Loss of the Thing Due

The extinguishment of an obligation to deliver a thing depends on whether the object is generic of specific.

For a generic thing, the debtor is not released from its obligation if the object is lost or destroyed. As the object is generic, it may easily be replaced by another of the same type or quality.

Example: A buyer buys a Honda Vios from a car distributor. If the car reserved for the buyer is lost or destroyed, the obligation to deliver the object by the car distributor is not extinguished. The car distributor will have to find another Honda Vios to deliver to the buyer.

(Note: Following the principle that the owner bears the loss, the car distributor will incur the loss of the previously reserved car. Without delivery, ownership has not yet transferred from the car distributor to the buyer.)

 In an obligation to deliver a determinate thing, the debtor not in delay is released if the object is lost or destroyed without his fault. The reason being is that it becomes physically impossible for the debtor to perform his obligation as the specific thing has already been lost or destroyed. Meanwhile, the debtor is also liable for damages in case a specific thing is lost: (a) when the debtor is made liable even for fortuitous events as required by law or stipulation, and (b) when the nature of the obligation requires the assumption of risk. Depending on circumstances, the courts may determine whether partial loss of the object of the obligation is so important as to extinguish the obligation.

Example: A buyer buys a Honda Vios with Plate Number ABC123 from a car distributor. If that particular car is lost or destroyed, the obligation to deliver that specific car is extinguished. The debtor cannot be expected to perform its obligation as it is already physically impossible.

(Note: It is only the obligation to deliver the specific thing that is extinguished. As the owner of the specific thing, the car distributor will bear the loss. The car distributor has a legal obligation to return the purchase price following the principles of contract and/or against unjust enrichment.)

There is a presumption that the loss was due to the fault of the debtor if the thing lost is in his possession unless otherwise proved. This presumption is not applicable in case of natural calamity, including but not limited to, earthquake, flood, and storm. However, until the debtor has delivered the thing, he is liable even for fortuitous events if: (a) he delays; or (b) he has promised to deliver the same thing to two or more persons who do not have the same interest.

In obligations to do, the debtor is released when the prestations become legally or physically impossible without his fault. In contrast, under the doctrine of unforeseen events, the debtor is released from his obligations (in whole or in part) when the service has become so difficult as to be manifestly beyond the contemplation of the parties.

So v. Food Fest Land, Inc.
G.R. No. 183628 and 183670, 07 April 2010

Plaintiff Daniel T. So filed an action for ejectment and damages against its lessee and defendant Food Fest Land after the latter failed to pay rentals amounting to over Php123,200.00 for over a period of several months. As a defense, defendant claimed that it was not liable for the arrears since it was not able to operate after failing to obtain the necessary business permits and licenses, which allegedly is provided for in their preliminary agreement dated 01 July 1999, viz:

“The lease shall not become binding upon us unless and until the government agencies concerned shall authorize, permit or license us to open and maintain our business at the proposed Lease Premises. We shall promptly make an application for permits, licenses and authority for our business and shall exercise due diligence to obtain it, provided, however, that you shall assist us by submitting such documents and papers and comply with such other requirements as the governmental agencies may impose. We shall give notice to you when the permits, license and authorities have been obtained. We shall also notify you if any of the required permits, licenses and authorities shall not be (sic) given or granted within fifteen days (15) from your conform (sic) hereto. In such case, the agreement may be canceled and all rights and obligations hereunder shall cease.”

In addition, defendant invoked the principle of rebus sic stantibus under Article 1267 of the Civil Code.

HELD: Defendant was liable. Article 1167 “which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor.

“Food Fest claims that its failure to secure the necessary business permits and licenses rendered the impossibility and non-materialization of its purpose in entering into the contract of lease, in support of which it cites the earlier-quoted portion of the preliminary agreement dated July 1, 1999 of the parties.

“The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. A party’s motive or particular purpose in entering into a contract does not affect the validity or existence of the contract; an exception is when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend. The exception does not apply here.

“It is clear that the condition set forth in the preliminary agreement pertains to the initial application of Food Fest for the permits, licenses and authority to operate. It should not be construed to apply to Food Fest’s subsequent applications. Consider the following qualification in the preliminary agreement:

“xxx We shall also notify you if any of the required permits, licenses and authorities shall not be (sic) given or granted within fifteen days (15) from your conform (sic) hereto. In such case, the agreement may be canceled and all rights and obligations hereunder shall cease. (underscoring supplied)

“Food Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure to renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease functus officio, nor can it be construed as an unforeseen event to warrant the application of Article 1267.
“Contracts, once perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should be complied with in good faith. Food Fest cannot renege from the obligations it has freely assumed when it signed the lease contract.”

In obligations involving the payment of thing certain and determinate which proceeds from a criminal offense, the debtor is not exempted thereof regardless of the cause for the loss. By way of exception, the debtor is released if he offered the thing to the person who should receive it and the latter refused without justification to accept it.

If the obligation has been extinguished by the loss of the thing, the creditor acquires all the rights of action which the debtor may have against third persons by reason of the loss.