofthe creditor of through error induced by frau of third person, The payment by BPI, even if done in 00d fith, didnot extinguish the obligation. (See also PAL ‘vz, CA, 161 SCRA 557; Bank of PL. vs. CA, ef al, GR. No. 104613, May 10, 1994, 61 SCAD 188. What does this clause in a Contract of Conditional Sale with Mortgage mean: “The vendor-mortgagee is willing -to sell said portion of-her lot to the vendee! ‘mortgagor for a total price of 37,485.00 payable In monthly installments of P500.00 ‘with an interest of 10% per annum on the ‘emaining balance until the full amount is paid” Tt mean that at the end of each year al the instalment payments made shall be deducted from the principal ‘Sbligation. The 10% interest on the balance is then added ‘to whatever remains ofthe principal. Thereafter, the debtorANS. ov Law nuvteweR, shall pay the monthly installments on the stipulated dates. Jn other words, the intarests due are added ta and pata ike the remaining balance ofthe principal. The partes intended that the debtor pay the monthly installments at the pre- determined dates until the full amount oonsisting of the price and the interests onthe balance ie paid. (Rapanut va A, et al, GR. No, 109680, July 14, 1995, 62 SCAD 801), If there is a default in the performance of one’s ‘obligation, what is the effect of the acceptance of delayed paymerits? Rosclssion is impliedly waived. Failure to exercise tho right “of rescission aftr the debtor defaulted constitutes a waiver of such right. The continued acceptance of payments after the default places the debtor in estoppel. (Rapanut vs. CA, ev al.,G.R. No, 109680, July 14, 1996, 62 SCAD 801, citing “Angeles vs, Celasanz, 195 SCRA 325; De Guzman vs Guieb, {48 5CRA 68). ° ‘What should the creditor do in a contract providing for payment on installments with interest? In a contract involving installment payments with interest chargeable against the remaining balance ofthe obligation, itis the duty of the creditor to inform the debtor of the amount of interest thet falls due and that he is applying the Installment payments to cover said interest. Otherwis creditor cannot apply the payments tothe interest an then. hold the debtor in default for non-payment of lnstallments on the principal. (Rapanut a CA, eal, GR, No, 109680, ‘July 14, 1995, 62 SCAD 801). ‘The-spouses A and B purchased on itstallment basi @ house and lot in a government housing project for ‘P20,000.00 paying the same for 15 years at a monthly amortization of P170.00. After paying the same, they sked the developer to execute a Deed of Sale; but it refused contending that the amount of P20,000.00. ‘was the price when the house was not yet completed the proper price being the one imposed after its completion as it was subject to adjustment of the ‘same pending approval of the Board of Trustees. It yRLIGATIONS AND CONTRACTS en PE payment ar Pres ras shown thatthe provision was not conte in The contract sth contention proper? Why? No, bcase the stipulation allowing an adurtant ofthe iba pn ws ceuttnd i ie contract. Te prio ered upon P200000 Tay dl ot give consent B'S Sercloper toate te purcace pce opr asta The tw fuse llow slr oe ot Wonurec Shes the deveaper aga to fino nl fatpo0t, ts bana by thn sume ited tft te ‘rae hes af matin, han nbd o lame Walang ene cha uh fo dee wet Mtw gays» contract tok fron exin rom ‘ein i ur of i grement oa he pround that eda bl bans ‘The Supreme Cour?» desson ie funded on the pring sat fentni unr Arle 1908 oe i Ge wch provider at Thm contrat mus bind eth contacting party ts ally or elon enna be eto bho will of one of heen” (GSIS vs. CA, eta, G.R. ‘No, 105667, November 25, 1989, 45 SCAD 645) What are the requirements of dacion en page? ‘The requirements ar: 1a, Consentof the ereitor; 1. Temust not be prejudicial tothe other ereditar; The debtor must not have beon declared insolvent by a judieiMdecree, = = Xis indebted to Yn the amount of P20,000.60. Instead. of payment in money, X delivered to Y an electri typewriter valued at 216,000.00, Did the delivery of the typewriter extinguial the obligation of X? Why? It depends. Its a rule that even ifthe thing is of leser value ‘than the obligation, ifthe parties agree that the obligation is ‘tally extinguished, then the obligations totaly obitertea, Otherwise, dacion in payment may extingulsh the obligation only tothe extent of the value ofthe thing deliveredANS. CIVIL LAW RErEWEs, UO When is there dacion in payment? ‘There is dacion in paymesit when property is alienated to the creditor in satisfaction ofa debt in money, (Art. 1245, NCO) X owes ¥ in tho amount of P10,000.00. Because the ‘obligation was due and demandable, X delivered « parcel of land to ¥. Prior to the delivery, however, X nortgaged the land f0 % Can he deliver it hy way of dacion en pago? Why? [No, because there isan existing lien oF encumbrance on the land which would be prejudicial t the creditor. X owes ¥ 150,000.00. Since he las no cash to pay. for the obligation, he delivered a property valued at 'P100,000.00, Has X's obligation been extinguished? why? ‘As are, no. Dacion in payment may extinguish the obliga: tion only tothe extent of the value ofthe thing delivered, t= Js thee is an