Tuesday, November 27, 2012

LAW ON INSURANCE, Course Syllabus

-->COMPLETE
 
-->

I.       The Insurance Code (P.D. 612)

1.    History of Insurance Law in the Philippines
2.    Contract of Insurance (Sec. 3 – 5)

a. Travellers Insurance & Surety Corporation v. Hon. Court of Appeals, G.R. No. 82036, May 22, 1997

2.1 Rules on construing Insurance Code
2.2 Rules on construing Insurance Policy

3.    Elements of an Insurance Contract

a. Gulf Resorts, Inc. v. Philippine Charter Insurance Corp.. G.R. No. 156167, May 16, 2005

4.    Characteristics of Insurance Contracts

a. New World International Dev. (Phils), Inc. v. NYK-FilJapan Shipping Corp., G.R. No. 171468, August 24, 2011

5.    Doing an Insurance Business

a. White Gold Marine Services, Inc. v. Pioneer Insurance and Surety Corp., G.R. No. 154514, July 28, 2005

     5.1 Principle of subrogation

6.    Public interest in the Insurance Business 

a. Republic vs. Del Monte Motors, Inc., G.R. No. 156956, October 9, 2006.

7.    Insurance versus Health Maintenance Organizations (HMOs)

a. Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009

8.    Parties to the contract of insurance (Sec. 6-9)

a. Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009

II.      The Contract of Insurance

            1. What may be insured (Sec. 3 - 5)

a. Philamcare Health Systems Inc. v. Court of Appeals, G.R. No. 125678, March 18, 2002
        
                  1.1 Insurance distinguished from gambling

            2. Parties to the Contract (Sec. 6 – 9)

                  2.1. Sec. 54 – General Banking Law
                  2.2. Control Test on Corporations
                  2.3  Proper party to file action
                  2.4 Types of Mortgage Clauses

                  Cases:

a. Eternal Gardens Memorial Park Corp. v. The Philippine American Life Insurance Company, G.R. NO. 166245, April 9, 2008

b. Filipinas CompaƱa De Seguros vs. Christern, Huenefeld And Co.,
Inc., G.R.No. L-2294, May 25, 1951

c. Constantino v. Asia Life Insurance Company, G.R. No. 1669, August 31, 1950
                 
d. Great Pacific Life Assurance v. Court of Appeals, G.R. No. 113899, October 13, 1999

         3. Insurable Interest (Sec. 10 - 25)

                  3.1 Types of beneficiaries        
                  3.2 Rights of beneficiaries
                  3.3 Persons disqualified to be beneficiaries         

                  Cases:

a. Heirs of Loreto C. Maramag represented by surviving spouse Vicente Pangilinan Maramag v. Eva Verna De Guzman Maramag, et al, G.R. No. 181132, June 5, 2009

b. Violeta Lalican v. The Insular Life Assurance Company, Limited, G.R. No. 183526, August 25, 2009

c. Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, June 8, 2006

d. The Insular Life Assurance Company, Ltd. vs. Ebrado, G.R. No. L-44059, October 28, 1977

e. Sing vs. Feb Leasing & Finance Corporation G.R. No. 168115, June 8, 2007

         4. Concealment (Sec. 26 – 35)

                  Cases:
                 
a. Vda. De Canilang vs. Court of Appeals, G.R. No. 92492, June 17, 1993

b. Sunlife Assurance Company of Canada vs. Court of Appeals, G.R. No. 105135, June 22, 1995

c. Ng Gan Zee v. Asian Crusader Life Assurance Corp., G.R. No. 30685, May 30, 1983

d. Saturnino v. The Philippine American Life Insurance Company, G.R. No. 16163, February 28, 1963

e. Edillon v. Manila Bankers Life Insurance Corp., G.R. No. 34200, September 30, 1982

f. Philamcare Health Systems, Inc. v. Court of Appeals, G.R. No. 125678, March 18, 2002

g. Ma. Lourdes S. Florendo v. Philam Plans, Inc., Perla Abcede and Ma. Celeste Abcede, G.R. No. 186983, February 22, 2012

         5. Representation (Sec. 36 - 48) 

5.1 Statement of belief or expectation distinguished from Promissory Representation

5.2 Kinds of misrepresentation

                  Cases:

                  a. The Insular Life Assurance Company, Ltd. v. Feliciano, G.R. No. 
47593, December 29, 1943

b. Saturnino v. The Philippine American Life Insurance Company, G.R. No. 16163, February 28, 1963  

c. Edillon v. Manila Bankers Life Insurance Corporation, G.R. No. 34200, September 30, 1982

         6. The Policy (Sec. 49 – 66)

                  6.1 Rider, clause, warranty, endorsement
                  6.2 Group insurance
                  6.3 Group annuity

         7. Warranties (Sec. 67 – 76)

         8. Premium (Sec. 77 – 82)

a. UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc., G.R. No. 137172, April 4, 2001

         9. Loss (Sec. 83 – 87)

a. United Merchants Corp. v. Country Bankers Insurance Corp., G.R. No. 198588, July 11, 2012 

         10. Notice of Loss (Sec. 88 – 92)

         11. Double Insurance (Sec. 93 – 94)

         12. Reinsurance (Sec.95 – 98)

III.    Classes of Insurance

         1. Marine (Sec. 99 – 166)

         2. Fire (Sec. 167 – 173)

         3. Casualty (Sec. 174)

         4. Suretyship (Sec. 175 – 178)

5. Life Insurance (Sec. 179 – 183)

6. Compulsory Motor Vehicle Liability Insurance (Sec. 373 – 389) 


IV.     The Business of Insurance

         Case:

1. Republic of the Philippines, Represented by Eduardo Malinis in His Capacity as Insurance Commissioner v. Del Monte Motors, Inc., G.R. No. 156956, October 9, 2006 


V.      The Insurance Commissioner

         1. Administrative and adjudicatory powers

Sunday, November 25, 2012

Law on Obligations

For my undergrad students. May these notes find you...

-->

CHAPTER 1
GENERAL PROVISIONS

Art. 1156. An obligation is a juridical necessity to give, to do or not to do.
1. JURIDICAL NECESSITY – MAY BE ENFORCED THRU COURT ACTION AS DISTINGUISHED FROM NATURAL OBLIGATIONS.
2. ELEMENTS OF OBLIGATION (CIVIL)
- Juridical or Legal Tie
- Active Subject (One who has right to compel)
- Passive Subject (One who is directed to perform)
- Prestation (Object of the obligation)

Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)


NOTES:

1. QUASI-CONTRACTS (OR IMPLIED CONTRACT) – LAWFUL, VOLUNTARY OR UNILATIRAL ACTS CAN GIVE RISE TO QUASI-CONTRACTS (E.G. UNJUST ENRICHMENT, SOLUTIO INDEBITI (E.G. PAYMENT BY MISTAKE)

2. QUASI-DELICTS – ACTS OR OMISSION CAUSES DAMAGE TO ANOTHER THERE BEING FAAULT OR NEGLIGENCE IF THERE IS NO PRE-EXISTING CONTRACTUAL RELATIONS

Art. 1158. Obligations derived from law are not presumed.

NOTE: ONLY THOSE EXPRESSED BY LAW ARE DEMANDABLE.

Art. 1159. Obligations ARISING FROM CONTRACTS HAVE FORCE OF LAW BEWEEN PARTIES. SHOULD BE COMPLIED WITH IN GOOD FAITH.

Art. 1160. Obligations from QUASI-CONTRACTS – governed by Chap 1, Titles XVII

Art. 1161. Civil obligations from CRIMINAL OFFENSES - governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.

Art. 1162. Obligations derived from QUASI-DELICTS shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.

CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS 

Obligation
Debtor’s obli.
Creditor’s right
CR’s right to damages
To give a determinate thing
1. To deliver
2. Take care of thing (1163)
 To demand delivery
In case of debtor’s:
1. fraud
2. negligence
3. delay
4. breach (1170)


Responsible if thing is lost due to fortuitous event if he promised to deliver thing to 2 or more person (1165)
Right to fruits only from time deliver arises.

No real right until thing delivered (1164)
If there is fraud, damages is demandable. Waiver of action against FUTURE fraud is void (1171)


Deliver accessions and accessories even if not mentioned (1166)

Note: To exclude accessions and accessories, it must be made clear


If there is negligence, liability is regulated by court (1172)
To give generic thing
1. To deliver
Note: No obligation to take care of thing since it is replaceable
Ask obligation to be complied with at the expense of debtor (1165)
NO LIABILITY IF NON-PERFORMANCE IS DUE TO UNFORSEEN EVENT, OR FORTUITOUS EVENT

To do
Perform the obligation at debtor’s cost (1167)



No to do
Undo at debtor’s expense (1168)




Notes:

Delay: There is delay when creditor demands and debtors fail to perform. There is delay also when (1) law provides, (2) nature and circumstance of obligation, (3) when demand is useless like when debtor cannot perform the obli.

Reciprocal obligation, one party is in delay when one party fulfilled his obligation (1169)

Negligence: omission of diligence required by the nature of obligation
 
CHAPTER 3: KINDS OF OBLIGATIONS

PURE – when obligation does not depend on any condition

Example:

I will give you P1,000.
Demandable at once (pwede ng hingin agad) (1179)

Obligation based on resolutory condition is also demandable at once.
CONDITIONAL – when obligation depends on a condition (1181)

2 Types:

1. Suspensive – if this happens, it will give rise to the obligation

Example:

I will give you P1,000 if you pass the final exams


2. Resolutory – if this happens, the obligation stops

Example:

I will give you P1,000 monthly until you graduate from college 

Condition based on sole will (solong kagustuhan) of debtor, the OBLIGATION is VOID. NOTE: THIS IS CALLED POTESTATIVE CONDITION

If it depends on 3rd person or by chance, VALID (1182)

Impossible conditions. Physical (hindi talaga pwedeng mangyari) or Legal (ipinagbabawal ng batas o ng kabutihang asal o ng public policy), the obligation is ANNULED

Just disregard condition NOT to do IMPOSSIBLE THING (1183)

Condition that something happens at a DETERMINATE thing, obligation will be EXTINGUISHED if:
1. Time expires
2. Sure that it will not happen

example:

I will give you P1,000 if you will win as Class President on October 1, 2012.

I will not be obligated (hindi ko kailangan magbayad) if:
1. Oct. 1, 2012 came and you are not yet elected class president
2. You dropped out even before October 1, 2012, hence it is sure that you will not be class president (1184)

Condition that event will NOT happen at a determinate date shall render obligation EFFECTIVE when:

1. time elapsed
2. it is evident that the event cannot occur

example:

I will give you P1,000 if you DON’T become class president on Oct. 1, 2012

1. I need to pay you on Oct. 1, 2012 if you are not yet class president then even if no election was called

2. I need to pay you even if its still August 2012 if you dropped out since you will never be elected class president if you are not a student anymore (1185)

Condition deemed fulfilled (hence, obligation arises) when debtor (obligor) voluntarily prevents its fulfillment (sinadya ng may utang wag matupad ang kondisyon)  (1186)

Obligation to give: Effect retroacts to the day obligation was constituted.

Example:

   On August 7, 2012, I promised to give you my car with plate number
   XXX 888 if you pass the exam on October 1, 2012.

   You sold the car on August 10, 2012. You passed the exam on October
   1, 2012. The sale you made is valid since you are deemed owner of
   the car on August 7, 2012 (retroactive effect)

Reciprocal obli – fruits and interests mutually compensated. (No need to turnover, unless there is an agreement)

Example:

   I promise to give you 2 cows. You promised to give me your
   apartment for rent.

   Until delivery of the cows and the galaxy tab, I will own the milk and       
   the young of the cows assuming that it produces milk and give birth to  
   young. You will own the rent of the apartment until you give it to me. 

Unilateral obli – fruits and interests belong to the debtor (Unless there is agreement) (1187)

   I promise to give you the 2 cows. I will own the milk and the young
   unless there is a contrary stipulation (pwere na lang kung  
   napagkasunduan natin na pati iyon ay ibibigay ko sayo)

While condition is NOT yet happening:

1. Creditor may file action to preserve his right (1188)

2. Debtor may recover if he paid by mistake

3. When thing is LOST, DETERIORATED or IMPROVED

Lost – without fault of debtor – obli is extinguished
          With fault – debtor liable for damages

Deteriorated – without fault – cost borne by creditor
                      With fault – Creditor may chose (1) rescind (2) fulfill
                                        With damages on both cases

Improved – by nature – inure to the benefit of creditor
                 By expense of debtor – debtor enjoy right to use (1189)

In case of Resolutory Condition is fulfilled:

a. Obligation is to Give (determinate thing):

1. Parties to RETURN to each other what they have received

2. In case of LOST, DETERIORATED or IMPROVED, apply rule in Art. 1189 WITH RESPECT TO THE DEBTOR

b. Obligation to Do or Not to do: Apply Art. 1187 (1190)

Reciprocal obligation:

1. Power to rescind by the party willing and able to comply is IMPLIED.

2. Injured party may choose:
    a. Fulfillment with damages (may still be rescinded if fulfillment is
    impossible)
    b. Rescission with damages (1191)   

If BREACH committed by both parties:

1. Liability of FIRST infractor will be equitably tempered (pabababain ng husgado) by the court

If first infractor cannot be determined, obligation is extinguished and each party shall bear his own damages




WITH A PERIOD – when obligation is based on a day certain (exact date) or an event sure to come even though not known when (death, next rain, next sunrise).

Example:

1. On August 7, 2012, I promised to pay you P1,000 on October 1, 2012 (day certain).

2. On August 7, 2012, I promised to pay you P1,000 on the opening of the enrollment for School Year 2013-14 (sure to come but not known when)

Payable when means of the DEBTOR permits him (1180)

Demandable when day comes.

If resolutory period, obligation is terminated when period comes. (1193)

In case of Loss, Deterioration, or Improvement, apply 1189 (1194)

Payment by mistake (debtor unaware that period has not yet arrived) may be recovered together with fruits and interest (1195)

Period is for the benefit of both parties unless it is clear that period is for the benefit of one party only (1196)

Hence, a creditor cannot be forced to receive early payment if it is not agreed upon.

Court will fix the period if:

1. parties failed to fix it (as long as intention to fix the period is clear)
2. period depends on sole will of debtor (1179)

Debtor loses right to use the period when:

1. He becomes insolvent and he did not give new security
2. He did not give promised security to the creditor
3. When his security was impaired (nasira) by own act (after establishment) or when they disappear thru fortuitous event
4. He violated any undertaking (kasunduan) which is the reason why creditor agreed to the period
5. He attempts to abscond (tumakas) (1198)

ALTERNATIVE – when the debtor is bound by different prestations (obligation)

Example:

A is obliged to deliver 2 labrador dogs or 1 iphone 4s or sing until the creditor

Only one prestation is due
Creditor cannot be compelled (mapipilit) to receive part of both obligation.

   Example:
   In the given example, A cannot be compelled (hindi pwede pilitin) to
   give just 1 labrador dog and to sing for the creditor for 4 days only.
   Unless of course A would approve it (pwera na lang kung papayag si
   A) (1199)

Right of choice belongs to the Debtor unless expressly granted to the debtor (1200)

Effective only when choice was communicated (1201)

Right is lost when only one prestation is practicable (1202)

If debtor cannot make a choice because of the creditor, the debtor may rescind the contract with damages (1203)

Creditor has right to indemnity (mabayaran) when:

Debtor’s fault, all choices were lost or become impossible.

Basis: value of last thing disappeared or service last became impossible.

Damages may also be awarded (1204)

When choice given to CREDITOR:

Obligation ceases (tumigil) to be alternative from day selection has been communicated to the debtor.
Until then, debtor’s responsibility is:

1. To perform the choice of the creditor from the remainder of the prestation when original choice is lost thru fortuitous event (di sinasadya at inaasahang pangyayari)

2. If only one remains, perform that remaining prestation

3. If loss is due to fault of debtor, creditor may ask for the price of that lost thing with right to damages

4. If all things were lost due to fault, the creditor may choose with right to damages also.

Same rule applies to obligation to do or not to do. (1205) 

FACULTATIVE - when only one obligation agreed upon but debtor may render another in substitution.

Example:

A is obliged to deliver 2 labrador dogs to B. They agreed that A may give just his iphone 4s as a substitute .


Loss or deterioration of substitute does not make debtor liable UNLESS the substitution has been made and there is delay, negligence or fault of the debtor.  (1206)


JOINT – when there are 2 or more debtors and each of them answers only their part.

Example:

Peter, John and Paul owed Mary P1,000 each. Mary can demand only P1,000 per person. She cannot demand entire amount to only one or two.

When there are 2 or more debtors or 2 or more creditors. General rule is obligation is joint (obligation is divided into as many equal shares as there are creditors or debtors) (1208)

Example:

   Peter, John and Paul owed Mary P3,000 each. Mary can demand only
   P1,000 per person since without any stipulation, the obligation is
   deemed joint.
  

If division is impossible, rights of creditors may be prejudiced (masisira) only by collective acts and the debt can be enforced only by proceeding against all the debtors. If one of the debtor should be insolvent, others shall be liable for his share. (1209)

   Example:

   Jose and Carlo are obliged to deliver a horse to Mario. Mario must sue
   both Jose and Carlo for specific performance since law provides that
  debt can be enforced only by proceeding against ALL debtors.

SOLIDARY – when there are 2 or more debtors and the entire debt may be demanded from just 1 debtor

Example:

Peter, John and Paul owed Mary P3,000 jointly and severally. Mary can demand P3,000 to any of the debtors.


There is solidary obligation when:

1. Stipulated (words like “jointly and severall”, “in solidum”, “I promise to pay” signed by 2 or more
2. Provided by law
3. When nature of obligation requires 

Indivisibility (hindi mahahati) of an obligation does not necessarily gives rise to solidarity. (1210)

May exist although creditors and debtors may not be bound in the same manner and by the same periods and condition.  (1211)

Example:

   Peter, John and Paul owed Mary P3,000 jointly and severally. Peter’s is
   liable to pay on August 15, 2012 while John is liable when B-Meg
   became champion this PBA conference. Paul’s obligation is pure.

   Mary can demand only P2,000 from any of the debtors on August 16,
   2012 since B-Meg lost in the championship.
Solidary Creditors may do whatever is useful to the others but not anything which may be prejudicial to other creditors. (1212)
Solidary Creditor cannot assign (ilipat) his rights without consent (pag sangayon) of others. (1213)

Debtor may pay any of the solidary creditors. But if demand was made by one of them, payment must be made to that creditor. (1214)

Obligation extinguished when there is novation, compensation, confusion, or remission of debt made by any of the solidary creditors without prejudice to Art. 1219.

The creditor who executed any of the acts as well as he who collects the debt shall be liable to the others for the share in the obligation corresponding to them. (1215)

Creditor may proceed against anyone of the solidary debtor or some or all of them simultaneously. Others may be run after if debt is not fully paid yet. (1216)

Debt extinguished if any of debtor pay. Creditor may choose if 2 or more solidary debtors offer to pay.

He who made payment may claim from co-debtors. When one solidary debtor cannot pay, such share shall be borne by all his co-debtors in proportion to the debt of each. (1217)

If debt prescribed (lumipas na), solidary debtor who paid does not have right to reimbursement (1218)

Remission (pagpapatawad ng utang):

Remission made by creditor to solidary debtor does not release that debtor from his responsibility to co-debtors in case debt has been fully paid by any one of them BEFORE remission. (1219)

When obtained by one debtor, does not entitle him to reimbursement from other debtors. (1220)

Obligation extinguished when:

Thing lost or if prestation becomes impossible without fault of the solidary debtors.

If with fault on any debtor, ALL shall be responsible to the creditor. Same thing when thing is lost when there is delay on any of the debtor. (1221)

Defenses: Solidary debtor may avail:

1. All defenses derived from nature of obligation
2. All defensPersonal to him
3. Pertain to his share

If personal to other debtor, he may avail thereof only as regards that part of the debt for which the latter is responsible.

(1222)
 
DIVISIBLE – when obligation may be performed partially

Example:

Obligation to deliver 10 sacks of rice. It is possible the  5 sacks will be delivered today and the rest, tomorrow.

When obligation may be executed for a certain number of days, or by metrical units, or analogous things, it is divisible.

Example:

   Certain number of days: House painting job that will last for 10 days.
   Metrical units: 10 sacks of rice
   Analogous: Typing job per paper

But even if thing may be divisible, the obligation is indivisible if it is provided by law or by intention of the parties.  (1125)
INDIVISIBLE – when obligation is not capable of partial performance.

Example:

Obligation to deliver a specific mobile phone
Joint indivisible obligation gives rise to indemnity for damages from time any of the debtors does not comply with his undertaking. Debtor who is ready to comply with his obligation shall not contribute to the indemnity beyond his portion of the price of the obligation. (1224)

Example:

   Peter and John are obliged to give to Maria a specific Nokia Phone.
   Obligation is NOT solidary but it is indivisible.

   If the phone is worth P10,000. Peter and John for whatever reason
   cannot deliver the phone. Their obligation is converted to monetary.
   Peter is ready with is P5,000 but John is not.

   Peter is only duty bound to give P5,000 to Maria. He is not answerable
   to the P5,000 debt of John (unless the obligation is SOLIDARY)

WITH PENAL CLAUSE – obligation that contains provision that debtor will pay a penalty for failure to perform the obligation according to agreement

Example:

Obligation to pay on 10 equal monthly installments. For failure to pay any of the installments, the debtor will be charged with 10% interest and the entire debt shall be considered due and demandable.

Penalty shall substitute the indemnity for damages and payment of interests if there is no contrary stipulation.  Damages will have to be paid if debtor refuses to pay penalty or is guilty of fraud. (1226)

Debtor cannot excuse himself from performing the obligation by paying the fine, unless that right is expressly granted to him.

Creditor cannot demand fulfillment of the obligation and payment of the penalty at the same time unless this right has been expressly grandted. (1227)

Proof of actual damage not necessary to demand penalty payment. (1228)

Judge shall equitable reduce penalty when obligation has been partly or irregularly complied with. Penalty may also be reduced even if there is no performance at all, if it is iniquitous or unconscionable (hindi na makatarungan dahil sobra sobra na)(1229)

Nullity of penalty clause does not carry nullity of principal obligation. But nullity of principal obligation carries with it nullity of penalty clause. (1230)




Chapter 4 – Extinguishment of Obligations

Reasons
1. Payment or performance
2. Loss of thing due
3. Condonation or remission
4. Confusion or merger of the rights of creditor and debtor
5. Compensation
6. Novation
PAYMENT – when money owed is delivered or obligation has been complied with (nabayaran na o nagawa na ang dapat gawin) (1232)

Requisite for Payment:

1. Thing or service itself must be paid (Identity)
2. Completely delivered or rendered (Integrity) (1233)

Less than perfect payment:

If obligation has been substantially performed in good faith (pwede na, hanggat sa abot ng makakaya) the debtor may recover as if there was complete performance, less damages suffered by the creditor. (1234)

When creditor accepts knowing incompleteness or irregularity of performance, and did not express protest or objection, obligation is deemed fully complied with. (1235) 



Creditor not bound to accept payment from third person who has NO interest in the fulfillment of obligation, unless there is stipulation to the contrary.

Whoever pays for another may demand from debtor what he has paid. Except: When he paid WITHOUT knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1236)

Example:

   Peter paid the airline ticket of Maria for P2,000.00. It was done
   without the knowledge (or against the will) of Maria. Later, Maria
   told Peter that she is entitled to half-the-price for the ticket.

   In this case, Peter can only recover P1,000 from Maria.


Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel (pilitin) the creditor to subrogate (ilipat sa kanya) him in his rights, such as those arising from a mortgage guaranty, or penalty. (1237)

Example:

   Peter owed Maria P10,000.00. They agreed that in case Peter cant
   pay, Maria will own Peter’s iphone. John paid the debt of Peter. It was  
   done without the knowledge of Peter.

   In this case,  John can recover P10,000.00 from Peter. But if Peter  
   cannot pay, he cannot have Peter’s iphone. Reason: No subrogation.  


Payment made by third person who does NOT INTEND TO BE REIMBURSED (di nya gusto mabayaran) by the debtor is deemed to be a DONATION (bigay) which requires debtor’s consent. But the payment is valid as to the creditor who has accepted it. (1238)


Obligation to give: Payment by someone who does not have the FREE DISPOSAL (pagaari) and CAPACITY  TO ALIENATE (kakayahang ibenta) it shall NOT be valid. Without prejudice to provisions on Natural Obligations. (1239)


To whom payment must be made:

1. To the person in whose favor the obligation has been constituted
2. Or his successor in interest (tagapagmana)
3. Or any person authorized to receive it (1240)

If payment was made to INCAPACITATED or UNAUTHORIZED persons, payment is INVALID as a general rule.

     Incapacited – persons who by law are not capable of administering
     (pangalagaan) their properties. Example: Insane (mga baliw)

     Unauthorized – person who is not authorized (hindi binigyan ng
     katungkulan)

Payment to incapacitated valid when he kept the thing delivered or insofar as the payment has been beneficial to him.

Payment to unauthorized person is valid if it has redounded to the benefit of the creditor (nakabuti).

Benefit need not be proved in the following cases:

1. if after payment, the third person acquires creditor’s rights
2. if the creditor ratifies the payment (sinangayunan)
3. if by creditor’s conduct, debtor has been led to believe that the third person had authority to receive the payment. (1241)


If payment was made to any person in possession of credit (evidence of indebtedness), it will release the debtor if it was done in good faith. (1242)


Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1243)

Example:

   Peter owed Maria P100,000. Maria owed John P100,000.
   John sued Maria. Maria claims she is insolvent but claims that
   Peter owed her the same amount.

   Peter was asked by the court to retain the debt (this is called
   garnishment). Any payment made by Peter to Maria at this
   point shall be invalid. 


Obligation to give:

Debtor cannot compel creditor to receive a different one, even if it is of same value or more valuable.

Obligation to do or not to do:

An act or forbearance cannot be substituted by another act or forbearance against the creditor’s will. (1244)


DATION IN PAYMENT   to pay the debt, the debtor gave his property to the creditor and the creditor agreed with it.

Example:

   Peter owed Maria
   P1,000. Peter gave
   Maria his cell phone
   because he did not have
   any cash. Maria agree.
   Debt is extinguished.

Governed by the law on Sales. (1245)


Obligation to give a generic thing:

Creditor cannot demand thing of superior quality. Neither can debtor deliver a thing of inferior quality. The purpose and circumstance of the obligation shall be taken into consideration. (1246)


Unless agreed upon:

Creditor cannot be compelled to partially receive prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
(1248)


Payment of debts in money shall be made in currency stipulated. If not possible, then the currency which is legal tender in the Philippines.

   Legal Tender  -

    All notes and coins issued by the Bangko Sentral shall be legal
   tender: Provided, however, That, unless otherwise fixed by the Monetary
   Board, coins shall be legal tender in amounts not exceeding Fifty pesos
   (P50.00) for denominations of Twenty-five centavos and above, and in
   amounts not exceeding Twenty pesos (P20.00) for denominations of Ten
    centavos or less.

Delivery of promissory notes or bills of exchange shall produce effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.
In case of extraordinary inflation or deflation, the value of the currency at the time shall be the basis of payment, unless there is agreement to contrary. (1250)

   INFLATION – sharp increase of money without increase in business
   transaction. Results in sharp increase in prices.

   DEFLATION – opposite of inflation
   

Place of payment – place agreed upon.

If there is no agreement:

To give determinate thing – delivery at the place where thing might be at the moment obligation was constituted.

In any other cases – payment at domicile of the debtor. (1251)


Application of payment – out of 2 or more debts owing to the same creditor, it refers to the debt that is being paid.

Example:

   Peter has several debts to Maria, to wit:
    P1,000 because he bought Maria’s puppy.
    P2,000 because he bought Maria’s new book.
    P5,000 because he hired Maria to do his project.

If Peter paid P1,000 to Maria, to what debt should Maria apply this payment?

Peter may declare to which debt his payment must be applied. If Peter does not say so, the payment may not be applied to debt that is not due. (1252)

If Maria issued a receipt to Peter stating that his payment is applied to the P2,000 for the book and Peter accepted it, Peter cannot complain about it later. The payment will be applied to that debt. (1252)

If Peter did not declare and Maria did not issue a receipt stating where she applied the payment, the payment will be applied to the most onerous (pinakamabigat). (1254)

Example:

   In the example above:

   P 1,000 loan bears no interest
   P 2,000 loan bears 10% interest
   P 5,000 loan bears 5% interest

   The P2,000 loan is the most onerous.

If the debts due are of the same nature and burden, it will be applied to all proportionately. (1254)


If debt produces interest, payment shall be applied to the interest first before it shall be applied to the principal. (1253)


Payment by cession - where debtor transfer all of his properties not subject to execution (free to dispose) to the creditors so that they may sell them and apply proceeds to the debt. 

Requirements:

1. More than one debt
2. More than one creditor
3. Insolvency of debtor, complete or partial
4. Abandonment of all debtor’s property not exempt from execution
5. Consent of all creditors
Effect:

1. Creditors shall not own the properties. They shall sell it and apply proceeds to the debt.

2. Debtor is released up to the amount of the net proceeds of the sale, unless there is stipulation to the contrary. Debtor still liable to balance.

3. Creditors will collect in the order of preference agreed upon. If no agreement, based on order established by law.


Tender of Payment – act of offering the creditor what is due him together with a demand that the creditor accept the same.

Consignation – act of depositing the thing due with the court whenever the creditor cannot accept or refuses to accept payment 

If the creditor refuses without just cause to accept tender of payment, the debtor shall be released from responsibility by the consignation of the thing or sum due.

Consignation ALONE shall produce the same effect if:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1256)


LOSS OF THING DUE
An obligation to deliver DETERMINATE thing is extinguished if thing lost or destroyed without the fault of the debtor, unless:

1. Debtor incurred delay before loss
2. When by law or stipulation, the obligor is liable even for fortuitous events
3. When the nature of the obligation requires the assumption of risk. (1262)

If loss is partial, court will determine whether loss is so important to extinguish obligation. (1264)

When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (1267)

If obligation is to deliver a GENERIC thing, the loss or destruction of anything of the same kind does NOT extinguish the obligation. (1263)


Presumption of fault – when the thing is lost while in the possession of the debtor, unless there is proof to the contrary. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1265)


The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1266)

When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1268)

   Example:

   Tonyo stole Anna’s cellphone. Tonyo was caught and was
   asked to return the cellphone. Tonyo lost the cellphone due to
   fortuitous event. Tonyo is still liable for the amount of the
   cellphone.


The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1269)

CONDONATION OR REMISSION OF DEBT – gratuitous abandonment by the creditor of his right.

Needs to be accepted by the debtor expressly (hayagang sinabi) or impliedly (masasabi dahil sa mga senyales kahit di hayagang sinabi). (1270)

Example of Implied Condonation:

Delivery of private document evidencing credit, voluntarily by the creditor to the debtor (1271)


If creditor renounce (pinatawad) the principal debt, it shall extinguish the accessory obligation. But waiver of accessory obligation does not extinguish the principal debt. (1273)

CONFUSION OR MERGER OF RIGHTS –
Meeting in one person of the qualities of creditor and debtor with respect to the same obligation
Example:

Jun issued a check payable to “Cash”. It was given to Terry. Terry paid it to Migs, who later paid it to Jun.


COMPENSATION – takes place when two persons, in their own right, are creditors and debtors of each other (1278)

Kinds:

1. According to effect or extent:
   a. Total – both debts completely extinguished (1281)
   b. Partial – balance remains

2. According to origin:
    a. Legal – takes place by operation of law
    b. Voluntary – agreement of both parties
    c. Judicial – “set-off” (1283)
    d. Facultative – one party has the choice of claiming the
                      compensation


Requisites:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Novation – change of an obligation by another, which extinguishes the first
Obligations may be modified (changed) by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.


In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1292)