section 6.docx

7/25/2019 SECTION 6.docx

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OBLIGATIONS AND CONTRACTS -2ND EXAM Kristine Confesor

SECTION 6. Obli!tions "it# ! $en!l Cl!%se

ART& '22(& In obli!tions "it# ! )en!l *l!%se+ t#e)en!lt, s#!ll s%bstit%te t#e ine.nit, for !.!es!n t#e )!,.ent of interests in *!se ofnon*o.)li!n*e+ if t#ere is no sti)%l!tion to t#e*ontr!r,& Ne/ert#eless+ !.!es s#!ll be )!i if t#e

oblior ref%ses to )!, t#e )en!lt, or is %ilt, of fr!%in t#e f%l0 ll.ent of t#e obli!tion& T#e )en!lt, .!,be enfor*e onl, "#en it is e.!n!ble in!**or!n*e "it# t#e )ro/isions of t#is Coe& 1''2!3

Meaning of principal and accessory obligations.1'3 $rin*i)!l obli!tion is one "#i*# *!n st!n b, itself !n oes note)en for its /!liit, !n e4isten*e %)on !not#er obli!tion&

123 A**essor, obli!tion is one "#i*# is !tt!*#e to ! )rin*i)!lobli!tion !n+ t#erefore+ *!nnot st!n !lone&

Meaning of obligation with a penal clause. An obli!tion "it# !)en!l *l!%se is one "#i*# *ont!ins !n !**essor, %nert!5in to )!, !)re/io%sl, sti)%l!te ine.nit, in *!se of bre!*# of t#e )rin*i)!l)rest!tion intene )ri.!ril, to in%*e its f%l0ll.ent&

Meaning of penal clause& A )en!l *l!%se is !n !**essor,%nert!5in !tt!*#e to !n obli!tion to !ss%.e re!ter li!bilit, on t#e)!rt of t#e oblior in *!se of bre!*# of t#e obli!tion+ i.e., theobligation is not fullled, or is partly or irregularly complied with.

ILLST!"TI#E C"SE6Liability for non-fulllment lesser than that provided by law.

$acts6 A *l!%se in ! ee of s!le )ro/ies for t#e ref%n of t#e)%r*#!se )ri*e )l%s 78 interest )er !nn%. s#o%l t#e /enor f!il toi/e t#e tr!nsfer *erti0*!te of title "it#in si4 1(3 .ont#s fro. !te off%ll )!,.ent&Issue%Is t#e *l!%se ! )en!l *l!%se9&eld%No& :it#o%t s!i *l!%se t#e /enee *o%l re*o/er le!l interests%ner Arti*le 22;< of t#e Ci/il Coe "#i*# is e/en .ore t#!n t#e 78)ro/ie for in t#e *l!%se& T#erefore+ it oes not )re*l%e t#e re*o/er,of !*t%!l=no.in!l !.!es b, t#e /enee&

'urposes of penal clause.T#e, !re6 to ins%re t#eir )erfor.!n*e b, *re!tin !n e>e*ti/e

eterrent !!inst bre!*#+ .!5in t#e *onse?%en*es ofs%*# bre!*# !s onero%s !s it .!, be )ossible& T#is is t#eener!l )%r)ose of ! )en!l *l!%se@

to s%bstit%te ! )en!lt, for t#e ine.nit, for !.!es !nt#e )!,.ent of interests in *!se of non-*o.)li!n*e 1Art&'22(&3@ or

to )%nis# t#e ebtor for t#e non-f%l0ll.ent or /iol!tion of #isobli!tion& A )en!l *l!%se f%n*tions to strent#en t#e *oer*i/efor*e of t#e obli!tion b, t#e t#re!t of re!ter li!bilit, in t#ee/ent of bre!*# !n to )ro/ie+ in e>e*t+ for "#!t "o%l be t#eli?%i!te !.!es res%ltin fro. s%*# ! bre!*#& T#e oblior"o%l t#en be bo%n to )!, t#e sti)%l!te ine.nit, withoutthe necessity of proofon t#e e4isten*e !n on t#e .e!s%re of!.!es *!%se b, t#e bre!*#&

1Li%t!n /s& Co%rt of A))e!ls+( SCRA (; 2;;2@

and distinguished& T#ere !re not!ble i>eren*es bet"een t#et"o&

'EN"L CL"SE CON(ITION

o

bli!tion !lt#o%# !**essor,.!, be*o.e e.!n!ble in ef!%ltof t#e %n)erfor.e obli!tion !nso.eti.es ointl, "it# it+

ne/er e.!n!ble&

'enaltyener!ll, resol/es ?%estion of !.!es& If the purpose is reparation or co)pensation + t#e .!tter of

!.!es is ener!ll, resol/e !n t#e *reitor is not oblie to)ro/e t#e.+ t#e )en!lt, bein *onsiere !n !nti*i)!te/!l%!tion of t#e !.!es "#i*# .!, be s%>ere b, t#e *reitorif t#e obli!tion is not *o.)lie "it#@

If the purpose is punish)ent*t#e )en!lt, oes not resol/et#e ?%estion of !.!es+ "#i*# it le!/es int!*t+ t#!t is to s!,+!.!es .!, be re*o/ere in !ition to t#e )en!lt,&

Fner Arti*le '22(+ it is )res%.e+ !s ! ener!l r%le+ t#!t t#e )en!lt,ser/es !s .e!ns of re)!irin t#e !.!es "#i*# it )res%))oses& Abre!*# of *ontr!*t entitles t#e ot#er )!rt, to !.!es e/en if no)en!lt, in s%*# bre!*# is )res*ribe in t#e *ontr!*t&

Obligations with penal clause strictly construed. Obli!tionsi.)osin )en!lties !n forfeit%res !re stri*tl, *onstr%e& T#%s+ it is"ell-settle t#!t s%reties !re onl, *#!re!ble !**orin to t#e stri*tter.s of t#e bon& T#e ter.s of t#eir *ontr!*t !re t#ose "#i*#.e!s%re t#e e4tent of t#eir li!bilit,

(istinguished fro)conditional*

alternati+e* and

facultati+e obligations.

T#ere is so.e !n!lo, bet"een t#ese obli!tions+ "#i*# so.eti.esser/e to *onf%se t#e. "it# e!*# ot#er& EXAM$LE6 S%))ose S .!5est#e follo"in )ro.ises to B6 1!3 to *on/e, to B #o%se X+ !n if #e f!ils+to )!, B $;;+;;;&;; 1!n obli!tion "it# ! )en!l *l!%se3@ or' A )en!lt, feeHH is li5ene to ! *o.)ens!tion for !.!es in *!se ofbre!*# of !n obli!tion& Bein )en!l in n!t%re+ it .%st be s)e*i0* !n04e b, t#e *ontr!*tin )!rties %nli5e in ! *!se+ for e4!.)le+ "#i*#sl!)s ! 8 )en!lt, fee )er .ont# of t#e o%tst!nin !.o%nt of t#eobli!tion&HH It is entirel, i>erent fro. b!n5 *#!resHH "#i*# !renor.!ll, %nerstoo to refer to *o.)ens!tion for ser/i*esArt& '22(2

1b3 to )!, $;;+;;;&;;+ if #e f!ils to *on/e, to B #o%se X ,conditionalobligation- or

1*3 to *on/e, #o%se X to B or )!, #i. $;;+;;;&;; ,alternati+eobligation- or

13 to *on/e, #o%se X to B "it# t#e ri#t to s%bstit%te t#e s!.e "it#t#e )!,.ent of $;;+;;;&;;,facultati+e obligation-.

An !n!lo, e4ists in !ll t#ese obli!tions+ in t#e sense t#!t+ in t#e)ro)er *!ses *onte.)l!te+ B .!, be*o.e t#e o"ner of #o%se X orre*ei/e )!,.ent of $;;+;;;&;;& B%t t#ese obli!tions !re essenti!ll,i>erent in n!t%re+ !n+ t#erefore+ in t#eir e>e*ts !n *onse?%en*es&1'3 In t#e obligation with a penal clause+ t#ere is ! )rin*i)!lobli!tion to "#i*# t#e !**essor, obli!tion of )en!l *l!%se is oine&T#ere is onl, one t#in %e+ "#i*# t#e *reitor .!, e.!n%n!>e*te b, t#e e4isten*e of t#e )en!l *l!%se& T#e ebtor *!nnot*#oose to )!, t#e )en!lt, in lie% of )erfor.!n*e+ e4*e)t "#ene4)ressl, r!nte to #i.& 1Art& '22&3 T#e )en!l *l!%se is ! *onition!lobli!tion bein e.!n!ble onl, "#en t#e *onition on "#i*# ite)ens+ t#!t is+ t#e non-)erfor.!n*e of t#e obli!tion t!5es )l!*e&

The e/istence of the principal obligation is certain* and theright of the creditor to de)and its perfor)ance is furtherguaranteed by the penal clause.:#en t#e *onition on "#i*# t#e)en!l *l!%se e)ens t!5es )l!*e+ t#en t"o obli!tions !rede)andable alternati+ely !n+ when there is e/pressstipulation* 0ointly"it# t#e )rin*i)!l obli!tion& 1Ibi&3

,1- In the conditional obligation*t#e e4isten*e of t#e obli!tion is%n*ert!in& B *!nnot e.!n its )erfor.!n*e %ntil t#e 1s%s)ensi/e3*onition t!5es )l!*e& An+ if t#e *onition oes not t!5e )l!*e+ t#e

obli!tion is ee.e in l!" ne/er to #!/e e4iste&

,2- In the alternati+e obligation+ "#ile t#ere is onl, one obli!tion+two things are due alternati+ely+ !n t#e obli!tion .!, bes!tis0e b, t#e )erfor.!n*e of one of t#e.& T#e election belongs tothe debtor+ !s ! ener!l r%le+ e4*e)t "#en t#ere is !n !ree.entr!ntin t#e ri#t of *#oi*e to t#e *reitor& 1Art& '2;;&3 T#e obli!tionis not e4tin%is#e b, t#e fort%ito%s estr%*tion or loss of t#e #o%se int#e e4!.)le+ b%t .erel, *#!nes t#e obli!tion to ! si.)le one&

Not so in t#e *!se of t#e obli!tion with a penal clause@ when thehouse is destroyed by fortuitous event, the obligation is alsoextinguished. (Art& ''7&3

,3- In the facultati+e obligation+ t#ere is onl, one t#in %enot"it#st!nin t#e ri#t *onferre %)on t#e ebtor to s!tisf, t#eobli!tion b, s%bstit%tin !not#er in its )l!*e& T#e ebtor .!, o>er tos!tisf, t#e obli!tion b, s%bstit%tin t#e )!,.ent of $;;+;;;&;; inlie% of t#e *on/e,!n*e of t#e #o%se& In t#e obli!tion "it# ! )en!l*l!%se+ t#is t#e ebtor *!nnot o+ %nless t#e obli!tion e4)ressl,

reser/es t#e ri#t to #i.& 1Art& '22&3

4IN(S O$ 'EN"L CL"SE.1'3 As to its oriin6

1!3 Le!l )en!l *l!%se& "#en it is )ro/ie for b, l!"@!n1b3 Con/ention!l )en!l *l!%se& "#en it is )ro/ie for b,sti)%l!tion of t#e )!rties&

123 As to its )%r)ose61!3 Co.)ens!tor, )en!l *l!%se& "#en t#e )en!lt, t!5est#e )l!*e of !.!es@ !n1b3 $%niti/e )en!l *l!%se& "#en t#e )en!lt, is i.)ose.erel, !s )%nis#.ent for bre!*#&

13 As to its e)en!bilit, or e>e*t61!3 S%bsii!r, or !ltern!ti/e )en!l *l!%se& "#en onl, t#e)en!lt, *!n be enfor*e@ !n1b3 oint or *%.%l!ti/e )en!l *l!%se& "#en bot# t#e)rin*i)!l obli!tion !n t#e )en!l *l!%se *!n be enfor*e

Liability for penalty* da)ages* and5or interests.

1- 'enalty substitutes for da)ages and interests. As !ener!l r%le+ in !n obli!tion "it# ! )en!l *l!%se+ t#e )en!lt, t!5es t#e)l!*e of t#e ine.nit, for !.!es !n t#e )!,.ent of interests in*!se of non-*o.)li!n*e& 1Art& '22(&3 $roof of !*t%!l !.!es s%>ereb, t#e *reitor is not ne*ess!r, in orer t#!t t#e )en!lt, .!, beenfor*e& 1Art& '22J&3

,1- 'enalty and interests enforceable& T#e l!" )er.its !n!ree.ent %)on ! penalty apart fro) the interest & S#o%l t#ere bes%*# !n !ree.ent+ t#e )en!lt, oes not in*l%e t#e interest !n !ss%*#+ t#e t"o !re i>erent !n istin*t t#ins "#i*# .!, be e.!nese)!r!tel,& A sti)%l!tion !bo%t pay)ent of additional rate ofinterest )!rt!5es of t#e n!t%re of ! )en!lt, *l!%se "#i*# is s!n*tioneb, l!"&

A )en!lt, to !ns"er not onl, for !ttorne,Hs fees b%t for *olle*tion fees!s "ell+ is in t#e n!t%re of li?%i!te !.!es& 1infr!&3 :#ere t#e!ttorne,Hs fees so )ro/ie !re !"!re in f!/or of t#e liti!nt not #is

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*o%nsel+ it is t#e liti!nt+ not #is *o%nsel+ "#o is t#e %.ent *reitorentitle to enfor*e t#e %.ent b, e4e*%tion&

,2- 'enalty5da)ages5interests enforceable. T#e *reitor+ in!ition to t#e )en!lt,+ .!, re*o/er !.!es !n interests6

!3 :#en so sti)%l!te b, t#e )!rties@b3 :#en t#e oblior ref%ses to )!, t#e )en!lt,@ or*3 :#en t#e oblior is %ilt, of fr!% in t#e f%l0ll.ent of t#e

obli!tion&

:#en bot# t#e )en!lt, !n t#e !.!es or interests .!, bere*o/ere+ it is e/ient t#!t t#e )%r)ose of t#e )en!l *l!%se is t#e)%nis#.ent of t#e ebtor for #is bre!*# of t#e )rin*i)!l obli!tion&

E7"M'LE%S )ro.ise to eli/er ! s)e*i0* *!r to B& T#e *ontr!*t*!rrie ! )en!l *l!%se t#!t in *!se of non-*o.)li!n*e+ S "o%l #!/e to)!, ! )en!lt, of $2;+;;;&;;& S i not eli/er t#e *!r !n+ !s !*onse?%en*e+ B s%>ere !.!e in t#e !.o%nt of $'+;;;&;;&

In t#is *!se+ t#e )en!lt, of $2;+;;;&;; s#!ll be )!i& B*!nnot re*o/er .ore t#!n $2;+;;;&;;+ t#e )en!lt,sti)%l!te+ e/en if #e )ro/es t#!t t#e !.!es s%>ere b,#i. is $2+;;;&;;&

T#e )en!lt, s%bstit%tes t#e ine.nit, for t#e !.!e of$'+;;;&;;+ %nless t#ere is ! sti)%l!tion to t#e *ontr!r, in"#i*# *!se+ B .!, !lso re*o/er t#e !.!es )ro/e b,#i.

If S refuses to pay the penalty+ B .!, re*o/er le!linterest t#ereon+ t#e interest re)resentin ne" !.!esbro%#t !bo%t b, t#e non)!,.ent of t#e )en!lt,& If S is

guilty of fraud 1not .ere f!%lt3 in t#e f%l0ll.ent of #isobli!tion+ #e is !lso li!ble for t#e !.!es *!%se t#ereb,in *onfor.it, "it# Arti*le '''& $roof of t#e fr!% !n t#ee4isten*e !n !.o%nt of !.!es is in*%.bent %)on B&8ut 8 need not pro+e fraud to reco+er the penalty.