agreement to the contrary. ven ithe thing lesoer value than th obligation, i the parties agree that the obligation is totally extinguished, then the oblige tion i totaly obliterated, (See 8 Manzess 224; 3 Valverde 170. . ‘There was a loan granted to the debtor who, however, failed to pay the loan, hence, a sult was fled to collect the debt. In its answer, the defendant contended ‘that there was already an arrangement as to the full payment of the loan by way of sale of the Sanit passenger uses which the debtor surrendered to the creditor for it to sell the same. The proceeds of ‘which will be credited against the Ioan amount as full payment. The RTC dismissed the complaint due ‘to extinguishment of the obligation. The CA reversed. the decision. Was there daclon en pago between the parties upon the surrender or transfer of the ‘mortgaged buses to the creditor? Explain. ‘There was no dacion en page. In dacion en pago, propery is alionated tothe creditor in satisaction of a debt in money. (Artile 1245, NCC). It ANS, *~ opzications aND contRACTSs om is the delivery and tranemision of ownership of a thing by ‘he debtor to the ereitor as an accopted equivalent of the performance of the abligation. (Tolentino Civil Code af the Prsilippines, Vol. IV, 1981 ed, p, 299, citing 2 Castan 525; 8 ‘Manreoa 324 and Filinvest Credit Corporation vs. Philippine ‘Acetylene Co, 197 Phil, 394). I extinguishes the obligation ‘the extent ofthe value ofthe thing delivered, either as ‘greed upon by the parties or 2s may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which eas the obligelon ia totally extinguished. (Caltex Philippines, Ine. vs. JAC, 216 SCRA 580; quoting Lope v. A, 114 SCRA 67D. Inthiscase, there was no meeting ofthe minds between, the parties on whether the loan of the debtor would be ‘extinguished by dacion en pago. Rather, the creditor was the ‘agent in the sal ofthe veces whereby the procsods thereat ‘would be applied in payment of debtor's indebtedness to the ‘reditor, Such an agreement negates transfer of aboolute ‘ownership over the property to creditor, a in a sale. Thus, in Philippine National Bank vs. Pineda, 107 SRA 1, it was Iheld that where machinery and equipment were reposssved ta secure the payment of loan obligation and not for the purpose of transferring ownership thereof to the creditor in satisfaction of esi Ioan, no dacion en pago was ever ‘ccomplished. (Philippine Lawin Bus, Co, etal. vs. CA, ef al, GR. No, 180972, January 23, 2000), What: law govern: the rules on dacion_en_pagot Explain. : ole Article 1245 ofthe Civil Crd provides that the law on sales shall govern an. von en page. A contract of sale is perfected at the there ig a modfing of the sede = tn lng ane bject ote contract and upon the pric. (Fule vs, CA, 350 Phil. 349; eting Artile 1475 of the Civil Code, and Romero v2. CA, 320 Phil. 260). In Filinvest Credit Corporation os Philippine Acetylene Co, Ine, Sas exis ‘xx In dacion on pago, a8 special mode ot payment, the debtor offers anather thing to the creditor who accepts it as equivalent of payment ofANS. an outstanding obligation, The undertaking realy partakesinone sense ofthe nature of sale, that is, ‘he creditor is realy buying the thing ar property ofthe debtor, payment for which i t be charged fgainst the dobtor's debt. As such, the easential ements of a contract of aale, namely, concent, object certsin, and cause or consideration must be prevent. In its modern concept, what actually takes place in dacion en pogo i an objective novation of the obligation where th thing afered fs an sccopted oguivalent of the performance of 4 bligation is considered as the object of the antract of sale, while the debt is considered a the parchace price In any ease, common consent is an essontial prerequisite, be itsale or novation, to have the efloc of totally extinguishing the debt or obligation.” (Seo also: BPI vs. SBC, e al, GR. ‘No, 164641, December 20, 2007).~ ‘A delivered to B a solitaire ring for the latter to sell ‘on commission hasls. B failed to sell it but could not return it either. She offered to return a diamond ring, ‘but A refused, hence, this suit to compel A to accept the same, If you were the judge, would you rule in favor of B? ‘No, because it is a rule that a deb shall not be considered Pld unless the thing or service in which the obligation consists has been completely daivered or rendered a8 the ‘ase may be. "Phe debtor ofa thing cannot compel the creditor torecelve a different one although the latter may be of the same value or more valuable than that whichis due, moreso When i is loss valuable. (Hahn ve, CA, May 31, 1980), X is indebted to PNB in the amount of PIM, When sd to pay, PNB acquired into poseession the machineries belonging to X which he imported. X now contends that his obligation has been extinguished. Decide. 