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REVIEWER
TITLE I – OBLIGATIONS
CHAPTER 1
GENERAL PROVISIONS
1156. An obligation is a juridical necessity to give, to do, or not to do. JURIDICAL NECESSITY – juridical tie; connotes that in case of noncompliance, there will be legal sanctions. An obligation is nothing more than the duty of a person (obligor) to satisfy a specific demandable claim of another person (obligee) which, if breached, is enforceable in court. A contract necessarily gives rise to an obligation but an obligation does not always need to have a contract. KINDS OF OBLIGATION A. From the viewpoint of “sanction” - CIVIL OBLIGATION – that defined in Article 1156; an obligation, if not fulfilled when it becomes due and demandable, may be enforced in court through action; based on law; the sanction is judicial due process NATURAL OBLIGATION – defined in Article 1423; a special kind of obligation which cannot be enforced in court but which authorizes the retention of the voluntary payment or performance made by the debtor; based on equity and natural law. (i.e. when there is prescription of duty to pay, still, the obligor paid his dues to the obligee – the obligor cannot recover his payment even there is prescription) the sanction is the law , but only conscience had originally motivated the payment. MORAL OBLIGATION – the sanction is conscience or morality, or the law of the church. (Note: If a Catholic promises to hear mass for 10 consecutive Sundays in order to receive P1,000, this obligation becomes a civil one.) B. From the viewpoint of subject matter - REAL OBLIGATION – the obligation to give PERSONAL OBLIGATION – the obligation to do or not to do (e.g. the duty to paint a house, or to refrain from committing a nuisance) C. From the affirmativeness and negativeness of the obligation - POSITIVE OR AFFIRMATIVE OBLIGATION – the obligation to give or to do NEGATIVE OBLIGATION – the obligation not to do (which naturally inludes not to give) D. From the viewpoint of persons obliged - “sanction” - UNILATERAL – where only one of the parties is bound (e.g. Plato owes Socrates P1,000. Plato must pay Socrates.) BILATERAL – where both parties are bound (e.g. In a contract of sale, the buyer is obliged to deliver) - may be: (b.1) reciprocal (b.2) non-reciprocal – where performance by one is non-dependent upon performance by the other ELEMENTS OF OBLIGATION ACTIVE SUBJECT – (Creditor / Obligee) the person who is demanding the performance of the obligation; PASSIVE SUBJECT – (Debtor / Obligor) the one bound to perform the prestation or to fulfill the obligation or duty; PRESTATION – (to give, to do, or not to do) object; subject matter of the obligation; conduct required to be observed by the debtor; EFFICIENT CAUSE – the JURIDICAL TIE which binds the parties to the obligation; source of the obligation. PRESTATION (Object) TO GIVE – delivery of a thing to the creditor (in sale, deposit, pledge, donation); TO DO – covers all kinds of works or services (contract for professional services); NOT TO DO – consists of refraining from doing some acts (in following rules and regulations). Requisites of Prestation / Object : licit (if illicit, it is void) possible (if impossible, it is void) determinate or determinable (or else, void) pecuniary value INJURY – wrongful act or omission which causes loss or harm to another DAMAGE – result of injury (loss, hurt, harm) 1157. Obligation arises from – (1) law; (2) contracts; (3) quasi-contracts; (4) acts or omissions punished by law; (5) quasi-delicts. (1) LAW (Obligation ex lege) – imposed by law itself; must be expressly or impliedly set forth and cannot be presumed
- [ See Article 1158 ] (2) CONTRACTS (Obligation ex contractu) – arise from stipulations of the parties: meeting of the minds / formal agreement
- must be complied with in good faith because it is the “law” between parties; neither party may unilaterally evade his obligation in the contract, unless: contract authorizes it other party assents _Note: Parties may freely enter into any stipulations, provided they are not contrary to law, morals, good customs, public order or public policy
- [See Article 1159_ ] (3) QUASI-CONTRACTS (Obligation ex quasi-contractu) – arise from lawful, voluntary and unilateral acts and which are enforceable to the end that no one shall be unjustly enriched or
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benefited at the expense of another
- 2 kinds: Negotiorum gestio - unauthorized management; This takes place when a person voluntarily takes charge of another’s abandoned business or property without the owner’s authority Solutio indebiti - undue payment; This takes place when something is received when there is no right to demand it, and it was unduly delivered thru mistake
- [ See Article 1160 ] (4) DELICTS (Obligation ex maleficio or ex delicto) – arise from civil liability which is the consequence of a criminal offense
- Governing rules: Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code [Art 100, RPC – Every person criminally liable for a felony is also civilly liable] Chapter 2, Preliminary title, on Human Relations ( Civil Code ) Title 18 of Book IV of the Civil Code – on damages
- [ See Article 1161 ] (5) QUASI-DELICTS / TORTS (Obligation ex quasi-delicto or ex quasi-maleficio) – arise from damage caused to another through an act or omission, there being no fault or negligence, but no contractual relation exists between the parties - [See Article 1162 ] 1158. Obligations from law are not presumed. Only those (1) expressly determined in this code or (2) in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this code. Unless such obligations are EXPRESSLY provided by law, they are not demandable and enforceable, and cannot be presumed to exist. The Civil Code can be applicable suppletorily to obligations arising from laws other than the Civil Code itself. Special laws – refer to all other laws not contained in the Civil Code. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. CONTRACT – meeting of minds between two persons whereby one binds himself, with respect to the other, to give, to do something or to render some service; governed primarily by the agreement of the contracting parties. VALID CONTRACT – it should not be against the law, contrary to morals, good customs, public order, and public policy. In the eyes of law, a void contract does not exist and no obligation will arise from it. OBLIGATIONS ARISING FROM CONTRACTS – primarily governed by the stipulations, clauses, terms and conditions of their agreements. If a contract’s prestation is unconscionable (unfair) or unreasonable, even if it does not violate morals, law, etc., it may not be enforced totally. Interpretation of contract involves a question of law. COMPLIANCE IN GOOD FAITH – compliance or performance in accordance with the stipulations or terms of the contract or agreement. FALSIFICATION OF A VALID CONTRACT – only the unauthorized insertions will be disregarded; the original terms and stipulations should be considered valid and subsisting for the partied to fulfill. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of chapter 1, title 17 of this book. QUASI-CONTRACT – juridical relation resulting from lawful, voluntary and unilateral acts by virtue of which, both parties become bound to each other, to the end that no one will be unjustly enriched or benefited at the expense of the other. (See Article 2142) NEGOTIORUM GESTIO – juridical relation which takes place when somebody voluntarily manages the property affairs of another without the knowledge or consent of the latter; owner shall reimburse the gestor for necessary and useful expenses incurred by the latter for the performance of his function as gestor. SOLUTIO INDEBITI – something is received when there is no right to demand it and it was unduly delivered through mistake; obligation to return the thing arises on the part of the recipient. (e.g. If I let a storekeeper change my P500 bill and by error he gives me P560, I have the duty to return the extra P60) 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary in Human Relations, and of Title 18 of this book, regulating damages. Governing rules: Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code [Art 100, RPC – Every person criminally liable for a felony is also civilly liable] Chapter 2, Preliminary title, on Human Relations ( Civil Code ) Title 18 of Book IV of the Civil Code – on damages BASIS DELICTS QUASI-DELICTS
- INTENT Criminal / malicious Negligence
- INTEREST Affects PUBLIC interest Affects PRIVATE interest
- LIABILITY Criminal and civil liabilities Civil liability
- PURPOSE Purpose – punishment Indemnification 5.COMPROMISE Cannot be compromised Can be compromised
- GUILT Proved beyond reasonable doubt Preponderance of evidence
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** SEE Article 1164 (retroactivity of the effects of conditional obligation to give once the condition has been fulfilled)
1165. When what is to be delivered is a determinate thing, the creditor … may compel the debtor to make delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays or has promised to deliver the same ting to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. *This provision applies to an obligation to give. DETERMINATE THING something which is susceptible of particular designation or specification; obligation is extinguished if the thing is lost due to fortuitous events. Article 1460: a thing is determinate when it is particularly designated and physically segregated from all others of the same class. INDETERMINATE THING something that has reference only to a class or genus; obligation to deliver is not so extinguished by fortuitous events. REMEDIES FOR FAILURE OF DELIVERY (determinate thing) Complaint for specific performance – an action to compel the fulfillment of the obligation. Complaint for rescission of the obligation – action to rescind Complaint for damages – action to claim for compensation of damages suffered As a general rule, “no person shall be responsible for those events which could not be foreseen, or which, though foreseen, are inevitable, except: in cases expressly specified by the law when it is stipulated by the parties when the nature of the obligation requires assumption of risk An indeterminate thing cannot be object of destruction by a fortuitous event because genus never perishes. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. ACCESSIONS – fruits of the thing or additions to or improvements upon the principal those which are naturally or artificially attached to the thing ACCESSORIES – things included with the principal for the latter’s embellishment, better use, or completion When does right to fruits arise? – from the time the obligation to deliver arises Conditional – from the moment the condition happens With a term/period – upon the expiration of the term/period Simple – from the perfection of the contract 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation … it may be decreed that what has been poorly done be undone. * This provision applies to an obligation to do. THREE SITUATIONS: Debtor’s failure to perform an obligation creditor may do the obligation, or by another, at the expense of the debtor; recover damages Performance was contrary to the terms agreed upon order of the court to undo the same at the expense of the debtor Performance in a poor manner order of the court to undo the same at the expense of the debtor 1168. When the obligation consists in NOT DOING and the obligor does what has been forbidden him, it shall also be undone at his expense. * This provision applies to an obligation not to do. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exists: When the law or obligation so expressly declares; When from the nature of the contract, time us the essence and motivating factor for its establishment; When demand would be useless (prestation is impossible); In reciprocal obligations, from the moment one of the parties fulfills his obligation; When the debtor admits he is in default ORDINARY DELAY – mere failure to perform an obligation at the appointed time. LEGAL DELAY (DEFAULT) – tantamount to non-fulfillment of the obligation and arises after an extrajudicial or judicial demand was made upon the debtor. KINDS OF DEFAULT : MORA SOLVENDI – delay on the part of the debtor to fulfill his obligation; REQUISITES: failure of the obligor to perform obligation on the DATE agreed upon; demand (judicial/extrajudicial) by the creditor; failure to comply with such demand
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EFFECTS:
debtor – liable for damages and interests debtor – liable for the loss of a thing due to a fortuitous event KINDS: mora solvendi ex re – default in real obligations (to give) mora solvendi ex persona – default in personal obligations (to do) MORA ACCIPIENDI – delay on the part of the creditor to accept the performance of the obligation; Effects: creditor – liable for damages creditor – bears the risk of loss of the thing debtor – not liable for interest from the time of creditor’s delay debtor – release himself from the obligation COMPENSATIO MORAE – delay of the obligors in reciprocal obligation. Effect: the default of one compensates the default of the other; their respective liabilities shall be offset equitable. Default / Delay in negative obligation is not possible. (In negative obligation, only fulfillment and violation are possible) 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. FRAUD (dolo) – deliberate intentional evasion of the faithful fulfillment of an obligation; NEGLIGENCE (culpa or fault) – voluntary act or omission of diligence, there being no malice, which prevents the normal fulfillment of an obligation; DELAY (mora) – default or tardiness in the performance of an obligation after it has been due and demandable; CONTRAVENTION OF TERMS OF OBLIGATION (violation)– violation of terms and conditions stipulated in the obligation; this must not be due to a fortuitous event.
