chapter 3 ~ Different Kinds of Obligations SECTION 3. - Alternative Obligations Kinds of obligation according to object 1. Simple Obligation An obligation where there is only one object. Example: "X bound himself to deliver his only dog to ¥." "D owes C P5,000." 2. Compound obligation ‘An obligation where there are two or more objects. Kinds of Compound obligation 1. Conjunctive obligation ‘An obligation where there are two or more objects and all of them are due. All of the objects must be performed to extinguish the obligation. Example: X obliged himself to give his only cell phone, only laptop, and only TV to Y on August 1, 2020. On said date, X must deliver all the three objects together with their accessions and accessories (based on the principle of accessory follows the principal) for his obligation to be extinguished. Otherwise, if X delivers only the cell phone or only the cell phone and the laptop, then his obligation is not extinguished. The rule also is “complete payment/performance.” 2: ‘An obligation where one, two or more of the objects are due. One of the objects must be performed to extinguish the obligation. Kinds of Distributive obligation 1. Alternative obligation ‘An obligation where two or more objects are due but the performance of one is sufficient.°5 Example: X obliged himself to give his only cell phone, or his only laptop, ar his only TV to Yon December 31, 2020. The delivery of either of these objects will extinguish the obligation of X. 183chapter 3- Different Kinds of Obligations . Facultative obligation i F Faa obligation where only one abject 1S due but the debto, : substitute another object. : —, J of land to ¥. Hi to give his only parcel of , Howey Save ‘car. Take note that the parcel of lang te te, he will deliver his only ‘sbject and the car is the substitute object Delivery of any oy ma il extinguish his obligation. Art. 1199, A person alternatively bound by different prestations 4, etely perform one of them. nds ‘The creditor “tannot be compelled to receive part of one ang p,, ofthe other undertaking. (1131) substitu principal objects wi me ferent prestations shy) A person alternatively bound by di completely perform one of them. Limitation: ‘The creditor cannot be compelled to receive part of one and party the other undertaking. Example: 'X obliged himself to give his only cell phone, or his only laptop, ors only TV to ¥ on December 31, 2020. The delivery of either of these objects wil extinguish his obligation. If X chooses to deliver his only cell phone, he shoud include its charger and earphones together with the owner's manual ix ‘conformance with the principle of complete payment or performance. Art. 1200. The right of choice belongs to the debtor, unless it has beer 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. (1132) Rule: In alternative obligation, the right of choice belongs to the debtor. Example: X obliged himself to give his only cell phone, or his only laptop. os only TV to Y. A problem will arise if X wants to deliver the cell phone while ¥ Art 1206, NCC. 184uate 3- Different Kinds of Obligations 9 receive the laptop. Thus, if the parties did not stipulate on who will wants ¢ then the right to choose belongs to X, the debtor. choose, xception: ‘The exception is when the choice has been expressly given to the credicor” sxample: In the immediately preceding example, X communicated to ¥ that it willbe the latter who will choose and Y agreed then Y can choase the laptop. imitation: ‘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. ‘ut 1201. The choice shall produce no effect except from the time it has een communicated. (1133) Once the selection has been communicated, it becomes irrevocable. ‘The law does not require the other party to consent to the choice made by the party entitled to choose. ‘The law does not also require a form to be use by a party entitled to 1g his choice to the other party. Hence, it may be in choose in communicating jow that the any form provided that iis sufficient to make the other party kn election has been made. It may be made orally or in writing. In case the person entitled to choose, does not make his selection, the other party can ask the court for a third party to choose. lose the right of choice when among the ‘Art. 1202. The debtor shall only one is practicable. prestations whereby he is alternatively bound, (1134) mes a simple obligation and also a ‘The obligation, in this case, beco! lost or become pure obligation because the other objects may have been impossible. Example: cell phone, or his only laptop, or his only X is bound to give his only TV to ¥ on December 31, 2020. When the cell phone and the TV were both re 1205 Nov 185x Chapter 3 - Different Kinds of Obligations lost then t becomes a simple obligation. Consequently, X will just dey, laptop. debtor cannot make 4 sditor's acts the Art. 1203, If through the cre ‘the latter may rena according to the terms of the obligation, contract with damages. (1) Example: pases bound to give his only cell phone, or his only laptop, orp TV to Y on December 31, 2020. Subsequently, the cell phone and the ae were lost through the negligence of ¥. As a rule, X can choose to dejjy,?% TVs. However, X may cancel or rescind the contract, aS an option, ang °* egal effect will be mutual restitution meaning both parties will return ty te other what they have received or its value, if there i impossigiy'® returning. Moreover, X may also claim damages. y Art. 1204, The creditor shall have a right to indemnity for damages through the fault of the debtor, all the things which are alternatively object of the obligation have been lost, or the compliance of the obliga has become impossible. ” The indemnity shall be fixed taking as a basis the value ofthe jay thing which disappeared, or that of the service which last becan, impossible. Damages other than the value of the last thing or service may aly be awarded. (1135a) Creditor entitled to indemnity for damages The creditor is entitled to indemnity for damages when through the fault of the debtor: a. All the things which are alternatively the object of the obligation have been lost; or b. The compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the list thing which disappeared, or that of the service whi impossible, le service which last became Damages ; beawarded e® tet than the value of the last thing or service may als 186pater 3~Dilferent Kinds of Obligations a ofloss of objects of alternative obi igation i ode when choice belongs pffects oss due to fortuitous event The obligation of the debtor is extinguished example: X obliges himself to give his onty cell phone, or his only laptop, or his only TV to Y. If all of these were lost obligation of X is extinguished, through a typhoon, then the The debtor must deliver to the creditor the remaining object. Consequently, the obligation ceases to be alternative and it has become a simple obligation. Example: X is obliged to give his only cell phone, or his onl 2 ly laptop, or his only TV to Y. Ifthe cell phone and the laptop were both lost through a typhoon, then X is liable to deliver the TY. It becomes a simple obligation because there is only one remaining object. Two or more of the objects remain The debtor must deliver that which he shall choose from among the remainder. Consequently, the obligation still subsists retaining its alternative character. Example: X obliged himself to give his only cell phone, or his only laptop, or his only TV to ¥. Ifonly the cell phone was lost through a typhoon, then X is liable to deliver either the laptop or the TV at his option. The obligation isstill alternative because there are two remaining objects 2, Loss due to debtor's fault The creditor shall have a right to indemnity for damages based on the value of the last thing which disappeared or service which become impossible. Damages other than the value of the last thing or service may also be awarded.®® ae 1204 Nec 187Chapter 3 - Different Kinds of Obligations Example: X obliged himself to give his only cell phone, or his only laptop his only TV to ¥. When through X's fault, all of these objects wore, successively, meaning the first object that was lost was the cell py, followed by laptop and finally the TV, then X will be liable for dam” taking as.a basis the value of the TY. Also, damages other than the vale of TV may be awarded like moral damages. The debtor must deliver to the creditor the remains, object. Consequently, the obligation ceases to be alternative ang has become a simple obligation. Example: se X obliged himself to give his only cell phone, or his only laptop, gp his only TV to ¥. If the cell phone and the laptop were both lost throug, the negligence of X then he is liable to deliver the TV. It becomes a simpie obligation because there is only one object. Take note that there i, negligence in the present case which is a ground for asking damages however, X is not liable for damages because of the nature of the obligation which is alternative, meaning, there are two or more objec: Moreover, there remains an object so that all the essential elements ofthe obligation are still intact. c The debtor must deliver that which he shall choose from the remainder. Consequently, the obligation still subsists ing its alternative character. amo retail Example: X obliged himself to give his only cell phone, or his only laptop, or his only TV to ¥. ifonly the cell phone was lost through the negligence of X, then he is liable to deliver either the laptop or the TV at his option. The obligation is stil alternative because there are two remaining objects Again, take note that there is negligence in the present case which is a ground for asking damages; however, X is not liable for damages because of the nature of the obligation which is alternative meaning there are two or more objects. Art. 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: 188copter 3~ Different Kinds of Obligations isone ofthe things is lost through a fortuitous event, he shall perform the obligation by delivering that which the create should choose fromamong the remainder, or that which remain nt only one subsists; ifthe loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsist price of that which, through the fault of the former, has disappeared, with a right to damages} all the things are lost through the fault of th i 3 ia editor shall fall upon tee Price of any one oat Sise with indemnity for damages, ’ «The same rules shall be applied to obligations to do or not to do in case one, some, or all of the prestations should become impossible. (1136a) 1. 