,3- !e9uire)ent to )a:e penalty enforceable& T#e )en!lt,.!, be enfor*e onl, "#en it is e.!n!ble in !**or!n*e "it# t#e)ro/isions of t#e Ci/il Coe& T#is .e!ns t#!t t#e )en!lt,+ !s !sti)%l!tion in ! *ontr!*t+ is e.!n!ble onl, if t#ere is ! breach ofthe obligation !n i t is not contrary to law* )orals* goodcusto)s* public order* or public policy& 1Art& ';(&3 T#%s+ if t#eobli!tion *!nnot be f%l0lle %e to ! fortuitous e/ent+ t#e )en!lt, isnot e.!n!ble& Fner Arti*le '22ere b, t#e *reitor or t#e e4tent of t#e s!.e& Inee+one of t#e re!sons of 04in t#e )en!lt, is to !/oi s%*# ne*essit, !not#er i*%lties in/ol/e in liti!tions&

T#e *reitor .!, enfor*e t#e )en!lt, "#et#er #e s%>ere !.!es ornot& B%t #e *!nnot re*o/er .ore t#!n t#e sti)%l!te )en!lt, e/en if #e)ro/es t#!t t#e !.o%nt of #is !.!es e4*ees t#e )en!lt,&(a)ages reco+erable in addition to penalty )ust be pro+ed &Arti*le '22J !))lies onl, "#ere t#e )en!lt, is 04e b, t#e )!rties tos%bstit%te t#e ine.nit, for !.!es&

In !n, of t#e t#ree e4*e)tions "#en !.!es .!, bere*o/ere in !ition to t#e )en!lt, 1Art& '22&3+ t#e*reitor .%st )ro/e t#e !.o%nt of s%*# !.!es "#i*# #e!*t%!ll, s%>ere res%ltin fro. t#e bre!*# of t#e )rin*i)!lobli!tion&

ART& '22


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!n e/en !fter se/er!l e4tensions "ere i/en t#e.+ t#eb!n5 s%e for *olle*tion& T#e ebtors !s5e for t#ere%*tion of t#e )en!lt, for bein %n*ons*ion!ble& Gi/ent#e *ir*%.st!n*es+ not to .ention t#e re)e!te !*ts ofbre!*# b, t#e ebtors of t#eir *ontr!*t%!l obli!tion+ t#eS%)re.e Co%rt fo%n no *oent re!son to .oif, t#e!"!r of 8 )en!lt, ! .ont# fro. t#e 8 !ree %)on&

If t#e interest r!te !ree %)on is /oi for bein ini?%ito%s !n%n*ons*ion!ble+ t#e r!te of interest s#o%l be 1> per annu)

co)puted fro) 0udicial or e/tra0udicial de)and+ !s "#!t is/oie is .erel, t#e sti)%l!te r!te of interest !n not t#e sti)%l!tiont#!t t#e lo!n s#!ll e!rn interest&

ILLFSTRATIPE CASES6'. 5 of the 2 guns lost were recovered.$acts6 X+ et*& 1.%ni*i)!l o*i!ls3 f!ile to ret%rn t#e 2; !r.sentr%ste to t#e.& T#is f!il%re *onstit%te ! /iol!tion of t#e *onitionsof t#e bon i/en !n .!e t#e. s%be*t to t#e )en!lt, )ro/iet#erein& It !))e!rs t#!t of t#e 2; %ns "ere re*o/ere b, t#ir)!rties "it# t#e !i of X+ et*& 1.%ni*i)!l o *i!ls3&Issue6 S#o%l X+ et*& be .!e li!ble for t#e f%ll !.o%nt of t#e bon9&eld6 T#e %.ent of t#e tri!l *o%rt for t#e s%. of $2+;;; t#e f%ll!.o%nt of t#e bon+ s#o%l be re/erse+ !n t#e re*o/er, re%*e to$'+;;&

2&! greater part of the indebtedness has been paid.$acts6 T#e sti)%l!tion is t#!t D+ ebtor+ s#!ll )!, $2+;;; b, "!, ofine.ni0 *!tion+ in t#e e/ent of #is f!il%re to )!, !ll or !n, )!rt of !ninebteness of $';2+2;; !n t#!t C+ *reitor+ s#o%l 0 n it

ne*ess!r, to #!/e re*o%rse to t#e *o%rts for t#e re*o/er, of t#e .one,lent& It !))e!rs t#!t t#e )rin*i)!l inebteness #!s been !.)l,se*%re b, ! *#!ttel .ort!e+ t#!t t#e re!ter of t#e inebteness#!s been )!i !t t#e ti.e t#e !*tion "!s bro%#t+ t#!t D tenere)!,.ent in f%ll-)enin t#e )ro*eeins in t#e tri!l *o%rt !ne)osite t#e !.o%nt toet#er "it# '8 interest "it# t#e *ler5 of*o%rt+ !n s%bst!nti!l )!,.ents #! been .!e b, D lon )rior to t#einstit%tion of t#e !*tion&Issue6 S#o%l D be .!e li!ble for t#e f%ll !.o%nt of $2+;;; !s)en!lt,9&eld6 T#e tri!l *o%rt )ro)erl, e4er*ise t#e is*retion *onferre %)on#i. b, Arti*le '22< b, .oif,in t#e )en!lties )res*ribe %ner t#e*ontr!*t so !s to li.it t#e ri#t of B to interest !t t#e r!te of '8 %)ont#e l!st inst!ll.ents "#i*# #! be*o.e o/er%e %ner t#e ter.s oft#e *ontr!*t

". #ut of $%,2. indebtedness only $",&"".'5 is unpaid.$acts6 D+ et*&+ e4e*%te ! "ritten !ree.ent "#erein t#e, obli!tet#e.sel/es to )!, C $';+2;;&;; )!,!ble in .ont#l, inst!ll.ents of$;;&;;@ to )!, interest !t t#e r!te of '8 on !ll o/er%e !n %n)!i

inst!ll.ents@ !n to )!, b, "!, of ine.ni0 *!tion+ t#e s%. of$2+;;;&;; s#o%l C be *o.)elle to #!/e re*o%rse to t#e *o%rts tore*o/er t#e ebt& At t#e ti.e of t#e tri!l t#ere "!s still %e !n %n)!i%)on t#e l!st inst!ll.ents t#e s%. of $+7& "#i*# t#en !n t#ereD+ et*&+ o>ere to )!,+ in*l%in t#e interest of '8 on s!i !.o%nt& Issue6 Is C entitle onl, to t#e interest of '8 %)on t#e l!stinst!ll.ents "#i*# #!/e be*o.e o/er %e+ or to bot# s%*# interest !nt#e sti)%l!te ine.nit, of $2+;;;&;;9&eld6 E/en "#en it is sti)%l!te t#!t t#e *ost+ losses !n !.!ess#!ll be *#!re!ble to t#e ebtor !n be borne b, #i.+ t#e *o%rts !re!%t#oriQe to .oif, t#e )en!lt, sti)%l!te in t#e *ontr!*t in t#e so%ne4er*ise of t#eir is*retion "#en t#e )rin*i)!l obli!tion #!s been*o.)lie "it# b, t#e ebtor eit#er in )!rt or irre%l!rl,&

7& ebtor did not really expect that he would be made liable to pay thestipulated penalty which is excessive&$acts6 D+ et*& !n t#eir s%ret, e4e*%te ! )ro.issor, note binint#e.sel/es to )!, C $7(&;; "it#in 0 /e 13 !,s+ "it# ! sti)%l!te)en!lt, of $&;; ! !, in *!se of ef!%lt&

Issue6 Is t#e sti)%l!te )en!lt, /!li9&eld6 No& In s!i )ro.issor, note t#e ebtors bo%n t#e.sel/es to)!, $7(&;; "it#in 0 /e 13 !,s+ in t#e belief t#!t t#e, *o%l .!5et#e )!,.ent %rin t#is s#ort )erio "it# t#e )ri*e fro. t#e s!le of DHsl!n+ b%t+ !s t#is s!le "!s not .!e in t#e en+ #e #! no .one, "it#"#i*# to *o/er #is li!bilit,@ !n it *!nnot be )res%.e t#!t D !n #iss%ret, /ol%nt!ril, "is#e to !ss%.e t#e en!e.ent to )!, t#e)en!lt, in ?%estion+ !n "it#o%t o%bt t#eir f!il%re of f%l0 ll.ent "!s%e to t#eir erroneo%s belief t#!t "it#in 0 /e 13 !,s t#e, "o%l #!/et#e .one, !/!il!ble for t#e )!,.ent+ "#i*# t#e, i not to t#eir re!t

is!))oint.ent& S%*# )en!l *l!%se is i..or!l !n e.inentl, %n%st+!n "o%l be t!nt!.o%nt to ! re)%n!nt es)oli!tion !n ini?%ito%s!n .er*iless e)ri/!tion of )ro)ert,+ is*o%nten!n*e b, *o..onsense& T#ere "ill not be fo%n in t#e l!"s+ in !n, )rin*i)le of %sti*e+ orin ener!l+ in t#e #%.!n *ons*ien*e+ nor is t#ere !n, re!son "#!te/er"#i*# *!n %stif, s%*# )en!lt, !s !))ro)ri!te !n e?%it!ble or !s onet#!t .!, be s%st!ine

Construction of penal clause where perfor)ance partial orirregular.

1'3 :#ere )en!lt, is )%niti/e& In !n, *!se "#erein t#ere #!s been !)!rti!l or irre%l!r *o.)li!n*e "it# t#e )ro/isions of ! *ontr!*t "it# !)en!l *l!%se+ t#e *o%rts "ill riil, !))l, t#e o*trine of stri*t*onstr%*tion !!inst t#e enfor*e.ent in its entiret, of t#e )en!lt,+"#ere it is *le!r fro. t#e ter.s of t#e *ontr!*t t#!t t#e !.o%nt or*#!r!*ter of t#e ine.nit, is 04e "it#o%t re!r to t#e )rob!ble!.!es "#i*# .i#t be !nti*i)!te !s ! res%lt of t#e bre!*# of t#eter.s of t#e *ontr!*t@ or in ot#er "ors+ "#ere t#e ine.nit, )ro/iefor is essenti!ll, ! .ere )en!lt, #!/in for its )rin*i)!l obe*t t#e

enfor*e.ent of *o.)li!n*e "it# t#e *ontr!*t

ILLFSTRATIPE CASE6 $%r)ose of )en!lt, sti)%l!te is not to ine.nif,b%t to in%*e )erfor.!n*e&$acts6 T#e *ontr!*t of s!le of ! resienti!l lot sti)%l!tes t#!t B1/enee3 .%st *o.)lete *onstr%*tion "it#in t"o ,e!rs fro. t#e !te1M!r*# '+ 'er !s !res%lt of ! bre!*# of t#e *ontr!*t b%t r!t#er to *o.)el )erfor.!n*e oft#e so*!lle s)e*i!l *onition !n to en*o%r!e #o.e b%ilin !.on lot o"ners in t#e !re! 1Fr!net! Pill!e3& Consierin t#!t !#o%se #! been b%ilt !fter t#e )erio sti)%l!te+ t#e s%bst!nti!l+ ift!r,+ )erfor.!n*e of t#e obli!tion+ #!/in in /ie" t#e )%r)ose of t#e)en!l *l!%se+ %sti0 e t#e re%*tion 1b, t#e tri!l *o%rt3 of t#e )en!lt,to $'+;; 1)l%s '28 interest fro. t#e ti.e of t#e 0 lin of t#e*o.)l!int )l%s $;;&;; for !ttorne,Hs fees !n *osts3& T#e sti)%l!tion*!nnot be *onstr%e !s i.)osin ! stri*tl, )erson!l obli!tion on t#e

/enee 1B3& To !o)t s%*# ! *onstr%*tion "o%l be to li.it #is ri#t tois)ose of t#e lot& S%*# restri*tion *!nnot be left to .ere inferen*e&

123 :#ere )en!lt, is *o.)ens!tor,& B%t t#e *o%rts "ill be slo" ine4er*isin t#e !%t#orit, *onferre %)on t#e. in Arti*le '22< "#ere it!))e!rs t#!t in 0 4in t#e ine.nit, t#e )!rties #! in .in ! f!ir !nre!son!ble *o.)ens!tion for !*t%!l !.!es !nti*i)!te !s ! res%lt oft#e bre!*# of t#e *ontr!*t@ or+ in ot#er "ors+ "#ere t#e )rin*i)!l)%r)ose of t#e )en!lt, !ree %)on !))e!rs to #!/e been to )ro/iefor t#e )!,.ent of !*t%!l !nti*i)!te !n li?%i!te !.!es r!t#er

t#!n t#e )en!liQ!tion of ! bre!*# of t#e *ontr!*t&

ART& '2;& T#e n%llit, of t#e )en!l *l!%se oes not*!rr, "it# it t#!t of t#e )rin*i)!l obli!tion& T#en%llit, of t#e )rin*i)!l obli!tion *!rries "it# it t#!t oft#e )en!l *l!%se& 1''3

E?ect of nullity of the penal clause& T#e ener!l )rin*i)le t#!t t#e!**essor, follo"s t#e )rin*i)!l&

If onl, t#e )en!l *l!%se is /oi+ t#e )rin*i)!l obli!tion re.!ins /!li!n e.!n!ble& T#e )en!l *l!%se is %st isre!re& T#e in%re)!rt, .!, re*o/er ine.nit, for !.!es in *!se of non-)erfor.!n*eof t#e obli!tion !s if no )en!lt, #! been sti)%l!te& 1see Art& '';&3

E?ect of nullity of the principal obligation. If t#e )rin*i)!lobli!tion is /oi+ t#e )en!l *l!%se is li5e"ise /oi& T#e re!son is t#!tt#e *l!%se *!nnot st!n !lone "it#o%t t#e )rin*i)!l obli!tion to "#i*#

it is s%borin!te& Butif t#e n%llit, of t#e )rin*i)!l obli!tion is %e tot#e f!%lt of t#e ebtor "#o !*te in b! f!it#+ b, re!son of "#i*# t#e*reitor s%>ere !.!es on e?%it!ble ro%ns+ t#e )en!lt, .!, beenfor*e& 1see Arts& ';+ '


4/57


%e+ not on t#e !te of 0lin of t#e *o.)l!int !s "e #!/e)re/io%sl, #el in o%r e*ision

Def!%lt ener!ll, beins fro. t#e .o.ent t#e *reitore.!ns t#e )erfor.!n*e of t#e obli!tion& o"e/er+e.!n is not ne*ess!r, to rener t#e oblior in ef!%lt"#en t#e obli!tion or t#e l!" so )ro/ies&

)n the case at bar, efen!nts-!))ell!nts e4e*%te !)ro.issor, note "#ere t#e, %nertoo5 to )!, t#eobli!tion on its .!t%rit, !te "it#o%t ne*essit, ofe.!n& T#e, !lso !ree to )!, t#e interest in *!se of

non-)!,.ent fro. t#e !te of ef!%lt& :#ile "e .!int!in t#!t efen!nts-!))ell!nts .%st be

bo%n b, t#e *ontr!*t "#i*# t#e, !*5no"lee !nsine+ "e t!5e *oniQ!n*e of t#eir )le! for t#e !))li*!tionof t#e )ro/isions of "rticle 11A /4 4&

Consierin t#!t efen!nts-!))ell!nts )!rti!ll, *o.)lie"it# t#eir obli!tion %ner t#e )ro.issor, note b, t#ere%*tion of t#e oriin!l !.o%nt of $'2;+;;;&;; to$''7+7'(&;; !n in orer t#!t t#e, "ill 0n!ll, settle t#eirobli!tion+ it is o%r /ie" !n "e so #ol t#!t in t#e interestof %sti*e !n )%bli* )oli*,+ ! )en!lt, of 8 )er .ont# or(8 )er !nn%. "o%l s%*e&

ISSES6I& T#e res)onent Co%rt of A))e!ls serio%sl, erre in not #olin t#!tt#e '&'J a )onth to 2>! .ont#"#i*# )etitioner still is)%tes& Gi/en t#e *ir*%.st!n*es+ not to .entiont#e re)e!te !*ts of bre!*# b, )etitioners of t#eir *ontr!*t%!lobli!tion+ t#e Co%rt sees no *oent ro%n to .oif, t#e r%lin of t#e!))ell!te *o%rt&&

Anent t#e sti)%l!te interest of '&'Je*t+ t#e t"o bein istin*t *on*e)ts "#i*# .!, se)!r!tel, bee.!ne& :#!t .!, %stif, ! *o%rt in not !llo"in t#e *reitor toi.)ose f%ll s%r*#!res !n )en!lties+ es)ite !n e4)ress sti)%l!tiont#erefor in ! /!li !ree.ent+ .!, not e?%!ll, %stif, t#e non-)!,.ent

or re%*tion of interest& Inee+ t#e interest )res*ribe in lo!n0n!n*in !rr!ne.ents is ! f%n!.ent!l )!rt of t#e b!n5in b%siness!n t#e *ore of ! b!n5s e4isten*e&

'!CE CO!'O!"TION +. '"@CO!G&R& No& '7J;& M!, (+ 2;;

In le!l *onte.)l!tion+ t#e terminationof ! *ontr!*t is not e?%i/!lentto its rescission& :#en !n !ree.ent is ter.in!te+ it is ee.e /!li!t in*e)tion& $rior to ter.in!tion+ t#e *ontr!*t bins t#e )!rties+ "#o!re t#%s oblie to obser/e its )ro/isions& o"e/er+ "#en it isres*ine+ it is ee.e ine4istent+ !n t#e )!rties !re ret%rne tot#eir status *uo!nte& en*e+ t#ere is .%t%!l restit%tion of bene0tsre*ei/e& T#e *onse?%en*es of ter.in!tion .!, be !nti*i)!te !n)ro/ie for b, t#e *ontr!*t& As lon !s t#e ter.s of t#e *ontr!*t !renot *ontr!r, to l!"+ .or!ls+ oo *%sto.s+ )%bli* orer or )%bli*)oli*,+ t#e, s#!ll be res)e*te b, *o%rts& The 0udiciary is notauthoriDed to )a:e or )odify contracts neither )ay it rescueparties fro) disad+antageous stipulations. Courts* howe+er*are e)powered to reduce ini9uitous or unconscionable

li9uidated da)ages* inde)nities and penalties agreed upon bythe parties.

The CaseT#e )!rties e4e*%te ! Contract of Leasefor ! period of three ,2-years& $AGCOR !/ertise t#e st!rt of t#eir *!sino o)er!tions onDe*e.ber 'J+ '


5/57


In t#ese *!ses+ t#e )%r)ose of t#e )en!lt, is ob/io%sl, to )%nis# t#eoblior for t#e bre!*#& en*e+ t#e obliee *!n re*o/er fro. t#e for.ernot onl, t#e )en!lt,+ b%t !lso ot#er !.!es res%ltin fro. t#enonf%l0ll.ent of t#e )rin*i)!l obli!tion&'

)n the present case+ t#e 0rst e4*e)tion !))lies be*!%se Arti*le XX ,c-pro+ides that* aside fro) the pay)ent of the rentalscorresponding to the re)aining ter) of the lease* the lesseeshall also be liable for any and all da)ages* actual orconse9uential* resulting fro) such default and ter)ination of

this contract.!/in entere into t#e Contr!*t /ol%nt!ril, !n "it#f%ll 5no"lee of its )ro/isions+ $AGCOR .%st be #el bo%n to itsobli!tions& It *!nnot e/!e f%rt#er li!bilit, for li?%i!te !.!es&

Reduction of PenaltyIn *ert!in *!ses+ ! sti)%l!te )en!lt, .!, ne/ert#eless be e?%it!bl,re%*e b, t#e *o%rts&2T#is )o"er is e4)li*itl, s!n*tione b, Arti*les'22< !n 222 of t#e Ci/il Coe+ "#i*# "e ?%ote6!rt. %22+. he udge shall e*uitably reduce the penalty when theprincipal obligation has been partly or irregularly complied with by thedebtor. ven if there has been no performance, the penalty may alsobe reduced by the courts if it is ini*uitous or unconscionable.!rt. 222'. Li*uidated damages, whether intended as an indemnity or apenalty, shall be e*uitably reduced if they are ini*uitous orunconscionable.

T#e ?%estion of "#et#er ! )en!lt, is re!son!ble or ini?%ito%s is!resse to t#e so%n is*retion of t#e *o%rts& To be *onsiere in04in t#e !.o%nt of )en!lt, !re f!*tors s%*# !s -- b%t not li.ite to --t#e t,)e+ e4tent !n )%r)ose of t#e )en!lt,@ t#e n!t%re of t#e

obli!tion@ t#e .oe of t#e bre!*# !n its *onse?%en*es@ t#es%)er/enin re!lities@ t#e st!nin !n rel!tions#i) of t#e )!rties@ !nt#e li5e&

)n this case,$AGCORs bre!*# "!s o**!sione b, e/ents t#!t+ !lt#o%#not fort%ito%s in l!"+ "ere in f!*t re!l !n )ressin& ro. t#e CAsf!*t%!l 0nins+ "#i*# !re not *onteste b, eit#er )!rt,+ "e 0n t#!t$AGCOR *on%*te ! series of neoti!tions !n *ons%lt!tions beforeenterin into t#e Contr!*t& It i so not onl, "it# t#e $$C+ b%t !lso "it#lo*!l o/ern.ent o*i!ls+ "#o !ss%re it t#!t t#e )roble.s "eres%r.o%nt!ble& Li5e"ise+ $AGCOR too5 )!ins to *ontest t#eorin!n*es7before t#e *o%rts+ "#i*# *onse?%entl, e*l!re t#e.%n*onstit%tion!l& On to) of t#ese e/elo).ents+ t#e !.in*or)or!tion "!s !/ise b, t#e O*e of t#e $resient to sto) t#e!.es in C!!,!n e Oro Cit,+ )ro.)tin t#e for.er to *e!seo)er!tions )rior to Se)te.ber '


6/57


,B- 8y co)pensation

,6- 8y no+ation.

Other causes of e/tinguish)ent of obligations*such as

,- "nnul)ent* !escission*

,1- ful;ll)ent of a resolutorycondition* and prescription* are

go+erned elsewhere in this Code&

Other Causes not )entioned1'3 De!t# of ! )!rt, in *!se t#e obli!tion is ! )erson!l one

1Art& '''+ )!r& '&3@123 M%t%!l esist!n*e or "it#r!"!l@13 Arri/!l of resol%tor, )erio 1Art& ''e*ts

8urden of pro+ing pay)ent.4urden of proof is t#e %t, of ! )!rt, to )resent e/ien*e of t#e f!*tsin iss%e ne*ess!r, to )ro/e t#e tr%t# of #is *l!i. or efense b, t#e!.o%nt of e/ien*e re?%ire b, l!"& :#en t#e e4isten*e of ! debtisf%ll, est!blis#e b, t#e e/ien*e+ t#e settle r%le is t#!t t#e b%ren of)ro/in e4tin%is#.ent b, pay)ente/ol/es %)on t#e ebtor "#o)le!s )!,.ent or o>ers s%*# ! efense to t#e *l!i. of t#e *reitorr!t#er t#!n on t#e l!tter to )ro/e non-)!,.ent& T#e ebtor #!s t#eb%ren of s#o"in "it# le!l *ert!int, t#!t t#e obli!tion #!s beenis*#!re b, )!,.ent&'Onl, "#en t#e ebtor intro%*es e/ien*e t#!t t#e obli!tion #!s beene4tin%is#e oes t#e b%ren s#ift to t#e *reitor&

"!T. 122. " debt shall not be understood to

ha+e been paid unless the thing or ser+ice inwhich the obligation consists has beenco)pletely deli+ered or rendered* as the case)ay be. ,B-


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Issue6 Does t#e e*ision en, s%bst!nti!l %sti*e to S9&eld6 No& Fner t#e e*ision+ t#e interests )!i b, B !re ret!ine b, S+!n t#e ot#er lot re/erts to S b, re!son of t#e *!n*ell!tion of t#e*ontr!*t !s to s!i lot& T#e %.ent *!nnot be ee.e to en,s%bst!nti!l %sti*e to S nor to efe!t #is ri#ts %ner t#e letter !ns)irit of t#e *ontr!*ts in?%estion& In t#e interest of %sti*e !n e?%it,+ t#e e*ision .!, be%)#el %)on t#e !%t#orit, of Arti*le '27&

"!T. 12B. ersto )!, C+ t#e l!tter .!, or .!, not !**e)t t#e o>er of )!,.ent&

S%))ose C !**e)ts+ t#e ri#t of S to re*o/er fro. D e)ens %)on"#et#er t#e )!,.ent is "it# or "it#o%t t#e 5no"lee or *onsent of D&

,- ithout the knowledge !or against the will" of # If t#e!*t%!l inebteness is $'+;;;&;; !n S )!i $'+;;;&;;+ #e *!n !s5rei.b%rse.ent for $'+;;;&;; b%t if $7;;&;; #! !lre!, been )!i b,D+ t#en S is entitle to be rei.b%rse onl, for t#e !.o%nt of $(;;&;;be*!%se it is onl, to t#!t !.o%nt t#!t D #!s been bene0te& S *!nre*o/er $7;;&;; fro. C "#o s#o%l not #!/e !**e)te it& If C !*te inb! f!it#+ #e is li!ble !lso for interest in lie% of !.!es&

,1- ith the knowledge of # 6 In eit#er *!se+ if t#e )!,.ent of$'+;;;&;; "!s .!e "it# t#e 5no"lee or *onsent of D+ S *!nre*o/er fro. D $'+;;;&;; "it# !ll t#e ri#ts of s%bro!tion to t#e!**essor, obli!tions s%*# !s .ort!e+ %!r!nt,+ or )en!lt,& 1Art&'2&3

ILLFSTRATIPE CASES6'& 7ight of udgment creditor (or transferee to whom was sold at anexecution sale a vendor a retro8s (udgment debtor8s right of

repurchase, to have the property repurchased by the latter from thevendee a retro registered in the name of such udgment creditor.

$acts9 SELLE! sol ! )!r*el of l!n "it# ri#t to re)%r*#!se to8E!. SELLE!Hs ri#t "#i*# "!s !nnot!te in t#e reistr, re*ors+"!s l!ter !tt!*#e b, C!E(ITO!!n sol %ner e4e*%tion& Be*!%seof t#e f!il%re of SELLE!to reee. t#e )ro)ert, "it#in one ,e!r fro.t#e !te of e4e*%tion s!le+ ! ee for t#e interest of SELLE! in t#el!n "!s iss%e to C!E(ITO!+ "#o "!s t#e )%r*#!ser !t s!i s!le& Int#e .e!nti.e+ SELLE! re)%r*#!se t#e l!n fro. 8E!+ !n t#e!nnot!tion of t#e ri#t to reee. "!s *!n*elle& S%bse?%entl,+C!E(ITO!+ in t%rn+ sol !ll #is interests in t#e l!n to ("8"N""#ono" see5s to #!/e t#e l!n reistere in #is n!.e *l!i.in t#!t %nerArti*le ''J 1no" Art& '2(&3 t#e re)%r*#!se b, SELLE! "!s !)!,.ent for C!E(ITO! !n t#!t SELLE! .!, re*o/er fro.C!E(ITO!t#e )ri*e )!i&

Issue9 :!s t#e re)%r*#!se b, SELLE!! )!,.ent for C!E(ITO!9&eld9 No& T#e onl, interest !*?%ire b, C !t t#e s#eri>Hs s!le "!s t#eri#t to re)%r*#!se fro. B be*!%se t#is "!s t#e onl, interest t#!t S

#! !t t#!t ti.e& DHs *l!i. of o"ners#i) of t#e l!n b!se on #iss%bse?%ent )%r*#!se fro. C+ t#e %.ent *reitor+ "!s in/!li+ !s t#el!tter i not !*?%ire title b, t#e re)%r*#!se of t#e l!n %ner t#epacto de retro *ontr!*t b, S+ t#e %.ent ebtor&

C "!s not ! ebtor of B+ t#e pacto de retro /enee& e "!s %ner noobli!tion to re)%r*#!se t#e l!n fro. B& C #! t#e ri#t to o so b%tt#e e4er*ise of t#e ri#t "!s o)tion!l "it# #i.& T#erefore+ t#ere)%r*#!se b, S 1for #i.self3 i not .!5e C or D+ CHs tr!nsferee+ t#eo"ner of t#e l!n&Arti*le '2( is not !))li*!ble& (:on;aga vs. :arcia, 2' $hil. ' in t#eirbe#!lf b%t "it#o%t t#eir 5no"lee+ t#e ree.)tion )ri*e !n intereston t#e l!st !, for ree.)tion& B ref%se to t%rn o/er t#e l!n on t#ero%n t#!t t#ere "!s no /!li ree.)tion be*!%se C "!s not t#e le!l


8/57


%!ri!n of t#e .inors& T#e %!ri!n ie ! fe" !,s before t#e )erioof ree.)tion e4)ire&Issue9 :!s t#e ree.)tion /!li9&eld9es& An, )erson+ "#et#er #e #!s !n interest in t#e ree.)tion ornot *!n .!5e )!,.ent in be#!lf of t#e .inors+ t#e ebtors+ "it#o%tt#e 5no"lee of t#e l!tter& (>ison vs. 4algor, "& $hil. ??5 e*t of t#e )!,.ent .!e b, C9&eld9T#e elin?%ent t!4)!,er in t#is *!se is t#e est!te of X+ not C+ sot#!t )!,.ent b, C .erel, s%bro!te #i. into t#e ri#ts of t#eo/ern.ent as creditor for s!i elin?%ent t!4es %ner Arti*le '2(&T#e f!*t t#!t C !**e)te s!i re*ei)ts iss%e in t#e n!.e of X+ini*!tes t#!t C %nerstoo t#!t #e "!s not t#ereb, )%r*#!sin t#e)ro)ert,+ b%t #! .!e t#e )!,.ent for t#e !**o%nt or bene0t of X& Cbe*!.e ! tr%stee for t#e bene0t of X or #is #eirs& (@illarta vs. uyno,%' >7! % e*ts solel, t#e ri#tsof t#e for.er& On*e t#e *reitor #!s !**e)te )!,.ent+ #is st!t%s !nri#ts !s s%*#+ be*o.e !%to.!ti*!ll, e4tin%is#e&123 If t#e t#ir )erson )!,s "it# t#e 5no"lee of t#e ebtor+ t#e l!tter.%st o))ose t#e )!,.ent beforeor at the ti)et#e s!.e "!s .!e+not s%bse?%entl,+ in orer t#!t t#e ri#ts of t#e )!,or .!, be s%be*tto t#e !bo/e )ro/ision& It is onl, f!ir t#!t t#e e>e*t of s!i )!,.ent beeter.ine !t t#e ti.e it "!s .!e+ !n t#!t t#e ri#ts t#en !*?%ireb, t#e )!,or be not e)enent %)on+ or s%be*t to .oi0*!tion b,s%bse?%ent %nil!ter!l !*ts of t#e ebtor& T#e ?%estion "#et#er t#e)!,.ent "!s bene0*i!l or not to t#e ebtor+ e)ens %)on t#e l!"+not %)on #is "ill& ()bid.

"!T. 12.


9/57


t#e est!te of ! e*e!se+ !n !ssinee or li?%i!tor of ! )!rtners#i) or*or)or!tion !s "ell !s !n, ot#er )erson "#o .!, be !%t#oriQe to oso b, l!"&

1'3 :#ere )!,.ent #!s been .!e to !n !ent+ !sie fro. )ro/in t#ee4isten*e of !n S$A+ it is !lso ne*ess!r, for e/ien*e to be )resentere!rin t#e n!t%re !n e4tent of t#e !llee )o"ers !n !%t#orit,r!nte to t#e !ent& 1$NB /s& CA 2( SCRA 77 '


10/57


@arnish)ent of debtors credit.T#e )ro*eein for t#e )%r)ose of s%be*tin ! ebtorHs *reit to t#e)!,.ent of #is ebt to !not#er is 5no"n !s garnishment. It is !n!tt!*#.ent b, .e!ns of "#i*# t#e )l!inti> see5s to s%be*t to #is*l!i. t#e )ro)ert, of t#e efen!nt in t#e #!ns of ! t#ir )erson or.one, o"e b, s%*# t#ir )erson or !rnis#ee to t#e efen!nt&

@arnish)ent is in t#e n!t%re of !n in/ol%nt!r, no/!tion b, t#es%bstit%tion of one *reitor for !not#er& 1see Art& '2erent fro. t#!t %e *!nnot be o>ere ore.!ne !!inst t#e "ill of t#e *reitor or ebtor+ !s t#e *!se.!, be&

123 T#e se*on )!r!r!)# refers to )erson!l 1)ositi/e !n ne!ti/e3obli!tions& T#e !*t to be )erfor.e or t#e !*t )ro#ibite *!nnotbe s%bstit%te !!inst t#e oblieeHs "ill& 1see Art& ''(&3


11/57


123 If B #!))ens to be ! BcalesaC ri/er !n B !ree to )!, S for t#e#orse !n !.o%nt "#i*# is t#e re!son!ble )ri*e of ! #orse for Bcalesa,Ct#en t#!t 5in of #orse .!, be eli/ere&

13 If B is ! /eterin!r, o*tor !n #is onl, )%r)ose in b%,in ! #orse isto e4!.ine its or!ns in *onne*tion "it# #is "or5+ t#is+ !n ot#errele/!nt *ir*%.st!n*es .!, s#o" t#!t t#e ol si*5l, #orse "!sintene b, t#e )!rties to be eli/ere&

"!T. 13. nless it is otherwise stipulated*

the e/tra0udicial e/penses re9uired by thepay)ent shall be for the account of the debtor.erent ter.s or *onitions "#i*#!>e*t so.e of t#e.& In obli!tions "#i*# *o.)re#ense/er!l istin*t )rest!tions 1e.g&+ obli!tion to )!, ebt ininst!ll.ents&3+ it is e/ient t#!t t#e )rest!tions nee not bee4e*%te si.%lt!neo%sl, b%t e!*# s%**essi/e e4e*%tiont#ereof .%st be *o.)lete@

173 "#en t#e )!rties 5no" t#!t t#e obli!tion re!son!bl,*!nnot be e4)e*te to be )erfor.e *o.)letel, !t oneti.e@ !n

13 "#en t#ere is !b%se of ri#t or if oo f!it# re?%ires!**e)t!n*e&

EXAM$LES61'3 D is inebte to C for $+;;;&;; %e to!,& D *!nnot

*o.)el C to re*ei/e $7+;;;&;; in )!rti!l )!,.ent of t#eobli!tion !n neit#er *!n C re?%ire D to )!, onl,$7+;;;&;; %nless t#ere is !n !ree.ent to t#e *ontr!r,&

123 If D o"es C $+;;;&;; )l%s t#e s#!re of C fro. t#e )ro0t of! b%siness "#i*#+ #o"e/er+ #!s not ,et been li?%i!te oreter.ine+ C .!, e.!n !n D .!, e>e*t+ t#e)!,.ent of t#e $+;;;&;; "#i*# is !lre!, 5no"n&

13 If $7+;;;&;; of t#e ebt of D is %e to!, !n $'+;;;&;;to.orro"+ t#e obli!tion *!n be *o.)lie "it# )!rti!ll,&Si.il!rl,+ )!rti!l )erfor.!n*e .!, be e>e*te in *!se t#e

)!,.ent of t#e $'+;;;&;; is s%be*t to t#e f%l0ll.ent of !*onition&173 S oblie #i.self to eli/er ;+;;; b!s of *e.ent to B !t

t#e *onstr%*tion site of ! b%ilin& S .!5es ! 0rst eli/er,of +;;; b!s+ infor.in B t#!t *ontin%o%s eli/eries "illfollo"& In t#is *!se+ B *!nnot+ in oo f!it#+ ref%se to !**e)tt#e )!rti!l eli/eries !s lon !s t#e, !re s%*ient for #is*onstr%*tion nees&

ILLFSTRATIPE CASE6ebtor claims that creditor abused its rights when it reected theformer8s oEer of settlement of its outstanding obligations andsubse*uently led the action for collection.$acts9 Res)onent 1)l!inti>3 *o.)!n,+ $D$+ !))ointe )etitioner1efen!nt3 BMC !s one of t#e e!lers of ele*tri*!l "ires !n *!bles&As s%*# e!ler+ BMC "!s i/en b, $D$ (; !,s *reit for its )%r*#!sesof ele*tri*!l )ro%*ts& T#e *reit ter. "!s to be re*5one fro. t#e!te of eli/er, b, $D$ of its )ro%*ts to efen!nt& On se/er!lo**!sions+ $D$ "rote BMC e.!nin )!,.ents of its o%tst!ninobli!tions %e $D$& $D$ ree*te BMCHs o>er to )!, its o%tst!nin

!**o%nt in .ont#l, inst!ll.ents of $;;+;;;&;; )l%s '8 interest )er.ont# %ntil f%ll )!,.ent+ !n reiter!te its e.!n for t#e f%ll)!,.ent of efen!ntHs !**o%nt&

$D$ 0 le ! *o.)l!int !!inst BMC for t#e re*o/er, of $+J;2+7J&2;re)resentin t#e /!l%e of t#e "ires !n *!bles t#e for.er #!eli/ere to t#e l!tter+ in*l%in interest& It li5e"ise )r!,e t#!t it be!"!re !ttorne,Hs fees !t t#e r!te of 28 of t#e !.o%nt e.!ne+e4e.)l!r, !.!es !.o%ntin to !t le!st $';;+;;;&;;+ t#e e4)ensesof liti!tion+ !n t#e *osts of s%it& $etitioner in its !ns"er+ !.itte)%r*#!sin t#e "ires !n *!bles fro. )ri/!te res)onent b%t is)%tet#e !.o%nt *l!i.e b, t#e l!tter& $etitioner li5e"ise inter)ose !*o%nter*l!i. !!inst )ri/!te res)onent+ !llein t#!t it s%>ere in%r,to its re)%t!tion %e to l!tterHs !*ts& S%*# !*ts "ere )%r)ortel,*!l*%l!te to #%.ili!te )etitioner !n *onstit%te !n !b%se of ri#ts&Issues9T#e inst!nt )etition r!ises t"o iss%es one of "#i*# is "#et#eror not $D$ is %ilt, of !b%se of r i#t&&eld9 1'3 Limitation of abuse of right. T#e ri#t of t#e *reitor %nerArti*le '27J #!s its li.it!tions& Sin*e t#e *reitor *!nnot be

*o.)elle to !**e)t )!rti!l )erfor.!n*e+ %nless ot#er"ise sti)%l!te+t#e *reitor "#o ref%ses to !**e)t )!rti!l )rest!tions oes not in*%r inel!, or mora accipiend i, e/cept when there is abuse of right or ifgood faith re*uires acceptance.

Inee+ t#e l!"+ !s set fort# in Arti*le '< of t#e Ci/il Coe+ )res*ribes !)ri.ori!l li.it!tion on !ll ri#tsHH b, settin *ert!in st!n!rs t#!t.%st be obser/e in t#e e4er*ise t#ereof& T#%s6Art& 'er of settle.ent !n s%bse?%entl, 0 le t#e !*tion for *olle*tion& It!s5s t#!t t#e Co%rt t#!t it be !llo"e to li?%i!te its obli!tion to)ri/!te res)onent+ "it#o%t interests+ in ei#t 1J3 e?%!l .ont#l,inst!ll.ents& Bot# )!rties !ree t#!t to *onstit%te !n !b%se of ri#ts%ner Arti*le 'er !n instit%tin t#e !*tion for *olle*tionbefore t#e tri!l *o%rt& As )ointe o%t b, )ri/!te res)onent+ t#e*or)or!tion #! its o"n *!s# )osition to )rote*t in orer for it to )!,its o"n obli!tions&H T#is is not s%*# ! l!.e !n )oor r!tion!liQ!tionH!s )etitioner )%r)orts it to be& or if )ri/!te res)onent "ere to bere?%ire to !**e)t )etitionerHs o>er+ t#ere "o%l be no re!son for t#el!tter to ree*t si.il!r o>ers fro. its ot#er ebtors& Cle!rl,+ t#is "o%lbe ini.i*!l to t#e interests of !n, enter)rise+ es)e*i!ll, ! )ro0 t-oriente one li5e )ri/!te res)onent& It is )l!in to see t#!t "#!t "e#!/e #ere is ! .ere exercise of ri#ts+ not !n abuse t#ereof&Fner t#ese *ir*%.st!n*es+ "e o not ee. )ri/!te res)onent to#!/e !*te in ! .!nner *ontr!r, to .or!ls+ oo *%sto.s or )%bli*)oli*, !s to /iol!te t#e )ro/isions of Arti*le 2' of t#e Ci/il Coe&HH

173 $etitioner not entitled to moral and exemplary damages. 6Conse?%entl,+ )etitionerHs )r!,er for .or!l !n e4e.)l!r, !.!es.%st t#%s be ree*te& $etitionerHs *l!i. for .or!l !.!es is

''


12/57


!n*#ore on Arti*le 22'e*t on %ne '(+ ' for t#e )%r)ose of ree.)tion is e>e*te b,.e!ns of ! *#e*5 for t#e !.o%nt %e&

Arti*le '27< e!ls "it# ! .oe of e4tin*tion of ebts+ "#ile t#e ri#t toreee. is not !n obli!tion b%t t#e e4er*ise of ! ri#t@ nor is itintene to is*#!re ! )re-e4istin ebt& It is t#e )oli*, of t#e l!" tobe liber!l in ree.)tion *!ses+ to !i r!t#er t#!n to efe!t t#e ri#t ofree.)tion& A**orinl,+ t#e Ci/il Coe )ro/isions on )!,.ent ofobli!tions .!, not be !))lie "#ere "#!t !))lies is t#e settle r%let#!t ! )ere tender of a chec:s is sucient to co)pel

rede)ption.

,2- $%ect on obligation. $!,.ent b, .e!ns of .er*!ntileo*%.ents oes not e4tin%is# t#e obli!tion

1!3 %ntil t#e, #!/e been *!s#e or1b3 %nless t#e, #!/e been i.)!ire t#ro%# t#e f!%lt of t#e

*reitor& 1)!r& 2&3

In ot#er "ors+ t#e eli/er, of t#e )!)er or o*%.ent s#!ll )ro%*e t#ee>e*t of ! /!li )!,.ent onl, "#en eit#er sit%!tion #!s t!5en )l!*e& Int#e 0rst *!se+ t#e instr%.ent .!, #!/e been e4e*%te b, t#e ebtor#i.self or b, ! t#ir )erson& T#e se*on *!se is !))li*!ble onl, "#eret#e instr%.ent "!s e4e*%te b, ! t#ir )erson&

"pplicability of i)pair)ent clause of "rticle 13A.Arti*le '27< 1)!r& 2&3 is !))li*!ble not onl, to t#ose instr%.entse4e*%te b, t#ir )ersons+ "#i*# t#e ebtor eli/ers to t#e *reitor+b%t !lso to ! note e4e*%te b, t#e ebtor #i.self !n eli/ere to t#e*reitor& It #!s been #el+ #o"e/er+ t#!t t#e *l!%se rel!ti/e to

i)pair)entof t#e neoti!ble *#!r!*ter of *o..er*i!l )!)er by thefault of the creditor is !pplicable only to those e/ecuted bythird persons and deli+ered by the debtor to the creditor* anddoes not apply to instru)ents e/ecuted by the debtor hi)selfand deli+ered to the creditor&

A**e)t!n*e of ! *#e*5 i.)lies !n %nert!5in of %e ilien*e on t#e)!rt of t#e )!,ee in )resentin it for )!,.ent& If no s%*# )resent.ent"!s .!e+ t#e r!"er *!nnot be #el li!ble irres)e*ti/e of loss orin%r, s%st!ine b, t#e )!,ee&

ILLFSTRATIPE CASES6'& reditor neglected to have a bill of exchange protested as re*uiredby law for non-payment by the drawee.

$acts9 S sol oos to B for $2+2;;&;;& or t#e )%r)ose of )!,in t#es%.+ B eli/ere to S ! bill of e4*#!ne for $2+;;&;; )%r)ortin to ber!"n b, C to t#e orer of D on E& :#en t#e bill "!s eli/ere to S it"!s inorse b, D+ !n !))!rentl, !**e)te b, E& S too5 t#e bill !n)!i B $;;&;; in *!s#+ t#e i>eren*e bet"een $2+;;&;; !n$2+2;;&;;+ t#e /!l%e of t#e oos sol& E ref%se to )!, t#e bill on t#ero%n t#!t #is sin!t%re t#ereto "!s ! forer,& S nele*te to #!/et#e bill of e4*#!ne )roteste for non)!,.ent& Not#in "!s e/erre!liQe on t#e bill&

Issue9 Is B li!ble for t#e f%ll /!l%e of t#e oos sol9&eld9 No& :#ere ! bill of e4*#!ne is eli/ere b, t#e ebtor to t#e*reitor !n t#e r!"ee 1t#e !ressee of ! bill of e4*#!ne+ t#!t is+t#e )erson "#o is *o..!ne or orere b, t#e r!"er to )!,&3 of t#ebill ref%se to .!5e )!,.ent !n t#e *reitor nele*te to #!/e t#e

bill )roteste for non-)!,.ent !s re?%ire b, l!"+ t#e eli/er, of t#ebill b, t#e ebtor to t#e *reitor o)er!tes !s ! /!li )!,.ent !n #e.%st s%>er t#e loss o**!sione b, its non)!,.ent& T#e s%. of$2+2;;&;; "!s e%*te fro. t#e s%. !llo"e S& 1

2& >eller accepted ($14 letters of credit merely to insure payment ofgoods by buyer who claimed that the failure of seller to present tobuyer for his acceptance the sight drafts drawn under and as re*uiredby the letters discharged him of his debt.