1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. To allow such waiver will necessarily render the obligatory force of contracts illusory. The law does not prohibit waiver of an action for damages based on fraud already committed. Any deliberate deviation from the normal way of fulfilling the obligation may be a proper basis for claim for damages against the guilty party. INCIDENTAL FRAUD (applicable provisions are Arts. 1170 & 1344) – committed in the performance of an obligation already existing because of a contract; incidental fraud obliges the person employing it to pay damages. CAUSAL FRAUD – (Art. 1338) employed in the execution of contract in order to secure consent; remedy is annulment because of vitiation of consent. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to circumstances. Court’s discretion because: negligence depends upon the circumstances of a case – good or bad faith of the obligor may be considered as well as the conduct or misconduct of the obligee; it is not as serious as fraud. Negligence – lack of foresight or knowledge Imprudence – lack of skill or precaution TEST OF NEGLIGENCE Did the defendant, in doing the alleged negligent act, use the reasonable care and caution which an ordinary prudent man would have used in the same situation? TWO TYPES OF NEGLIGENCE: Basis 1. Culpa Aquiliana (Quasi-delict) 2. Culpa Contractual (Breach of contract) DEFINITION Negligence between parties not so related by pre-existing contract Negligence in the performance of contractual obligation NATURE OF NEGLIGENCE Direct, substantive and independent Incidental to the performance of the obligatio GOOD FATHER OF THE FAMILY DEFENSE Complete and proper defense (parents, guardian, employers) Not complete and proper defense in the select of employees. PRESUMPTION OF NEGLIGENCE No presumption – injured party must prove negligence of the defendant. There is presumption – defendant must prove that there was no negligence in the carrying o of the terms of the contract. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of he time and of the place… If the law or contract does not state the diligence which is to be observed in the performance, that which is expected if a good father of a family shall be required. - This provision provides for a negative definition of “proper diligence of a good father of a family” FRAUD distinguished from NEGLIGENCE FRAUD NEGLIGENCE There is deliberate intention to cause damage. There is no deliberate intention to cause damage. Liability cannot be mitigated. Liability may be mitigated. Waiver for future fraud is void. Waiver for future negligence may be allowed in certain cases:
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uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. PURE OBLIGATION – an obligation which does not contain any condition or term upon which the fulfillment is made to depend; immediately demandable by the creditors and the debtor cannot be excused from not complying with his prestation. CONDITIONAL OBLIGATION – an obligation which depends upon a future or uncertain event, or upon a past event unknown to the contracting parties.
- an obligation subject to a condition. Suspensive Obligation – its fulfillment gives rise to an obligation; the demandability of the obligation or the effectivity of the contract can take place only after the condition has been fulfilled. Resolutory Obligation – its happening extinguishes the obligation which is already existing; 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. PERIOD – a future and certain event upon the arrival of which, the obligation subject to it either arises or is extinguished. INDICATIONS OF A TERM OR PERIOD: When the debtor binds himself to pay – when his means permit him to do so little by little as soon as possible from time to time as soon as I have the money in partial payment when in the position to pay 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Suspensive Condition – the acquisition of rights by the creditor depends upon the happening of the event which constitutes the condition; if such condition does not take place, it would be as of the conditional obligation had never existed. (e.g. promise to give a car after graduating from law school as cum laude) Resolutory Condition – the rights and obligations already existing are under threat of extinction upon the happening or fulfillment of such condition. (e.g. donation by reason of marriage – the celebration of marriage is a resolutory condition; if the marriage did not push through, the donation may be revoked) 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. Applies only to suspensive conditions. 3 KINDS OF CONDITIONS UNDER THIS ARTICLE: POTESTATIVE – a suspensive condition which depends upon the will of one of the contracting parties = if at the sole will of the debtor, it is void; if at the creditor’s, still valid. this is to prevent the establishment of illusory obligations. CASUAL – the condition depends upon chance or the will of a third person;(e.g. cellphone warranty) MIXED – the condition depends partly upon the will of the parties and partly upon chance or the will of a third person; (example ni Atty. De Chavez: passing the bar) 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon. POSSIBLE CONDITION – if it is capable of realization or actualization according to nature, law, public policy or good customs. 2 KINDS OF IMPOSSIBLE CONDITIONS: Physically Impossible – cannot exist or cannot be done in its nature; Legally Impossible – contrary to law, good customs, or public policy. Only the affected obligation is void, if the obligation is divisible, and the part thereof not affected by the impossible condition is valid. Only the condition is void if there is already a pre-existing obligation and it does not depend upon the fulfillment of the condition which is impossible. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. Positive condition – refers to the fulfillment of an event or performance of an act Negative condition – refers to the non-fulfillment or non-performance of an act. POSITIVE SUSPENSIVE CONDITION The obligation is extinguished: As soon as the TIME EXPIRES without the event taking place;
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As soon as it has become certain that the EVENT WILL NOT TAKE PLACE although the time specified has not yet expired.