1 would decide for the PNB because-mere possession ofan object belonging tothe debtorby thocreditorlenot equivalent ‘tw payment. (PNB vs. Pineda, 197 SCRA 1 (1993). ANS, ‘osLiaTIoNs aND contmACTS va ‘Asa rule, not yet. The delivery of promissory notes payable to order or bis of exchange or other mereantile documents shall prnduce the effet of payment only when they have oon shop, or when Uhrough the full af the ereditr thoy Have Beta impaired. (Art. 1249(par. 2], NCC; See Fiinvest Credit Corp. vs. Minder, G.R. No. 64418, July 31, 1987). Suppote in the prablem above, ¥ presented the check for payment two (2) years after its issuance, and was dishonored when presonted, ean X be considered az ‘having paid the obligation? Why? ‘Yeo, bacause through hi fault the check has been impaired (Art. 1249, NCC; Filinvest Credit, Corp. vs. Mende, su pra, ‘There was a sale over a parcel of land. Payment was partly made in cash and partly made in check. But the check was not presented for more than 10 years. State the effect of such non-presentment. Explain. ‘After more than 10 years from the payment in part by check, the presumption is that the check had beon encashed. While is true that the delivery afm chock produces the effect of payment only when is cashed, pursuant to Art, 1249 ofthe Civil Code, the rule is otherwise ifthe debtor is prejudiced by the creditor's unteasonable delay” in presentment, The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and Jif he fom hom its received sustains loss by want of such diligence, ‘twill be held to operate as actual payment of the debtor obligation for which i was given, (60 Am, Jur. 24. See. 59). eae, Hewice, bean held that if no presentment is taade ‘tall, he drawer cannot bo held liable respective of loss or injury unless presentment is otherwise excused, This is in harmony with Art. 1249 of the Civil Code under which payment by way of check or other negotiable instrument is ‘conditioned on its being cashed, except when through the fault of the ereditor, the instrament is impaired. The payee of chock would bea creditor under this provision and if ts ‘non-payment is caused by his negligence, payment wil beleomedoffected and the obligation for which the cheek was fiven as conditional payment wil be discharged. (Gabon vo ‘Balagot, 63 0.G. No. 11,3504), And granting that the creditor never encashed the ‘ek, his failure to do so for more than 10 years undoubtedly resulted in the impairment of the cheek through his unreasonable and unexplained delay. Myron Papa vs. AU Valencia, Co, Ine, etal, GR, No, 105188, January 22, 1998, 80 SCAD 694). ‘tho obligation was incurred by A where he promised Bio pay the latier in dollars, what would be the basis ‘of the conversion ifthe obligation was inourred prior to the effectivity of R.A. No. 529? ‘The rate of conversion would be the rate atthe time the obligation was incurred. (Kalalo vs, Las, 47 Phil, 115). A and B entered into a contract of-Joan for PIM ‘whereby B obligated himself to pay A in US. dollars ‘when the obligation becomes due and demandable, Is. ‘the stipulation valid? Explain, ‘Yea, the stipulation ie valid. R.A. No, 6189/hae substantially changed some of our jurisprudential laws, Whereas before, if there was a loan agreement, there ean be no stipulation to pay it in a currency other than Philippine Currency, under the precent law (R.A. No. 8189), the parties in a loan ‘undertaking can now stipulate thatthe same may be paid ia ‘currency diferent ftom Philippine Curreney. For the purpose of RA. No, 8188, there must be an agreement that payment be made in other eurrencis. If ‘there is no agreement, such monetary ebligntion mast sill be paid in Philippine Currency. In the abecnce of aa ‘agreement, the debtor cannot compal the eredito vo accept ‘payment in other currencies, ca Poincare eens In ase of extraordinary inflation or deflation ofthe currency late: ofthe curacy the ime of the establishment ofthe obligation yall be the basis ANS. \ J ontacitons nnn conmmacts 2 of payment, unas there is an agreement to the contrary (reele 1250, NCC; Singson ve, Caltex (Phils, Ine, OR No. 187788, Getober 4, 2000) When does extraordinary inflation exist? Explain, gyond the common fueteatian in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifectly ‘beyond the contemplation of the parties at the time of the ‘atablishment of the obligation (Hiuboahoa vs. CA, GLE ‘Nos. 85897 and 102604, December 14, 1999; Sera ve. CA, 4229 SCRA 60; Hahn ve. CA, 173 SCRA 675; Pilipino Pipe ‘and Foundry Foundstion Corporation vs, NAWASA, 161 SCRA32), What is the effect if the check which was used as payment was a cashier's or manager's check? Is it ‘oing to constitute payment? Why? No, because a whether a manager's check or an ordinary check, $& pot logal tender. An offer of @ check in payment ofa debt i nota valid tender of payment and may’ be refed recapthy the cbigos or ereitar. (Pibaja, J. tal vv. CA, tol, GR No. 100290, Juno 4, 1898, 42 SCAD 175, citing PAL va. CA, 181 SCRA 657 [1890]; Homan Catholic ‘Bishop of Malolos, Inc. vt. JAC, 191 SCRA 411; Fortunade ‘vs. CA, 196 SCRA 249 (1991). Ifa judgment requires the payment of an obligation {in dollars; what would be the basis ofits conversion {into pesos? 1 should be bated on the conversian rate provalling atthe igne of payment, @Zagala vs. Jimenes, 1-88060, July 28, 1987. A parcel of land was taken for a road right of way in 1924 without any payment, In 1959, the owner filed a suit to collect the value of the land, But at the same time contended that it should be based on the value