Alternative Obligation

Categories: Finance

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GENERAL RULE

The right to choose belongs to the debtor/ obligor Except: When the right has been expressly granted to the creditor. Right of choice of debtor not absolute.

LIMITATION ON THE DEBTOR’S CHOICE

The debtor cannot choose those prestations which are (a) impossible , (b) unlawful ,or (c) which could not have been the object of the obligation. (2) Only one prestation is practicable (3) The debtor cannot choose part of one prestation and part of another prestation. (Art 1199) Communication of notice that choice has been made

The debtor must choose and communicate his choice to the creditor.
The alternative obligation will be converted into a simple obligation
The proof and form of notice may be made by orally or in writing, expressly or implied.

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Effect when only one is practicable
The debtor loses his right of choice when only one alternative prestation is practicable of performance.

When debtor may rescind contract

If the debtor could not make a choice due to the creditor’s act of making prestations impossible, debtor may RESCIND the contract with damages.

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Rescission creates the obligation to return the things which were the object of the contact together with their fruits, and the price with its interest.

If the debtor is being prevented to choose only a particular prestation, and there are other available, he is free to choose from them, after notifying the creditor of his decision. The effects of loss or impossibility of the alternative prestation BEFORE the right of choice is exercised. * Once the debtor has communicated his choice of alternative prestation to be performed to the creditor, the obligation becomes simple
If the chosen alternative is lost without the fault of the debtor, the obligation will be extinguished.
If the chosen alternative is lost due to the fault of the debtor, the obligation will be converted into monetary consideration in the form of damages.
Effect if one or some of the alternative prestations in the alternative obligation are lost BEFORE the debtor has communicated his choice to creditor
The consequence will really depend upon whether the right of choice was given to the debtor or to the creditor.

A. When the right of choice belongs to the DEBTOR
* If the loss is due to FORTUITOUS EVENT a) If all alternative prestation are lost, the alternative obligation extinguished.

(Article 1174) b) If two or more alternative prestations remain, the debtor can still exercise his right of choice and choose from any remaining alternative prestation(Article 1200) c) If only one of alternatives remain, there is no more alternative obligation but only a simple obligation. * If loss is due to DEBTOR’s FAULT a) If all the alternative prestation are lost, the alternative obligation is converted into monetary consideration as indemnity for damages. The basis for the computation of the amount to be paid by the debtor will be the value of the last thing or service lost plus damages.

b) If two or more of alternative prestation remain, the debtor can still exercise his right of choice and choose from any of the remaining alternatives (ART 1200) c) If only one alternatives remain, there is no more alternative obligation but only simple obligation. B. When the right of choice belongs to the CREDITOR * If the loss is due to a FORTUITOUS EVENT The effect s are the same as where the right of choice belongs to debtor * If the loss is due to DEBTOR’S FAULT a. If all the alternative prestations are lost, the alternative obligation is converted into monetary consideration as indemnity for damages.

The basis for the computation of the amount to be paid by the debtor will be the value of any of object chosen by the creditor (because he is given the right of choice) plus damages. b. If two or more prestations remain, the obligation is still alternative . The creditor has the option to either: b. 1 choose from among the remaining alternatives b. 2 chose the lost object. The debtor will be then liable for the value of lost object chosen by the creditor plus the damages.

Facultative Obligation

is one where only one prestation has been agreed upon but the obligor may render another in substitution * The right of choice belongs only to the DEBTOR
Once the substitution is made, the obligation is converted into a simple one to deliver or perform the substituted prestation.
The substitution also becomes effective only from the time the debtor communicates to creditor his choice to perform the substituted prestation.

Alternative and Faculative Obligations Distinguised

The differences are as follows :

Number of prestations Alternative- several prestation are due but compliance with one is sufficient. Faculative- only one prestation is due although the debtor is allowed to substitute
Right of choice Alternative- the right of choice may given to creditor or third person Faculative- the right to make substitution is given only to the debtor
Loss through a fortuitous event Alternative- the loss of one or more through a fortuitous event does not extinguish the obligation Faculative- the loss of the thing due extinguishes the obligation
Loss through fault of debtor a) Alternative- the loss of one through the fault of debtor does not render him liable.

Faculative- the loss of the thing due through his fault makes him liable b) Alternative- where the choice belongs to the creditor, the loss of one alternative through the fault of the debtor gives rise to liability. Faculative- the loss of the substitute before substitution through the fault of the debtor does not render him liable. Effect on loss of the thing in Facultative Obligation

Before Substitution

The debtor is not liable if the substitute prestation is lost whether due to his fault or to a fortuitous event.
If the original prestation is lost by virtue of a fortuitous event, the obligation is extinguished.

After Substitution

The debtor is not liable if the original prestation is lost whether due to his fault or to a fortuitous event. * If the substitute is lost, the liability of the debtor depends upon whether or not the loss is due to his fault.

FACULTATIVE OBLIGATION

Is one where only one prestation has been agreed upon but the obligor may render another in substitution

The right of choice belongs only to the DEBTOR
Once the substitution is made, the obligation is converted into a simple one to deliver or perform the substituted prestation.
The substitution also becomes effective only from the time the debtor communicates to creditor his choice to perform the substituted prestation.

Alternative and Faculative Obligations Distinguised

The differences are as follows :

Number of prestations Alternative- several prestation are due but compliance with one is sufficient. Faculative- only one prestation is due although the debtor is allowed to substitute
Right of choice Alternative- the right of choice may given to creditor or third person Faculative- the right to make substitution is given only to the debtor
Loss through a fortuitous event.

Alternative- the loss of one or more through a fortuitous event does not extinguish the obligation
Faculative- the loss of the thing due extinguishes the obligation 8) Loss through fault of debtor

Alternative- the loss of one through the fault of debtor does not render him liable
Faculative- the loss of the thing due through his fault makes him liable

Alternative- where the choice belongs to the creditor, the loss of one alternative through the fault of the debtor gives rise to liability. Faculative- the loss of the substitute before substitution through the fault of the debtor does not render him liable.

Effect on loss of the thing in Facultative Obligation

BEFORE SUBSTITUTION

The debtor is not liable if the substitute prestation is lost whether due to his fault or to a fortuitous event.
If the original prestation is lost by virtue of a fortuitous event, the obligation is extinguished.

AFTER SUBSTITUTION

The debtor is not liable if the original prestation is lost whether due to his fault or to a fortuitous event.
If the substitute is lost, the liability of the debtor depends upon whether or not the loss is due to his fault.