1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. ** This is a condition of non-happening of a future event. The obligation shall become effective and binding: From the moment the time indicated has elapsed without the event taking place; From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed. 1184 -vs- 1185 1184 (POSITIVE SUSPENSIVE)
(NEGATIVE SUSPENSIVE)
Jose obliges himself to give the pregnant woman Maria P if she would give birth on or before December 30. Jose obliges himself to give the pregnant woman Maria P5000 if she would NOT give birth on December 30. a. Jose is LIABLE if Maria gives birth on or before December
a. Jose is NOT LIABLE if Maria gives birth on December 30. b. Jose is NOT LIABLE if Maria gives birth after December 30. b. Jose is LIABLE if Maria DID NOT give birth on December 30 – if Maria gives birth BEFORE or AFTER December 30. c. If Maria would have a miscarriage before December 30, the obligation is EXTINGUISHED. c. If Maria would have a miscarriage before December 30, the obligation is deemed FULFILLED.
1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. This provision speaks of the DOCTRINE OF CONSTRUCTIVE FULFILLMENT Compare with Art. 1203
- REQUISITES: The condition is SUSPENSIVE; The obligor ACTUALLY PREVENTS the fulfillment of the condition; He acts VOLUNTARILY. Malice or fraud is not required, as long as his purpose is to prevent the fulfillment of the condition. No person shall profit by his own wrong. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. Applies only to fulfilled suspensive conditions. Retroactive statute The effects of the obligation is deemed to commence not from the fulfillment of the obligation but from the day of its constitution (similar to the legitimation of a natural child) When the obligation is unilateral, the debtor shall appropriate the fruits and interests received because he does not receive any equivalent or valuable consideration from the obligee. The article does not require the delivery of fruits or payment of interests accruing (accumulating) before the fulfillment of the suspensive condition. Obligations to do or not to do – the retroactive effect shall be determined by the court using its sound discretion without disregarding the intentions of the parties. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. Actions available to the creditor: Action for prohibition restraining the alienation of the thing pending the happening of the suspensive condition; Action to demand security if the debtor has become insolvent; Action to set aside alienations made by the debtor in fraud of creditors; Actions against adverse possessors to interrupt the running prescriptive period. To have his rights annotated in the registry. Rights of the DEBTOR – entitled to recover what has been paid by mistake prior to the happening of the suspensive condition. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: LOSS debtor without fault – obligation is extinguished debtor with fault – obligation to pay damages DETERIORATION
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demandability or the extinguishment of an obligation is determined ; it may be definite (exact date or time is known) or indefinite (arrival of date is unknown but sure to come).
- Future + Certain event GENERAL CLASSIFICATIONS: EX DIE / SUSPENSIVE PERIOD – from a day certain give rise to the obligation; suspensive effect. IN DIEM / RESOLUTORY PERIOD – arrival of a term certain terminated the obligation; resolutory effect. Term – length of time sure to come Condition – fact or event uncertain to come **1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be observed.
- Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests.** If he was not aware of the period or he believes that the obligation has become due and demandable – he can recover what he paid or delivered including fruits and interests; If he was aware and he paid voluntarily – he cannot recover the delivery made; it is deemed a waiver of the benefit of the term and the obligation is considered already matured. The presumption is that the debtor knew that the debt was not yet due. He has the burden of proving that he was unaware of the period. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. PRESUMPTION: Obligation with a period is for the benefit of both the creditor and debtor. EXCEPTION: when it appears that the period is for the benefit of one or the other The benefit of the term may be the subject of stipulation of the parties. Term is for the benefit of the debtor alone – he cannot be compelled to pay prematurely, but he can if he desires to do so.
- Example: A obliges himself to pay B within 5 years. A cannot be compelled to pay prematurely, but he can pay anytime within 5 years (A will benefit because he can pay anytime he wants as long as it is within 5 years; B will not benefit from the interests if A decides to pay early). Term is for the benefit of the creditor – He may demand fulfillment even before the arrival of the term but the debtor cannot require him to accept payment before the expiration of the stipulated period.