Aacts9 N 1N!.!r*o3 !n entere into ! *ontr!*t of s!le "#ereb, !ree to )!, N on *!s# b!sis *ert!in .er*#!nise to be i.)orte b,N %)on eli/er, of t#e %l, inorse neoti!ble s#i))in o*%.ent*o/erin t#e s!.e& To ins%re t#e )!,.ent of t#e oos b, + N!**e)te t#ree 13 $NB1$#il& N!tion!l B!n53 o.esti* letters of *reit in f!/or of N for t#e!**o%nt of + !/!il!ble b, si#t r!fts *o/erin t#e f%ll in/oi*e /!l%e oft#e oos& After N #! eli/ere ! re!t )ortion of t#e oos liste int#e *ontr!*t+ it ref%se to eli/er t#e ot#er oos& T#e *o..on*onition of t#e t#ree 13 letters of *reit is t#!t t#e si#t r!fts r!"n

on t#e. .%st be %l, !**e)te b, & Alt#o%# $NB infor.e N t#!t t#efor.er *o%l not neoti!te !n e>e*t )!,.ent on t#e si#t r!ftsr!"n %ner its letters of *reit !s t#e re?%ire.ents *o/erin t#e s!.e#! not been *o.)lie "it#+ s!i r!fts "ere not )resente b, N to for !**e)t!n*e& N bro%#t !*tion to re*o/er t#e *ost of t#e.er*#!nise& T#e t#eor, of is t#!t t#e f!il%re of N to )resent t#esi#t r!fts to t#e for.er for !**e)t!n*e e)ri/es N of ! *!%se of!*tion !!inst &

)ssue9 Di t#e eli/er, of t#e o.esti* letters of *reit to N o)er!te tois*#!re t#e ebt of 9Ield9 No& NHs !*tion is not b!se on t#e letters of *reit b%t on its le!lri#t to t#e *ost of t#e oos eli/ere& N !**e)te t#e letters toins%re t#e )!,.ent of t#e oos b, & It "!s i/en+ t#erefore+ !s !.ere %!r!ntee for t#e )!,.ent of t#e .er*#!nise& T#e eli/er, of)ro.issor, notes )!,!ble to orer+ or bills of e4*#!ne+ et*&+ s#!ll)ro%*e t#e e>e*t of )!,.ent onl, "#en re!liQe+or "#en b, t#e f!%ltof t#e *reitor+ t#e )ri/ilees in#erent in t#eir neoti!ble *#!r!*ter#!/e been i.)!ire& T#e *l!i. in "rticle 13A rel!ti/e to i.)!ir.ent

'2


13/57


of t#e neoti!ble *#!r!*ter of t#e *o..er*i!l )!)er is !))li*!ble onl,to instr%.ents e4e*%te b, t#ir )ersons !n eli/ere b, t#e ebtorto t#e *reitor+ !n does not apply to instru)ents e/ecuted bythe debtor hi)self and deli+ered to the creditor.

In t#e *!se !t b!r+ it is not e/en )retene t#!t t#e neoti!ble*#!r!*ter of t#e si#t r!ft "!s i.)!ire !s ! res%lt of t#e f!%lt of N&T#ere "!s no !ree.ent t#!t t#e, s#o%l be !**e)te !s )!,.ent& A.ere !tte.)t to *olle*t or enfor*e ! bill or note fro. "#i*# no)!,.ent res%lts is not s%*# !n !))ro)ri!tion of it !s to is*#!re t#eebt

- - -& Jhen payment by chec3 cannot be refused to eEect a repurchase.Aacts9 B tol S+ et*& t#!t #e 1B3 "o%l !**e)t t#e re)%r*#!se b, S+ et*&+of ! *ert!in l!n b, *#e*5 !n t#!t b, re!son of s%*# re)%r*#!se+ S+et*&+ *o%l ret%rn to t#eir #o.e& T#e follo"in !, S+ et*&+ o>ere)!,.ent b, *#e*5&

)ssue9 !s B t#e ri#t to ref%se to !**e)t s%*# )!,.ent9Ield9 No& B is %ilt, of esto))el 1see Art& '7'&3 be*!%se #e in%*e S+et*&+ to !*t %)on t#e belief t#!t #e #! *onsente to s!i .!nner of)!,.ent&

7& >eller did not encash the chec3 for more than % years, contendingthat by reason thereof, no sale was consummated.Aacts9 $etitioner M$+ !*tin !s !ttorne,-in-f!*t of t#e l!te AMB sol tores)onent $+ ! )!r*el of l!n& $ #! i/en M$ t#e !.o%nts of$+;;; in *!s# on M!, 27+ 'e*t of)!,.ent onl, "#en it is *!s#e+ )%rs%!nt to Art& '27< of t#e Ci/ilCoe+ t#e r%le is ot#er"ise if t#e ebtor is )re%i*e b, t#e *reitorHs%nre!son!ble el!, in )resent.ent& T#e !**e)t!n*e of ! *#e*5 i.)lies!n %nert!5in of %e ilien*e in )resentin it for )!,.ent+ !n if #e+fro. "#o. it is re*ei/e+ s%st!ins loss b, "!nt of s%*# ilien*e+ it "illbe #el to o)er!te !s !*t%!l )!,.ent of t#e ebt or obli!tion for"#i*#it "!s i/en& It #!s+ li5e"ise+ been #el t#!t if no )resent.ent is .!e!t !ll+ t#e r!"er *!nnot be #el li!ble irres)e*ti/e of loss or in%r,%nless )resent.ent is ot#er"ise e4*%se& T#is is in #!r.on, "it#Arti*le '27< of t#e Ci/il Coe %ner "#i*# )!,.ent b, "!, of *#e*5 orot#er neoti!ble instr%.ent is *onitione on its bein *!s#e+ e4*e)t"#en t#ro%# t#e f!%lt of t#e *reitor+ t#e instr%.ent is i.)!ire& T#e)!,ee of ! *#e*5 "o%l be ! *reitor %ner t#is )ro/ision !n if its non-)!,.ent is *!%se b, #is nelien*e+ )!,.ent "ill be ee.ee>e*te !n t#e

"!T. 1BH. In case an e/traordinary in ation ordeation of

the currency stipulated should super+ene* the+alue of the currency

at the ti)e of the establish)ent of the

obligation shallbe the basis of pay)ent* unless there is anagree)ent to the

contrary. ,n-

Meaning of in ation and de ation.

IN$L"TION (E$L"TION

s#!r) s%en in*re!se of .one, or

*reit or bot# "it#o%t ! *orres)onin

in*re!se in b%siness tr!ns!*tions

re%*tion in /ol%.e !n *ir*%l!tion of

t#e

!/!il!ble .one, or *reit+ res%ltin in !

e*line of t#e ener!l )ri*e le/el@ it is

t#e o))osite of inU!tion&

*!%ses ! ro) in t#e /!l%e of .one,+

res%ltin in rise of t#e ener!l )ri*e

le/el&T#ere is inU !tion "#en t#ere is !n

in*re!se in t#e /ol%.e of .one, !n

*reit rel!ti/e to !/!il!ble oos

res%ltin in ! s%bst!nti!l !n *ontin%inrise in t#e ener!l )ri*e le/el&

or l!*5 of !n e4)ress )ro/ision on t#e ?%estion in t#e ol Ci/il Coe+t#ere "!s ! re!t e!l of %n*ert!int, !n *onf%sion !s ! res%lt of*ontr!*ts entere into %rin t#e l!st "orl "!r "#i*# s!" !ne4tr!orin!r, inU!tion of *%rren*,& T#e r%le in Arti*le '2; )ro/ies !%st sol%tion for f%t%re *!ses&

!e9uisites for application of "rticle 1BH.T#e follo"in re?%isites .%st be )ro/en6

1'3 T#ere is !n o*i!l e*l!r!tion of e4tr!orin!r, inU!tion oreU !tion fro. t#e 4ang3o >entral ng $ilipinas 1BS$3&

123 T#e obli!tion is *ontr!*t%!l in n!t%re@ !n13 T#e )!rties e4)ressl, !ree to *onsier t#e e>e*ts of t#e

e4tr!orin!r, inU!tion or eU!tion& 1see E?%it!ble $CI B!n5/s& S#e%n Nor+ 7' SCRA 22 2;;&3

'2; is !))li*!ble onl, to *!ses "#ere ! *ontr!*t or !ree.ent isin/ol/e& T#e Arti*le oes not !))l, "#ere t#e obli!tion to )!, !risesfro. ot#er so%r*es ine)enent of *ontr!*t+ s%*# !s l!"+ ?%!si-*ontr!*t+ tort+ or *ri.e& T#e t!5in of )ri/!te )ro)ert, b, t#eo/ern.ent in t#e e4er*ise of its )o"er of e.inent o.!in oes noti/e rise to ! *ontr!*t%!l obli!tion&

8asis of pay)ent in case of e/traordinary ination or deation.Fner Arti*le '2;+ t#e )%r*#!sin /!l%e of t#e *%rren*, !t t#e ti.e oft#e est!blis#.ent of t#e obli!tion s#!ll be t#e b!sis of )!,.ent+ in*!se of !n, e4tr!orin!r, in*re!se or e*re!se in t#e )%r*#!sin)o"er of t#e *%rren*, "#i*# t#e )!rties *o%l not #!/e re!son!bl,foreseen&

T#is is+ #o"e/er+ s%be*t to t#e !ree.ent of t#e )!rties to t#e*ontr!r,& T#e b%ren of )ro/in t#!t t#ere #! been e4tr!orin!r,inU!tion or eU!tion of t#e *%rren*, is %)on t#e )!rt, t#!t !llees it&

EXAM$LE6D borro"e fro. C $+;;;&;; )!,!ble !fter 0 /e 13 ,e!rs& On t#e.!t%rit, of t#e obli!tion+ t#e /!l%e of $+;;;&;; ro))e to $2+;;&;;be*!%se of inU !tion 1or in*re!se to $';+;;;&;; be*!%se of eU !tion3&In t#is *!se 1!ss%.in t#ere is e4tr!orin!r, inU !tion or eU !tion3+t#e basisof )!,.ent s#!ll be t#e e9ui+alent +alue of the currencytoday to that ;+e ,B- years ago& en*e+ D is li!ble to )!, B$';+;;;&;; 1or $2+;;&;;3 %nless t#ere is !n !ree.ent to t#e*ontr!r,+ e.g., t#!t D s#!ll )!, C $+;;;&;; re!rless of !n,e4tr!orin!r, e*re!se or in*re!se in t#e )%r*#!sin )o"er of t#e)eso&

1ote9 T#e )ro/ision of Arti*le '2; re?%ires for its !))li*!tion !e*l!r!tion of inU !tion or eU !tion b, t#e Centr!l B!n5& :it#o%t s%*#e*l!r!tion+ *reitors *!nnot e.!n !n in*re!se+ !n ebtors+ !e*re!se of "#!t is %e to or fro. t#e.&

ILLFSTRATIPE CASE6Aixing of the rate of exchange between the peso and the dollar by lawor by authority of law.Aacts9 Fner t#e *olle*ti/e b!r!inin !ree.ent bet"een $!n A.Air"!,s !n $AA E.)lo,eesH Asso*i!tion+ t#e )!rties !ree toreneoti!te on "!e r!tes 1'3 if %rin t#e ter. of t#e !ree.ent !l!" be )!sse i.inis#in t#e /!l%e of t#e $#ili))ine C%rren*, !n 123!s ! res%lt t#ereof $!n A. is r!nte t#e ne*ess!r, !%t#orit, toin*re!se its r!tes& No l!" #! been )!sse b, Conress i.inis#int#e /!l%e of t#e $#ili))ine C%rren*,& $%rs%!nt to l!" 1R&A& No& 2(;


14/57


To )re/ent e)letion of its reser/e t#e Go/ern.ent *o%l i.)oserestri*tions to is*o%r!e )!,.ent !t t#e /!l%e 0 4e or r!te ofe4*#!ne sti)%l!te "#i*# "o%l r!in its reser/e& So t#!t "#en t#e)!rties !ree to neoti!te on "!e r!tes %rin t#e ter. of t#e!ree.ent+ s#o%l ! l!" be )!sse i.inis#in t#e /!l%e of t#e*%rren*,+ t#e, i not liter!ll, .e!n ! l!" en!*te b, Conress "#i*#+!s !lre!, e4)l!ine+ "o%l not re!ll, i.inis# t#e )%r*#!sin )o"eror /!l%e of t#e *%rren*, b%t "o%l %st *on0 r. t#e re!l /!l%e or !*t%!l)%r*#!sin )o"er of t#e *%rren*,&

T#e !#eren*e to t#e letter of t#e *olle*ti/e b!r!inin !ree.ent "!snot t#e intent of t#e *ontr!*tin )!rties "#en t#e, entere into it& ($an!merican Jorld !irways vs. $!! mployees8 !ssociation, % >7! 2%


15/57


Arti*le '2' i/es t#e r%les re!rin t#e )l!*e for t#e )!,.ent of !nobli!tion "it#o%t )re%i*e to /en%e %ner t#e R%les of Co%rt&

1'3 If t#ere is ! sti)%l!tion+ t#e )!,.ent s#!ll be .!e in t#e)l!*e esin!te 1)!r& '@ see Art& ';(&3@

123 If t#ere is no sti)%l!tion !n t#e t#in to be eli/ere iss)e*i0*+ t#e )!,.ent s#!ll be .!e !t t#e )l!*e "#ere t#et#in "!s+ !t t#e )erfe*tion of t#e *ontr!*t 1)!r& 2&3@

13 If t#ere is no sti)%l!tion !n t#e t#in to be eli/ere iseneri*+ t#e )l!*e Of )!,.ent s#!ll be t#e o.i*ile of t#eebtor& 1)!r& &3 In t#is *!se+ t#e *reitor be!rs t#ee4)enses in oin to t#e ebtorHs )l!*e to !**e)t )!,.ent1see Art& '27&3s%be*t to t#e r%le in )!r!r!)# 7&

T#e orer !s !bo/e en%.er!te is s%**essi/e !n e4*l%si/e !s .!, bele!ne fro. t#e )ro/ision itself& 1ote9 @enue is t#e )l!*e "#ere !*o%rt s%it or !*tion .%st be 0 le or instit%te& 1Se*s& '-7+ R%le 7+ R%lesof Co%rt&3

Concept of do)icile.omicile is t#e )l!*e of ! )ersonHs #!bit%!l resien*e& 1Art& ;&3Resien*e is onl, !n ele.ent of o.i*ile& Resien*e si.)l, re?%iresboil, )resen*e !s !n in#!bit!nt in ! i/en )l!*e+ "#ile o.i*ile 1orle!l resien*e3 re?%ires boil, )resen*e in t#!t )l!*e !n !lso !nintention to .!5e it oneHs o.i*ile& So.e *!ses .!5e ! istin*tionbet"een t#e t"o ter.s b%t !s ener!ll, %se in st!t%tes 0 4in/en%es+ t#e, !re s,non,.o%s !n *on/e, t#e s!.e .e!nin !s t#eter. in#!bit!nt& It is belie/e t#!t t#e ter. o.i*ile+ !s %se inArti*le '2'+ *onnotes !*t%!l or )#,si*!lHH #!bit!tion of ! )erson !sistin%is#e fro. le!l resien*e&

SFBSECTION '& 6 !pplication of $ayments

"!T. 1B1. &e who has +arious debts of thesa)e :ind in fa+or of one and the sa)ecreditor* )ay declare at the ti)e of )a:ing thepay)ent* to which of the) the sa)e )ust beapplied. nless the parties so stipulate* orwhen the application of pay)ent is )ade bythe party for whose bene;t the ter) has beenconstituted* application shall not be )ade asto debts which are not yet due.

If the debtor accepts fro) the creditor areceipt in which an application of the pay)entis )ade* the for)er cannot co)plain of the

sa)e* unless there is a cause for in+alidatingthe contract.

,1a-

Meaning of application of pay)ents.!pplication of payments is t#e esin!tion of t#e ebt to "#i*# s#o%lbe !))lie t#e )!,.ent .!e b, ! ebtor "#o #!s /!rio%s ebts oft#e s!.e 5in in f!/or of one !n t#e s!.e *reitor& 1Art& '22+)!r& '&3!e9uisites of application of pay)ents.T#e re?%isites !re61'3 T#ere .%st be one ebtor !n one *reitor@123 T#ere .%st be t"o or .ore ebts@13 T#e ebts .%st be of t#e s!.e 5in@173 T#e ebts to "#i*# )!,.ent .!e b, t#e ebtor #!s been !))lie.%st be %e@ !n13 T#e )!,.ent .!e .%st not be s% *ient to *o/er !ll t#e ebts&

"pplication as to debts not yet due.

T#e !))li*!tion of )!,.ents !s to ebts not ,et %e *!nnot be .!eunless61'3 t#ere is ! sti)%l!tion t#!t t#e ebtor .!, so !))l,@ or123 it is .!e b, t#e ebtor or *reitor+ !s t#e *!se .!, be+ for "#osebene0t t#e )erio #!s been *onstit%te& 1see Art& ''


16/57


oes not t#ereb, "!i/e #is ri#t to re*o/er fro. t#e ebtor t#e interest%e on s!i !.o%nt& 1M!!len! Est!tes+ In*& /s& Rori%eQ+ supra&3

"!T. 1B3. erinto t#e *reitor t#e t#in or !.o%nt %e& T#e ebtor .%st s#o" t#!t #e#!s in #is )ossession t#e t#in or .one, to be eli/ere !t t#e ti.e oft#e o>er& It is !n !*t )re)!r!tor, to *onsin!tion+ "#i*# is t#e )rin*i)!l+!n fro. "#i*# !re eri/e t#e i..ei!te *onse?%en*es "#i*# t#eebtor esires or see5s to obt!in&

123 onsignation is t#e !*t of e)ositin t#e t#in or !.o%nt %e "it#t#e )ro)er *o%rt "#en t#e *reitor oes not esire+ or ref%ses to !**e)t)!,.ent+ or *!nnot re*ei/e it+ !fter *o.)l,in "it# t#e for.!litiesre?%ire b, l!"& It is !l"!,s %i*i!l !n it ener!ll, re?%ires ! )rior

tener of )!,.ent "#i*# is b, its /er, n!t%re e4tr!%i*i!l& 1Art& '2(+)!r& '&3

Nature of and rationale for consignation.1'3! facultative remedy. Consin!tion is ! f!*%lt!ti/e re.e, "#i*#t#e ebtor .!, or .!, not !/!il of&1!3 If .!e b, t#e ebtor+ t#e *reitor .erel, !**e)ts it if #e "is#es@ ort#e *o%rt e*l!res t#!t it #!s been )ro)erl, .!e+ in eit#er of "#i*#e/ents t#e obli!tion is e4tin%is#e& Inee+ t#e l!" !llo"s t#e ebtorto "it#r!" t#e t#in or t#e s%. e)osite before !**e)t!n*e b, t#e*reitor or *!n*ell!tion b, t#e *o%rt& 1see Art& '2(;&3

1b3 If t#e ebtor #!s s%*# ri#t of "it#r!"!l+ #e s%rel, #!s t#e ri#t toref%se to .!5e t#e e)osit in t#e 0rst )l!*e& or t#e *o%rt to *o.)el#i. to o so is ! r!/e !b%se of is*retion !.o%ntin toe4*ess of %risi*tion& If #e ref%ses+ t#e *reitor .%st f!ll b!*5 on t#e)ro)er *oer*i/e )ro*esses )ro/ie b, l!" to se*%re or s!tisf, #is*reit+ !s b, !tt!*#.ent+ %.ent+ !n e4e*%tion&

'(


17/57


123 !voidance of greater liability. Tener of )!,.ent !n*onsin!tion+ "#ere /!lil, .!e+ or *onsin!tion !lone in !n, of t#e*!ses en%.er!te in Arti*le '2(+ )ro%*es t#e e>e*t of )!,.ent !ne4tin%is#es !n obli!tion&er "!s ree*te& A ebtor*!nnot be *onsiere elin?%ent "#o o>ere *#e*5s b!*5e b,s%*ient e)osit or re!, to )!, *!s# if t#e *reitor *#ose t#!t .e!nsof )!,.ent& Te*#ni*!l efe*ts of t#eo>er *!nnot be !%*e to estro, its e>e*ts "#en t#e obe*tion to!**e)t t#e )!,.ent "!s b!se on entirel, i>erent ro%ns& T#%s+!lt#o%# t#e efe*ti/e *onsin!tion .!e b, t#e ebtor inot is*#!re t#e .ort!e ebt+ t#e r%nnin of interest on t#e lo!n iss%s)ene b, t#e o>er !n tener of )!,.ent&

!e9uisites of a +alid consignation. (!NCNIn orer t#!t t#e ebtor .!, be rele!se fro. #is obli!tion b, t#e*onsin!tion of t#e t#in or s%. %e+ t#e follo"in re?%isites .%st beobser/e6

1'3 e4isten*e of ! /!li ebt "#i*# is %e 1Art& '2(+ )!r& '&3@123 tener of )!,.ent b, t#e ebtor !n ref%s!l "it#o%t

%sti0!ble re!son b, t#e *reitor to !**e)t it ()bid.G13 )re/io%s noti*e of *onsin!tion to )ersons intereste in t#e

f%l0ll.ent of t#e obli!tion 1Art& '2+ )!r& '&3@173 *onsin!tion of t#e t#in or s%. %e 1Art& '2J+ )!r& '&3@

!n13 s%bse?%ent noti*e of *onsin!tion .!e to t#e intereste

)!rties&

T#e !bsen*e of !n, of t#e re?%isites is eno%# ro%n to rener*onsin!tion ine>e*ti/e& Co.)li!n*e "it# t#e re?%ire.ents is.!n!tor,& T#e l!" s)e!5s of t#in& It .!5es no istin*tion bet"eenre!l !n )erson!l )ro)ert,&

E/istence of +alid debt.Consin!tion is )ro)er onl, "#ere t#ere is ! /!li ebt "#i*# is %e& A*reitor-ebtor rel!tions#i) .%st e4ist bet"een t#e )!rties ot#er"iset#e le!l e>e*ts t#ereof *!nnot be !/!ile of& T#%s+ "#ere t#e

)ossession of )ro)ert, b, )etitioners bein b, .ere toler!n*e or)er.ission of res)onent !s t#e, f!ile to est!blis# t#ro%# *o.)etente/ien*e t#e e4isten*e of !n, *ontr!*t%!l rel!tions bet"een t#e.+ t#el!tter+ not bein ! *reitor+ #!s no obli!tion to re*ei/e !n, )!,.entfro. t#e.& :it#o%t !n, *ontr!*t+ t#e, !re ne*ess!ril, bo%n b, !ni.)lie )ro.ise t#!t t#e, "ill /!*!te %)on e.!n+ f!ilin "#i*#+ !s%..!r, !*tion for ee*t.ent is t#e )ro)erre.e, !!inst t#e.& 1Llobrer! /s& ern!neQ+ 7JJ SCRA ;< 2;;(&3

Necessity of )a:ing tender of pay)entand consignation.Bot# tener of )!,.ent !n *onsin!tion .%st be /!lil, one in orerto e>e*t t#e e4tin%is#.ent of !n obli!tion& S%bst!nti!l *o.)li!n*e isnot eno%# for t#!t "o%l rener onl, ! ire*tor, *onstr%*tion of t#el!"&1'3 T#e %se of t#e "ors s#!ll !n .%st 1see Arts& '2+ '2J+'27e*t%!l&

123 Consin!tion !n tener of )!,.ent .%st not be en*%.bere b,*onitions if t#e, !re to )ro%*e t#e intene res%lt of f%l0 llin t#eobli!tion & In ! *!se+ "#ere t#e )l!inti> sent to efen!nt ! letter "it#!n o>er to reee. ! fore*lose )ro)ert, toet#er "it# t#e ree.)tion)ri*e b%t t#e efen!ntHs letter of !**e)t!n*e "!s not re*ei/e b, t#e)l!inti> %ntil !fter t#e ree.)tion )erio+ t#e *o%rt #el t#!t t#e)l!inti> "!s %sti0e in e)ositin t#e ree.)tion .one, in *o%rt+!lt#o%# f!r fro. ree*tin t#e tener of )!,.ent+ t#e efen!nt inf!*t !**e)teit& T#e *o%rt s!i t#!t t#e l!" 1Art& '2(+ )!r& '&3+ .%st be re!son!bl,

inter)rete !n t#e re!lities in e!*# *!se t!5en into !**o%nt so t#!tt#e )%r)ose of t#e l!" .!, not be efe!te& 1Mir!n! /s& Re,es+ 2 #! noobli!tion to reee.&

EXAM$LES61'3 D o"es C ! s%. of .one,& On t#e %e !te of t#e obli!tion+ Do>ers to )!, t#e obli!tion b%t C ref%ses to !**e)t t#e )!,.ent"it#o%t !n, %sti0!ble re!son& In t#is *!se+ DHs obli!tion "ill not bee4tin%is#e %ntil #e #!s .!e ! /!li *onsin!tion&

123 D entere into ! *ontr!*t "it# C& D is i/en t#e ri#t to *!n*el t#e*ontr!*t %)on )!,.ent of $'+;;;&;; to C& In t#is *!se+ D #!s noe4istin ebt to C& T#e !.o%nt of $'+;;;&;; is not o"e b, D+ bein.erel, t#e *onsier!tion for t#e e4er*ise of #is ri#t to *!n*el t#e*ontr!*t& en*e+ *onsin!tion of t#e $'+;;;&;; is not ne*ess!r,& Tenerof )!,.ent in oo f!it# is s%*ient to entitle D to *!n*ell!tion&

13 or f!ilin to )!, rents for t#ree 13 .ont#s+ R 1lessor3 e.!net#!t E 1lessee3 )!, t#e b!*5 rent!ls !n /!*!te t#e )re.ises&S%bse?%entl,+ R 0le ! *o.)l!int for %nl!"f%l et!iner& E *ontenst#!t R ref%se to !**e)t t#e rents& T#e f!il%re of R to *olle*t or #isref%s!l to !**e)t t#e rent!ls is not ! /!li efense& To be rele!se fro.res)onsibilit,+ t#e ebtor s#o%l *onsin t#e t#in or s%. %e& T#ebel!te )!,.ent of t#e b!*5 rent!ls b, E oes not !%to.!ti*!ll,restore t#e *ontr!*t of le!se "it#o%t RHs *onsent&

!e9uire)ents for +alid tenderof pay)ent.Tener of )!,.ent is t#e e0nite !*t of t#e ebtor of o>erin t#e*reitor "#!t is %e t#e l!tter& T#ere .%st be ! f%sion of intent+ability !n capability to .!5e oo s%*# o>er+ "#i*# .%st be!bsol%te !n .%st *o/er t#e !.o%nt %e&

1'3 Tener of )!,.ent .%st comply with the rules on payment. 1Arts&'2(-'2J&3 T#%s+ ! *#e*5+ "#et#er ! .!n!erHs *#e*5 or orin!r,*#e*5+ is not le!l tener 1see Art& '27er of ! *#e*5 in)!,.ent of ! ebt is not ! /!li tener !n .!, be ref%se b, t#e*reitor& o"e/er+ oo f!it# of t#e o>eror or !bilit, to .!5e oo t#e

o>er s#o%l in si.)le %sti*e e4*%se t#e ebtor fro. )!,in interest!fter t#e o>er "!s ree*te& A ebtor *!nnot be *onsiere elin?%ent"#o o>ere *#e*5s b!*5e b, s% *ient e)osit or re!, to )!, *!s# ift#e *reitor *#ose t#!t .e!ns o f )!,.ent& Te*#ni*!l efe*ts of t#eo>er *!nnot be !%*e to estro, its e>e*ts "#en t#e obe*tion to!**e)t t#e )!,.ent "!s b!se on entirel, i>erent ro%ns& T#%s+!lt#o%# t#e efe*ti/e *onsin!tion .!e b, t#e ebtor i notis*#!re t#e lo!n+ t#e r%nnin of t#e interest on t#e s!.e iss%s)ene b, t#e o>er !n tener of )!,.ent&

A tener+ e/en if /!li+ oes not b, itself )ro%*e le!l )!,.ent+%nless it is *o.)lete b, *onsin!tion& It #!s t#e e>e*t+ #o"e/er+ ofe4e.)tin t#e ebtor fro. li!bilit, for interest&

123 It .%st be unconditional and for the whole amount& It *!nnot be)res%.e b, ! .ere inferen*e fro. s%rro%nin *ir*%.st!n*es& T#etener of )!,.ent of onl, ! )ortion of !n obli!tion "#en t#e *ontr!*ti/es to t#e *reitor t#e ri#t to re?%ire )!,.ent of t#e "#ole !.o%nt

%e !n still %n)!i %)on ef!%lt of !n inst!ll.ent+ .!, be /!lil,ref%se b, t#e *reitor&

13 It .%st be actually made& T#e .!nifest!tion of ! esire or intentionto )!, is not eno%#& T#%s+ tener of )!,.ent *!nnot be )res%.e b,! .ere inferen*e fro. s%rro%nin *ir*%.st!n*es+ s%*# !s s%*ien*,of !/!il!ble f%ns in t#e #!ns of t#e ebtor& A )roof t#!t !n !*t *o%l#!/e been one is no )roof it "!s !*t%!ll, one&ILLFSTRATIPE CASE6

ender of payment of an obligation payable in money was made by

means of a chec3.Aacts9 D o"e C 1b!n53 t#e s%. of $(;;&;; for "#i*# D e4e*%te !)ro.issor, note& In ! s%it b, C for *olle*tion+ D *l!i.e t#!t t#e lo!n#! !lre!, been )!i be*!%se #e #! tenere )!,.ent !t CHs N!!Aen*,+ of t#e lo!n o%t of ! *#e*5 for $+;;;&;; iss%e b, t#e FniteSt!tes Tre!s%r, in f!/or of X+ "#o !**o.)!nie D+ e.!nin t#!t #is*#e*5 be *!s#e b%t t#e !en*, is#onore t#e *#e*5 "#i*# "!s#onore !n *!s#e !t ! l!ter !te b, t#e Le!s)i br!n*# of C&)ssue9 Di t#e tener of )!,.ent b, D res%lt in t#e is*#!re of #isobli!tion9Ield9 No+ for t#e follo"in re!sons6 irst+ t#e )ro.issor, note e4e*%teb, D %nertoo5 to )!, in $#ili))ine *%rren*,+ !n !s t#e tener of)!,.ent "!s .!e in *#e*5+ !n not #is o"n !t t#!t+ C !*te ri#tl, inref%sin it& T#is is tr%e e/en if t#e *#e*5 .!, be oo& Se*on+ t#etener of )!,.ent "!s *onition!l& In o>erin t#e *#e*5+ D )r!*ti*!ll,tol C6 ere is $(;;&;; b%t ,o% .%st )!, t#e re.!iner of t#e *#e*51$7+7;;&;;3 to X& T#ir+ tener of )!,.ent+ e/en if /!li+ oes not b,itself )ro%*e le!l )!,.ent+ %nless it is *o.)lete b, *onsin!tion&

Proof of tender of payment.As tener of )!,.ent .%st )re*ee *onsin!tion+ t#e tener .%st be)ro/e b, t#e ebtor in t#e )ro)er *!se& 1Art& '2(+ )!r& '&3 In ot#er*!ses+ "#en tener is not re?%ire 1)bid., )!r& 2&3+ onl, )rior noti*e tointereste )ersons of t#e *onsin!tion nee be )ro/e&

In ! *!se+ t#e *o%rt r%le t#!t ! letter b, t#e ten!nt to t#e l!nlor toet t#e rent!l for ! )!rti*%l!r .ont# is no )roof of tener of )!,.ent ofot#er or s%bse?%ent rent!ls@ ! letter to "it#r!" fro. t#e *o%rt t#erent!l for ! )!rti*%l!r .ont# or .ont#s referre to t#erein is no )roofof !n, ot#er e)osit or *onsin!tion nor e/en )roof of tener of)!,.ent of s!i rent!l t#!t s#o%l #!/e )re*ee t#e *onsin!tion orof noti*e to *onsin@ !n t#e lessee .%st .!5e ! tener of )!,.ent!n i/e )rior noti*e of *onsin!tion !n se*on noti*e of e!*#*onsin!tion of e/er, .ont#l, rent!l&


18/57


!n tener of )!,.ent ire*tl, to t#e .ort!ee+ !n+ t#erefore+ t#e*onsin!tion .!e b, #er "!s /!li+ if not %ner t#e stri*t )ro/ision oft#e l!"+ %ner t#e .ore liber!l *onsier!tions of e?%it,&

"!T. 1B. In order that the consignation of thething due )ay release the obligor* it )ust ;rstbe announced to the persons interested in theful;ll)ent of the obligation. The consignationshall be ine?ectual if it is not )ade strictly in

consonance with the pro+isions which regulatepay)ent.