2 Right of Choice expressly given to the When the choice has been expressly given to the creditor, the obligation shall cease to be alternative fri from the day when the selection has been communicated to the debtor. Effects of loss of objects of alternative obli igation when choice belongs to creditor 1. Loss due to fortuitous event a The obligation of the debtor is extinguished. Example: X is obliged to give his only cell phone, only TV to ¥. If alll of these were lost thro obligation of X is extinguished. or his only laptop, or his ugh a typhoon then the b - The debtor must deliver to the creditor the remaining object. Consequently, the obligation ceases to be alternative and it has become a simple obligation. Example: X obliged himself to give his only cell phone, or his only laptop, or his only TV to ¥. Ifthe cell phone and the laptop were both last through a ‘yphoon, then X is liable to deliver the TV. It becomes a simple obligation because there is only one object. 189Chapter 3 - Different Kinds of Obligations ¢. Two or more of the objects remain ‘The debtor must deliver that which the creqie, 0 choose from among the remainder. Consequently, the Obl Shay still subsists retaining its alternative character. gat, Example: X obliged himself to give his only cell phone, or hi if "8 Only lapton his only TV to Y. Ifonly the cell phone was lost through a typhogy is liable to deliver either the laptop or the TV, this time, at the on™ creditor ¥. The obligation is still alternative because there w"*t my abjects 2. Loss due to debtor's fault a The creditor shall choose the price of any of the objects y ith indemnity for damages.” Example: X is obliged to give his only cell phone, or his only laptop, or only TV to ¥. When through X's fault, all of these objects were 4 successively, meaning the first object that was lost was the cell ping followed by laptop and finally the TV, then ¥ will have three options the is, ¥ can choose the value of the cell phone plus damages or the valyest the laptop plus damages, or the value of the TV plus damages. Take ma that the ground for asking damages here is negligence which attached all the objects. b ‘The creditor may choose the object which remains and the debtor cannot be held liable for damages. However, the creditor may also choose the value of any one of the objects which were lost, plus damages.2° Example: X obliged himself to give his only cell phone, or his only laptop, or his only TV to Y. If only the cell phone and the laptop were both lost through the negligence of X then Y, as creditor, may choose the value of the cell phone plus damages or the value of the laptop plus damages. ¥ ‘may also choose delivery to him of the TV, the remaining object, howev there is no damages because there is no ground for asking damage, Negligence, as a ground for asking damages, attached only to the cel phone and the laptop and it did not attach to the TV. 1» Art 1205, NCC. 0 Art 1205, NCC. 190cyanter3~ Different Kinds of Obligations The debtor must deliver , noose from among the remainder tat alah: he teredltor shall fiable for damages. However, the creditor may also chasse a ier the objects which were lost and the debtor is liable for i i sine % the object plus damages. Consequently, the obligati fa ue oF retaining its alternative character.9" igation still subsists example: X obliged himself to give his only cell phone, or his only laptop, or his only TV to ¥. Ifonly the cell phone was lost thr : ough the negligent X then ¥ may opt for the delivery to him of either the Se with no damages because there is no ground for asking damages or negligence aid pee ash to the obligation. However, ¥ may opt to hose the value of the cell phone plus damages beca ‘attached to the said obligation. i ie ee Note: The foregoing rules are applicable to personal obligations, obligations do arnotto do, in case one, some, or all ofthe prestations should become impossible. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. ‘The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once ta substitution has been made, the obligor is liable for the loss of the Substitute on account of his delay, negligence or fraud. (n) Art, 1206. Facultative obligation “an obligation where only one prestation has been agreed upon, Dut the obligor may render another in substitution. Effect of Loss or deterioration of substitute in facultative obligation 1. Before substitution Sere or deterioration of the thing intended as a substitute through the negligence ofthe obligor does not render him liable. Example: X promised to give his only laptop to deliver his cell phone as a substitute in case Subsequently, the cell phone was lost through th ¥, Moreover, he obliged also to hhe cannot deliver the laptop. negligence of X. What is the * et. 1208, NC 191Chapter 3 - Different Kinds of 0b! legal effect of this loss? X is still what is due is still the laptop, substitution made. What if the cause of 10 event? Is the obligation extinguish {for the same reason that what is. What if what was fortuitous event, then the oblig. through the negligence was no substitution yet. the debtor communicated to the cre’ {substitute thing) on maturity date. 2 i a The obligor is liable for da substitute on account of substitution is made th with the substitute thing as th Example: X promised to give his only deliver his cell phone as a su few days before the due date, and that he will deliver the ‘communication, ‘facultative obligation. Thus, ligations liable to deliver the laptop. ‘This the principal obligation as thers of X, then Xis. When is ther 1e obligation is ct 1e object of the obligation. the obligation became simple if the cell phone was lost through the negligen, a | beea, Nt wes is 5 of the cell phone is through g 7 No, X is still liable to deliver jy”™to, due is the laptop, lant Tost isthe laptop? It the cause of loss is ‘ation is extinguished but if the cause on A riable for damages. Take note tha, wre substitution? There is substintt*®: itor that he will deliver the cen song ny images for the loss or deterioration of f his delay, negligence or fraud because oncy converted into a simple obliga: * iy laptop to Y. Moreover, he obliged aly, to ibstitute in case he cannot deliver the lapeop 4 ¥ informed ¥ that he will not deliver the lays cell phone on due date. Take note that after su obligation and no longs OfX then he will be liable for damages. Conversely, if the cell phone was oy through a fortuitous event, the obligation is extinguished. ALTERNATIVE VS. FACULTATIVE OBLIGATION 2 Alternative Facultative 7] In alternative obligations several objects are due In facultative obligations only one object is due. ‘Alternative obligations. may be complied with by the delivery of one of the objects or by the performance of one of the prestations which are alternatively due. Facultative obligations may be complied with the delivery of another object or the performance of another prestation in substitution of that which is due. In alternative obligations, the right of choice may pertain even to the creditor or to a third person. In facultative obligations, the right of choice pertains only to the debtor. In alternative obligations, the loss or impossibility of all of the objects or In facultative obligations, loss of impossibility of the object of prestations which are due without | prestation which is due without any 192chapter 3 - Different Kinds of Obligations =a fault of the debtor is necessary tp extinguish the obligation, fault of the debtor is sufficient to extinguish the obligation. jg alternative obligations, the fulpable loss of any of the objects Ghich are alternatively due before the choice is made may give rise to a tiability on the part of the debtor. In facultative obligations, the culpable loss of the object which the debtor may deliver in substitution before the substitution is effected does not give rise to any liability on the part of such debtor.” ‘The nullity of one of the objects does not invalidate the obligation which is till in force with respect to those which have no defect. The nullity of the principal object invalidates the obligation, even if the substitute object is valid. The impossibility of all the objects due without the fault of the debtor The impossibility of the principal object is sufficient to extinguish the extinguishes the obligation, obligation, even if the substitute | object is possible. SECTION 4. - Joint and Solidary Obligations Art, 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a) Joint obligation The credit or debt is divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another. Consequently, itis an obligation where the whole debt is to be paid or fulfilled proportionately by the different debtors and/or to be demanded proportionately by the different creditors.? These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence.** ‘Jurado, DesderioP, Civil Law Reviewer, 208 edition, 2006, p.699-700. are1208, NCC Salvador P-Eseafo and Mario Milos vs. Rafael Ortigas Jr, GR. No, 151953, June 29,2007 193, Chapter 3 - Different Kinds of Obligations ‘A joint obligation, which is defined as an obligation where the, concurrence of several creditors, or of several debtors, or of several jay 8s or of several creditors and debtors, by virtue of which each of the crag has a right to demand, and each of the debtors is bound to Tenge i i *hich compliance with his proportionate part of the prestation which coy the object of the obligation. Article 1208 of the Civil Code mandatess® equal sharing of creditors in the payment of debt in the absence of any * or stipulation to the contrary.°* Other terms interchangeably used with joint obligations “Joint” or “jointly”; or “conjoint” means mancum or mancomunada; or mancomunada simple pro rata obligation; or proportionate een Effects of Joint obligation The defect of each obligation arising from the personal defect of , particular joint debtor or joint creditor does not affect the obligation o- right of the other joint parties. <1 Insolvency of one joint debtor does not make the other joint debtor o; debtors responsible for his proportionate share. ‘The demand by the creditor or creditors on one joint debtor puts him in delay in case of non-payment while the other joint debtor or debtors are not liable. ‘The defenses of one joint debtor are not necessarily available to the other joint debtor or debtors. Example: B and C owes X and Y the amount of P100,000. in the present case, since there is no agreement, it is disputably presumed that the obligation of and C are joint and that the credit of X and ¥ are also joint. It means that Bs share in the obligation is P50,000 so that he will only pay X P25,000 and ‘another P25,000 to ¥. This is the same with C. As to X, his credit is P50,000:0 that he can only demand from B the amount of P25,000 and from C the other 25,000. This is the same with ¥. ‘Philippine Commercial International Hank vs, CA & Atlas Consolidated Mining & Development Corporation. CR ‘No. 121986, January 31,2006, 1g & Development Corp % Lafarge Cement Philipines Inc tal, vs. Continental Cement Conporation, tal, GR. No. 155173, Novembe 23 194papter 3~ Different Kinds of Obligations a ary obligation ‘An obligation where each one of the debtors is bound to render aaafor each of the ereditors has a right to demand entire compliance with he prestation.” solid other terms interchangeably used with solidary obligations 1, Solidary obligations” may be used interchangeably with “joint and several” or “several.” Thus, use of the term "joint and solidary” is tonfusing and ambiguous; or 9° insolidum; or i mancomunada solidari | juntos o separadamente; or 5, individually and collectively; * gxample: B and C owes X and ¥ the amount of P100,000. Their agreement is solidary. Thus, B or € can pay the entire amount of P100,000 subject to reimbursement so that if it is B who paid the P100,000 to X, B can ask reimbursement of P50,000 from C. On the other hand, if X received the amount of P100,000, it is his obligation to give the P50,000 to ¥. Note: The obligation can be joint on the side of the debtors and solidary on the side ofthe creditors or vice-versa. Example: Band C owes X and Y the amount of P100,000. It was agreed that B and C are jointly liable while X and Y are solidary creditors. How much can X collect from B? The answer is P50,000 because the theory is X may demand the entire amount of the obligation but B can only pay his share of P50,000 being a joint debtor. What if the debtors are B, C, and D and that they are solidarily liable to X, Y and Z, joint creditors in the amount of P90,000. How much can Z collect from D? The answer is P30,000 because the theory is that D can pay the entire obligation being a solidary debtor; however, Z can only demand his share of P30,000 being a joint creditor. What if the debtors are B, C, D and E, joint debtors of X and ¥, solidary creditors to the amount of P500,000. How much can X collect from C? The answer is P125,000. Ac 1207, Ne ela¥ Cement Philippines, tnc,et.a, vs. Continental Cement Corporation, etal, G&t No, 155173, November 23, 195Chapter 3 - Different Kinds of Obligations Note: In a “joint” obligation, each obligor answers only for a part of the liability; in a “solidary” or “joint and several” obligation, the relationship bentte the active and the passive subjects is so close that each of them must comp, or demand the fulfillment of the whole obligation.” 1 wg JOINT OBLIGATION VS. SOLIDARY OBLIGATION A solidary obligation is one in which each of the debtor is fiabje the entire obligation, and each of the creditor is entitled to demang te satisfaction of the whole obligation from any or all of the debtors, Qn other hand, a is one in which each debtor is liable only jor proportionate part of the debt, and the creditor is entitled to demand on}, ° proportionate part of the credit from each debtor. The well-entrenched mys fe that solidary obligations cannot be inferred lightly. They must 5, positively and clearly expressed. A liability is solidany “only when Ebiigation expressly so states, when the law so provides or when the nety, of the obligation so requires."! SOLIDARY DEBTOR VS. GUARANTOR In one case, the Supreme Court held: It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. his is patent even from the first sentence of the promissory note which states as follows: “Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the X BANK at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pes, Philippine Currency, together with interest xxx at the rate of SIXTEEN (16 per cent per annum until fully paid.” ‘A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states “By guaranty a person, called the guarantor, binds himself to the creditor {fulfill the obligation of the principal debtor in case the latter should fail odo 0. Ifa person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title | of this Book shall be observed, In such a case the contract is called a suretyship." “alr Cement pines natal amtnntal Camen Corporation tl CA Ne 155173, November 004 “PH Credit Corporation vs. CA & Carlos M.Farrales,G.R. No. 109648, November 22, 2001. 196qapter 3~ Different Kinds of Obligations While @ guarantor may bind himself sotidanh larily on the liability of a guar s to hus, Tolentino explains: > “fferent from “ with the principal geotor: that of a solidary ‘Aguarantor who binds himselfin sot ovis of the second paragraph ae ae Principal debtor under the ail intents and purposes. There is a difference betmesy iat) co-debtor to nda fdr in soliton (sre). The later ote a dea, to pay the debt before the property of the princi ie ay assumes exhausted, retains all the other rights, actions and bovis sey tts been him by reason of the fiansa; while a solidary eo-deben? pac nt pertain to thon those bestowed upon him in Section 4, Chapter 3, title [toy ne Civil Code. g , title , Book IV of the section 4, Chapter 3, Title I, Book 1 i tnd eer oligations. Under dr 120 thr es on debtors in one and the same obligation, the presumption is that the oblignaon isjoint so that each ofthe debtors is liable only for a proportionate part ofthe debe. There is a solidarity lability only when the oblgation erpressy co states, when the law so provides or when the nature of the cae a requires. Because the promissory note involved in this case expressly states that the three signatories therein are jointlv and severally liable, any one, some or all of them may be proceeded against for the entire obligation, The choice is left to the solidary creditor to determine against whom he will enforce collection.1°* ‘Art. 1208, If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a) General Rule: Obligation is presumed to be ‘gine if there is concurrence of two or more creditors or of two or more debtors in one and the same oblig ation. 10? Exceptions: The obligation is solidary when"? "dpe cong. CA & Philp Bank of Communications GR No 2645 bine 26 195 At 1207 & 1208, NCC "ar 1207, NCC 197Chapter 3 - Different Kinds of Obligations 1. The obligation express so states that there is solidarity Example: In Tramat Mercantile v. Court of Appeals, The Supreme Cour, ic thus: “Personal liability ofa corporate director, trustee or oficer along (athe, not necessarily) with the corporation may so validly attach, as a rule, om when — a. He assents (a) to.a patently unlawful act of the corporation, or (fap faith or gross negligence in directing its affairs, or (c) for conpice interest, resulting in damages to the corporation, its stockholdes 3 other persons; o b. He consents to the issuance of watered stocks or who, having knowieg thereof; does not forthwith file with the corporate secretary his wri tt, objection thereto; € He agrees to hold himself personally and solidarily liable with ty corporation; or He is made, by a specific provision of law, o personally answer for hy corporate action.”104 2. The law requires solidarity Examples: Some obligations where the law requires solidarity are the following: a, Art, 1622, 1823 and 1824, NCC to wit: Art, 1822. Where, by any wrongful act or omission of any partner ‘acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. Art. 1823. The partnership is bound to make good the loss: 1. Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and 2, Where the partnership in the course of its business receives money 0° property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. ‘Cited in the case of Slidbank Corporation vs. Mindanao Ferrall Corporation etal, GR.No. 153835, N29. 2005. 198v, chal por 3~Dlferent Kinds of Obligations Art, 1824. All partners are lable solidarity 1824: A with th everything chargeable tothe partnership under Articles too el rao bh towit: Art. 1911. Even when the agent has exc 11. By veeded hi principal is solidarly lable with the agent i the former alowed the fatter to act as though he had full powers to wit: Art. 1915. If 6v0 or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency, d, Art 1945, NCC to wit: Art. 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are lable solidarily. e, Art 2146, NCC to wit: ‘Art. 2146. If the offcious manager delegates to another person all or some of his duties, he shall be liable for the acts of the delegate, without prejudice to the direct obligation of the latter toward the owner of the business. The responsibility of two or more offcious managers shall be solidary, unless the management was assumed to save the thing or business from imminent danger. f Art.215Z,NCG to wit: ‘Art. 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary 9. Art. 2194, NCC to wit: ‘Art. 2194, The responsibility of two or more persons who are liable for quasi-delict is solidary, he Art. 110, Revised Penal Cade in relation to Art. 109 of the same Code. ‘Art. 109, Share of each person civilly liable. — If there are two or more persons civilly liable for a felony, the courts shall determine the ‘amount for which each must respond. Art. 110. Several and subsidiary liability of principals, accomplices and accessories of a felony; Preference In payment. — Notwithstanding the provisions of the next preceding article, the principals, accomplices, and accessories, each within their respective 199class, shall be lable severally (in solidum) among themser, quotas, and subsidiaries for those ofthe other persons liabjg."°S for ae The subsidiary liability shall be enforced, firs property of the principals; next, against that of the acco lastly, against that of the accessories. 9a, Bice te Whenever the liability in solidum or the subsidiary tay been enforced, the person by whom payment has been made spell hy right of action against the others for the amount of theiy reste shares. Peat 3. Nature of the obligation requires solidarity In one case, the Supreme Court held that, it is axiomay solidary liability cannot be lightly inferred. Under Article 1207 of gyé th Code, “there is a solidary liability only when the obligation exprer states, or when the law or the nature of the obligation requires Solidar, % Since solidary liability is not clearly expressed in the Promissory ity not required by law or the nature of the obligation in thi conclusion of solidary liability can be made. Note and), S ase, ng Art. 1209. Ifthe division is impossible, the right of the creditors ia Prejudiced only by their collective acts, and the debt can be enforcey by proceeding against all the debtors. f one of the later shows? insolvent, the others shall not be liable for his share. (1139) ‘The above article is referring to a is wher the nature of the rights and obligations of the parties are joint and te nature of the object of the obligation is indivisible. ‘The obligation is deemed to be indivisible when it is to give definite things and those which are not susceptible of partial performance.10s Example: A and B promises to deliver a specific car to X and Y. Take note that their agreement is silent as to whether it is joint or solidary; hence, itis resumed to be joint. Itis worthy to note also that the object is a car meaning itis an indivisible thing that is why all the creditors should collectively make a demand and that the debtor should collectively perform their respective obligations. Otherwise, there is no complete payment or performance. 2 Sohidbank Corporation vs. Mindanao Ferroallo Corporation etal, Ro. 153535, July 28,2005. so art 1225, NCC 200 ycpapter3- Different Kinds of Obligations ne 50% of the car cannot be determined 'y indivisi onsen y, the obligation of A and B will be sie in an ‘idea r damages. If the car has a market value Of P 1,000,000, then A will 7 500,000 with no additional damages because he is willing to ‘elven However, Bwill be paying P500,000 plus damages because he is not willing to deliver that may result to delay, a ground for asking damages. " Assuming that both A and B are willing to deliver; however, B turned insolvent, what would be the legal effect? The answer is that A will just pay 500,000 only. Thus, A is not liable for the share of B. X and ¥ will ust have to wait for B to become solvent and thereafter to collect his share in the obligation. Characteristics of Joint Indivisible Obligation 1, No joint creditor can act in representation of the other joint creditor or creditors. All of the creditors must make a demand for the fulfillment of the obligation otherwise, the debtor or debtors may legally refuse to deliver or he can insist that all of the creditors must receive the thing otherwise, he may deposit the thing by way of consignation. 2, No joint debtor can be compelled to fulfill the obligation of the other joint debtor or debtors. If there are two or more joint debtors, the fulfillment of the obligation requires the concurrence of all the debtors. In case of insolvency ofajoint debtor, the others shall not be liable for his share. Effect of Breach of Joint Indivisible Obligation In case of breach of a joint indivisible obligation, Art. 1224, NCC, Provides: Art. 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 ‘he thing or of the value of the service in which the obligation consists. 201Chapter 3 - Different Kinds of Obligations Hence, in case of breach of a joint indivisible obligag, converted into an indemnity for damages. The joint debtors who a ity refused to comply with his obligation shall bear the burden of payi alled the damages to the creditor or joint creditors. Tal For those joint debtors who may have been ready to comp) their obligation shall not contribute to the indemnity beyong Wig corresponding portion of the price of the thing or the value of the seryiot™® which the obligation consists ‘esi, Art. 1210. The indivisibility of an obligation does not necessarily giye to solidarity. Nor does solidarity of itself imply indivisibility. (n) Tie In case, there is a concurrence of two or more creditors or of more debtors in one and the same obligation, Article 1207 of the Civil cay States that among them, “there is a solidary liability only when ty Sbligation expressly so states, or when the law or the nature of the obliga : requires solidarity.” Article 1210 supplies further caution against the ee interpretation of solidarity by providing: “The indivisiblity of an obligatin ‘Toes mot necessarily give rise to solidarity, Nor does solidarity of fselfimp indivisibility.” 2 ‘These Civil Code provisions establish that in case of concurrence of tp or more creditors or of two or more debtors in one and the same obligation and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence.” INDIVISIBILITY AND SOLIDARITY DISTINGUISHED C Indivisibility Solidarity | Indivisibility refers to the prestation | Solidarity refers to ‘the juridical tier that is not capable of partial | legal tie or vinculum juris, performance. ‘Indivisibility exists even if there is | Solidarity exists only if there are two only one debtor and one creditor. | or more debtors or two oF more) creditors. In indivisibility, each debtor is not | In solidarity, each debtor is bound 9) bound to fulfill the obligation more | the fulfillment or compliance of the) than his share and each creditor | entire obligation and each creditor cannot demand fulfillment of the | may demand the fulfilment © ——— sy Salvador P Eocaho and Mario M. Silos vs. Rafael Ortigas, Jr, GR No. 151953, lune 29,2007, 202coat 3 Different Kinds of Obligations —ccgation more than his share. Compliance of the entire obligation. [oie of preach of the obligation, In case of breach of the obligation, ine divisible obligation ii .indivisi igation is | the solidary ch ented into indemnity for | obli character of the comes thus, the indivisible seer tre ameter of the obligation fs inated: He indivi, ‘only the debtors f breach of the obligation are ilty 0 fable for damages. In solidarity, all the debtors are liable for damages even if only one of them is guilty of breach of the obligation. ig indvisibiliy, If one debtor is insolvent, the other debtors are not jiable for his share. In solidarity, if one debtor is insolvent, all the other debtors who are solvent are proportionately liable for the share of the former. n.1211. Solidarity may exist although the creditors and the debtors may aot be bound in the same manner and by the same periods and conditions. (1140) Kinds of Solidarity 1, Asto source a. ‘The solidarity is imposed by law Examples: o Art, 1822, 1823 and 182+ Art. 1911, NCC. Art, 1915, NCC. Art, 1945, NCC. Art. 2146, NCC. Art. 2157, NCC. Art 2194, NCC. dG i 5 ‘The solidarity is agree e00000 Note: 'T Art. 1306, The contracting parties m clauses, terms and con provided they are not con' public order, or public pol 4, NCC. .d upon by the parties. in relation to Art. 1306, NCC, to wit ay establish such stipulations, they may deem convenient ditions. as morals, good customs, trary to law, icy. 203Chapter 3 - Different Kinds of Obligations a] dari « pee soldarty is imposed by the nature of the Oblgatg 2, As to the parties bound a Solidarity of creditors (active solidarity) may be defineg je or vinculum among several creditors of one and a, Siete virtue of which each of them, in relation one creditors, possesses the character of creditor only With reg : his share in the obligation, but in relation to the common, debtor debtors, represents all ofthe other creditors.108 tt a, The most fundamental effect of active solidarity jg creation of a relationship of mutual agency among the Solidany © creditors by virtue of which each creditor is empowered to exen? against the debtor or debtors not only the rights which correspug to him, but also all the rights which correspond to the othe creditors with the consequent obligation to render an accountings his acts to such creditors.10? Example: X owes A, B, and C the amount of 300,000. Their agreement is that the creditors are solidary. In this case, either of Bor Cmay collect the entire credit of P300,000 subject to the giving Of the share of the other co-solidary creditors. For instance, if B demanded from X the debt and the latter paid P300,000, X is obligated to give the share of A and C in the amount of P100,000 each, b. Solidarity of debtors (passive solidarity) may be defined as a tie or vinculum among several debtors of one and the same obligation by virtue of which each of them, in relation, to the Common creditor or creditors, represents all of the other debtors, and in relation to his co-debtors, possesses the character of debtor only with respect to his share in the obligation,10 In passive solidarity, each solidary debtor, insofar as the creditor or creditors are concerned, is the debtor of the entire 1 Glogs Teoria de ls Obligaiones Val,» 9p, Manresa, 5° Ed, Bk 1, p 531-532, 2Glor Teoria dela Obigaciones, VoL, p15, 204ter 3~ Different Kinds of Obligations oar! amount; however, with respect to his co-d j only to the extent of his share in the obligeg ero Fe #8 the debtor obligation,111 debtors is the liability of each de been made.tt2 Example: X and Y, solidary debtors, are obligated to B the in the amount of P100,000. Since this is passive solidarity, if B demanded from ¥, ¥ will pay the entire amount of P100,000 and thereafter he has a right to ask for reimbursement of P50,000 from X, the latter's share, c. Mixed solidarity Solidarity among the debtors and creditors, Example: X and Y are indebted to B and C the amount of P500,000. They stipulated that the nature of the obligation will be solidary on the part of both debtors and creditors. Thus, either of X or Y may pay the entire obligation subject to reimbursement of the other's share. On the other hand, either of B or C may demand the P500,000 subject to the giving of the share of the other party. 3, Asto Uniformity ‘a Ua iderh ‘The parties are bound by the same stipulation. Example: X and ¥ are indebted to B and C the amount of P1,000,000. They stipulated that the nature of their respective obligation will be solidary. b Monunif a ee The parties are not subject to the same stipulations.113 Example: B and C, solidary debtors, are indebted to X and ¥, solidary Creditors, the amount of P1,000,000. They stipulated further that B's 500,000 share in the obligation will be due on December 31, 2020 Satan 78,75 he sero P Ci Law Reviewer, 20% editon, 2006, p710-711, ches Roman 5 . 205Chapter 3 ~ Different Kinds of Obligations while the shi examination. On December 31, 2020, either X or ¥-can demang from either Bor C the mount of P500,000 equivalent tothe spt 'B. Moreover, if Y passes the board exam, then either of x Shane demand payment from either B or C the amount of P54 Yew, fquivalent co the sare of C 0 are of € will be due Hf Y Passes the cpg oar Art, 1212, Each one of the solidary creditors may do whatever ma a alto the others, but not anythin which may be prejudicial ty, latter. (11414) he the dicial acts ofa solidary creditor irs may do whatever may be usej 1g which may be prejudicial oe Effects of beneficial acts and preju Each one of the solidary creditor or beneficial to the others but not anythin! latter. e debtor or debtors are concerned, a prejudicial ag, performed by a solidary creditor shall be valid and binding because of the principle of mutual representation which exists among the creditors however, as far as the solidary creditors are concerned, the creditor who performed the act shall incur the obligation of indemnifying the others for damages." As far as th Example: Band C, solidary debtors, are indebted to X and Y, solidary creditor, the amount ofP7,000,000 which will mabe ‘on December 31, 2020. On sad date, either X or ¥ must make @ Miemand, This demand is beneficial tothe aoe cosolidary creditor otherwise the debt might be extinguished because of prescription (a mode of vrcingushing an obligation through the eps og coy Additionally, che debtors pata the obligation because of the demand thon the said act of making a demand Is ‘eneficial again to the other co rary creditor, conerariwise, if X or will not make a demand, soil negative acts prejudicial to the other co-solidary creditor. ‘art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (1) General Rule: ‘Asolidary creditor cannot assign his rights. Sara ae tee vu Catan, 7 p72 206captor 3~ Different Kinds of Obligations amount; however, with respect to is 6 ' only tothe extent of his share in the obligawce wae ene debtor obligation.111 Hence, the most fundamental eff occ ieut fect of solid: debtors is the liability of each debtor for the payment of the, ars obligation, ee a ae right to demand reimbursement ‘om the others for their cor i fm te ot responding shares once payment has Example: X and ¥, solidary debtors, are obligated to B the in the amount of P100,000. Since this is passive solidarity, if B demanded from ¥, ¥ will pay the entire amount of P100,000 and thereafter he tas @ right to ask for reimbursement of P50,000 from X, the latter's share, ¢. Mixed solidarity Solidarity among the debtors and creditors. Example: Xx and Y are indebted to B and C the amount of P500,000. They stipulated that the nature of the obligation will be solidary on the part of both debtors and creditors. Thus, either of X or ¥ may pay the entire obligation subject to reimbursement of the other's share. On the other hand, either of B or C may demand the P500,000 subject to the giving of the share of the other party. 3, As to Uniformity a. Uniform solidarity ‘The parties are bound by the same stipulation. Example: X and ¥ are indebted to B and C the amount of P1,000,000. They stipulated that the nature of their respective obligation will be solidary. b. Non The parties are not subject to the same stipulations.11? Example: Band C, solidary debtors, are indebted to X and ¥, solidary creditors, the amount of P1,000,000. They stipulated further that B’s 500,000 share in the obligation will be due on December 31, 2020 eee "3casan 749.73 he Desierto, Civil Law Reviewer, 208 edition, 2006, 710-71. Sanches Roman So 205chapter 3~ Different Kinds of Obligations ¥ passes the while the share of C will be due if Y Pe CPA bony examination. ee. 10, either X oF land ‘pe December 31, 2020, ther A valent to nde a t of P50 ‘ard ova, then either of X op yo wer B or € the amount (the amount of P59q% of 500,09, he fromeith ther B Or B. Moreover, if ¥ passes # demand payment from eI equivalent to the share of i it do whatever jidary creditors may atever ma solidary © which may be prejudicial wm Art, 1212. Each one of the st thing to the others, but not an} useful latter. (11414) judi lidary credit ficial acts and prejudicial acts ofaso = Effects of beneficial acts 200 Pr aitors may do whatever may be use Each one of the soli F n or beneficial to the others bu ing which may be prejudicial toy, latter. not anyth ‘as far as the debtor or debtors are concerned, @ prejudicial gq performed by a solidary creditor shall be valid and binding because of principle of mutual representation which exists among the creditor however, as far as the solidary creditors are concerned, the creditor why performed the act shall incur the obligation of indemnifying the others fr damages.!"* Example: Sand G solidary debtors, are indebted to X and ¥, solidary creditor, the amount of P1,000,000 which will mature on December 31, 2020. On sui a demand. This demand is beneficial tothe date, either X or Y must make itherwise, the debt might be extinguished becmse other co-solidary creditor; ot of prescription (a mode of extinguishing an obligation through the lapse time). Additionally, if the debtors paid the obligation because of the demant then the said act of making a demand is beneficial again to the other solidary creditor. Contrariwise, if X or ¥ will not make a demand, sud negative act is prejudicial to the other co-solidary creditor. out the consent Art. 1213. A solidary creditor cannot assij of the others. (n) eerste General Rule: Asolidary creditor cannot assign his rights. 1443 Castan, 7d, p.72 206or 3~ Different Kinds of Obligations ca jon: po assignment is allowed if it is wi th syne the consent of all the other soldat arora co-solidary creditor, vig? 4214. The debtor may pay any one of the soli jemand, judicial or extrajudicial, has been m: Fe eels: bat aay ade bj Should be made to him. (1142a) 7 one of them, payment General Rule: The debtor may pay any one of the solidary creditors. Exception: Ifa demand, judicial or extrajudicial, has been made by one of the solidary creditors, payment should be made to him. Example: Bsolidary owes W, X, Y and Z P100,000. In thi is case B may pay either W,X¥, and Z the total amount of 100,000, However, if X makes a demand from Bon due date, the latter should pay X to avoid delay. Art. 1218, Novation, compensation, confusion or remission of the debt, ade by any of the solidary creditors or with any of the solidary debtors, stall extinguish the obligation, without prejudice to the provisions of Article 1219, The creditor who may have executed any of these acts, as well as hewho collects the debt, shall be liable to the others for the share in the hligation corresponding to them. (1143) Paragraph 1 of the above article should be read together with Art. 1219, NCC, to wit: 4Tt 1219, The remission made by the creditor of the share which affects one Of the solidary debtors does not release the latter from his responsibility ‘owards the co-debtors, in case the debt had been totally paid by anyone of ‘hem before the remission was effected. ‘oi Also, the above-article should be correlated with Article 1231, NCC, it: 207Chapter 3 - Different Kinds of Obligations Art. 1231. Obligations are extinguished: By payment or performance: By the loss of the thing due: By the condonation or remission of the debt; By the confusion or merger of the rights of creditor and debtor; By compensation; é By novation. AW AwNE confusion and remission are some of modes of extinguishing an obligation. Consequently, the solidary cre who may have executed any of these acts shall be liable to dmateran creditor or creditors for the share in the obligation corresponding ore latter. Moreover, if the solidary creditor collected the debt, he is also jj be sate other solidary creditor or creditors for the share in the obliga, corresponding to the latter because the obligation was extinguished by payment. Novation, compensation, Novation Mt is a mode of extinguishing an obligation by change tthe objector ‘ons, or by substituting the person of the debtor, or by its of the creditor." principal conditi in the righ subrogating a third person i ‘Example: Band € solidarily agreed with X only that instead of part Wailjust deliver a specific car. Upon delivery their obligation is extinguished. Nonetheless, Xis lial the amount of P50,000. owes X and ¥ the amount of P100,000, B and ing the amount of P100,000, B and C ‘by Band C of the specific car tok ible for the share of Yin Compensation ‘Compensation shall take place when two persons, in their own right f each other. are creditors and debtors o| and Csolidarily owes X and ¥ the amount of P100,000. Prior tots agreement, X was already indebted to B for P100,000 because of a separate contract. If Xand B agreed to a compensation HY set-off then the obligation © extinguished; however, ‘Yis liable to Y in the amount of P50,000 as this is his Share in the obligation. Also, C must pay B's ‘share in the amount of P50" Example: LBP ea 185 Art.1291, NCC. sus Art 1278, NCC 208er3~ Different Kinds of Obligations vat! qusion oF meTECT of rights conltsrrne obligation is extinguished from the ti ime th itor and debtor are merged in the same person.117 eee ra example: Band C solidary debtors owe solidary creditors X and fP100,000 as evidenced by a negotiable promissory note. X. nd Vase this promissory note to H then the latter negotiated it to I then to then to K then to L then back to B only, the obligation is extinguished. Nevertheless, Cis jiable to B for his share in the amount of P50,000. This is because when B and issued the promissory note to X and ¥, they are both debtors in the amount of P100,000 (B's share of P50,000 plus C's share of P50,000) and thereafter when L negotiated the same promissory note to B (L is the debtor for 100,000 and B only is the creditor for P100,000), the latter is the only creditor in the amount of P100,000 which was extinguish due to merger of rights. Therefore, it is just but right that C should pay to B his share of 50,000. Remission or condonation Remission is an act of liberality by virtue of which the obligee, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or in that part or aspect of the same to which the remission refers.1!® Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.'"® Example: B and C, solidary debtors, owe X and Y the amount of P100,000. Before the date matures, X condoned or remitted the obligation in favor of B. Inthis case, the obligation of B and C are extinguished because of condonation or remission. If the remission is without the knowledge or consent of Y, X is liable to Y in the amount of P50,000. Moreover, C is not liable to B for his share because in solidary obligation, the principle is “all for one, one for all’; ‘hus, “the remission of one, is the remission of all.” Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against he of them shall not be an obstacle to those which may subsequently be rtted against the others, so long as the debt has not been fully ‘llected. (11444) 8 Nor, 1 planes, 58 aan ED Bl 1 p673, 209Chapter 3 - Different Kinds of Obligations ‘The solidary creditor may proceed against any OMe of the gy debtors or some or all of them simultaneously. a Yand Z solidarity obliged themselves to pay P450,000 to p. p collect from either X or Y or Z, or X and ¥, or Y and Z, or X and Z or ™m am them simultaneously, the total amount of P450,000 and the obligation ya extinguished. Nonetheless, if there is partial payment from any of a if remaining balance can be collected from the others. Note: H * Indeed, Article 1216 of the Civil Code provides that a creditor may a any of the solidary debtors. Thus, the Court has ruled in Operators Incorporated vs. Americy Biscuit Co., Inc. stated thus: "ex x solidarity does not make a solidary obligor an indispensable party in, suit filéd by the creditor. Article 1216 of the Civil Code says that the creditg, mau proceed against anvone of the salidary debtors or some or all of then simultaneously," Effect of demand against one of the solidary debtors The demand made by a solidary creditor or creditors against one of the solidary debtors 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. The Court's disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus: A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid x x x. Stated differently, a surety promises to pay the principal’ debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself perform if the principal does not, without regard to his ability to 40 80, 24x In other words, a surety undertakes directly for the payment a ‘sso responsible at once if the principal debtor makes default xxx. xx a ee 2 Constante Amor de Casto a ae "roand Corazon Amor de Castro vs. CA and Francisco Artigo, GR. No, 115838, July 18 210qapter 3~ Different Kinds of Obligations A-creditor’s right to proceed againse tn : right to proceed against the principan ung, ts independently of his : The rule, : obligation is joint and several, the creditor has’ aoe arte against the surety alone. Since, generally, it is not necessary for the creditor to proceed against a principal in where, by the terms of the carer ey Order fo hold the surety lable primarily liable, and with the rule that his proper remedy Is to pay the debt and pursue the principal for reimbursement, the surety cannot ot law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust. his remedies against the principal, particularly where both principal and surety are equally bound.124 Problem: A and B were co-owners of 4 lots, F was authorized by A and B toact as real estate broker in the sale of these properties for the amount of 223,000,000, 5% of which will be given to the agent as commission. It was F who first found X Corporation, as prospective buyer which desired to buy 2 lots only. Eventually, the sale of the 2 lots was consummated. F received from A and B 48,893.76 as commission. F apparently felt short changed because according to him, his total commission should be 2352,500 which is 5% of the agreed price of 7,050,000 paid by X Corp. to A and B for the 2 lots, and that it was he who introduced the buyer to A and B and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued to collect the balance of P303,606.24 after having received 248,893.76 in advance. On the other hand, A and B completely traverse F's cine essentially argue that F is selfishly asking for more than shal sruly deserved as commission to the prejudice of other agents se eee more instrumental in the consummation of the sale, Although & ane & readily concede that it was F who first introduced X corm hem F was hot designated by them as their exclusive real estate 98: Sion ae ea ex jv Astana Comporation, GA No, 17 in Gateway Electronics Corporation and Geronimo B. Delos Reyt ".Decenber 1, 2008, 241Chapter 3 - Different Kinds of Obligations - Jess 18 others whose collective effort fac er ard et P's, considering that the first negotia be rong revere F took active participation failed and it was thesy ty the sale wneecessfully brokered in the second negotiation. Bye gg sects eof ‘and B's "pure liberality, beneficence and maghaning Pushes was given the largest cut in the commis (P48,893.76), although on the principle of quantum meruit he wow have certainly been entitled to less. ‘Are the co-owners solidarily liable? Answer: ‘There is no dispute that A appointed F in a handwritten note, sell their properties for P23 million at a 5 percent commission, A signed the note as owner and as representative of the othe, co-owners, Under this note, a contract of agency was clearly constitu ‘Aand B admit that the other co-owners are solidarily liable under the contract of agency, citing Article 1915 of the Civil Code, which reads; Art, 1915. If wo or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent jr all the consequences of the agency. When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation. The agent may recover Art. 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, suo! share shall be borne by all his co-debtors, i the debt sore aan 1's, in proportion to "see Constante Amor de Castro and Corazon Amor De Castro vs, CA and Panis jo.115830, 107 18,2002. Francisco Aigo, GR. Ne 212 _dgar 3> Different Kinds of Obligations payment by a solidary debtor pfecto! 1 Payment, which means not only the delivey of money bi ry ey but also the ‘ion, is the operative fact ‘Adebt shall not be understood to hav. in which the obligation consists has .d,as the case may be.124 e been paid unless the thing or been completely delivered or rendere If two or more solidary debtors of 2 aaa offer to pay, the creditor may A solidary debtor who made the \ Payment may claim from hi - gestors only the share which corresponds to each, with the interest for the yayment already made. If the payment is made before the debt is due, no Mprest for the intervening period may be demanded. : Example: X, ¥ and Z solidarily obliged themselves to pay P450,000 to B on December 31, 2020. If Z offered to pay and thereafter paid the P450,000, the obligation is extinguished and Z can thereafter ask for reimbursement from X and Y their share in the obligation which is P150,000 each: What if on due date both X and Y are offering to pay the entire amount of the obligation? Then B, the creditor, can choose which offer to ‘accept. Thereafter, the obligation is extinguished. What if X paid the total obligation on October 31, 2020? Again, the obligation is extinguished. Consequently, X can demand the share of ¥ and Z jn the amount of 150,000 each. X cannot demand for interest because the debt was paid before it is due. But he can demand 3 months interest if he paid in December 31, 2020 and thereafter ¥ and Z reimbursed him on March 31, 2021. What if after X paid the obligation, Z also became insolvent on due date? Then X and ¥ will share in the obligation of Z proportionately and that is P75,000 (P150,000/2) because they will absorb his share. Therefore, X will asked reimbursement from Y the amount of P225,000 (P150,000 original share and P75,000 share). snd Commando Security Service Ageney, ne, GR. Nox ‘Lapnday Agricultural Development Conporation vs CA 3 12159, january 31, 2000 an 1233, NEC 213chapter 3 - Different Kinds of Obligations i t? Whats suretyship come py. definition, refers to an age, the surety, engages to be answerable for the it whereunder one person, wn as the principal.225 default, or miscarriage of another kn s is merely an accessory or a collateral to a icing cbiigatan Atbagh a surety contract is secondary oe Pring Ghlgation the Hality ofthe surety is direct primary and absolyg alent to that of regular party to the undertaking, surety bec a to the debt and duty of the principal obligor even without possessy thane or personal interest in the obligations constituted by the latter. law to be on the same footing as 4, ‘A surety is considered in s . principal debtor in relation to whatever is adjudged against the latter.tz Solidarity and Surety distinguished Ina case decided by the Supreme Court, it explained the distinction, of solidarity and surety, thus: ‘The term “surety” has a specific meaning under our Civil Code, Article 2047 provides the statutory definition of a surety agreement thus Art 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fai to do so. Ifa person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. A suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of Proceeding against the principal debtor for the same obligation. At the same Lime, there is also a legal tie created between the surety and the principal Aebtor to which the creditor is not privy or party to, The moment the suet) me Electronics Corporation and Geronimo B, Delos Reyes 7 December, 20001 Comer nd Geronimo B. Delos Reyes, vs. Asianbank Corporation, GR. No 172! International Finance Corporati nal Fee Corporaton vs, mperial Texte Mills, Ine, GR. No, 160324, November 15,2008. tile Mills, In, .R. No, 160324, November 15,2005. 214 “lntsraioal Finance Corporation vs. Imperial Te: bligati such obligation is extinguished, atthe saree’ OY the principal the surety may Note that Article 2047 itself spe rovsions on joint and solidary bilewions parte application of the fai7 of the Civil Code thus comes into play, recognizing the ran ws reimbursement from a co-debtor (the principal debtor, in case of sure aye for of the one who paid (Le, the surety). However, a signing ta wries between a joint and several debtor, ae eon a joi on one hand, and Seer. Solidarity signifies that the creditor can compel any ane ofthe ine and several debtors or the surety alone to answer for the entirety of the principal debt i ‘Thedifference lies in the respective faculties of the joint and several debtor Dr. Tolentino explains the differences between a solidary co-debtor and a surety: A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co- debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title , Book IV of the Civil Code. The second paragraph of Article 2047 is practically equivalent to the contract of suretyship. The civil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil law relationship existing between the co-debtors liable in solidum is similar tothe common law suretyship. In the case of joint and several debtors, Article 1217 makes pla thatthe solidary debtor who effected the payment to the creditor imi Nat Jrom his co-debtors only the share which corre taieae ee interest for the payment already made.” Such solidary det oe cecal to recover from the co-debtors the full amount already POE TT oe rne because the right to recovery extends only to the PTOPO TT oT OF the other co-debtors, and not as to the particular pore ml early solidary debtor who already paid. In contrast even TT ng does pay the bound with the principal debtor to the creditor, tl 245Chapter 3 - Different Kinds of Obligations i amount paid, and nop itor has the right to recover the ful ise oroportiml share, from the principal debtor or debtors. Such rigiy oe reimbursement falis within the other rights, actions and benefg fi pertain to the surety by reason of the subsidiary obligation assumeq by PY surety. Rationale: ° What is the source of this right to full reimbursement by the + Sun We find the right under Article 2066 of the Civil Code, whlch assures Rs “the guarantor who pays for a debtor must be inden led by the lattes such indemnity comprising of, among others, ' ‘the total amount of the debs Further, Article 2067 of the Civil Code likewise establishes that +, guarantor who pays is subrogated by virtue thereof to all the rights Which the creditor had against the debtor.” Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions should not extend to sureties, especially ig light of the qualifier in Article 2047 that the provisions on joint and sever obligations should apply to sureties. We reject that argument, and instead adopt Dr. Tolentino’s observation that “the reference in the seconj paragraph of Article 2047 to the provisions of Section 4, Chapter 3, Tite | Book IV, on solidary or several obligations, however, does not mean that suretyship is withdrawn from the applicable provisions governing guaranty.” For if that were not the implication, there would be no material difference between the surety as defined under Article 2047 and the joint and several debtors, for both classes of obligors would be governed by exactly the same rules and limitations. Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. These rights granted to the surety who pays materially differ from those granted under Article 1217 t the solidary debtor who pays, since the “indemnification” that pertains the latter extends “only to the share which corresponds to each ¢o- debtor."126 Art. 1218, Payment by a solidary debtor shall not entitle him (0 reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n) "Salvador P.Escafo and Mario P. Mario M Sos vs, Rafael Ortigas J. GR. No, 151983, june 29,2007 216qapter3~ Different Kinds of Obligations of payment by a soliday a se bed or become illegal "Y debtor after the obligation has ymel ment by i orale him to reimbursement from his co-debte cary debtor shall not “rer the obligation has prescribed or become illegal 30 presciption By pnescratlon, one acquires owners she lapse of time in the manner and under the conditions laid down by law I the same waY, Fights and conditions are lost by prescription.11. Alse, actions prescribe by the mere lapse of time fixed by law. " P and other real rights through The following articles are the pertinent rules on prescription of actions, to wit 1. Actions to recover movables shail prescribe eight years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to Articles 1132, and without prejudice to the provisions of Articles 559, 1505, and 1133.13 2, Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. 3.A mortgage action prescribes after ten years. 4. The following rights, among others specified elsewhere in this Code, are not extinguished by prescription: 1. To demand a right of way, regulated in Article 649; 2. To bring an action to abate a public or private nuisance.'# 5. The following actions must be brought within ten years from the time the right of action accrues: 1. Upon a written contract; 2. Upon an obligation created by law: 3. Upon a judgment” 11 és cc cites Nee 217Chapter 3 - Different Kinds of Obligations 6 The following actions must be commenced within six years: 1. Uponan oral contract: 2. Upona quasi-contract: 7, The following actions must be instituted within four years: 1. Upon an injury tothe rights of the plaintiff; 2. Upon a quasi-delict” 6. The ollowing actions must be filed within one year: je entry and detainer 1. Forforcib 2. Fordefamation.? tioned in Articles 1140 to 1142, a A i‘ 2, and 14, specified in other i wws.itt Parts of ti 9, The limitations of action ment ihout prejudice to those to 1147 are wi 1 da inthe Code of Commerce, and in special la to, Altoter actions whose periods are not fixed inthis Code or in aocaevat be brought within five years from the time the right eee accrues: Example: © and ¥ solidarily obliged themselves to pay B the amount the obligation was extinguished rong 150,000. Subsequently, prescription os B did not make a demand. Ni Sbigation and teres demanding from Westar Pr aes case, ¥ isnot obligated to reimburse X because the obligation was i i exingusted trough te lapse of time. Take note of the principle ay sity pry may de anything which is beneficial but not prejudicial. i se oie a prejudicial act because he still paid despite the fact that tie obligation was extinguished. Art. i br ake ener made by the creditor of the share which affects ee Dy fapeers fons not release the latter from his a towai debtors, in case thi paid by anyone of them before the remission was etc aisea) ina Payment i i ss aeian, a mode of extinguishing an obligation; hence, upon full aero already extinguished. Consequently, the remission iments of no effect as there is nothing more to remit. et 1145, Nee ‘Art 1146, NCC eare 1147, Nec Art 1148, NOC. are 1199, NOC 218jer3~ Different Kinds of Obligations 7 ample: : Beam" x and Y solidarily obliged themselves to ay B and € the amount of 150000. Later, B remitted or condoned only the shee of X (P75,000). unknown £0 % the whole obligation was already paid by ¥ to € before the ice. In this case, X is still liab i omission cook pla still lable to Y because the obligation was extinguished first by payment before the condonation set in. Tale note that oth payment and condonation are modes o extinguishing an obligation jasonly chat payment in this case precedes the condonasian ' srt, 1220. The remission of the whole obligation, 5 ‘idary debtors, does not entitle him to reimh debtors. (1) obtained by one of the ursement from his co- Remission or condonation is an act of liberality. It is essentially gratuitous. Hence, if remission is obtained by one of the solidary debtors with respect to the whole obligation, it does not entitle him to reimbursement from his co-debtors. Example: X and Y solidarily obliged themselves to pay B the amount of 300,000 on December 31, 2020. Because of their present financial condition, X pleaded with B for the latter to extinguish the obligation. Consequently, B condoned the obligation. Now, X is demanding from Y the amount of 150,000 because he alleged that it was through his efforts that B condoned the obligation. Is X correct? No, because the remission of the obligation obtained by him does not entitle him to reimbursement. Take note that the principle of solidary obligation is “all for one and one for all”; hence, the “remission or condonation of one is the remission or condonation of al.” Art 1221. If the thing has been lost or if the prestation has become impossible out the fault of the solidary debtors, the obligation shall be extinguished, If there was fault on the part of any one of them, all shall be esponsible to the creditor, for the price and the payment of damages and texrest without prejudice to their action against the guilty or negligent tor, If through a fortuitous event, the thing is lost or the performance tas become impossible after one of the solidary debtors has incurred in telay through the judicial or extrajudicial demand upon him by the ‘editor, the provisions of the preceding paragraph shall apply. (1147a) 219Chapter 3 - Different Kinds of Obligations Rule in case the thing has been lost or if the prestation has impossible without the fault of | the solidary debtors. ‘The obligation is extinguished. becom mariples and Y obliged themselves solidarily to deliver a specific ies, machine to Band C. Subsequently, the said washing machine was teett fortuitous event. Therefore, the obligation is extinguished. Rule in case the thing has been lost or if the prestation has impossible through the fault of one ofthe solidary debtors, All of the solidary debtors shall be liable to the creditor forthe py, and the payment of damages and interest. However, this is withye prejudice to their action against the guilty or negligent debtor. becon, Example: 7 X and ¥ obliged themselves solidariy to deliver @ specific wasting machine to B and C, solidary creditors, on December 31, 2020. The price the washing machine is P50,000. Subsequently, the said washing machin, was lost through the fault of X. On due date, B made a demand from ¥. int, case, Vis lable for the price of the washing machine (P50,000) plus damages plus interest. However, Y can ask reimbursement from X the amount of 25,000, his share in the obligation, plus the total amount of damages ang interest. Ultimately, it is only X who will finally be liable for the damages and interest because, it was lost through his fault. The principle is, as to the creditors, “one for all and all for one; or “the fault of one is the fault ofa; hhowever, as among the solidary debtors the solidary debtor who is at faut will be the one who is ultimately liable for damages. Rule in case the thing has been lost or if the performance has become impossible through fortuitous event but after one of the solidary debtors has incurred legal delay. All ofthe solidary debtors shall be liable to the creditor for the price and the payment of damages and interest. However, this is without Prejudice to their action against the guilty or negligent debtor. Example: X and ¥ obliged themselves ; ae machine selves solidarily to deliver a specific ‘o B and C, solidary creditors, on December 31, 2020. The price the washing machine is PSO, /,000. Subsequently, C ind from Xt due date but the latter fail quent C made a demand fi through fire of unknown origin, a fortuitous — @ demand from Y. In this case, ¥ is liable for" Price ofthe washing machine (P50,000) plus damages plus interest. Howe" 220xen > pifferent Kinds of Obligations oa y can ask penser irate X the amount of P25,000, his share in the pligation, plus fhe araoui Of damages and interest. Ultimately, it is nly X who will final ye liable for damages and interest because, he was the rewno caused the delay. The principle is, as to the creditors, “one for all and 4 @ or “the delay of one is the delay of all”: however, as among the ii for on oe debtors the solidary debtor who caused the delay will be the one who ibe ultimately liable for damages. an: 1222, A solidary debtor may, in actions filed by the creditor, avail F . Conventonal When it is constituted by agreement of the parties. 2. Asto purpose a. Compensatory When it is established for the purpose of indemnifying the damages suffered by the oblige or creditor in case of breach of the obligation. . Punitive When it is established for the purpose of punishing the obligor or debtor in case of breach of the obligation. 3. Asto effect @ Subsidiary When only the penalty may be demanded in case of breach of the obligation. sea Seca Sec 0 i rinses tty System vs, Moonwalk Development & Housing Corporation, etal, GR. No, 73345, April7, 2003, se Lind Ine Cee nota Shaend eso Chta, Gt 13988, Setember 2 anaemia Geta, GR No, 130980, September 20,2005 227Chapter 3- Different Kinds of Obligations rty may demand the enforgn, 6, int the injured pal Wee ide pal obligation. 