- Example: A borrows money from B and is obliged to make the payment on December 5. B may compel A to make the payment before December 5, but A may not compel B to receive the payment before December 5 (B will benefit from the interests that will accrue before December 5). The creditor may have reasons other than the maturity of interest, that’s why, unless the creditor consents, the debtor has no right to accelerate the time of payment even if the premature tender includes an offer to pay the principal and interest in full. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. JUDICIAL PERIOD – period designated by the court. CONTRACTUAL PERIOD – period fixed by the parties in their contract. Court will fix a period: When no period is mentioned, but it is inferable from the nature and circumstances of the obligation that a period was intended by the parties. When the period is dependent upon the will of the debtor. If the obligation does not state and intend a period, the court is not authorized to fix a period. The court must fix the duration of the period to prevent the possibility that the obligation may never be fulfilled or to cure a defect in a contract whereby it is made to depend solely upon the will of one of the parties. Court cannot fix the period: If there is a period agreed upon by the parties and it has already lapsed or expired. From the very moment the parties give their acceptance and consent to the period fixed by the court, it becomes a law governing their contract. 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;
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(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. The period is disregarded and the obligation becomes pure and immediately demandable: [ IGIVA ] [I] When debtor becomes i nsolvent; The insolvency need not be judicially declared. It is sufficient that debtor could not pay his debts due to lack of money or funds. [G] When the debtor does not furnish g uaranties or securities; [I] When guaranties or securities given have been i mpaired or have disappeared; If security was lost through debtor’s fault - impairment If security was lost through fortuitous event - disappearance [V] When debtor v iolates an undertaking; If such undertaking is the reason for the creditor to agree with such period. [A] When debtor attempts to a bscond (escape). Mere attempt to abscond is sufficient. It is an indication of bad faith. Section 3 – Alternative Obligations 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. OBLIGATIONS WITH PLURAL PRESTATIONS: CONJUNCTIVE/COMPOUND OBLIGATION - an obligation where the debtor has to perform ALL the several prestations in the contract to extinguish the obligation. ALTERNATIVE OBLIGATION – an obligation where the debtor is required to fulfill ONLY ONE of the several prestations to extinguish the obligation. FACULTATIVE OBLIGATION – an obligation where the debtor is bound to perform ONLY ONE prestation, with a reserved right to choose another prestation as SUBSTITUTE for the principal.
1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. Implied grant to the creditor is not allowed. If it does not appear on the agreement as to whom among them has the right to choose, it is the debtor who can choose. 1201. The choice shall produce no effect except from the time it has been communicated. The choice shall not produce any legal effect until it has been duly communicated to the other party. It can be done in writing, verbally, impliedly, or any unequivocal means. Once the choice has been communicated to the other party: The obligation is now LIMITED only to the PRESTATION CHOSEN, with all the natural consequences flowing therefrom; The choice is IRREVOCABLE. The performance of prestation without announcing the choice to the creditor is NOT BINDING. The consent of the other party is NOT REQUIRED in making the choice – that will in effect frustrate the clear intention of the law and the nature of the alternative obligation. If there is delay in the making of choice – punish the one who is supposed to exercise the right of choice for the delay he caused – court may order the debtor to make a choice, or creditor to make the choice within certain period, or court makes the choice. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. There being but one prestation available, this prestation becomes a simple obligation. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. If the debtor could not make a choice due to the creditor’s act of making the prestations impossible, debtor may RESCIND the contract with damages - rescission takes place at the initiative of the debtor. If the debtor is being prevented to choose only a particular prestation, and there are others available, he is free to choose from them, after notifying the creditor of his decision. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded. If the impossibility of all the objects of the alternative obligation is caused by the debtor, the creditor is entitled to damages. If such impossibility is caused by a fortuitous event, the obligation is extinguished and the debtor is released from responsibility, unless the contrary is stipulated by the parties. The creditor cannot claim for damages if the debtor can still perform the remaining prestations. The damages that may be recovered is based on the last thing which disappeared or the service which became impossible. This last one is converted into a simple obligation. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules:
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the credit. Each of the debtors may be compelled to pay only his proportionate share of the debt. The credits or debts shall be considered distinct from one another. CONSEQUENCES OF JOINT OBLIGATION: Each debtor – liable for a proportionate part of the entire debt; Thales, Socrates, Plato, & Aristotle owe P100 to Bruce Lee = 4 debtors and 1 creditor Each of them owes Bruce Lee P Bruce Lee cannot collect the entire P100 from any one of them. Each creditor – entitled to a proportionate part of the credit; Piggy owes P100 to Froggy and Fishy = 1 debtor and 2 creditors Froggy can only collect 50 from Piggy, Same with Fishy Demand made by one creditor upon one debtor produces the effects of default only as between them, but not with respect to the others; Bubbles demanded payment from Buttercup; Buttercup was in default. This does not mean that the others are in default too because Bubbles did not demand from them. The interruption of prescription caused by the demand made by one creditor upon one debtor will not benefit the co-creditors; Wittgenstein extended the period in which Tarski should have paid his debt to him. This does not mean that the same extension applies to Tarski's debt to Davidson. The insolvency of one debtor will not increase the liability of his co-debtors, nor will it allow a creditor to demand anything from the co-creditors. If Husserl and Merleau-Ponty are debtors of Sartre for P1,000,000.00 and Husserl becomes insolvent, the liability of Merleau-Ponty will only be P500,000.00 representing his proportional share of ½ in the whole obligation.
