Art. 1340

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n)

The article refers to the usual exaggerations in trade which are not fraudulent by themselves when the party has the opportunity to investigate and know the true facts.

The exaggerations are also known as “dealer’s talk” or “traders talk” or “dolus bonus” which constitute tolerated fraud as long as the other party has the opportunity to check and know the facts.

What tolerated fraud covers. Tolerated fraud or dealer’s talk usually refers to the misrepresentation of traders tending to minimize the perceived defects of the thing or service advertised for sale; exaggerations or magnifications of its qualities, and its establishment with qualities that it does not possess.

Dealer’s talks do not give rise to actions for damages because of their insignificance or because it is the credulousness or stupidity of the victim which is real cause of his loss.

When there is a written contract, what does not appear on the face of the contract should be regarded as trader’s talk. Hence, the need to remember always the maxim “caveat emptor”.

Caveat emptor – the buyer has the duty to check the title of the seller over the property plus other circumstances necessary for his own protection. Otherwise he would be buying the property at his own risk.

Art. 1332

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n)

Rationale behind the article. The code commission found it necessary to incorporate the article into the code because of its belief there is still a fairly large number of illiterates in the country, and documents are ordinarily drawn in English or Spanish.

In the law of evidence, it is presumed that “a person intends the ordinary consequences of his voluntary act; or a person makes ordinary care of his concerns”.

No contract shall arise unless its acceptance is communicated to the offeror.

The presumption does not apply in the following cases:

a.    

When one of the contracting parties is unable to read;

b.    

When the contract is written in a language not understood by the said party.

If the contracting party is an illiterate or even if literate, but he could not understand the language used in the contract which he signed, and later, he alleged fraud and mistake in the execution thereof, there is a presumption created that there was fraud or mistake when he signed or gave his conformity to the contract.

The burden of proof is shifted now to the party who is enforcing the agreement. He must prove that the document was fully explained to the party alleging fraud or mistake. Failure to rebut the presumption will sustain the charge of fraud or mistake.

Art. 1324

Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n)

          The article applies only to a situation where the offeror has alloed the offeree “a crtain period of time to accept”. This is giving the offeree the option to accept or not to accept within a fixed period of time.

          The time of acceptance will depend on the circumstances:

a.     If a period is fixed by the offeror;

b.     If no period is fixed by the offeror.

Option contract, concept. It is a contract between the offeror and the offeree whereby the former grants the latter, for a valuable consideration, the privilege to buy or not to buy certain objects at anytime within the specified period and for a fixed price.

Art. 1316

Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n)

Perfection of real contracts. The article refers to real contracts which require delivery of the object for their validity, in addition to the presence of the other essential elements of a contract: consent subject matter and cause of consideration.

Real contract are perfected from the moment of the delivery of the object of the obligation.

The real contracts mentioned in the law are:

a.     Deposit;

b.     Pledge;

c.     Commodatum

d.     A contract of carriage is also real contract as well as mutuum or loan.

A loan contract is not a consensual contract but a real contract, perfected only upon the delivery of the object of the contract.

Reason why delivery is required in real contracts. In real contracts, delivery of the object is necessary because without the object, the other party cannot comply with his duties under the contract.

Agreement to enter into real contract distinguished from real contract itself. There can be a contract “to make a deposit, pledge, etc.” This is consensual. It is perfected upon the meeting of the minds of the parties. However, once the object has been delivered, the contract is converted into a real contract.

Art. 1308

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)

Mutuality of contracts. It is but natural and logical that the contract shall bind both contracting parties. This is the principle of mutuality contract. It is based on the essential quality of the parties. It is incongruous to bind one party and let free the other party from responsibility.

Obligations arising from contract have the force of law between the parties and should be complied with in good faith.

The binding effect of a contract on both parties is based on the principle that the obligations arising from contract have the force of law between the contracting parties, and there must be mutuality between them based essentially on their quality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom.

Validity or Compliance. Cannot be left to the will of the one of the contracting parties.