,-

'rior notice to persons interestedre9uired.In t#e !bsen*e of )rior noti*e to t#e )ersons intereste in t#e f%l0ll.ent of t#e obli!tion 1s%*# !s %!r!ntors+ .ort!ees+ soli!r,ebtors+ soli!r, *reitors3+ t#e *onsin!tion+ !s )!,.ent+ s#!ll be/oi&e*t )!,.ent& It *!nnotbe else"#ere 1e.g., b!n53 %nless ot#er"ise )res*ribe b, s)e*i!l l!"

1'3 A "ritten tener of )!,.ent !lone+ "it#o%t *onsin!tion in *o%rt oft#e s%. %e+ oes not s%s)en t#e !**r%in of re%l!r or .onet!r,interest& Tener of )!,.ent .%st be !**o.)!nie orfollo"e b, *onsin!tion in orer t#!t t#e e>e*ts of )!,.ent .!, be)ro%*e&

123 :#ere !n oblior+ #o"e/er+ f!ils to .!5e ! *onsin!tion !fter !/!li tener of )!,.ent+ t#e *o%rt .!, !llo" #i. ti.e to )!, t#eobli!tion "it#o%t res*inin t#e *ontr!*t& T#e )%r*#!ser *!nnot bebl!.e for #er f!il%re to *onsin t#e !.o%nt %e "#ere ins)ite of #er"illinness !n )ersisten*e to .!5e )!,.ent of t#e resi%!l !.o%nt oft#e )%r*#!se )ri*e+ t#e seller in%sti0 !bl, ref%se to !**e)t t#e tenerof )!,.ent !n e/en o))ose #er .otion to e)osit "it# t#e tri!l*o%rt "#i*# enie s!i .otion&

13 :#ere t#e %.ent of t#e Co%rt of A))e!ls in !n ee*t.ent *!se#! !lre!, be*o.e 0 n!l !n e4e*%tor, !n t#e re*ors #! in f!*tbeen re.!ne to t#e lo"er *o%rt+ t#e Co%rt of A))e!ls is no lonert#e )ro)er entit, to "#i*# *onsin!tion of rents s#o%l be .!e)!rti*%l!rl, "#ere t#e lessee #! been )re/io%sl, re?%este to .!5et#e e)osit ire*tl, "it# t#e lessor& 1P!lellonT#ere see.s to be no re!son "#, t#e r%les on *onsin!tion s#o%l not!lso !))l, to i..o/!ble )ro)ert,&

173 T#e *onsin!tion #!s ! retroactive eEect& T#e )!,.ent is ee.eto #!/e been .!e !t t#e ti.e of t#e e)osit of t#e t#in in *o%rt or"#en it "!s )l!*e !t t#e is)os!l of t#e %i*i!l !%t#orit,& T#er!tion!le for *onsin!tion is to !/oi .!5in t#e )erfor.!n*e of !nobli!tion .ore onero%s to t#e ebtor b, re!son of *!%ses noti.)%t!ble #i.&

Notice to be gi+en to interested parties of consignation )ade.After t#e *onsin!tion #!s been .!e+ t#e intereste )!rties .%st !lsobe noti0e t#ereof& In ! *!se+ t#is re?%ire.ent "!s #el f%l0lle b, t#eser/i*e of s%..ons %)on t#e efen!nts toet#er "it# ! *o), of t#e*o.)l!int T#e )%r)ose of t#e se*on noti*e is to en!ble t#e *reitor to"it#r!" t#e t#in or s%. e)osite or t!5e )ossession in *!se #e!**e)ts t#e *onsin!tion& Inee+ it "o%l be %n%st to .!5e #i.s%>er t#e ris5 for !n, eterior!tion+ e)re*i!tion or loss of s%*# oosor .one, b, re!son of l!*5 of 5no"lee of s%*# *onsin!tion&HH

Consignation applicable only to pay)entof debt. %i*i!l *onsin!tion is !n in*ient to !n !*tion to *o.)el!**e)t!n*e b, t#e *reitor of )!,.ent of ! ebt& It is not !))li*!ble"#ere t#ere is no obli!tion to )!,&

1'3 Consin!tion is not ne*ess!r, in *!se "#ere ! )ri/ilee orri#t 1not !n obli!tion3 e4ists+ !s in t#e *!se of !.ort!e-ebtor 1or #is s%**essor-in-interest3 "#o esiresto redeem t#e .ort!e)ro)ert, or ! *o-#eir 1Art&';JJ&3+ or ! *o-o"ner 1Art& '(2;&3+ or ! /enor a retro1Art&'(;2&3 "#o "!nts to repurchase t#e )ro)ert, sol or !lessee "it# o)tion to b%, "#o esires to exercise the rightof option !s #e #!s no obli!tion to )!, t#e )ri*e %ntil t#e

e4e*%tion of t#e ee of s!le in #is f!/or @#en*e+ tener of)!,.ent "o%l be s% *ient to )reser/e t#e ri#t or)ri/ilee& A *ontr!*t in/ol/es t#e )erfor.!n*e of !nobli!tion+ not .erel, t#e e4er*ise of ! ri#t or )ri/ilee&

123 T#e fo r.!l oEer to redeem b, ! *o-o"ner or !oinino"ner 1%ner Arts '(2;-'(2&3 !**o.)!nie b, ! bona de tener of )!,.ent "it#in t#e )erio for ree.)tion)res*ribe b, t#e *ontr!*t or b, l!" is s% *ient to)reser/e t#e ri#t of ree.)tion for f%t%re enfor*e.entbe,on s%*# )erio !n "it#in t#e )erio )res*ribe fort#e !*tion b, t#e st!t%te of li.it!tions& :#ere t#e ri#t to

reee. is e4*%se t#r% t#e 0 lin of ! %i*i!l !*tion "it#int#e )erio )res*ribe for ree.)tion+ s%*# 0 lin ise?%i/!lent to ! for.!l o>er to reee.&T#e e)osit of t#e ree.)tion .one, "it# t#e s#eri> iss%*ient to e>e*t )!,.ent of t#e ree.)tion )ri*e@ !n"#en tener #!s been ref%se+ it is not ne*ess!r, t#!ts%*# tener be follo"e b, *onsin!tion

B%t .ere tener of )!,.ent is not in itself ! )!,.ent t#!trelie/es t#e /enor or .ort!or fro. #is li!bilit, to )!,t#e ree.)tion )ri*e&

13 B%t "#ere t#e e>e*t of ! %.ent "#ereb, t#e /enor aretro is!llo"e to re)%r*#!se t#e )ro)ert, "it#in ! *ert!in )erio is to e0nitel, settle b, %i*i!l e*l!r!tion t#e res)e*ti/e ri#ts of t#e )!rties!n 0 4 t#e rel!tion of t#e /enor a retro !n t#e /enee a retro !st#!t of ebtor !n *reitor+ res)e*ti/el,+ in t#e !.o%nt !n "it#in t#e)erio 0 4e in t#e %.ent+ !n not t#!t of ! /enor !n ! /enee%ner t#e ter.s of ! )ri/!te !ree.ent e?%i/o*!l in n!t%re+ t#e/enor 1ebtor3 .%st *onsin t#e f%ll !.o%nt of t#e re)%r*#!se )ri*e+if t#e /enee 1*reitor3 ref%ses to !llo" t#e ree.)tion&

'roperty deposited with court e/e)pt fro) attach)ent.It is ! "ell-est!blis#e o*trine in )r!*ti*!ll, e/er, %risi*tion t#!t.one, e)osite "it# ! *ler5 of *o%rt is e4e.)t fro. !tt!*#.ent !nnot s%be*t to e4e*%tion& It is s!i to be in custodia legis !n *!nnot be"it#r!"n "it#o%t !n e4)ress orer of t#e *o%rt& T#e f!*t t#!t nos%bse?%ent noti*e of *onsin!tion is .!e is of no .o.ent& It oes not.e!n+ #o"e/er+ t#!t t#e ebtor s#!ll be rele!se fro. #is li!bilit,

"!T. 1BA. The e/penses of consignation* whenproperly )ade* shall be charged against thecreditor. ,A-

Liability of creditor for e/penses of consignation.T#e *onsin!tion is .!e ne*ess!r, be*!%se of t#e f!%lt or %n%stref%s!l of t#e *reitor to !**e)t )!,.ent& T#!t bein t#e *!se+ it is b%t%st t#!t t#e e4)enses s#o%l be *#!re !!inst #i.& Of *o%rse+ t#e

e4)enses !re *#!re!ble to t#e ebtor if t#e *onsin!tion is not)ro)erl, .!e&


19/57


"!T. 16H. Once the consignation has beenduly )ade* the debtor )ay as: the 0udge toorder the cancellation of the obligation. 8eforethe creditor has accepted the consignation* orbefore a 0udicial declaration that theconsignation has been properly )ade* thedebtor )ay withdraw the thing or the su)deposited* allowing the obligation to re)ain inforce. ,FH-


20/57


SECTION 1. &oss of the 'hing #ue

"!T. 161. "n obligation which consists in thedeli+ery of

a deter)inate thing shall be e/tinguished if itshould be lost or destroyed without the fault ofthe debtor* and before he has incurred in delay.

ere b, B&

"!T. 16B.


21/57


"#et#er or not t#e obli!tion *!n still be )erfor.e b,ot#ers& o"e/er+ if t#e i.)ossibilit, is %e to t#e f!%lt ornelien*e of t#e oblior+ #e s#!ll be li!ble for !.!es&

123 Legal impossibility o**%rs "#en t#e obli!tion *!nnot be)erfor.e be*!%se it is renere i.)ossible b, )ro/isionof l!"+ !lt#o%# )#,si*!ll, it .!, be )ossible of)erfor.!n*e&

ILLFSTRATIPE CASES6'& )mpossibility of performance refers not to the o bligation itself but tothe intended use of the money to be paid.

Aacts9 S sol to B !n %ni/ie %M2 interest in ! /essel for t#e s%. of$(+;;;&;;& T#e s%. of $';+;;;&;; "!s )!i+ !n it "!s !ree t#!tt#e b!l!n*e of $2(+;;;&;; "!s to be !))lie b, B to t#e *ost ofinst!llin ! ne" enine in t#e /essel& T#e /essel "!s "re*5e b, !stor.+ ! fort%ito%s e/ent&)ssue9 Is B rele!se fro. t#e obli!tion to )!, t#e b!l!n*e in!s.%*# !st#e inst!ll!tion of t#e enine #!s be*o.e i.)ossible9Ield9 No& T#e obli!tion of B "!s not li.ite to t#e %t, to inst!ll !.otor on t#e /essel& T#e tr%e intention of t#e )!rties %ner t#eir*ontr!*t "!s t#!t t#e %n)!i b!l!n*e s#o%l be !))lie to t#einst!ll!tion of ! .otor !fter it #! been )!i b, B& In ot#er "ors+ t#ere"!s !n obli!tion on #is )!rt to )!, t#e b!l!n*e ine)enentl, of t#e)%r)ose for "#i*# it "!s intene to be %se@ !n t#is obli!tion to)!, *ontin%e to s%bsist not"it#st!nin t#e f!*t t#!t it #!s be*o.ei.)ossible to %se t#e .one, in t#e )!rti*%l!r "!, t#!t "!s intene&

2& Lac3 of funds is alleged for failure to ful ll an obligation.Aacts9 S sol ! )!r*el of l!n to B for $';+;;;&;;& B )!i S $2+;;;&;;on t#e sinin of t#e *ontr!*t b%t f!ile to )!, t#e 0rst inst!ll.ent ont#e b!l!n*e& B !llee l!*5 f%ns for #is f!il%re !n+ t#erefore+ )le!ei.)ossibilit, of )erfor.!n*e&)ssue9 Is t#e *ontention of B ten!ble9Ield9 No& T#e st!bilit, of *o..er*i!l tr!ns!*tions re?%ires t#!t t#eri#ts of t#e seller be )rote*te %st !s e>e*ti/el, !s t#e ri#ts of t#eb%,er& T#e r%le of e?%it, %ris)r%en*e !))li*!ble in t#is *!se is t#!t.ere )e*%ni!r, in!bilit, to f%l0 ll !n en!e.ent oes not is*#!ret#e obli!tion of t#e *ontr!*t+ nor oes it *onstit%te ! efense to !e*ree of s)e*i0 * )erfor.!n*e&

& $erformance of the obligation is possible but dangerous to life andproperty.Aacts9 S 1! s%!r *entr!l3 obli!te itself to *onstr%*t ! r!ilro! toe4ten to t#e #!*ien! of B "#ene/er t#e *onto%r of t#e l!n+ t#e*%r/es+ !n ele/!tions )er.it t#e s!.e& It "!s l!ter s#o"n t#!t "#ileit "!s )ossible to *onstr%*t t#e r!ilro! to BHs #!*ien!+ to o so "o%lbe /er, !nero%s& B instit%te !*tion !!inst S for bre!*# of *ontr!*tto *onstr%*t t#e r!ilro! in ?%estion !n to re*o/er !.!es !risinfro. #is in!bilit, to .ill t#e *!ne )l!nte on #is #!*ien!&)ssue9 M!, one obli!te #i.self to o so.et#in+ "#i*# "#en!**o.)lis#e+ "ill )ro/e to be too !nero%s to life !n )ro)ert,9Ield9 No& T#e *ontr!*t in ?%estion "!s ! ener!l *ontr!*t of t#e for.%se b, t#e *entr!l !n /!rio%s )ro)rietors of s%!r *!ne 0els& It "!sintene to be li.ite in )!rti*%l!r !))li*!tion to #!*ien!s noti.)ee b, )#,si*!l i.)ossibilit,& T#e *ontr!*t "!s ?%!li0e b, !ni.)lie *onition "#i*#+ if i/en )r!*ti*!l e>e*t+ res%lts in !bsol/in Sfro. its )ro.ise& Not to s!n*tion !n e4*e)tion to t#e ener!l r%le"o%l r%n *o%nter to )%bli* )oli*, !n t#e l!" b, for*in t#e)erfor.!n*e of ! *ontr!*t %nesir!ble !n #!r.f%l&