1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. JOINT INDIVISIBLE OBLIGATION – an obligation where solidarity is not provided and the prestation or object is not susceptible of division; its fulfillment requires the concurrence of all debtors, while doing each one’s parts. Batman and Robin jointly obliged themselves to deliver a brand new Toyota Fortuner worth P1,500,000.00 to Superman. The object, a vehicle, is indivisible. They must deliver the thing jointly. In case of breach, the obligation is converted into monetary obligation for indemnity for damages. Batman and Robin will be liable only for P 750,000.00 each. The act of one is not binding (others must concur) 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. Solidarity is expressed in the stipulations of the party, law governing the obligation, or the nature of the obligation. INDIVISIBLE OBLIGATION – an obligation where the prestation or object to be delivered cannot be performed by parts without altering its essence or substance. Basis Indivisibility Solidarity 1. Nature Refers to the prestation of the contract Refers to the tie existing between parties of the obligation (who is liable) 2. Number of subjects / parties Does not require plurality of parties Requires plurality of parties 3. Effect of breach of obligation Obligation is converted into monetary obligation for indemnity for damages – each debtor is liable only for his part in the indemnity. The liability, even if converted into indemnity for damages, remains solidary. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. The solidarity of the debtors is not affected even if different terms and conditions are made applicable to them. Enforcement of the terms and conditions may be made at different times. The obligations which have matured can be enforced while those still undue will have to be awaited. Enforcement can be made against any one of the solidary debtors although it can happen that a particular obligation chargeable to a particular debtor is not yet due. He will be answerable for all the prestations which fall due although chargeable to the other co-debtors. Sad Face, Happy, and Fanny got a loan of P150 from Smiley. They signed a promissory note solidarily binding themselves to pay Smiley under the following terms: Sad Face will pay P50 with 3% on December 30, 2006 Happy will pay P50 with 4% on December 30, 2007 Fanny will pay P50 with 5% on December 30, 2008 On December 31, 2006, Smiley can collect his P50 with 3% from any one of the debtors, but not the whole P150 because it is not yet entirely due. The maturity of the other amounts should still be awaited. If maturity comes, Smiley can collect from any of the debtors, because they are expressly solidary in liabilities, and not affected by the secondary stipulations. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. Every solidary creditor is benefited by the useful acts of any one of them. If a solidary creditor performs an act which is not fair to his co-creditors, the act may have valid legal effects or the obligation of the debtor due to them may be extinguished, but the performing creditor shall be liable to his co-creditors.
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Question : May solidary creditors perform an act that is beneficial to others?
1213. A solidary creditor cannot assign his rights without the consent of the others. Assign – transfer of right The assignee does not become a solidary creditor, and any payment made upon him by the debtor does not extinguish the obligation. He is considered a STRANGER, and his acts are not binding to the solidarity. DOCTRINE OF MUTUAL AGENCY - In solidary obligations, the act of one is act of the others. Exceptions to the doctrine: Art. 1212 – a creditor may not perform an act prejudicial to other creditors Art. 1213 – a creditor cannot transfer his right without consent 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. The debtor can pay any one of the solidary creditors. Such payment when accepted by any of the solidary creditors will extinguish the obligation. To avoid confusion on the payment of the obligation, the debtor is required to ay only to the demanding creditor and that payment is sufficient to effect the extinguishment of the obligation. In case two or more demands made by the other creditors, the first demand must be given priority. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. NOVATION – obligations are modified by: Changing their object or principal conditions; Substituting the person of the debtor; and Subrogating (placing) a third person in the rights of the creditor. [Art. 1291] COMPENSATION – takes place when two persons, in their own right, become creditors and debtors of each other the amount of one is covered by the amount of the other Erap borrowed P100 from Fernando. Fernando borrowed P75 from Erap. Erap’s obligation to Fernando is now P25 only, because the original obligation was offset by Fernando’s supposed-to-be obligation to Erap. CONFUSION – takes place when the characters of creditor and debtor are merged in the same person. Tito pays his debt to Vic with a check payable to “cash”. Vic paid his debt to Joey with the same check. Joey paid his debt to Tito, with the same check Tito issued to Vic. Tito becomes paid by his own check. He becomes the debtor and the creditor of himself at the same time. REMISSION – the gratuitous abandonment by the creditor of his right; acceptance of the obligor is necessary. These 4 modes of extinguishing obligations are acts prejudicial to the other solidary co-creditors because these have the effect of extinguishing the debt or obligation which is due to all of them. The only recourse of the co-creditors is to let the one who executed any of those acts be liable for the shares corresponding to all his co-creditors (in their internal agreement). 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. When there is passive solidarity, the creditor can proceed against: Any of the solidary debtors; Some of the solidary debtors; All of the solidary debtors, simultaneously. Extrajudicial demands - first demand shall not prevent subsequent demands on the other co-debtors, if co-debtor first to have been required to fulfill obligation did not act on it. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. 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. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. Payment – consists in the delivery of the thing or the rendition (rendering) of the service whish is the object of the obligation. Interest – compensation for the use of borrowed money
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If a thing could be divided into parts and as divided, its value is impaired disproportionately, that thing is INDIVISIBLE.
1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists.