4 the penalty and the princi Effect of Penalty both Rule: Gaera ‘obligations with a penal clause, the penalty shall Subst d the payment of interests in cee « indemnity for damages an ; noncompliance. Exceptions: ; 1. When there is a stipulation to the 2. When the obligor refuses to pay th 3. when the obligor is guilty of fraud contrary. e penalty. in the fulfillment of the obligation, Enforceability of Penalty oe ‘The penalty may be enforced only when it is demandabl accordance with the provisions of the New Civil Code. Is there a distinction between a penalty and liquidate damages? ‘The Supreme Court in Laureamo (sree v.Klyeo32 Pi 196) instru thata distinction between a penalty clause imposed essentially as penalty tase of breach and a penalty clause imposed as indemnity for damage Should be made in cases where there has been neither partial nor iregulx compliance with the terms of the contract. In cases where there has bes partial or irregular compliance, there will be no substantial differen between a penalty and liquidated damages insofar as legal results art concerned, The distinction is thus more apparent than real especially inthe light of certain provisions of the Civil Code of the Philippines which provides in Articles 2226 and Article 2227 thereof: ‘Art. 2226, Liquidated damages are those agreed upon by the parties 0 ‘contract to be paid in case of breach thereof. Art, 2227. Liquidated damages, whether intended as an indemnity 0” ° penalty, shall be equitably reduced if they are iniquitous or unconscionable yere is yetween rere is "2 | results Thus, the Supreme Court lamented " P in one case that “th justification for the Civil Code to make an apparent distinction b Benalty and liquidated damages because the settled rule is that th liference between penalty and liquidated damages insofar as leg 228ter 3~ Different Kinds of Obligations chap! that either may by i cerned and tl 'y be recovered without th it one ‘actual damages and both may be reduced when properril Pe. : ® 227. The debtor cannot exempt himself from the performa att tion by paying the penalty, save in the case where tule right pend srressly reserved for him. Neither can the creditor demand the fafllment of the obligation and the satisfaction of the penalty at the same tine, unless this right has been clearly granted him. However, if after the (editor hias decided to require the fulfillment of the obligation, the pevormance thereof should become impossible without his fault, the Fenalty may be enforced, (1153) Limitation on the part of the debtor in obligations with a penal clause. General Rule; The debtor cannot exempt himself from the performance of the obligation by paying the penalty agreed upon. Example: X promised to deliver a particular TV to ¥ on December 31, 2020. As an additional stipulation, they agreed that X will be liable to pay P5,000 penalty in case of failure to deliver said obligation on maturity date. If X defaulted by failure to deliver the TV, he will pay P5,000 as penalty. But this will not mean that he will no longer deliver the TV. Take note that the penaity isnota substitute for the performance of the principal obligation. Exception: Save in the case where this right has been expressly reserved for him, ition on the part of the creditor in obligations with a penal ral Rule: te The creditor cannot demand the fulfillment of the obligation and the ion of the penalty at the same time. this right has been clearly granted him. of actual damages suffered by the creditor is not tthe penalty may be demanded. (n) the penalty shall substitute the I clause, : “hes interests in case of and the payment of No, 138980, September 20,2005. 229Chapter 3 - Different Kinds of Obligations ctual damages suffered py wenalty may be demanded,” “| «0, therefore, proof of 3 ecessary in order that the p' o, expressly recognized by law, isan acce oe Trapility on the part of an obligor in ae Tt functions to strengthen tie Costa force ofthe ligation and to rovide, in effect, for what cou! e the liquida nee resulting Pom such a breach, ‘The obligor would then be bound pay the stipulated indemnity (vithout the necessity of proof on the existene, earn the measure of damages caused by the reach. Although a court not at liberty ignore the freedom of the parties to agree on such terms ang conditions as they see fit that contravene neither law nor morals, goog customs, public order or public policy, @ stipulated penalty, nevertheles, may be equitably reduced by the courts jf itis iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.16 hall equitably reduce the penalty when the been partly or irregularly complied with by has been no performance, the penalty may is iniquitous or unconscionable, noncompliance! creditor is not m A penalty cla undertaking to assume preach of an obligation. Art, 1229. The judge sl principal obligation has the debtor. Even if there also be reduced by the courts if it i (4154a) In one case, the Supreme Court held: ‘At the time of the payment of the full obligation by defendant. appellee, its obligation was extinguished. It being extinguished, there was no more need for the penal clause. Now, it is to be noted that penalty at any time can be modified by the Court. If the penalty can be reduced after the principal obligation has beet partly or irregularly complied with by the debtor, which is nonetheless @ breach of the obligation, with more reason the penal clause is not demandable when full obligation has been complied with since in that case there is no breach of the obligation. In the present case, there has been 2 yetno demand for payment of the penalty at the time of the extinguishment of the obligation, hence there was likewise an extinguishment of the penalt)- cil ied enphasie that the obligation of defendant-appellee was fully complied with by the debtor that i, the amount loaned together with the 1246 interest hasbeen filly pald by the appellee. ‘That being So there is 2° for demanding the penal clause since the obligation has bee 10 are 1226, NCC. ‘4s Tolomeo Ligutan & Leonidas De La Lat ‘Toon Ua Lanna vs. CA & Security Bank & Trust Company, GR. No. 138677, Feb 230pret 3- Different Kinds of Obligations ial ., Here there has been a we inguishe en d waiver of esd fore oobi Wt ly paid an exigue is mu the fact that plaintiff: ished. Again, em! under the contract since it got back in iene has not lost “al the interest jereof. The same thing would have olnt of loan as ve nas ad on ter then the peal dase, unde i ems Secontract wou ppply. Payment ofthe penalty does not mean gain of pss of plaintiff-appellant since it is merely for the purpose of. ae gain or ance of the main obligation has been fully ose of enforcing the ined, the penal clause has lost its raison d’ entre. poeulied titi and the penal clause as it was not perform Fanguis penalty may be reduce by the courts ‘when the principal obligation has been partly complied with by the 1 debtor. ; ‘when the principal obligation has been irregularly complied with by the debtor. ifthe penalty is iniquitous or unconscionable, 1 3 sa general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as iy are not contrary to law, morals, good customs, public order oF public gol. Nevertheless, courts may equitably reduce 2 stipulated penalty in centract in two instances: (1) ifthe principal obligation has been partly triregularly complied; and (2) even if there has been no compliance ifthe penalty is iniquitous or unconscionable.'63 In Ligutan v. Court of Appeals, the Supreme Court pointed out that the question of can be partly subjective and partly objective as its ‘resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, ‘the standing and relationship of the parties, and the like, the application of which, by and large, is addressed tothe sound discretion of the court.”"°* a: jn the amount of % and Y obtained on May 14, 1981 a lod in : P120,000 from Z Bank. X and Y executed 2 promissory note binding themselves, jointly and severally, to pay the bone rst at interest of 15,189% per annum upon marl nd wp yas 5% every month on the outstanding principal and 2 gM every month on tha 2 sing corpora “eal sap Seury System vs, Moonwalk Development ry Paes and a oR Ne 19080 Se oe 2008. InP ind oe, CA eval, GR No 13090, Seen= 231nt Kinds of Obligations ved on September 8, 1981; the aly up until December 29, 499%, Chapter 3 - Differe! ‘The obligation ma granted an extension bank, X and ¥ failed ands from the oma 1 le ‘h, as of May 20, 1982, amounted . Pt4416,0, : the debt 1982, the bank sent a final deman eter to ang! September 30, that they had five days inert whic a main tO ae sind Y stil defaulted on their obligation, the ban payment Sng ga complaint for recovery ofthe due amount. default. however, Despite several dem a i: Is the penalty reasonable or iniquitous? arn question of whether a penalty is reasonable or iniquitoy, Fi objective. Its resolution y ie : P arty suv aa ae nacesoary confined to, the pe ea a purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standin, and relationship of the parties, and the like, the application of which, and large, is addressed to the sound discretion of the court. In Riga! Commercial Banking Corp. vs. Court of Appeals, just an example, the Court has tempered the penalty charges after taking into account the debtor's pitiful situation and its offer to settle 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. The stipulated penalty might even be deleted such as when there has been Substantial performance in good faith by the obligor, when the penalty Clause itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it. é ‘The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% it still disputes. Given the circumstances, not to cts of breach by petitioners of their contractual 5 NO cogent ground to modify the ruling of the mention the repeated ai obligation, the Court se ‘appellate court, Anent the stipulated interest of 15.189% per annum, the cre, Thee 8 does nat appent aes often referred te sone Pationale for the payment of interest, qulté red to as cost of money, is not exactly the same as that of @ sure charge or a penalty, A Penalty stipulation is not necessati! 232captor 3 Different Kinds of Obligations 1230. The nullity of the penal ct _ At principal obligation. ‘use does not carry with it that of ‘The nullity of the princi I i “i, ls Ri Pal obligation carries with it that of the penal pifect of nullity of the penal clause ‘The nullity of the penal clause does 7 not it prinial obligation. carry with it that of the piffect of nullity of the principal obligation The nullity of the principal obligation carries with it that of the penal clayse because the penalty is merely an accessory obligation. Consequently, if the principal obligation is null and void, then penal clause is also null and void. The principle is that accessory follows the principal. Example: X promised to pay P50,000 to Y on December 31, 2020. As an additional stipulation, they agreed that X will be liable to deliver 1 kilogram of illegal drugs as a penalty in case of failure to deliver his obligation on maturity date. The obligation to pay P50,000 is valid; however, the penalty is void meaning as if it did not exist from the very beginning. Thus, only the penalty is disregarded. What if X promised to deliver one kilogram of illegal drugs to Y on December 31, 2020. As an additional stipulation, they agreed that X will be liable to pay P50,000 as penalty in case of failure to deliver his obligation on maturity date. The entire obligation is void. Reis a warner I ler ec Teloneo 1 Bank & Trust Febrile Ligutan and Leonidas De La Lana vs. CA fe Security vay 12,2002, Company, GR. No, 138677, 233