7& $erformance would violate a government order and be contrary topublic policy.Aacts9 E 1lessee3 f!ile+ %rin t#e !)!nese o**%)!tion+ to *o.)l, "it#t#e ter.s of #is *ontr!*t for t#e le!se of ! #!*ien! ei*!te to t#e)l!ntin of s%!r *!ne& T#e f!il%re "!s %e to !n orer of t#e $resientof t#e $#ili))ines s%s)enin t#e .illin of s%!r *!ne or )ro#ibitins%*# )l!ntin %rin t#e ene., o**%)!tion+ or to t#e f!*t t#!t E "!s)re/ente fro. oin so b, t#e %n*ert!in *onitions of )e!*e !n

orer t#en )re/!ilin+ "#i*# t#e *o%rts .!, "ell t!5e %i*i!l noti*et#ereof&)ssue9 S#o%l E be relie/e fro. res)onsibilit, for s%*# f!il%re9Ield9es& In t#e li#t of t#e !%t#orities !n )re*eents+ s%*# *!%ses!re ee.e s% *ient to %stif, non-f%l0 ll.ent& T#is is .ore so if "et!5e into !**o%nt t#e f!*t t#!t to )ro%*e or .ill s%!r *!ne !t t#!tti.e "!s *ontr!r, to )%bli* )oli*, !s it "o%l be i/in !i !n *o.fortto t#e ene.,+ !n "!s in /iol!tion of ! s)e*i0* orer e.!n!tin fro.o%r leiti.!te o/ern.ent to forest!ll !n, #el) t#!t .!, be reneret#e ene., in #is "!r e>ort it bein !n %nis)%te f!*t t#!t s%!r isessenti!l not onl, to fee t#e ene., b%t !s r!" .!teri!l for f%el to

bolster %) #is "!r .!*#ine&

& onsignee refused to ta3e delivery of overshipment of goods on theground that it would cause it to violate customs, tariE and entral4an3 rules and regulations.Aacts9 SLS+ )ri/!te res)onent+ ! forein s#i))in *o.)!n,+ re*ei/e!t its on5on ter.in!l ! se!le *ont!iner *ont!inin ( b!les of%nsorte "!ste )!)erHH for s#i).ent to K$$+ )etitioner+ in M!nil!& Abill of l!in to *o/er t#e s#i).ent "!s iss%e to SLS& Des)ite noti*esof !rri/!l+ K$$ f!ile to is*#!re t#e s#i).ent fro. t#e *ont!iner&De.%rr!e *#!res !**r%e !fter n%.ero%s e.!ns& SLS*o..en*e t#e *i/il !*tion for *olle*tion !n !.!es& 11ote9De.%rr!e is !n !llo"!n*e or *o.)ens!tion for t#e el!, or etentionof ! /essel&3

In its !ns"er+ K$$ !llee t#!t it )%r*#!se ; tons of "!ste )!)erfro. t#e s#i))er in on5on@ t#!t t#e s#i).ent SLS "!s !s5in K$$to !**e)t "!s 2; .etri* tons "#i*# is '; .etri* tons .ore t#!n t#ere.!inin b!l!n*e@ t#!t if K$$ "ere to !**e)t t#e s#i).ent+ it "o%lbe /iol!tin Centr!l B!n5 r%les !n re%l!tions !n *%sto.s !n t!ri>l!"s+ !n t#!t t#e *!%se of !*tion "o%l be !!inst t#e s#i))er "#i*#*ontr!*te SLSHs ser/i*e&

)ssue9 Di K$$ /iol!te t#e ter.s of t#e bill of l!in b, its )rolonef!il%re to re*ei/e !n is*#!re t#e *!ro fro. SLSHs /essel !n t#%sbe*o.e li!ble for e.%rr!e to t#e l!tter9

Ield9es& 1'3 $etitioner liable for demurrage. 6 $etitionerHs !tte.)tto e/!e its obli!tion to re*ei/e t#e s#i).ent on t#e )rete4t t#!t t#is.!, *!%se it to /iol!te *%sto.s+ t!ri> !n Centr!l B!n5 l!"s .%stli5e"ise f!il& Mere !))re#ension of /iol!tin s!i l!"s+ "it#o%t ! *le!re.onstr!tion t#!t t!5in eli/er, of t#e s#i).ent #!s be*o.e le!ll,i.)ossible+ *!nnot efe!t t#e )etitionerHs *ontr!*t%!l obli!tion !nli!bilit, %ner t#e bill of l!in& In t#e *!se !t b!r+ t#e )rolone f!il%reof )etitioner to re*ei/e !n is*#!re t#e *!ro fro. t#e )ri/!teres)onentHs /essel *onstit%tes ! /iol!tion of t#e ter.s of t#e bill ofl!in& It s#o%l t#%s be li!ble for e.%rr!e to t#e for.er&HH

123 $etitioner8s remedy against sellerMshipper. 6 BT#e is*re)!n*,bet"een t#e !.o%nt of oos ini*!te in t#e in/oi*e !n t#e !.o%ntin t#e bill of l!in *!nnot ne!te )etitionerHs obli!tion to )ri/!teres)onent !risin fro. t#e *ontr!*t of tr!ns)ort!tion& %rt#er.ore+)ri/!te res)onent+ !s *!rrier+ #! no 5no"lee of t#e *ontents of t#e*ont!iner& T#e *ontr!*t of *!rri!e "!s %ner t#e !rr!ne.ent 5no"n!s S#i))erHs Lo! An Co%nt+H !n t#e s#i))er "!s solel, res)onsiblefor t#e lo!in of t#e *ont!iner "#ile t#e *!rrier "!s obli/io%s to t#e*ontents of t#e s#i).ent& $etitionerHs re.e, in *!se of o/ers#i).entlies !!inst t#e seller=s#i))er+ not !!inst t#e *!rrier&HH

- - -(& $erformance of obligation by principal is prevented by thegovernment (obligee.Aacts9 Fner t#e ter.s of ! bon+ in f!/or of t#e Go/ern.ent+ t#es%ret, "ill !ns"er for t#e %.ent "#i*# .!, be renere !!inst D1efen!nt3 s#o%l #e f!il to ret%rn to t#e $#ili))ines& DA b!nne Dfro. ret%rnin to t#e $#ili))ines&

)ssue9 Is t#e s%ret, li!ble %ner t#e bon to t#e Go/ern.ent for f!il%reof D to ret%rn to t#e $#ili))ines9Ield9 No& In t#is *!se+ t#e )rin*i)!l obli!tion 1of ret%rnin to t#e$#ili))ines3 #!s been e4tin%is#e b, t#e !*tion of t#e Go/ern.ent1obliee3 in )re/entin s%*# ret%rn& Conse?%entl,+ t#e !**essor,obli!tion of t#e s%ret, is li5e"ise e4tin%is#e !n t#e bon rele!seof its li!bilit,& Arti*le '2(( !))lies&

& $erformance of obligation in favor of obligee is prevented by thegovernment.Aacts9 $%rs%!nt to ! *ontr!*t+ D *or)or!tion !ree to !*t !s !n !ent

of N 1N!ri*3 in e4)ortin ri*e !n *orn 1on ! no-oll!r re.itt!n*e orb!rter b!sis3 !n in i.)ortin *ert!in *oll!ter!l oos in e4*#!net#erefore+ !n to b%, fro. N t#e s!i *oll!ter!l oos& T#e *#!rter of N1R&A& No& (&3 !%t#oriQes it to en!e in b!rter !ree.ents !n toi.)ort s%*# oos t!4 free& Al.ost #!lf of t#e oos "ere i.)orte!n D )!i for t#e. !s t#e, "ere re*ei/e& Be*!%se of t#e *#!ne of!.inistr!tion in t#e o/ern.ent+ b!rter tr!ns!*tions "eres%s)ene& en*e+ D "!s not !ble to i.)ort t#e re.!inin *oll!ter!loos "ort# FS7J;+;;;&;;&

)ssue9 Is D li!ble to N for t#e b!l!n*e of /!l%e of t#e ri*e !n *orne4)orte for its f!il%re to i.)ort !n b%, t#e *oll!ter!l oos s%be*t oft#e *ontr!*t9

Ield9 No& T#e obli!tion of D to i.)ort !n b%, t#e *oll!ter!l oosbe*!.e %nenfor*e!ble "#en t#eir i.)ort!tion be*o.e le!ll,i.)ossible %e to t#e s%s)ension of b!rter tr!ns!*tions !n t#e ref%s!lto rene" t#e b!rter )er.it b, t#e o/ern.ent of "#i*# N 1s%**eeeb, t#e Ri*e !n Corn A.inistr!tion3 "!s !n !en*,& It "!s t#e %t, ofN to .!5e t#e ne*ess!r, re)resent!tions "it# t#e o/ern.ent toen!ble D to i.)ort t#e re.!inin *oll!ter!l oos& T#e *ontr!*t #!sre*i)ro*!l sti)%l!tions "#i*# .%st be i/en for*e !n e>e*t&Conse?%entl,+ N #!s no *!%se of !*tion %ntil it #!s se*%re t#ene*ess!r, i.)ort )er.it !n it brins in t#e re.!inin *oll!ter!l oos"ort# FS7J;+;;;&;;&

J& he lessee decided to cancel or discontinue with the lease contractBdue to nancial, as well as technical diNculties.88$acts9 In re)l, to t#e lessorsH 1)ri/!te res)onentsH3 letter re?%estin)!,.ent of t#e 0 rst !nn%!l rent!l in t#e !.o%nt of $27;+;;;&;; "#i*#"!s %e !n )!,!ble %)on t#e e4e*%tion of t#e *ontr!*t+ lessee1)etitioner3 !r%e t#!t %ner t#e *ontr!*t of le!se+ )!,.ent of rent!l"o%l *o..en*e on t#e !te of t#e is%!n*e of !n in%stri!l*le!r!n*eHH b, t#e 1ef%n*t3 Ministr, of %.!n Settle.ents !n notfro. t#e !te of t#e sinin of t#e *ontr!*t& T#e lessors ref%se to!**ee to t#e lesseeHs re?%est for t#e )reter.in!tion of t#e *ontr!*t ofle!se of t#e )re.ises to be %se !s site for ! ro*5 *r%s#in )l!nt !n0el o*e+ slee)in ?%!rters !n *!nteen=.ess #!ll&HHIssue9 !s t#e lessee t#e ri#t to ref%se to )!, t#e rent!ls !ssti)%l!te in t#e *ontr!*t of le!se !n to )reter.in!te t#e *ontr!*t9

&eld9 1'3 >uspensive condition ful lled. $etitioner "!s #elesto))e fro. *l!i.in t#!t t#e Te.)or!r, Fse $er.it 1/!li for 2,e!rs3 iss%e b, t#e Ministr, of %.!n Settle.ents "!s not t#ein%stri!l *le!r!n*e *onte.)l!te in t#e *ontr!*t+ #!/in *onsieret#e )er.it !s in%stri!l*le!r!n*e !n re*oniQe its obli!tion to )!, rent!ls *o%nte fro. t#e!te t#e )er.it "!s iss%e& Moreo/er+ t#e re!son of )etitioner inis*ontin%in "it# its )roe*t !n in *onse?%entl, *!n*ellin t#e le!se*ontr!*t "!s 0n!n*i!l !s "ell !s te*#ni*!l i*%lties+H not t#e !lleeins%*ien*, of t#e Te.)or!r, Fse $er.its

123 !rticle %200 not applicable. In/o5in Arti*le '2(( !n t#e)rin*i)les of rebus sic stantibus, )etitioner !sserts t#!t it s#o%l berele!se fro. t#e obli!tor, for*e of t#e *ontr!*t of le!se be*!%se t#e)%r)ose of t#e *ontr!*t i not .!teri!liQe %e to %nforeseen e/ents!n *!%ses be,on its *ontrol+ i.e., %e to t#e !br%)t *#!ne in)oliti*!l *li.!te !fter t#e EDSA Re/ol%tion !n 0n!n*i!l i *%lties& It

2'


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is ! f%n!.ent!l r%le t#!t *ontr!*ts+ on*e )erfe*te+ bin bot#*ontr!*tin )!rties+ !n obli!tions !risin t#erefro. #!/e t#e for*e ofl!" bet"een t#e )!rties !n s#o%l be *o.)lie "it# in oo f!it#& B%tt#e l!" re*oniQes e4*e)tions to t#e )rin*i)le of t#e obli!tor, for*e of*ontr!*ts& One e4*e)tion is l!i o"n in Arti*le '2(( of t#e Ci/il Coe&

$etitioner *!nnot+ #o"e/er+ s%**essf%ll, t!5e ref%e in t#e s!i !rti*le+sin*e it is !))li*!ble onl, to obli!tions to o+HH !n not to obli!tionsto i/e&HH An obli!tion to oHH in*l%es !ll 5ins of "or5 or ser/i*e@"#ile !n obli!tion to i/eHH is ! )rest!tion "#i*# *onsists in t#eeli/er, of !

.o/!ble or !n i..o/!ble t#in in orer to *re!te ! re!l ri#t+ or fort#e %se of t#e re*i)ient+ or for its si.)le )ossession+ or in orer toret%rn it to its o"ner& T#e obli!tion to )!, rent!ls or eli/er t#e t#inin ! *ontr!*t of le!se f!lls "it#in t#e )rest!tion to i/e@HH #en*e+ it isnot *o/ere "it#int#e s*o)e of Arti*le '2((& At !n, r!te+ t#e %nforeseen e/ent !n*!%ses .entione b, )etitioners !re not t#e le!l or )#,si*!li.)ossibilities *onte.)l!te in t#e s!i !rti*le& Besies+ )etitionerf!ile to st!te s)e*i0*!ll, t#e *ir*%.st!n*es bro%#t !bo%t b, t#e!br%)t *#!ne in t#e )oliti*!l*li.!te in t#e *o%ntr, e4*e)t t#e )re/!ilin %n*ert!inties ino/ern.ent )oli*ies on infr!str%*t%re )roe*ts&HH

13!rticle %20' not applicable. T#e )rin*i)le of rebus sic stantibusneit#er 0ts in "it# t#e f!*ts of t#e *!se& Fner t#is t#eor,+ t#e )!rtiessti)%l!te in t#e li#t of *ert!in )re/!ilin *onitions+ !n on*e t#ese*onitions *e!se to e4ist+ t#e *ontr!*t !lso *e!ses to e4ist& T#is t#eor,is s!i to be t#e b!sis of Arti*le '2( of t#e Ci/il Coe& T#is !rti*le+"#i*# en%n*i!tes t#e o*trine of %nforeseen e/ents+ isnot+ #o"e/er+!n !bsol%te !))li*!tion of t#e )rin*i)le of rebus sic stantibus, "#i*#

"o%l en!ner t#e se*%rit, of *ontr!*t%!l rel!tions& T#e )!rties tot#e*ontr!*t .%st be )res%.e to #!/e !ss%.e t#e ris5s of %nf!/or!blee/elo).ents& It is t#erefore onl, in !bsol%tel, e4*e)tion!l *#!nes of*ir*%.st!n*es t#!t e?%it, e.!ns !ssist!n*e for t#e ebtor&

In t#is *!se+ )etitioner "!nts t#is Co%rt to belie/e t#!t t#e !br%)t*#!ne in t#e )oliti*!l *li.!te of t#e *o%ntr, !fter t#e EDSA Re/ol%tion!n its )oor 0 n!n*i!l *onition renere t#e )erfor.!n*e of t#e le!se*ontr!*t i.)r!*ti*!l !n ini.i*!l to t#e *or)or!te s%r/i/!l of t#e)etitioner& T#is Co%rt *!nnot s%bs*ribe to t#is !r%.ent& 4 4 4$etitioner entere into ! *ontr!*t "it# )ri/!te res)onents onNo/e.ber 'J+ '


23/57


)ssue9 Are t#e *!%ses !llee b, E for t#e s%s)ension of t#e o)er!tionon t#e lines le!se s% *ient ro%n to rele!se E fro. li!bilit, or !tle!st to ! re%*tion of t#e rent!ls )!,!ble b, it9

Ield9 No& $erfor.!n*e is not e4*%se b, s%bse?%ent in!bilit, to)erfor. !n b, %nforeseen i*%lties+ b, %n%s%!l or %ne4)e*tee4)enses+ b, f!il%re of ! )!rt, to

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