What is meant here is that the contract cannot have any stipulation authorizing one of the contracting parties:

a.     To determine whether or not the contract shall be valid, or;

b.     To determine whether or not the contract shall be fulfilled

However, a third person may be authorized to determine the performance or fulfillment of the contract but not to determine its validity. He must not however make the determination of the fulfillment evidently equitable.

Stipulations allowing a party to cancel or rescind do not militate against mutuality of contracts.

No judicial action for rescission is necessary where the revocation of the contract is authorized for the violations of its terms and conditions.

Mutual cancellation. The general rule is that a party cannot revoke or renounce a contract without the consent of the other. They may however mutually cancel their contract under such terms and conditions as they deem wise.

MARIA S. PASCUAL vs. JOSE LACSAMANA

MARIA PASCUAL (Plaintiff) vs. JOSE LACSAMANA (Defendant)

November 27, 1956

Justice Labrador

Facts:

1.       July 23, 1951, the Defendant executed a document in Tagalog, presented at the trial which reads:

“ALAMIN NG LAHAT NG MAKABABASA NITO:chanroblesvirtuallawlibrary

“Na ako, si Jose Lacsamana, may sapat na gulang, may asawa, at kasalukuyan naninirahan sa 1039 Trabajo, Sampaloc, Manila ay nagpapatunay ng sumusunod:chanroblesvirtuallawlibrary

“Una. — Na ako ay umutang ng halagang anim na libo apat na daan at limang piso at limang pu at tatlong sentimos lamang (P6,405.53) kualtang pilipino, kay Gng. Maria S. Pascual ng Malabon, Rizal ngayong araw na ito.

“Ikalawa. — Na ang nasabing utang ay ipinangangako kong bahayaran sa nasabing Ginang sa Deciembre 31, 1951.

“Ikatlo. — Na ang lahat ng isdang huhulihin sa aming palaisdaang “MAGPITO” at “PULO” na nasa Pampanga, sa punduhan ng isda sa Hulong Duat, Malabon, Rizal, upang ipagbili at sa lahat ng pagbibilhan ay aawasin ang kangyang komissiong 5 porciento.

“Ikaapat. — Na ang nasabing halaga ay aking bibigyan ng tubo o interest ng 12 porciento isang taon sa nasabing Ginang mula ngayon araw na ito hanggang sa Deciembre 31, 1951.

“Ikalima. — Na kung sakali’t hindi ako makabayad sa aking utang sa nasabing Ginang sa taning na nakalagay dito, at ang pagsiñgil sa akin ay umabot sa “jusgado” ako ay nangangako na magbabayad ng aking pagkakautang at bukod sa doon ay magbabayad ako ng 25 porciento ng aking pagkakautang bilang daños y perjuicios o costas ng abogado.

“SA KATUNAYAN NG LAHAT NG ITO, ako ay lumagda sa ibaba nito, dito sa Malabon, Rizal ngayong ika 23 ng Julio, 1951.

“Jose Lacsamana”

2.       On February 27, 1953, he again executed another document, presented at the trial which read:

“SA LAHAT AY AKING PINATUTUNAYAN:chanroblesvirtuallawlibrary

“Ako, si JOSE LACSAMANA, matapos na makapanumpa, ay nagsasalaysay ng mga sumusunod:chanroblesvirtuallawlibrary

“1.  Na ako ay may nakuhang cualta sa Gng. Maria Pascual, sa halagang Anim na libong piso at apat na daan at lima at limanpu’t tatlong centimos (P6,405.53) noong 23 ng Julio ng 1951.

“2.  Na bilang katunayan na ako ay handang magbayad ng nasabing utang ako ay nangakong maghuhulog ng isda kay Gng. Maria Pascual, at bukod dito’y ako’y nangakong magpapatong ng nuukol na interes sa halagang aking nautang hanggang sa mabayaran ang halagang aking nakuha.

“3.  Na ako’y nangakong magbayad ng nasabing utang, kasama and nauukol na interes, sangayon sa kasulatang aking nilagdaan, noong ika a 31 ng Deciembre, 1951.

“4.  Na hangga sa ngayon ay hindi pa ako nagbabayad ng nasabing utang kay Gng. Maria Pascual.

“5.  Na noong Deciembre, 1952, ako ay nakipagusap kay Gng. Maria Pascual at ulit ay nangakong magbabayad ng nasabing utang nitong katapusan ng Febrero, 1953, nguni’t hindi pa rin ako nagbayad ng nasabing utang.

“6.  Na ngayong ika 27 ng Febrero, ako’y muling nakipagusap sa kay Gng. Maria Pascual at sa kay Atty. Arsenio Roldan, Jr., at sa harap nitong huli, ako ay nangakong muli na magbabayad ng nasabing utang sa fecha 20 ng Marzo, 1953.

“SA KATUNAYAN NG LAHAT NG ITO, ako ay lumagda sa kasulatang ito, ngayong ika 27 ng Febroro, 1953.

“Manila, Philippines

“JOSE LACSAMANA”

Plaintiff brought this action alleging that Defendant has not paid the indebtedness that he had agreed and promised to pay in accordance with his promissory note of July 23, 1951.

The Defendant also promised therein to sell all the fish that would be harvested from his two fishponds, through the Plaintiff, who will receive 5 per cent commission, but failed to comply with this obligation.

During the trial the Defendant claims that the facts are not presented clearly by Plaintiff. He alleges that on February 27, 1953, he and Plaintiff settled and liquidated all their outstanding accounts, and in consideration of said cancellation and renovation, Defendant executed the contract. By way of counterclaim, he alleges that he had delivered fish valued at P1,198.15, and that after deducting Plaintiff’s commission thereon, Plaintiff still owed him a balance of P1,004.25. He, therefore, asks that Plaintiff’s complaint be dismissed, and that Plaintiff be sentenced to pay the sum stated in his counterclaim.

After the trial and on January 4, 1954, the court rendered judgment sentencing Defendant to pay the sum of P6,405.53, plus interest thereon at 12% per annum from July 23, 1951 until the whole amount is fully paid, and the further sum of P1,601.38, representing 25 per cent of the aforementioned amount, as liquidated damages and attorney’s fees, plus the costs. Defendant’s counterclaim was dismissed.

Issue

Whether or not the first contract novate the second contract.

Held:

A comparison between the two instruments will readily show that the second one is absolutely silent on Defendant’s obligation to deliver all the fish produced from his two fishponds to the Plaintiff, as well as on the payment of liquidated damages of 25 per cent. It contains nothing but a recital of past unfulfilled promises to pay made by Defendant, and a final promise to pay the obligation on March 20, 1953. Whether or not Plaintiff agreed to this date of payment does not appear, but even if she did, the change would be limited to the date of payment and it cannot be held to extend to all other particulars of the contract. For a novation to exist, there must be a change, substitution, or renewal of an obligation or obligatory relation, with the intention of extinguishing or modifying essentially the former, debitum pro debito. (4 S. R. 424.) If the second instrument was accepted by Plaintiff so that the period for the payment was intended to be postponed, there would still be no novation because mere extension of payment and the addition of another obligation not incompatible with the old one is not a novation thereof (Inchausti & Co. vs. Yulo, 34 Phil. 978). Furthermore, novation is never presumed; there must be a declaration to that effect in unequivocal terms, or that the old and the new obligations must be incompatible (Article 1292, Civil Code).

Finding no error in the judgment of the court a quo, the same is hereby affirmed in toto, and it appearing that the appeal is frivolous, Defendant is hereby sentenced to pay double costs.

Article 1300

Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect.

Ang subrogation ng ikatlong tao sa mga karapatan ng nagpautang ay maaaring legal o konbensyonal. Ang nauna ay hindi ipinapagpalagay, maliban sa mga kaso na malinaw na nabanggit sa Code na ito; ang nahuli ay dapat na malinaw na itinatag upang ito ay magkabisa. (1209a)

                Subrogation is the active subjective novation characterized by the transfer to a third person of all the rights pertaining to the creditor in the transaction concerned including the right to proceed against the guarantors or possessor of mortgages, and similar other subject to any applicable legal provisions or any stipulation agreed upon by the parties in conventional subrogation.

                It is the transfer of the credit of the creditor arising in a transaction, to a third person with all the rights appertaining thereto, either against the debtor or against third persons.

                Subrogation is designed to promote and accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay.

Kinds of subrogation (or Active Subject Novation)

                As to their creation

a.       Legal subrogation

b.      Voluntary or conventional subrogation

As to their extent

a.       Total subrogation

b.      Partial subrogation

Legal subrogation is not presumed except in the cases mentioned in the law. Voluntary subrogation must be clearly established with sufficient evidence, otherwise, its existence will not be sustained.

Article 1292

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

Upang ang isang obligasyon ay maaaring matapos sa na papalit sa pareho, ito ay hindi maiiwasan na ito ay ipinahayag sa madaling termino, o na ang luma at bagong mga obligasyon maging sa bawat punto na hindi tugma sa bawat isa. (1204)

Article 1284

                When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided.

Kapag ang isa o parehong mga utang ay maaaring ikansela o ipawalang bisa, maaari nilang bayaran ang bawat isa bago pa man ito ipawalang bisa o kanselahin ng hukuman. (n)

                Before rescissible or voidable debts are judicially rescinded or annulled, they are valid debts. The parties may opt not to rescind or annul them. Consequently, until they shall have been judicially declared void, they can be compensated against each other.

                If the prescriptive period for the rescission or annulment of the debts had already lapsed, there is automatic compensation and the same will not disturbed anymore.

                In other cases, if the debt is rescinded or annulled, the compensation is also automatically cancelled and there shall be restitution of what each party had received before the rescission or annulment.

Article 1276

Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation.

Ang pag-iisa o pagsasanib ng prinsipal na nangutang at nagpautang ay ika-papakinabang ng tagapanagot. Ang pag-iisa o pagsasanib ng tagapanagot ay hindi maaaring makapagpa-walang bisa o makapag-wala ng obligasyon.

Two kinds of merger:

a.       Merger in the person of the principal debtor or principal creditor;

b.      Merger in the person of the guarantor.

The first merger results in the extinguishment of the guaranty because the latter is just an accessory obligation. When the principal obligation is extinguished, the accessory obligation is also extinguished. Thus, the law says, the confusion benefits the guarantor.

The second merger will not extinguish the principal obligation because the efficacy of the principal obligation is not dependent upon the accessory obligation.

Article 1268

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 maybe 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.

Kung ang utang ay bagay na natutukoy o determina ay nagmula sa kasong kriminal, ang nangutang ay kailangan pa rin magbayad  kahit ano pa man ang kadahilanan ng pagkawala ng bagay na ito. Maliban na lamang kung ibinibigay na ito ng nangutang at hindi ito tinanggap ng nagpautang ng walang nararapat na pangangatwiran.

The article applies only to an obligation to deliver a certain thing which is determinate, and which the obligation arose out of the commission of a criminal offense committed by the debtor. If the thing is lost for whatever reason the debtor shall pay for the value of the thing.

If the obligor had offered or tendered the delivery of the thing to the obligee, but the latter had unjustifiably refused to accept it, and the thing got lost, the former is not liable anymore because the latter is in mora accipiendi.

Eugenio Bravo vs Ciriano Barreras

Eugenio Bravo vs Ciriano Barreras

February 16, 1953

Justice Angelo Bautista

Facts:

June 8, 1946, Eugnio Bravo (plaintiff) sold to Ciriano Barreras (defendant) a parcel of land for P200 with the right to repurchase it within five years from the date of sale.

September 14 and 15, 1950, the palintiff attempted to exercise his right of repurchase by tendering to the defendant the payment of the sum of P200 as agreed upon, but said defendant refused to accept the payment without any valid reason.

In view of said refusal, plaintiff deposited said sum of P200 with the court, and filed the present action as required by the Civil Code.

In his answer, the defendant avers that, "the trouble between the parties is the fact that the plaintiff wants to get from the defendant a parcel of land distinct from what the said plaintiff delivered to the defendant after the execution of the pacto de retro contract."

After holding a pre-trial at which both parties were heard, the court rendered an order of the following tenor:

At today's pre-trial the parties have agreed that the land sought to be repurchased is also the subject-matter of another litigation between the same parties in case which is now before the Court of Appeals on appeal. The herein defendant does not deny the right of the plaintiff to repurchase the property but maintain that it is now impossible to execute the deed of repurchase because the identity of the property is still undecided and will not be decided until after the Court of Appeals has finally disposed of the case before it.

In as much as it will take about two more years before said appeal could be decided and the plaintiff, on the other hand, has already made a consignation of the purchase price with the clerk of court which amply protects his right to repurchase the property, the court hereby order the dismissal of this case without cost and without prejudice.

Issue:

Whether or not the consignation is proper

Held:

The ground on which the court on its own accord dismissed this case after hearing the parties on a pre-trial has no legal basis nor justification. Such action is only contrary to the Rules of Court. But it impairs a right which the law grants to the plaintiff in connection with his right to repurchase the property in litigation. Under section 3, Rule 30, of the Rule, an action can only be dismissed upon motion of a defendant or upon the initiative of the court, (1) when plaintiff fails to appear at the time of trial, (2) when plaintiff fails to prosecute his action for an unreasonable length of time, and (3) when he fails to comply with any rule or order of the court. In other cases, the case can only be dismissed upon petition of the plaintiff (section 1, Rule 30). The grounds given by the court in its order of dismissal is not one of those recognized by the Rules of Court.

Article 1260

Article 1260

                Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.

                Before the creditor has accepted the consignation, or before the judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force.

Kapag ang pagkakatiwala ay naisagawa na, ang may utang ay maaaring hilingin sa hukom na ipag-utos na kanselahin ang obligasyon.

Bago pa man tanggapin ng nagpautang ang pagkakatiwala, o bago pa man ipahayag ng hukuman na nagawa na ang kasunduan sa pagkakatiwala, ang nangutang ay maaaring bawiin ang bagay o kabuuan ng kanyang naideposito, pumapayag na ang obligasyon ay manatili pa rin.

Effect of valid consignation. When the consignation is properly effected, the court will order the cancellation of the obligation upon motion duly filed by the debtor. When the validity of the consignation has been affirmed by the court, the consignation shall have a retroactive effect. The obligation is deemed paid from the moment the amount or the thing due has been actually placed at the disposal of the court. The running of interest if stipulated is also deemed suspended at the same time.

Effect of improper consignation. If the consignation is not properly made the obligation stays as the attempted consignation did not amount to payment.

Effect of dismissal of the consignation case. If the case has been dismissed by the court for any valid reason the attempted consignation will have no favorable effect upon the debtor.

Withdrawal of the thong or sum deposited, when available. The debtor who made the deposit may still withdraw the thing or sum of money he had deposited in court provided that:

A.      The creditor has not yet accepted the thing or sum deposited;

B.      That the court had not yet made a judicial declaration that the consignation had been properly made.

The reason why debtor may still withdraw the thing deposited is that he still owns the money or thing deposited at the precise time.

Judicial approval is necessary to render consignation effective and valid. Without judicial approval, the amount deposited continues to be under the disposition of the debtor. After the consignation has been approved, the debtor may ask for the cancellation of the obligation.

TRADERS INSURANCE and SURETY COMPANY vs. DY ENG GIOK, PEDRO LOPEZ DEE and PEDRO E. DY-LIACCO

Case

TRADERS INSURANCE and SURETY COMPANY
vs.
DY ENG GIOK, PEDRO LOPEZ DEE and PEDRO E. DY-LIACCO

November 17, 1958

REYES J.B.L., J.:

FACTS

1.    1948 – 1952, "Destilleria Lim Tuaco & Co., Inc." had Dy Eng Giok as its provincial sales agent, with the duty of turning over the proceeds of his sales to the principal, the distillery company.

2.    As of August 3, 1951, Dy Eng Giok had an outstanding running account in favor of his principal in the sum of P12,898.61.

3.    On August 4, 1951, a surety bond was executed by Dy Eng Giok, as principal and Traders Insurance and Surety Co., as solidary guarantor, whereby they bound themselves, jointly and severally, in the sum of P10,000.00 in favor of the Destilleria Lim Tuaco & Co., Inc., under the following terms:

THE CONDITION OF THIS OBLIGATION Is SUCH THAT: Whereas, the above bounden principal has entered in to a contract with the aforementioned Company to act as their provincial sales agent and to receive goods or their products under the said Principal's credit account. The proceeds of the sales are to be turned over to the Company.

WHEREAS, the contract requires the above bounden principal to give a good and sufficient bond in the above stated sum to secure the full and faithful fulfillment on its part of said contract; namely, to guarantee the full payment of the Principal's obligation not to exceed the above stated sum.

NOW THEREFORE, if the above bounden principal shall in all respects duly and fully observe and perform all and singular the aforesaid covenants, conditions, and agreements to the true intent and meaning thereof, then this obligation shall be null and void; otherwise, to remain in full force and effect.

LIABILITY of surety on this bond will expire on August 4, 1952 and said bond will be cancelled TEN DAYS after its expiration, unless surety is notified in writing of any existing obligations thereunder or otherwise extended by the surety in writing.

4.    On the same date, by Eng Giok, as principal, with Pedro Lopez Dee and Pedro Dy-Liacco, as counterbondsmen, subscribed an indemnity agreement in favor of Surety Company, whereby, in consideration of its surety bond, the three agreed to be obligated to the surety company —

INDEMNITY: — To indemnify the COMPANY for any damage, prejudice, loss, costs, payments, advances and expenses of whatever kind and nature, including counsel or attorney's fees, which the Company may, at any time, sustain or incur, as a consequence of having executed the abovementioned bond, its renewals, extensions or substitutions, and said attorney's fee shall not be less than (15%) per cent of the amount claimed by the Company in each action, the same to be due and payable, irrespective of whether the case is settled judicially or extrajudicially.

5.    August 4, 1951 – August 3, 1951, Dy Eng Giok contracted obligations in favor of the Destilleria Lim Tuaco & Co., in the total amount of P41,449.93; and during the same period, he made remittances amounting to P41,864.49. The distillary company, however, applied said remittances first to Dy Eng Giok's outstanding balance prior to August 4, 1951 (before the suretyship agreement was executed) in the sum of P12,898.61; and the balance of P28,965.88 to Dy's obligations between August 4, 1951 and August 3, 1952. It then demanded payment of the remainder (P12,484.05) from the agent, and later, from the appellant Surety Company. The latter paid P10,000.00 (the maximum of its bond) on July 17, 1953,

6.    Apparently, without questioning the demand; and then sought reimbursement from Dy Eng Giok and his counter guarantors, appellees herein. Upon their failure to pay, it began the present action to enforce collection.

7.    After trial, the Court of First Instance of Manila absolved Pedro Lopez Dee and Pedro Dy-Liacco, on the theory that in so far as they are concerned, the payments made by Dy Eng Giok from August 4, 1951 to August 3, 1952, in the sum of P41,864.49, should have been applied to his obligations during that period, which were the ones covered by the surety bond and the counter-guaranty; and as these obligations only amounted to P41,449.93, so that the payments exceeded the obligations, the court concluded that the Surety Company incurred no liability and the counterbondsmen in turn had nothing to answer for.

8.    Not satisfied with the decision, the Traders Insurance & Surety Company appealed to this Court on points of law.

ISSUE:

            Whether or not the remittances of Dy Eng Giok first be applied to the obligation first contracted by him and covered by the surety agreement.

HELD:

            Yes, the court ruled that in the absence of express stipulation, a guaranty or surety operates prospectively and not retroactively. It only secures the debts contracted after the guaranty takes effect. To apply the payment to the obligations contracted before the guaranty would make the surety answer for debts outside the guaranty. The surety agreement did not guarantee the payment of any outstanding balance due from the principal debtor but only he would turn out the sales proceeds to the Distileria and this he has done, since his remittances exceeded the value of the sales during the period of the guaranty.

Since Dy Eng Biok’s obligations prior to the guaranty were not covered, and absence of any express stipulation, any prior payment made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.

ART. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.

It is legally unimportant that the creditor should have applied the payment to the prior indebtedness. Where the debtor has not expressly elected any particular obligation to which the payment should be applied, the application by the creditor, in order to be valid and lawful, depends:

1.    upon his expressing such application in the corresponding receipt; and

2.    upon the debtor's assent, shown by his acceptance of the receipt without protest. This is the import of paragraph 2 of Art. 1252 of the New Civil Code:

“If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.”

Article 1252

He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not due.

If the debtor accepts from the creditor a receipt in which an application of payment is made, the former cannot complain the same, unless there is a cause for invalidating  the contract.

Kapag ang isang tao na may iba’t ibang pagkakautang na may parehong uri, na pumapabor sa isang nagpautang, ay maaari na sa oras ng pagbabayad, ay sabihin kung alin sa mga utang ang kabayaran ay in-aplay. Malilban kung napagkasunduan ng partido, o kung ang pagbabayad ay ginawa ng isang partido na kung saan kung kaninong  kapakinangan ang termino ay binuo, ang aplikasyon ay hindi maaari sa utang na hindi pa dapat bayaran.

            Kung ang nangutang ay tinanggap mula sa nagpautang ang resibo na kung saan ang aplikasyon ng kabayaran ay  naisagawa, ang unang nabanggit ay hindi maaaring magreklamo, maliban kung may kadahilanan upang ipawalang bisa ang kontrata.

           

Definition of application of payments.

It is the designation of the particular debt being paid by e debtor who has two or more debts or obligations of the same kind in favor of the same creditor to whom the payment is made.

Right to make application of payments primarily to the debtor .

            The debtor has the right to choose which of the several due shall be paid. The right belongs primarily to the debtor. But, there is a proper time for the designation of the payment.  It must be made at the moment of payment.

            The creditor may have the right to apply to which of the several debts the payment was made by issuing receipts, if the debtor failed to exercise his right. The payment is deemed applied to the specific indebtedness mentioned in the receipt, if the debtor has accepted the receipt without objection.

Requisites for a valid application of payments by the debtor.

1.    There is only one debtor and one creditor;

2.    The debtor owes the creditor two or more debts which are of the same kind or identical specie;

3.    All the debts are due and demandable;

4.    The payment made by the debtor is not sufficient to cover or settle all the debts.

Requisites for a valid application of payments by the creditor.

1.    The debtor did not make any designation on which debt should be paid when he made the payment;

2.    The creditor issued a receipt expressing the application of the payment to a particular debt;

3.    The debtor assented to the application of the payment to a particular debt.

Limitation of the preferential right of the debtor to choose the debt to be paid.

1.    The debtor cannot apply to a debt not yet liquidated or due;

2.    If the creditor is given a benefit of the period or term, which has not yet arrived, an application of payment cannot be made by the debtor;

3.    If there is a specific agreement as to which debts shall be paid first, the debtor cannot vary the agreement without  the consent of the creditor;

4.    If there is principal obligation which bears interests, the debtor cannot pay the interest without first paying the principal;

5.    A debtor cannot choose to pay a bigger debt partially, when the payment made can be applied as full payment to a smaller debt.