- Relate this provision to Articles 1165, 1208 and 1209. JOINT INDIVISIBLE OBLIGATION – the object is indivisible but the liability of the parties is joint. The unfulfilled undertaking (duty) is converted into a monetary obligation which is not divisible. The guilty debtor is liable for damages. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. The following are considered INDIVISIBLE obligations: Obligation to give definite things Obligations which are not susceptible of partial performance Even though the object or service may be physically divisible, it is indivisible if: the law so provides when the parties intended it to be indivisible The following obligations are deemed DIVISIBLE: When the object of the obligation is the execution of a certain number of days of work When the object of the obligation is the accomplishment of work measured in units When the object of the obligation is susceptible of partial compliance When the object of the obligation is such that the debtor is required to pay in installments If the contract is divisible, and a part of it is illegal, the illegal part is void, and the rest shall be valid and enforceable. If the contract is indivisible, and a part of it is illegal, the entire contract is void. Partial performance of an indivisible obligation is tantamount to non-performance. Section 6 – Obligations with a Penal Clause 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
- An obligation with a penal clause may be defined as one to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach. Purposes: Funcion coercitiva o de garantia – to insure the performance of the obligation Funcion liquidatoria – to liquidate the amount of damages to be awarded to the injured party in case of breach of the principal obligation; and Funcion estrictamente penal – in certain exceptional cases, to punish the obligor in case of breach of the principal obligation. This is an accessory obligation attached to the principal obligation, which imposes an additional liability in case of breach of the principal obligation. It pushes the debtor to perform his obligation faithfully and without delay – within the period agreed upon, or else, he suffers a fixed civil penalty without need of proving the damages of the other party. The penalty imposable is a substitute for the indemnity for: damages payment of interest in case of breach of obligation -unless the contrary is stipulated! EXCEPTIONS – additional damages may be recovered from the following acts: If the debtor refuses to pay the penalty If the debtor is guilty of fraud in the fulfillment of the obligation If there is express stipulation that the other damages or interests are demandable to the penalty in the penal clause 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. A debtor cannot evade from payment of his principal obligation by choosing to pay the penalty stipulated, except when the debtor is EXPRESSLY granted with the right to substitute the penalty for the principal obligation. – an obligation with penalty clause cannot be turned to facultative obligation unless expressly stipulated in the contract.
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The creditor cannot demand the stipulated fulfillment of the principal obligation and the penalty at the same time, except when the creditor was clearly given the right to enforce both the principal obligation and penalty; when the creditor has demanded fulfillment of the obligation but cannot be fulfilled due to the debtor’s fault – creditor may demand for penalty creditor’s fault – he cannot claim the penalty fortuitous event – principal obligation and penalty are extinguished
1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. As long as the agreement or contract is breached. The mere non-fulfillment of the principal obligation entitles the creditor to the penalty stipulated. The purpose of the penalty clause is precisely to avoid proving damages. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. JUDICIAL REDUCTION OF PENALTY Principal obligation – partly complied with by the debtor (but not in indivisible obligation, because it is tantamount to non-compliance) Principal obligation – complied not in accordance with the tenor of the agreement (refers to irregular performance) Penalty – iniquitous or unconscionable Judge’s power to reduce penalties are limited to private contracts. INIQUITOUS OR UNCONSCIONABLE – when it is revolting to the conscience or common sense; grossly disproportionate to the damages suffered. PENALTY NOT ENFORCEABLE: Impossible performance of principal obligation due to fortuitous events Creditor prevented the debtor from fulfilling the obligation Penalty is contrary to good morals or good customs Both parties are guilty of breach of contract Breach of contract by the creditor None of the parties committed any willful or culpable violation of the agreement 1230. The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause. Because the penal clause is only an accessory to the principal obligation, it cannot exist alone. If the penal clause is void, the principal obligation remains enforceable. The nullity of penal clause does not mean the nullity of the principal. For example: In case of non-payment of P10,000, P1,000 per day as penalty shall be imposed. It is a void contract but it is not an excuse that you don't have to pay the principal which is P10,000. CHAPTER 4 EXTINHGUISHMENT OF OBLIGATIONS GENERAL PROVISIONS 1231. Obligations are extinguished: by payment or performance by loss of the thing due by condonation or remission by confusion or merger of the rights of creditor and debtor by compensation by novation Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. 1232. Payment means not only the delivery of money but also the performance, in any other manner of an obligation. Payment means not only delivery of money but also the performance. It is the fulfillment of the prestation due that extinguishes the obligation by the realization of the purposes for which it was constituted It is a juridical act which is voluntary, licit and made with the intent to extinguish an obligation Requisites: person who pays the person to whom payment is made the thing to be paid the manner, time and place of payment etc The paying as well as the one receiving should have the requisite capacity Kinds: normal –when the debtor voluntarily performs the prestation stipulated abnormal – when he is forced by means of a judicial proceeding either to comply with prestation or to pay indemnity 1233. A debt shall not be understood to have been paid unless the thing or service in which the oligatoin consists has been completely delivered or rendered, as the case may be. States 2 requisites of payment: a.) identity of prestation - the very thing or service due must be delivered or released
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valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. (1163a) payment shall be considered as having benefited the incapacitated person if he made an intelligent and reasonable use thereof, for purposes necessary or useful to him, such as that which his legal representative would have or could have done under similar circumstances, even if at the time of the complaint the effect of such use no longer exists (e.g., taxes on creditor’s property, money to extinguish a mortgage on creditor’s property) the debtor is not released from liability by a payment to one who is not the creditor nor one authorized to receive the payment, even if the debtor believed in good faith that he is the creditor, except to the extent that the payment inured to the benefit of the creditor in addition to those mentioned above, payment to a third person releases the debtor: a.) when, without notice of the assignment of credit, he pays to the original creditor b.) when in good faith he pays to one in possession of the credit even when the creditor receives no benefit from the payment to a third person, he cannot demand payment anew, if the mistake of the debtor was due to the fault of the creditor
1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164) the person in possession of the credit is neither the creditor nor one authorized by him to receive payment, but appears under the circumstances of the case, to be the creditor. He appears to be the owner of the credit, although in reality, he may not be the owner (e.g., an heir who enters upon the hereditary estate and collects the credits thereof, but who is later deprived of the inheritance because of incapacity to succeed) it is necessary not only that the possession of the credit be legal, but also that the payment be in good faith 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165) the payment to the creditor after the credit has been attached or garnished is void as to the party who obtained the attachment or garnishment, to the extent of the amount of the judgment in his favor. The debtor upon whom garnishment order is served can always deposit the money in court by way of consignation and thus relieve himself from further liability 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a) Upon agreement of consent of the creditor, the debtor may deliver a different thing or perform a different prestation in lieu of that stipulated. In this case there may be dation in payment or novation The defects of the thing delivered may be waived by the creditor, if he expressly so declares or if, with knowledge thereof, he accepts the thing without protest or disposes of it or consumes it 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. (n) This is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. The property given may consist not only of a thing but also of a real right (such as a usufruct) Considered as a novation by change of the object Where the debt is money, the law on sale shall govern; in this case, the act is deemed to be a sale with the amount of the obligation to the extent that it is extinguished being considered as price Difference between Dation and Cession (see Art. 1255) 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a) If there is disagreement between the debtor and the creditor as to the quality of the thing delivered, the court should decide whether it complies with the obligation, taking into consideration the purpose and other circumstances of the obligation Both the creditor and the debtor may waive the benefit of this article see Art. 1244 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a) This is because the payment is the debtor’s duty and it inures to his benefit in that he is discharged from the burden of the obligation 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a) The creditor who refuses to accept partial prestations does not incur delay except when there is abuse of right or if good faith requires acceptance This article does not apply to obligations where there are several subjects or where the various parties are bound under different terms and conditions 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been
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cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) LEGAL TENDER - means such currency which in a given jurisdiction can be used for the payment of debts, public and private, and which cannot be refused by the creditor That which a debtor may compel a creditor to accept in payment of debt. so long as the notes were legal tender at the time they were paid or delivered, the person accepting them must suffer the loss if thereafter they became valueless the provisions of the present article have been modified by RA No. 529 which states that payments of all monetary obligations should now be made in currency which is legal tender in the Phils. A stipulation providing payment in a foreign currency is null and void but it does not invalidate the entire contract , and R.A. 4100. A check, whether a manager’s check or an ordinary check is not legal tender and an offer of the check in payment of debt is not a valid tender of payment
1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (n) Applies only where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contracts Extraordinary inflation of deflation may be said to be that which is unusual or beyond the common fluctuations in the value of the currency , which parties could not have reasonably foreseen or which was manifestly beyond their contemplation at the time when the obligation was constituted 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court.(1171a) Since the law fixes the place of payment at the domicile of the debtor, it is the duty of the creditor to go there and receive payment; he should bear the expenses in this case because the debtor cannot be made to shoulder the expenses which the creditor incurs in performing a duty imposed by law and which is for his benefit. But if the debtor changes his domicile in bad faith or after he has incurred in delay, then the additional expenses shall be borne by him When the debtor has been required to remit money to the creditor, the latter bears the risks and the expenses of the transmission. In cases however where the debtor chooses this means of payment, he bears the risk of loss. **SUBSECTION 1 APPLICATION OF PAYMENTS
- He who has various debts of the same kind in favor of one and the same** creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a) Requisites: 1 debtor and 1 creditor only 2 or more debts of the same kind all debts must be due amount paid by the debtor must not be sufficient to cover the total amount of all the debts It is necessary that the obligations must all be due. Exceptions: (1) whe there is a stipulation to the contrary; and (2) the application of payment is made by the party for whose benefit the term or period has been constituted (relate to Art. 1196). It is also necessary that all the debts be for the same kind, generally of a monetary character. This includes obligations which were not originally of a monetary character, but at the time of application of payment, had been converted into an obligation to pay damages by reason of breach or nonperformance. If the debtor makes a proper application of payment but the creditor refuses to accept it because he wants to apply it to another debt, such creditor will incur in delay RIGHT OF DEBTOR TO MAKE APPLICATION. If at the time of payment, the debtor does not exercise his right to apply it to any of his debts, the application shall be understood as provided by law, unless the creditor makes the application and his decision is accepted by the debtor. This application of payment can be made by the creditor only in the receipt issued at the time of payment (although the application made by creditor may be contested by the debtor if the latter’s assent to such application was vitiated by such causes as mistake, violence, intimidation, fraud, etc) The debtor and the creditor by agreement, can validly change the application of payment already made without prejudice to the rights of third persons acquired before such agreement 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173) Interest paid first before principal Applies both to compensatory interest (that stipulated as earnings of the amount due under the obligation) and to interest due because of delay or mora on the part of the debtor SC held that this provision applies only in the absence of a verbal or written agreement to the contrary (merely directory, not mandatory) 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a) As to which of 2 debts is more onerous is fundamentally a question of fact, which courts must determine on the basis of the circumstances of each case Debts are not of the same burden (1st^ par.)– Rules:
