Obligations Reviewer

FRATERNAL ORDER OF UTOPIA
OBLIGATIONS AND CONTRACTS Atty. Joseph San Pedro

Title I. OBLIGATIONS
Chapter 1
General Provisions
Art. 11!. An o"li#ation is a $%ridi&al ne&essity to #ive' to do or not to do.
WHAT IS AN OBLIGATION?
An obligation is a juridical necessity to give, to do, or not to do
To give! "eans a delivery o# a "ovable t$ing, %$ile to do! "eans t$e &er#or"ance o# all 'inds
o# services( To give! being a real obligation %$ile to do! a &ersonal obligation( Not to do! "eans t$e
debtor #ul#ills t$e obligation by not doing %$at $as been #orbidden(
WHAT IS TH) *ISTIN+TION B)TW))N AN OBLIGATION AN* A +ONT,A+T?
An obligation is a "ore generic ter", it "ay arise out o# a contract( +ontracts, are "erely sources
o# obligations, %$en t$ere is a contract, t$ere is al%ays an obligation( But it does not necessarily "ean t$at
i# t$ere is an obligation t$ere is a contract(
WHAT *O)S -.,I*I+AL N)+)SSIT/ 0)AN?
-uridical necessity "eans it is "andatory( Non1co"&liance %it$ t$e obligation can result in a
judicial or legal sanction( It "eans you si"&ly cannot get out o# an obligation(
Suc$ a de#inition "ig$t see" inco"&lete and %ould t$ere#ore loo' only at one side 2 t$e debtor
side 2 o# t$e obligation( 0ost co""entaries on t$is de#inition reveal t$is criticis"( Ho%ever, suc$ a
de#inition is in itsel# co"&lete because o# t$e conce&t o# juridical necessity!, %$ic$ gives t$e creditor t$e
rig$t to de"and t$e #ul#ill"ent o# t$e obligation due $i"(
WHAT A,) TH) )L)0)NTS O3 AN OBLIGATION?
T$ey are divided into t$ree as&ects
456 WHO 2 t$e subjects %$o are at least t%o di##erent &arties(
a( t$ere is a &assive subject, t$e obligor or debtor %$o is re7uired to &er#or" or deliver an
obligation but $e is not re7uired to do anyt$ing i# t$e active subject does not de"and8
b( t$ere is t$e active subject, t$e obligee or creditor, %$o is entitled to "a'e t$e de"and or
en#orce t$e obligation(
AN/ 9),SON, B) IT NAT.,AL, -.,I*I+AL O, ):)N IN+A9A+ITAT)* 0A/
B) TH) S.B-)+T O3 AN OBLIGATION(
4;6 WHAT 2 t$e object or t$e &restation o# t$e obligation %$ic$ "ay be to give, to do or not to
do(
re7uisites to a &restation<
a( it "ust be la%#ul
b( it "ust be &$ysically and juridically &ossible
c( it "ust be deter"inate or deter"inable or one %$ic$ "ust be identi#ied s&eci#ically
d( it "ust be use#ul
e( it "ust $ave a "oney e7uivalent or a &ecuniary value
4=6 WH/ 2 t$e e##icient cause, t$e vinculu" or juridical or legal tie8 it is t$e reason %$y t$e
obligations e>ists, and it "ay or "ay not be "onetary in nature #or so"eti"es a "ere &ro"ise
is a su##icient cause o# an obligation(
IT IS THAT WHI+H BIN*S TH) 9A,TI)S(
Art. 11(. O"li#ations arise )ro*+
,1- La./
,0- Contra&ts/
,1- 2%asi3&ontra&ts/
5
,4- A&ts or o*issions p%nished "y la./ and
,- 2%asi3deli&ts.
Art. 115. O"li#ations derived )ro* la. are not pres%*ed. Only those e6pressly deter*ined
in this Code or in spe&ial la.s are de*anda"le' and shall "e re#%lated "y the pre&epts o) the
la. .hi&h esta"lishes the*/ and as to .hat has not "een )oreseen' "y the provisions o) this
Boo7.
Art. 118. O"li#ations arisin# )ro* &ontra&ts have the )or&e o) la. "et.een the &ontra&tin#
parties and sho%ld "e &o*plied .ith in #ood )aith.
Art. 11!9. O"li#ations derived )ro* :%asi3&ontra&ts shall "e s%"$e&t to the provisions o)
Chaper 1' Title ;<II' o) this Boo7.
Art. 11!1. Civil o"li#ations arisin# )ro* &ri*inal o))enses shall "e #overned "y the penal
la.s' s%"$e&t to the provisions o) Art. 01((' and o) pertinent provisions o) Chapter 0'
Preli*inary Title' on =%*an Relations' and o) Title ;<III o) this Boo7' re#%latin#
da*a#es.
Art. 11!0. O"li#ations derived )ro* :%asi3deli&ts shall "e #overned "y the provisions o)
Chapter 0' Title ;<II o) this Boo7' and "y spe&ial la.s.
WHAT A,) TH) SO.,+)S O3 OBLIGATIONS?
456 LAWS %$ic$ "ust be e>&ressed, e(g( ta> la%s8 in obligations, as distinguis$ed #ro" contracts,
"eeting o# t$e "inds is not an essential ele"ent o# an obligation(
4;6 +ONT,A+TS %$ere t$ere is a "eeting o# t$e "inds o# t$e &arties o# t$e contract as consent
and ad$erence to t$e ter"s o# t$e contract, e(g( t$e duty to re&ay a loan by virtue o# an
agree"ent(
4=6 ?.ASI1+ONT,A+TS %$ic$ are la%#ul acts but its &ur&ose is to &revent t$e unjust
enric$"ent o# a &erson at t$e e>&ense o# anot$er, suc$ is unilateral, t$ere being no "eeting o#
"inds bet%een &arties(
4a6 t$ere is negotioru" gestio %$ic$ is unaut$ori@ed "anage"ent o# anot$er &ersonAs
&ro&erty t$ere is no agree"ent bet%een t$e "anager and t$e o%ner8 TH) OBLIGATION
H),) B)ING TO ,)I0B.,S) TH) 9),SON WHO TOOB +A,) O3 IT(
4b6 T$ere is also solutio indebiti %$ic$ is t$e duty to re#und an overc$arge o# "oney or
undue &ay"ent8 TH) OBLIGATION H),) B)ING TO ,)T.,N WHAT /O. HA:)
,)+)I:)* TH,O.GH 0ISTAB)(
4C6 *)LI+TS %$ic$ are acts or o"issions &unis$able by la%8 it is t$e civil liability arising #ro"
t$e cri"inal act %$ic$ is t$e source o# t$e obligation(
4D6 ?.ASI1*)LI+TS %$ic$ are acts or o"issions not &unis$able by la%8 itAs ele"ents are
4a6 #ault or negligence 4not tanta"ount to a delict6
4b6 da"age caused by t$e #ault
4c6 a &erson injured, and
4d6 no &re1e>isting contractual relations$i&
A,) TH),) OTH), SO.,+)S O3 OBLIGATIONS?
No( T$is list is e>clusive(
;
Chapter 0
Nat%re and >))e&t o) O"li#ations
Art. 11!1. >very person o"li#ed to #ive so*ethin# is also o"li#ed to ta7e &are o) it .ith the
proper dili#en&e o) a #ood )ather o) a )a*ily %nless the la. or the stip%lation o) the parties
re:%ires another standard o) &are.
Art. 11!4. The &reditor has a ri#ht to the )r%its o) the thin# )ro* the ti*e the o"li#ation to
deliver it arises. =o.ever' he shall a&:%ire no real ri#ht over it %ntil the sa*e has "een
delivered to hi*.
Art. 11!. ?hen .hat is to delivered is a deter*inate thin#' the &reditor' in addition to the
ri#ht #ranted hi* "y Art. 11(9' *ay &o*pel the de"tor to *a7e the delivery.
I) the thin# is indeter*inate or #eneri&' he *ay as7 that the o"li#ation "e &o*plied
.ith at the e6pense o) the de"tor.
I) the o"li#or delays' or has pro*ised to deliver the sa*e thin# to t.o or *ore
persons .ho do not have the sa*e interest' he shall "e responsi"le )or any )ort%ito%s event
%ntil he has e))e&ted the delivery.
Art. 11!!. The o"li#ation to #ive a deter*inate thin# in&l%des that o) deliverin# all its
a&&essions and a&&essories' even tho%#h they *ay not have "een *entioned.
WHAT IS A 9,)STATION TO GI:)!?
To give! involves t$e delivery o# a t$ing %$ic$ "ay be s&eci#ic or generic(
WHAT IS A S9)+I3I+ AN* A G)N),I+ THING?
A s&eci#ic or deter"inate t$ing "eans so"et$ing t$at "ay be set a&art #ro" t$e rest, e(g( AngeloAs
9ajero 4 i# AngeloAs ot$er cars are B0W, 0ercede@ and -aguar6, a generic t$ing "eans so"et$ing t$at
belongs to a class e(g( a car6
WHAT A,) TH) A++)SSO,/ OBLIGATIONS IN OBLIGATIONS TO GI:)!?
456 e>ercise t$e diligence o# a good #at$er o# a #a"ilyE"eans t$e ordinary diligence t$e o%ner o#
t$e &ro&erty %ould e>ercise8
4;6 delivery o# t$e #ruits 2 #ruits are delivered %$en t$e obligation to deliver arises %$ic$ "ay be
4a6 #ro" t$e &er#ection o# t$e contract, i# t$ere is no ter" or condition or %$at is called a
&ure obligation, and
4b6 #ro" t$e "o"ent t$e ter" arrives or t$e condition $a&&ens, i# t$ere is a ter" or
condition8
TH) 3,.ITS B)TW))N 9),3)+TION AN* TI0) TO *)LI:), B)LONG TO
TH) *)BTO, WHIL) 3,O0 TH) TI0) TO *)LI:), TO A+T.AL *)LI:),/,
TH) 3,.ITS B)LONG TO TH) +,)*ITO,8
4=6 delivery o# accessories and accessions
4a6 A++)SSO,I)S are t$ose included in t$e &rinci&al #or its better use o# &er#ection, e(g(,
t$e 'eys to a car8 %$ile
4b6 A++)SSIONS are t$ose %$ic$ are additions to or i"&rove"ents u&on t$e &rinci&al
%$ic$ "ust be attac$ed or incor&orated(
TH) 9A,TI)S +AN STI9.LAT) WH)TH), A++)SSO,I)S SHO.L* B)
*)LI:),)* O, NOT( I3 TH),) IS NO STI9.LATION, TH)N TH),) 0.ST B) A
*)LI:),/(
=
WH)N *O)S TH) 9,)S),:ATION O3 TH) THING TO B) *)LI:),)* B)GIN?
T$e &reservation or t$e e>ercise o# t$e diligence o# a good #at$er starts #ro" t$e &er#ection o# t$e
obligation until actual delivery( I# t$ere is no ti"e ga& bet%een t$e &er#ection and delivery, t$ere is no
diligence o# a good #at$er t$at "ay be e>ercised(
0A/ TH) 9A,TI)S STI9.LAT) ON AN/ OTH), 3O,0 O3 *ILIG)N+) ASI*) 3,O0 THAT O3
A GOO* 3ATH),AS?
T$e &arties are at liberty to sti&ulate on %$at 'ind o# diligence t$ey %ould re7uire o# t$e ot$er( I#
t$ere is no sti&ulation t$en t$e standard o# diligence %ould be t$at o# a good #at$erAs(
WHAT A,) TH) BIN*S O3 3,.ITS?
T$ey are<
456 NAT.,AL 2 s&ontaneous &roducts inde&endent o# $u"an intervention, e(g( grass
4;6 IN*.ST,IAL 2 &roduct o# $u"an labor, e(g( a "ango
4=6 +I:IL 2 derived by virtue o# a juridical relations$i&, e(g( rent o# a building(
*O TH)S) A++)SSO,/ OBLIGATIONS A99L/ IN OBLIGATIONS TO *)LI:), G)N),I+
THINGS?
No, because 456 t$e debtor is not e>&ected to deliver all t$e #ruits o# t$at class nor 4;6 is $e
e>&ected to ta'e care o# all t$ings in t$at sa"e class(
Art. 11!(. I) a person o"li#ed to do so*ethin# )ails to do it' the sa*e shall "e e6e&%ted at his
&ost.
This sa*e r%le shall "e o"served i) he does it in &ontravention o) the tenor o) the
o"li#ation. @%rther*ore' it *ay "e de&reed that .hat has "een poorly done "e %ndone.
Art. 11!5. ?hen the o"li#ation &onsists in not doin#' and the o"li#or does .hat has "een
)or"idden' it shall also "e %ndone at his e6pense.
WHAT IS TH) OBLIGATION TO *O!?
T$is involves t$e &er#or"ance o# a certain service( /ou $ave to do it according to t$e ter"s o# t$e
agree"ent( 3or e>a"&le< Angelo is obliged to bring Arnie to a barbers$o&( 4e$ nabreac$, breac$ %ill be
discussed later(6
T$e general rule is t$at t$e obligation to do! "ust be &er#or"ed according to t$e ter"s or
conditions sti&ulated by t$e &arties )F+)9T %$en it $as beco"e &$ysically or legally i"&ossible(
WHAT IS TH) A++)SSO,/ OBLIGATION IN AN OBLIGATION TO *O!?
An accessory obligation o# t$e &restation to do! is to #ollo% t$e tenor o# t$e obligation(
0A/ A *)BTO, A:AIL O3 S.BSTIT.T) 9),3O,0AN+) IN AN OBLIGATION TO *O!?
T$e general rule is t$at t$e debtor "ay substitute #or anot$er in t$e &er#or"ance o# t$e obligation
i# t$e obligee consents )F+)9T
456 i# t$e obligation %as "ade in consideration o# t$e 7uali#ications o# a &erson, e(g( Ai@a
Seguerra %as su&&osed to sing 9agdating ng 9ana$on! in +yAs %edding in %$ic$ t$e
services o# +yAs best #riend 4t$oug$ $eGs$e loo's li'e Ai@a Seguerra6 cannot be availed o# as a
substitute(
4;6 I# it is s&eci#ically agreed u&on by t$e &arties t$at t$e debtor s$ould do it in %$ic$ case it
cannot be endorsed to anot$er &erson(
WHAT IS AN OBLIGATION NOT TO *O!?
It "eans to re#rain #ro" doing a &articular act( I# you do it, itAs a breac$, i# you donAt do it, itAs
co"&liance(
0A/ S.BSTIT.T) 9),3O,0AN+) B) A:AIL)* O3 IN AN OBLIGATION NOT TO *O!?
No( Substitute &er#or"ance is not &ossible because it is &urely &ersonal to t$e debtor(
C
Art. 1181. The po.er to res&ind o"li#ations is i*plied in re&ipro&al ones' in &ase one o) the
o"li#ors sho%ld not &o*ply .ith .hat is in&%*"ent %pon hi*.
The in$%red party *ay &hoose "et.een the )%l)ill*ent and the res&ission o) the
o"li#ation' .ith the pay*ent o) da*a#es in either &ase. =e *ay also see7 res&ission' even
a)ter he has &hosen )%l)ill*ent' i) the latter sho%ld "e&o*e i*possi"le.
The &o%rt shall de&ree the res&ission &lai*ed' %nless there "e $%st &a%se a%thoriAin#
the )i6in# o) a period.
This is %nderstood to "e .itho%t pre$%di&e to the ri#hts o) third persons .ho have
a&:%ired the thin#' in a&&ordan&e .ith Arts. 115 and 1155 and the Bort#a#e La..
WHAT A,) TH) ,)0)*I)S 3O, 3AIL.,) TO +O09L/ WITH TH) ,)?.I,)* 9,)STATION?
To Give S&eci#ic General
456 *a"ages 4e>clusively and in addition /)S /)S
to t$e ot$er actions6
4;6 S&eci#ic 9er#or"ance /)S /)S
4=6 Substitute 9er#or"ance NO /)S
4C6 ,escissionG ,esolution /)S /)S
To *o
456 *a"ages
4;6 S&eci#ic 9er#or"ance
4=6 Substitute 9er#or"ance ONL/ i# not &urely &ersonal
4C6 ,escissionG ,esolution
Not To *o
456 *a"ages
4;6 Act be undone by t$ird &arty at t$e debtorAs e>&ense
4=6 Act be undone by t$e debtor $i"sel#
.N*O NOT 9OSSIBL) I3 9H/SI+ALL/ O, L)GALL/ I09OSSIBL)
In i"&ossibility o# &er#or"ance<
1 I# bet%een &er#ection and delivery 2 t$e obligation is e>tinguis$ed i# %it$out #ault
1 I# a#ter t$e delivery date 2 t$e obligation re"ains
WHAT IS ,)SOL.TION O, ,)S+ISSION?
Basically, rescission "eans t$e cancelling o# t$e obligation(
WHAT A,) ,)+I9,O+AL OBLIGATIONS?
,eci&rocal obligations are obligations in consideration o# eac$ ot$er( T$ere is a &ro>i"ate relation
bet%een obligations(
IS ,)S+ISSION I09LI)* IN A ,)+I9,O+AL OBLIGATION?
/es( I# one does not co"&ly %it$ $is obligation, t$e ot$er "ay c$oose to rescind or cancel $is
obligation to relieve $i" as %ell(
IS ,)S+ISSION I09LI)* IN A .NILAT),AL OBLIGATION?
In unilateral obligations, t$ere "ust be an agree"ent bet%een &arties #or rescission as a re"edy(
+AN ,)S+ISSION ALWA/S B) A:AIL)* O3?
No( ,escission as a re"edy can only be availed o# to t$e e>tent t$at t$e creditor $as been
&rejudiced( 4+entral Ban' v( +ourt o# A&&eals6
D
T$e &o%er to rescind is not absolute( In slig$t or casual breac$ rescission is not &ro&er( Breac$
"ust be substantial and #unda"ental to be able to avail o# rescission 4Angeles v( +alasan@6 T$ere is no $ard
and #ast rule to deter"ine is breac$ is slig$t or casual, it %ould al%ays de&end u&on t$e circu"stances o#
eac$ case( I# t$e court #inds t$e breac$ as slig$t, rescission is not a%arded and t$e debtor is given additional
ti"e to co"&ly %it$ t$e obligation(
HOW WO.L* ON) B) ,)L)AS)* 3,O0 AN OBLIGATION?
A co"&lete and e>act #ul#ill"ent o# its ter"s and obligations, $ence only ST,I+T
+O09LIAN+), releases one #ro" an obligation(
ANG>L>S <. CALASANC 11 SCRA 101
@a&ts+ Angeles and +alasan@ entered into a contract to sell a &iece o# land( Angeles cancelled t$e said
contract because t$e +alasan@ #ailed to "eet t$e subse7uent &ay"ents( T$e aggregate &ay"ent 4including
t$e interest6 a"ounted to 9C,D==(=H( On several occasions, Angeles acce&ted delayed install"ent &ay"ents(
T$e &rice o# t$e land is 9=,I;J(JJ

Iss%e+ ?DN the &ontra&t to sell has "een validly &an&elled "y the appelants.
R%lin#+ NO. ,escission o# a contract %ill not be &er"itted #or a slig$t or casual breac$, but only #or suc$
substantial and #unda"ental breac$ as %ould de#eat t$e very object o# t$e &arties in "a'ing t$e agree"ent(
T$e 7uestion o# %$et$er a breac$ o# a contract is substantial *)9)N*S .9ON TH) ATT)N*ANT
+I,+.0STAN+)S(
T$e acce&tance o# delayed install"ent &ay"ent beyond t$e grace &eriod a"ounts to %aiver o#
rig$t to rescission(
T$e contract to sell, being a contract o# ad$esion, "ust be construed against t$e &arty causing it(
D> DIOS <. COERT O@ APP>ALS 010 SCRA 18
Ban' 111111111111K Averdi 4de *ios6 111111111111K Lo&ingco
@a&ts+ 9$ili&&ine :eterans Ban' 49:B6 conveyed a &arcel o# land under a conditional sale to de *ios( *e
*ios entered into a contract trans#erring $is rig$t to Lo&ingco, u&on t$e do%n&ay"ent o# ;JL o# t$e
&urc$ase &rice to 9:B t$roug$ de *ios( *e *ios #ailed to e>ecute t$e deed o# assign"ent( Lo&ingco
t$ere#ore as'ed #or rescission o# t$e contract(
Iss%e+ ?DN the res&ission .as valid.
R%lin#+ F>S. ,escission %ill be ordered only %$ere t$e breac$ co"&lained o# is so substantial as to de#eat
t$e object o# &arties in entering into t$e agree"ent( T$ere is a substantial breac$ in t$e case at bar( T$e
Su&re"e +ourt re#ers to de *ios 4not Averdi6 as t$e &erson liable(
+onse7uences o# resolution is restoration ,ule o# 0utual ,estitution!
Su&re"e +ourt in t$is case i"&ro&erly re#erred to Art( 5=DD %$en it s$ould $ave been Art( 55IJ,
t$oug$ t$e result %ould $ave been t$e sa"e(
OCABPO <. COERT O@ APP>ALS 011 SCRA 1
@a&ts+ Seller Tolosa e>ecuted a contract Agree"ent to Sell ,eal 9ro&erty! %$ereby $e sells, cedes and
trans#ers! t$e land to Oca"&o in consideration o# 9;D,JJJ, 95;,DJJ u&on signing, and t$e balance %it$in M
"ont$s( Be#ore t$e M1"ont$ &eriod, Oca"&o only &aid 95M,NJJ( Nevert$eless, Tolosa acce&ted $er
subse7uent late &ay"ents totaling 9=,IJJ( Tolosa %as able to e>ecute a +ontract to Sell! to :illaru@ %it$
t$e sa"e &ro&erty( :illaru@As #ull &ay"ent o# t$e &urc$ase &rice %as "ade de&endent on t$e cancellation o#
Oca"&oAs clai"(
Iss%e+ ?DN the res&ission *ade "y Tolosa .as valid.
M
R%lin#+ No. T$e sellersA un7uali#ied acce&tance o# &ay"ents a#ter t$e M1"ont$ &eriod e>&ired constitutes a
WA:I), O3 TH) 9),IO*( Hence, constitutes a %aiver o# t$e ground to rescind t$e contract(
T$e breac$ on t$e &art o# Oca"&o %as only SLIGHT O, +AS.AL i# not out%eig$ed by t$e BA*
3AITH o# Tolosa in reneging $is o%n &restations, $ence judicial rescission o# t$e contract cannot be
justi#ied(
0oreover, t$e letter o# rescission o# contract o# sale by t$e seller "ust be NOTA,IO)* and
0.ST B) ,)+)I:)* B/ TH) B./),(
T$is is a &eculiar &rovision, since it is involving land, t$ere "ust t$ere#ore be a judicial or
notarial de"and(
AR>OLA <. COERT O@ APP>ALS 01! SCRA !41
@a&ts+ Areola entered into a contract o# insurance %it$ t$e 9rudential Guarantee and Assurance, Inc( Seven
4N6 "ont$s later, 9rudential unilaterally canceled t$e sa"e( 3inding t$at t$e cancellation %as erroneous,
9rudential o##ered to reinstate t$e sa"e &olicy( 4T$e &re"iu"s %ere &aid in #ull, but it %as not re"itted by
0ala&it, 9rudentialAs branc$ "anager6(
Iss%e+
?DN the erroneo%s a&t o) &an&ellin# the s%"$e&t ins%ran&e poli&y entitle petitioner to
pay*ent o) da*a#es/
?DN the s%"se:%ent a&t o) reinstatin# the .ron#)%lly &an&eled ins%ran&e poli&y "y
respondent ins%ran&e &o*pany in an e))ort to re&ti)y s%&h error' o"literates .hatever
lia"ility )or da*a#es it *ay have to "ear.
R%lin#+ F>S. A +O,9O,ATION S.+H AS ,)S9ON*)NT INS.,AN+) +O09AN/, A+TS SOL)L/
TH,O.GH ITS )09LO/))S( T$e latterAs acts are considered as its o%n #or %$ic$ it can be $eld liable(
NO. .nder t$e ;
nd
&aragra&$ o# Art( 55I5, t$e injured &arty is given a c$oice by %$ic$ #ul#ill"ent
or rescission o# t$e obligation in case one o# t$e obligors #ails to co"&ly %it$ %$at is incu"bent u&on $i"(
Ho%ever, said article )NTITL)S TH) IN-.,)* 9A,T/ TO 9A/0)NT O3 *A0AG)S,
,)GA,*L)SS O3 WH)TH), H) *)0AN*S 3.L3ILL0)NT O, ,)S+ISSION O3 TH)
OBLIGATION( No"inal da"ages %ere a%arded(
Atty( San 9edro noted t$at t$e Su&re"e +ourt decision in t$is instant case is good and e##icient(
T$ere %as indeed s&eci#ic &er#or"ance, so no rescission, but as &rovided by la%, da"ages can
be a%arded, and %as a%arded indeed in t$is instance(
C>NTRAL BANG <. BIC=ARA 105 SCRA 59(
@a&ts +
Bic$ara sold ; &ro&erties 4land6 to +B9(
T$e contract o# sale states t$at 456 t$e &ay"ent %ill be e##ected only a#ter t$e *eed o# Sale s$all
$ave been registered and a clean title is issued in t$e na"e o# +B9 and 4;6 t$e vendor %ill
underta'e at t$eir e>&ense to #ill t$e &arcels o# land %it$ an esco"bro #ree #ro" %aste "aterials
co"&acted to t$e street level(
A clean title %as issued to +B9(
+B9 #ailed to &ay t$e res&ondent
Bic$ara did not #ill u& t$e lot %it$ esco"bro des&ite several de"ands "ade by t$e +B9(
Bic$ara co""enced action #or 456 rescission or 4;6 s&eci#ic &er#or"ance %it$ da"ages(
+B9 tendered &ay"ent to Bic$ara net o# a"ount it &aid to anot$er &arty #or t$e #illing u& o# t$e
lot(
Bic$ara re#used t$e tender(
+B9 #iled a "otion #or consignation %$ic$ %as granted by t$e court(
N
T$e T+ decided in #avor o# t$e s&eci#ic &er#or"ance o# t$e obligations(
On a&&eal, t$e +A reversed t$e T+As decision and ordered t$e rescission o# t$e contract o# sale
and t$e reconveyance 4restoration6 o# t$e &ro&erties to res&ondents(
Iss%e + ?DN the CA err in de&reein# the res&issionH
R%lin# < F>S. Bic$aras s$ould not be allo%ed to rescind t$e contract %$ere t$ey t$e"selves did not
&er#or" t$eir essential obligation 4t$e #illing u& o# esco"bro6 t$ereunder( It s$ould be e"&$asi@ed t$at a
contract o# sale involves reci&rocity bet%een t$e &arties( Since Bic$ara %ere in bad #ait$, t$ey "ay not see'
t$e rescission o# t$e agree"ent t$ey t$e"selves breac$ed(
R>LIANC> COBBODITI>S' INC. <. INT>RB>DIAT> APP>LAT> COERT 110 SCRA 088
@a&ts +
,eliance entered into a contract %it$ 0arvin 9ae@(
T$e contract &rovides t$at ,eliance %ill &rovide res&ondent %it$ #unds and e7ui&"ent #or t$e
o&eration o# t$e "anganese "ining and t$at res&ondent %ill sell t$e sa"e to ,eliance(
As security #or "ore cas$ advances needs to sustain t$e "ining o&erations, 9ae@ e>ecuted a
deed o# #irst ,)0 on t$eir &ro&erty in #avor o# ,eliance(
A di##erence arose bet%een t$e t%o( ,eliance de"anded t$e return o# t$e "ining e7ui&"ent and
later #oreclosed e>tra1judicially t$e "ortgage e>ecuted by res&ondent(
9ae@ #iled action in t$e T+ to order t$e annul"ent o# t$e "ortgage(
T+ dis"issed t$e co"&laint and ordered t$e return o# cas$ advances &lus interest, a"ong ot$ers,
to ,eliance(
9ae@ a&&ealed to t$e +A(
+A decided in #avor o# 9ae@ saying in e##ect t$at t$e contact entered into as %ell as t$e deed o#
"ortgage %ere null and void(
,eliance broug$t t$e "atter to t$e S+(
Iss%e+ ?DN the CA erred in )indin# that the petitioner and not the respondent #ave &a%se )or
res&ission o) the &ontra&t and in r%lin# that restit%tion is not availa"le in res&ission o) the &ontra&t
%nder Art 1181 o) the Civil Code.
R%lin#+ F>S. ,es&ondent 9ae@ #ailed to "a'e even a single delivery o# "anganese ores as t$ere %as no
"ining at all( In t$is case, t$e injured &arty is t$e &etitioner and t$e latter &ro&erly rescinded t$e contract( In
reci&rocal obligations, t$e &o%er to rescind is given to t$e injured &arty( 0oreover, t$e rescission o# t$e
contracts re7uires t$e &arties to restore to eac$ ot$er %$at t$ey $ave received by reason o# t$e contracts(
Art. 11!8. Those o"li#ed to deliver or to do so*ethin# in&%r in delay )ro* the ti*e the
o"li#ee $%di&ially or e6tra$%di&ially de*ands )ro* the* the )%l)ill*ent o) their o"li#ation.
=o.ever' the de*and "y the &reditor shall not "e ne&essary in order that delay *ay
e6ist+
,1- ?hen the o"li#ation or the la. e6pressly so de&lares/ or
,0- ?hen )ro* the nat%re and the &ir&%*stan&es o) the o"li#ation it appears that
the desi#nation o) the ti*e .hen the thin# is to "e delivered or the servi&e to "e
rendered .as a &ontrollin# *otive )or the esta"lish*ent o) the &ontra&t/ or
,1- ?hen de*and .o%ld "e %seless' as .hen the o"li#or has rendered it "eyond his
po.er to per)or*.
In re&ipro&al o"li#ations' neither party in&%rs in delay i) the other doe not &o*ply or
is not ready to &o*ply in a proper *anner .ith .hat is in&%*"ent %pon hi*. @ro*
the *o*ent one o) the parties )%l)ills his o"li#ation' delay "y the other "e#ins.
H
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Art. 1171. Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void.
Art. 1172. Responsibility arising from negligence in the performance
of every ind of obligation is also demandable, but such liability may
be regulated by the courts, according to the circumstances.
Art. 117!. The fault or negligence of the obligor consists in the
omission of that diligence which is re"uired by the nature of the
obligation and corresponds with the circumstances of the persons,
of the time and of the place. #hen negligence shows bad faith, the
provisions of Art. 1171 and 2201, par. 2, shall apply.
$f the law or contract does not state the diligence which is to
be observed in the performance, that which is e%pected of a good
father of a family shall be re"uired.

WHAT A,) TH) BIN*S O3 B,)A+H?
456 TOTAL 2 no #ul#ill"ent at all(
4;6 9A,TIAL 2 #ails in t$e test o# co"&leteness
4=6 I,,)G.LA, 2 &er#or"ance not in accordance %it$ t$e tenor o# t$e obligation8 did not &ass
t$e test o# co"&leteness(
WHAT A,) TH) +A.S)S O3 B,)A+H?
456 *OLO 4#raud6 2 "alice or bad #ait$ %it$ intent on t$e &art o# t$e debtor to cause da"age8
t$ere is consciousness o# an obligation and 'no%ledge t$at t$e debtor is co""itting a breac$(
4;6 +.L9A 4negligence6 2 by reason o# a negligent act8 no intent to violate but t$ere is negligence
on t$e &art o# t$e debtor(
N)GLIG)N+) is t$e o"ission or #ailure to co"&ly %it$ t$e diligence re7uired by t$e
ter"s or, in its absence, given by la%(
4=6 0O,A 4de#ault6 2 #ailure to co"&ly in accordance %it$ t$e dates and &eriods re7uired or
s&eci#ied in t$e obligation8 breac$ o# an obligation %it$ res&ect to a &oint in ti"e(
4C6 In contravention o# t$e ter"s eit$er by dolo or cul&a(

WHAT A,) TH) BIN*S O3 *OLO?
456 *OLO +A.SANT) 2 #raud co""itted at t$e ince&tion o# t$e contract8 t$is is an induce"ent
#or ot$er &arties to enter into an obligation %$ic$ in ot$er %ords "eans t$at t$e ot$er &arty
%ould not $ave entered into a contract %it$out suc$ #raud or "alice8 THIS +,)AT)S A
:OI*ABL) OBLIGATION(
4;6 *OLO IN+I*)NT) 2 no de#ect in t$e obligation, t$ere#ore validly &er#ect8 it is co""itted in
t$e &er#or"ance o# t$e obligation, in %$ic$ case t$e re"edy is to sue #or da"ages(
WHAT A,) TH) BIN*S O3 +.L9A?
CONTRACTEAL A2EILIANA CRIBINAL
9re1e>isting contractual
,elations$i& bet%een t$e &arties
No &re1e>isting relations$i&
bet%een t$e &arties
No &re1e>isting relations$i&
bet%een t$e &arties
T$e source o# t$e liability is t$e
contract
negligent act
la%
9re&onderance o# evidence 9re&onderanc o# evidence Beyong reasonable doubt
I
*e#ense o# due diligence is not
available
*iligence as a de#ense a&&lies *e#ense is not availbale
4e"&loyer $as subsidiary liability6
WHAT IS TH) 0AST),1S),:ANT ,.L)?
T$e "aster1servant rule asserts t$at t$e negligence o# t$e e"&loyee is t$e negligence o# t$e
e"&loyer( 4,+9I v( +ourt o# A&&eals6 T$e "aster, to esca&e liability, cannot &ut u& t$e de#ense o# a good
#at$er in t$e selection and su&ervision o# e"&loyees, e>ce&t to "itigate t$is liability i# suc$ is duly &roved(
HOW *O /O. *ISTING.ISH B)TW))N *OLO AN* +.L9A?
DOLO CELPA
T$ere is intellectual a%areness and actual
'no%ledge
No intellectual a%areness based on
&ossibility o# 'no%ledge 4He could $ave
#oreseen but did not e>ercise &ro&er diligence6
Liable #or all conse7uences %$et$er seen or
un#oreseen
Liable only #or conse7uences %$ic$ could $ave
been #oreseen
Waiver #or #uture #raud is void( 49ast #raud can be
%aived 2 condonation(6
T$ere can be a %aiver )F+)9T i# it is violative o#
&ublic &olicy(
RCPI <. COERT O@ APP>ALS 141 SCRA !(
@a&ts+ 9etitioner is a do"estic cor&oration engaged in t$e business o# receiving and trans"itting "essages(
T$e basis o# t$e action #iled #or da"ages is t$e telegra" received by *ionella %$ic$ reads as #ollo%s< sa
iyo %alang &a'inabang du"ating1'a diyan1%ala 'ang &adala dito1'a$it bulbul "o!(! *ionella alleges t$at
t$e de#a"atory %ords on t$e telegra" sent to $i" not only %ounded $is #eelings but also caused $i" undue
e"barrass"ent and a##ected adversely $is business as %ell as because ot$er &eo&le $ave co"e to 'no% o#
said de#a"atory %ords( *e#endant cor&oration as a de#ense, alleges t$at t$e additional %ords in Tagalog
%as a &rivate jo'e bet%een t$e sending and receiving o&erators %$ic$ t$ey #ailed to detac$ be#ore sending
t$e telegra"(
Iss%e+ ?DN the &o*pany is lia"le )or ne#li#en&e
R%lin#+ F>S. T$ere is no 7uestion t$at in t$e case at bar, libelous "atters %ere included in t$e "essage
trans"itted, %it$out t$e consent or 'no%ledge o# t$e sender( T$ere is a clear sense o# breac$ o# contract by
t$e &etitioner in adding e>traneous and libelous "atters in t$e sent "essage to t$e &rivate res&ondent( As a
cor&oration, t$e &etitioner can only act t$roug$ its e"&loyees( Hence t$e acts o# its e"&loyees in receiving
and trans"itting "essages are acts o# t$e &etitioner( In "ost cases, negligence "ust be &roved inorder t$at
&lainti## "ay recover( Ho%ever, since negligence "ay be $ard to substantiate in so"e cases, %e "ay a&&ly
t$e doctrine o# ,)S I9SA LO?.ITO, 4t$e t$ing s&ea's #or itsel#6, by considering t$e &resence o# #acts o#
circu"stances surrounding t$e injury(
SF2EIA <. COERT O@ APP>ALS' LENA 01( SCRA !04
@a&ts+ T$is involves a &etition #or recovery o# da"ages #ro" breac$ o# contract #iled by t$e $eirs o#
:icente Sy7uia against &rivate res&ondent, 0anila 0e"orial 9ar' +e"etery, Inc( 9ursuant to t$e deed o#
sale e>ecuted by Sy7uiaAs and t$e a#ore"entioned "e"orial &ar', t$e re"ains o# :icente %as to be re1
interred con#or"ably in accordance %it$ t$e agreed &rocedures bet%een t$e &arties( 9re&aratory to t$e
trans#erring o# said re"ains to t$e ne%ly &urc$ased lot in t$e sa"e "e"orial &ar', t$e concrete vault
encasing o# t$e deceased %as re"oved #ro" its nic$e underground( T$e #a"ily discovered t$at t$e
concrete vault $ad a $ole, a&&ro>i"ately t$ree inc$es at t$e botto" o# t$e vault t$at caused t$e #looding
inside t$e vault da"aging entirely t$e co##in as %ell as t$e &arts o# t$e deceasedAs re"ains( *ue to t$e
alleged unla%#ul and "alicious breac$ by t$e res&ondent o# its obligation to deliver a de#ect #ree concrete
vaults designed to &rotect t$e re"ains o# t$e deceased and t$e co##in against t$e ele"ents %$ic$ resulted to
5J
in t$e desecration o# t$e deceasedAs grave and in t$e alternative, because o# t$e res&ondentAs gross
negligence in #ailing to seal t$e concrete vault, an action %as #iled #or t$e recovery o# da"ages( T$e
"e"orial &ar' inter&osed t$at boring a $ole %as necessary inorder to &revent t$e vault #ro" #loating in case
o# $eavy rains(
Iss%e+ ?DN the respondent lia"le )or ne#li#en&e in "orin# the hole in the va%lt
R%lin#+ NO. It cannot be denied t$at t$e $ole "ade &ossible t$e entry o# "ore %ater and soil t$an %as
natural $ad t$ere been no $ole( T$e la% de#ines negligence as t$e o"ission o# t$at diligence %$ic$ is
re7uired by t$e nature o# t$e obligation and corres&onds %it$ t$e circu"stances o# &ersons, o# t$e ti"e, and
o# t$e &lace( T$e circu"stances surrounding t$e co""ission o# t$e assailed act1boring a $ole1 negate t$e
allegation o# negligence as t$e act %as necessary inorder t$at %ater could co"e in to t$e vault because in its
absence, t$e vault %ill #loat during $eavy rains( T$e court ruled #urt$er t$at t$e obligation o# t$e "e"orial
&ar' is to deliver a sealed vault and not a %ater&roo# vault(
@AR >AST BANG AND TREST CO. <. COERT O@ APP>ALS 041 SCRA !(1
@a&ts+ Luna a&&lied #or, and %as accorded a #areastcard issued by 3)BT+( T$e latter also issued a
su&&le"ental card to LunaAs %i#e( T$e %i#eAs card %as lost and 3)BT+ %as #ort$%it$ in#or"ed( W$en
Luna &resented $is card to &ay #or a des&edida lunc$, t$e ban' #ailed to $onor t$e credit card( T$us Luna
instituted a case #or da"ages(
Iss%e+ ?DN L%na is entitled to da*a#es
R%lin#+ F>S. 3)BT+As negligence in #ailing to give &ersonal notice to Luna is not considered so gross as
to a"ount to "alice and bad #ait$( 0oral and e>e"&lary da"ages cannot be a%arded 4Arts( ;5, ;;;J,
;;5I, ;5NM are not a&&licable6 but only no"inal da"ages 4Art( ;;;56(
WHAT A,) TH) )F+)9TIONS TO TH) N))* 3O, *)0AN*?
456 W$en t$e la% or obligation e>&ressly states t$at de"and is not necessary, e(g( #iling o# inco"e
ta> on t$e 5D
t$
o# A&ril8 ot$er%ise, &enalties or surc$arges are i"&osed %it$out t$e need o#
de"and #or &ay"ent by t$e govern"ent(
4;6 W$en ti"e is o# t$e essence 2 ti"e is t$e controlling "otive #or t$e establis$"ent o# t$e
obligation, e(g( order o# t$e %edding ca'e, &recisely because you need t$e ca'e on t$e
%edding day ot$er%ise delivery a#ter said date %ould not bene#it t$e creditor any"ore( Suc$
intent o# ti"e being o# t$e essence, "ust be clear in t$e "inds o# bot$ &arties(
W$en ti"e is not o# t$e essence, a slig$t delay is not su##icient ground #or rescission( But i#
ti"e is o# t$e essence, even a slig$t breac$ is a ground #or rescission(
4=6 W$en de"and %ould be useless 2 debtor $ad rendered it beyond $is ability to &er#or"(
*ebtor cannot co"&ly by reason o# $is o%n #ault(
WHAT A,) TH) BIN*S O3 0O,A?
456 0O,A SOL:)N*I 2 de#ault on t$e &art o# t$e debtor8 re7uires a &ositive obligation8 delay
s$ould be due to dolo, or cul&a, not to a #ortuitous event(
T$ere is "ora solvendi e> re %$ic$ is delay in giving or delivering a t$ing and "ora
solvendi e> &ersona, %$ic$ is delay in obligations to do or &er#or" &ersonal service(
As a general rule, t$ere "ust #irst be a de"and be#ore delay arises
T$ere is 4a6 ordinary delay or #ailure to &er#or" an obligation on ti"e, and 4b6 legal delay,
or %$en t$ere is already a de"and by t$e creditor and t$e debtor #ails to co"&ly %it$ suc$ a
de"and(
WHAT A,) TH) )33)+TS I3 *)BTO, IS IN *)3A.LT?
456 t$e creditor is entitled to &ursue any o# t$e re"edies discussed earlier((
4;6 t$e debtor is liable i# loss is due to #ortuitous event(
55
BRICGTO?N D><>LOPB>NT CORP. <. ABOR3TI>RRA R>ALTF 018 SCRA 10!
@a&ts+
Bric'to%n e>ecuted ; contracts to sell in #avor o# A"or1Tierra %$ereby Bric'to%n %ill sell
residential lots %it$ a total &rice o# 9;50P(
A"or1Tierra %as able to &ay only 95(=0P(
Bric'to%n sent A"or1Tierra a letter o# QNotice o# +ancellation o# t$e +ontract! and advised t$at
it still $ad t$e rig$t to &ay its arrears %it$in =J days #ro" recei&t o# notice(
0ean%$ile, A"or1Tierra de"anded t$e re#und o# its various &ay"ents "ade(
Iss%e + 1. ?DN the &ontra&ts to sell .ere validly res&inded "y Bri&7to.n.
0. ?DN the a*o%nt re*itted "y A*or3Tierra .ere ri#htly )or)eited
R%lin#+ F>S. In a contract to sell, t$e non1&ay"ent o# t$e &urc$ase &rice can &revent t$e obligation to
convey title #ro" ac7uiring any obligatory #orce(
NO. W$ile &etitioner acted %it$in its legal rig$t to declare t$e contract to sell rescinded or
canceled, t$e &eculiar circu"stances o# t$e case %ould "a'e it unconscionable to li'e%ise sanction t$e
#or#eiture by &etitioner o# &ay"ents "ade to it by &rivate res&ondent(
T$ere $as indeed been a constant dialogue bet%een t$e &arties during t$e &eriod o# t$eir judicial
relation, i(e(, &rior to end o# &eriod, -une =J, 5IH5( Bric'to%n not only contributed but $ad consented to t$e
delay or sus&ension o# &ay"ents( T$ey did not give t$e &lainti## a categorical ans%er t$at t$eir
counter&ro&osals %ill not "ateriali@e(
T$e S+ set aside t$e #or#eiture clause(
TAGEBA <. D> L>ON 110 SCRA (00
@a&ts+
9etitioner Taguba sold a &ortion o# a lot consisting o# CJJ s7( "( to res&ondent *e Leaon(
T$e &ortion sold co"&rises t$e area occu&ied by t$e Asuncions 4a lessee6 and res&ondent(
T$e deed evidencing said sale %as deno"inated as *eed o# +onditional Sale!(
,es&ondent $ad already actually &aid 95;,DJJ o# t$e total &rice o# 95H,JJJ and $ad tendered
&ay"ent o# t$e balance %it$in t$e grace &eriod o# M "os(
9etitioner never noti#ied res&ondent by notarial act t$at $e %as rescinding t$e contract, and
neit$er $ad $e #iled suit in court to rescind t$e sale(
Iss%e+ ?DN the res&ission is valid
R%lin#+ NO. 3ailure to noti#y t$e vendee by notarial act to rescind t$e contract nor to #ile suit in court to
rescind t$e sale entitles t$e de#aulting vendee to &ay t$e contract &rice even a#ter e>&iration o# t$e &eriod
agreed u&on(
W$ere ti"e is not o# t$e essence o# t$e agree"ent, a slig$t delay by 5 &arty in t$e &er#or"ance o#
$is obligation is not a su##icient ground #or rescission o# t$e agree"ent(
BARCAGA <. COERT O@ APP>ALS 0!5 SCRA 19
@a&ts+
9etitioners %ent to &rivate res&ondentAs store on ;5 *ece"ber &recisely to in7uire i# t$e
"aterials $e intended to &urc$ase could be *)LI:),)* I00)*IAT)L/(
But $e %as told by t$e store'ee&er t$at i# t$ere %ere still deliveries to be "ade t$at a#ternoon,
$is order %ould be delivered t$e #ollo%ing day(
Wit$ t$is in "ind, t$e &etitioner decided to buy t$e construction "aterials t$e #ollo%ing
"orning a#ter $e %as assured to $is ti"e #ra"e(
5;
An in#or"ation 2 t$at t$e delivery o# "aterials %ould be delayed as t$e delivery truc' %ill $ave
to deliver "aterials in anot$er &lace 2 %as %it$$eld by res&ondent(

Iss%e+ ?DN respondent is #%ilty o) delay in per)or*an&e o) o"li#ation.
R%lin#+ F>S. Art( 55MN 4;6 &rovides t$at in t$e reci&rocal obligation, neit$er &arty incurs in delay i# t$e
ot$er does not co"&ly or is not ready to co"&ly in a &ro&er "anner %it$ %$at is incu"bent u&on $i"(
3ro" t$e "o"ent one o# t$e &arties #ul#ills $is obligation, delay by t$e ot$er begins( Art( 55NJ &rovides
t$at t$ose %$o in t$e &er#or"ance o# t$eir obligation are guilty o# #raud, negligence, or delay, and t$ose
%$o in any "anner contravene t$e tenor t$ereo#, are liable #or da"ages(
.nder t$e &revailing circu"stances, TI0) WAS O3 TH) )SS)N+) in t$e delivery o# t$e
"aterials( TH) *)LIB),AT) S.99,)SSION O3 IN3O,0ATION 0ANI3)STS A +),TAIN *)G,))
O3 BA* 3AITH, t$ere s$ould be "oral da"ages( Because a *)0AN* HA* B))N 0A*), res&ondent
s$ould be $eld in breac$(
BARIN <. ADIL 119 SCRA 495
Iloilo Lot
Barin I333333333333333333 Ar*adas
333333333333333333J
Cota"ato Lot
@a&ts+
,es&ondent and &etitioner agreed to e>c$ange &ro&erties(
T$e e>c$ange %as e>ecuted in antici&ation o# a declaration o# said $ereditary rig$ts(
T$e e>c$ange %ould be rescindible %$en it is de#initely ascertained t$at t$e &arties $ave
res&ectively no rig$t to t$e &ro&erties soug$t to be e>c$anged(
0arin conveyed $er interest to $er sister(
Ar"adas indeed $ave t$e &ro&erty but t$e ot$er Ar"ada $ad no aut$ority to sig$ #or t$e ot$er(
Iss%e+ ?DN the deed o) e6&han#e is valid and en)or&ea"le.
R%lin#+ NO. It is evident #ro" t$e deed o# e>c$ange t$at t$e intention o# t$e &arties relative to t$e lots,
%$ic$ are t$e objects o# t$e e>c$ange, +ANNOT B) *)3INIT)L/ AS+),TAIN)*( In t$is case,
*)0AN* IS AL,)A*/ .S)L)SS, because 0arin is considered in de#ault( T$us, t$e deed is void or
ine>istent(
+an 0arin sue t$e Ar"adas?
NO( Her actions %ould be barred under t$e rule o# )F+)9TIO NON A*I09L)TI
+ONT,A+T.S 4&lainti## is not entitled to sue because $e $as not &er#or"ed $is &art o# t$e
agree"ent(6

4;6 0O,A A++I9I)N*I 2 t$e creditor is in de#ault by reason o# unjusti#iably re#using to acce&t
&er#or"ance by t$e debtor(
WHAT A,) TH) ,)?.I,)0)NTS 3O, 0O,A A++I9I)N*I?
456 T$ere "ust be a "ature obligation8 T$e obligation "ust already be en#orceable or due and
de"andable(
4;6 Strict and co"&lete co"&liance by t$e debtor(
4=6 +reditor re#uses to acce&t t$e &restation due to an unjusti#iable cause(
WHAT A,) TH) )33)+TS O3 0O,A A++I9I)N*I?
456 I# t$e creditor is in de#ault, ris' o# loss s$i#ts to t$e creditor( I# t$ere is a #ortuitous event and
t$ere is no negligence debtor $as no obligation or liability(
5=
4;6 ,escission 2 but in 0claug$lin v( +ourt o# A&&eals, t$e +ourt $ad occasion to "ention t$at
%$en t$e creditor is in "ora, t$is only "eans t$at creditor is in de#ault8 in ot$er %ords t$e
obligation continues to e>ist( TO )FTING.SH *)BTO,AS OBLIGATION TH),)
SHO.L* B) A +ONSIGNATION O3 TH) 9,)STATION IN +O.,T(
WHAT IS TH) ,.L) ON *)0AN* +ON+),NING ,)+I9,O+AL OBLIGATIONS?
T$e need #or de"and is no longer necessary(
WHAT IS TH) 3O,0 O3 *)0AN* IN ,)+I9,O+AL OBLIGATIONS?
It is co"&liance or #ul#ill"ent o# your o%n obligation8 #ro" t$e "o"ent one &arty &er#or"s or
#ul#ills, t$e ot$er is already in de#ault, %it$ or %it$out de"and(
W$ere t$e t%o obligations are si"ultaneous, %illingness and ca&acity to &er#or" &uts t$e ot$er
&arty in de#ault( I# t$ere is no suc$ si"ultaneous e>c$ange o# consideration, "ere %illingness to &er#or" is
not su##icient(
IS TH) OBLIGATION O3 TH) *)BTO, )FTING.ISH)* IN A +AS) O3 0O,A A++I9I)N*I?
No( W$en a creditor is in "ora, it only "eans t$at t$e creditor is in de#ault but it does not "ean
t$at t$e obligation is auto"atically e>tinguis$ed(
R>PEBLIC O@ T=> P=ILIPPIN>S <. COERT O@ APP>ALS 111 SCRA 49
@a&ts+
,es&ondent Laureano contracted %it$ N)*A to su&&ly t$e latter %it$ &lu"bing "aterials(
N)*A rejected t$e delivery #or non1co"&liance %it$ t$e agreed s&eci#ications(
A co"&ro"ise %as arrived at %$ic$ gave aut$ority to Laureano to negotiate t$e sale o# attac$ed
&ro&erties(
Laureano %as able to sell t$e &ro&erty be#ore t$e aut$ority to sell e>&ired, and re"itted t$e
&roceeds to N)*A(
Seven 4N6 "ont$s later, N)*A disa&&roved t$e sale due to t$e lo% &rice!(
Iss%e+ ?DN &reditor is in de)a%lt
R%lin#+ F>S. N)*AAs retention o# t$e c$ec's #or N "ont$s %it$out e>&ressing any &rotest or objection
%as clear &rocrastination and indecision( TH) *)LA/ IN 9A/0)NT WAS +A.S)* NOT B/ TH)
OBLIGO, B.T B/ OBLIG))(
BCLAEG=LIN <. COERT O@ APP>ALS' @LOR>S 144 SCRA !81
@a&ts+
9etitioner and res&ondent entered into a contract o# conditional sale o# real &ro&erty(
A co"&ro"ise %as arrived at a#ter res&ondent buyer #ailed to &ay #ully t$e install"ent
&ay"ents(
Again, t$e buyer %as not able to &ay on t$e date agreed(
Ho%ever, t$e tendered &ay"ent %as re#used by &etitioner(
T$e buyer did not consign t$e su" %it$ t$e court(
Iss%e+ ?DN the &o%rt o) appeals erred in not &an&elin# the &ontra&t o) &onditional sale.
R%lin#+ NO. A#ter a 9.,+HAS), B/ INSTALL0)NT $as &aid a substantial &ortion o# t$e &urc$ase
&rice, it %ould be ine7uitable to $ave t$e a"ount #or#eited as LI?.I*AT)* *A0AG)S, &articularly i#
tender o# &ay"ent %as "ade( T$e grace &eriod $as NOT yet e>&ired %$en t$e tender o# &ay"ent %as
"ade, t$us t$e res&ondent is &rotected under t$e 0aceda La%(
5C
WH)N AN OBLIGO, 3AILS TO 3OLLOW A :ALI* T)N*), O3 9A/0)NT WITH A
+O.,T +ONSIGNATION, TH) +O.,T 0A/ ALLOW HI0 TO 9A/ HIS OBLIGATION WITHO.T
,)S+IN*ING TH) *))* O3 SAL)(
I# not in de#ault in t$e &er#or"ance o# obligation 2 t$ere could be no resolution(
+onse7uences o# tender o# &ay"ent<
5( *ebtor not in de#ault
;( 9reserves t$e rig$t o# debtor 43lores6 under t$e conditional sale(
=( *oes not e>tinguis$ t$e obligation unless #ollo%ed by consignation in court(
M= 4=6 +O09)NSATIO 0O,A) 2 delay in reci&rocal obligation( Bot$ &arties are guilty o# t$e de#ault(
In co"&ensatio "orae, t$e de#ault o# one negates t$e de#ault o# anot$er( In +entral Ban' v(
+ourt o# A&&eals, t$e liability o# Island Savings Ban' #or da"ages in not #urnis$ing t$e
entire loan is o##set by t$e liability o# Tolentino #or da"ages in t$e #or" o# &enalties and
surc$arges, #or not &aying $is overdue 95NT debt( Tolentino &aid only t$e interest and not
&enalties or surc$arges because %ould be in #or" o# da"ages(
C>NTRAL BANG <. COERT O@ APP>ALS' TOL>NTINO 118 SCRA 4!
@a&ts +
Island Savings Ban' a&&roved t$e loan a&&lication #or 9HJB o# res&ondent1Tolentino
Only 95NB, $o%ever, %as released to res&ondent(
Also, t$e advance interest #or t$e 9HJB 4a"ounting to 9C,HJJ6 %as deducted #ro" t$e &artial
release o# 95NB but %as subse7uently re#unded(
T$e 0onetary Board &ro$ibited ISB #ro" "a'ing ne% loans and invest"ents( Later, it %as
&ro$ibited #ro" doing #urt$er business(
Iss%e +
?DN respondentKs a&tion )or spe&i)i& per)or*an&e .o%ld prosper
?DN respondent is lia"le to pay the P1(G de"t &overed "y pro*issory note
?DN respondentKs lia"ility to pay P1(G s%"sists' &an his real estate "e )ore&losed to satis)y
said a*o%nt
R%lin#+ NO. ,escission is t$e only alternative re"edy le#t due to i"&ossibility o# &er#or"ance o# ISB but
it is only #or t$e 9M=B balance( Art 55I; &rovides t$at in case bot$ &arties $ave co""itted breac$ o# t$eir
reci&rocal obligation, t$e liability o# t$e #irst in#ractor s$all be e7uitably te"&ered by t$e courts( T$e
liability o# ISB in not #urnis$ing t$e entire loan is O33S)T by t$e liability o# Sul&icio #or da"ages #or not
&aying $is overdue debt o# 95NB(
F>S. T$e &ro"issory note gave rise to TolentinoAs reci&rocal obligation to &ay 95NB( His #ailure
to &ay t$e overdue a"orti@ation under t$e &ro"issory note "ade $i" a &arty in de#ault, $ence not entitled
to rescission(
F>S. But only u& to 9;5(;DL 45NGHJ6 o# t$e real estate "ortgage( T$e ot$er &art is dee"ed
unen#orceable(
Art. 11(4.>6&ept in &ases e6pressly spe&i)ied "y la.' or .hen it is other.ise de&lared "y
stip%lation' or .hen the nat%re o) the o"li#ation re:%ires the ass%*ption o) ris7' no person
shall "e responsi"le )or those events .hi&h &o%ld not "e )oreseen' or .hi&h' tho%#h )oreseen'
.ere inevita"le.

WHAT IS A 3O,T.ITO.S ):)NT?
T$ese are events %$ic$ are un#oreseen or i# #oreseen cannot be avoided, e(g(, acts or God or #orce
"ajeure, %ar, rebellion, ty&$oon(
WHAT A,) TH) ,)?.I,)0)NTS TO )F)09T *)BTO, 3,O0 LIABILIT/?
456 T$e event "ust be inde&endent o# t$e debtorAs %ill(
5D
4;6 T$e event "ust be un#oreseen or unavoidable(
4=6 T$e event "ust render it i"&ossible #or t$e debtor to &er#or" $is obligation( I# t$e event %ill
only render t$e &er#or"ance di##icult but still &ossible, t$en t$e debtor still $as to co"&ly(
4C6 T$e debtor "ust $ave no &artici&ation in t$e aggravation o# t$e injury(
JENTILLA <. @ONTANAR 11! SCRA !04
@a&ts+ -untilla %as a &assenger o# a jee&ney being driven by res&ondent +a"oro, registered under t$e
#ranc$ise o# res&ondent 3ontanar, but actually o%ned by res&ondent Ban@on( T$e said jee&ney turned turtle
and ju"&ed into a ditc$ %$en its rig$t rear tire e>&loded and t$ereby caused injuries to &etitioner( 9etitioner
t$us #iled #or breac$ o# contract %it$ da"ages(
T$e evidence s$o%s t$at t$e jee&ney %as running at a very #ast s&eed be#ore t$e accident and t$at
it %as overloaded(

Iss%e+ ?DN the de)endants are e6onerated )ro* payin# da*a#es d%e to it "ein# a )ort%ito%s event.
R%lin#+ NO. W$ile it "ay be true t$at t$e tire t$at ble%1u& %as still good, THIS 3A+T ALON) *O)S
NOT 0AB) TH) )F9LOSION O3 TH) TI,) A 3O,T.ITO.S ):)NT( No evidence %as &resented to
s$o% t$at t$e accident %as due to A*:),S) ,OA* +ON*ITIONS or t$at 9,)+A.TIONS W),)
TAB)N B/ TH) -))9N)/ *,I:), TO +O09)NSAT) 3O, AN/ +ON*ITIONS LIABL) TO
+A.S) A++I*)NTS( In t$e case at bar, t$e cause o# t$e un#oreseen and une>&ected occurrence %as not
inde&endent o# $u"an %ill(
TANGEILIG <. COERT O@ APP>ALS 0!! SCRA (5
@a&ts+ 9etitioner entered into a contract %$ereby it %ill construct a %ind"ill #or a consideration o# 9MJ,JJJ
&ayable by 95D,JJJ do%n &ay"ent and 95D,JJJ install"ents( *ue to t$e re#usal o# t$e res&ondents to &ay
95D,JJJ balance, &etitioners #iled a co"&laint( T$e 95D,JJJ %as &aid by res&ondents to anot$er &arty #or
t$e construction o# a dee& %ell( T$e construction o# a dee& %ell, t$e court #ound, %as not &art o# t$e
contract &etitioners and res&ondents agreed u&on( T$e %ind"ill colla&sed due to strong %inds! but t$ere
%as actually no ty&$oon on t$e day t$e %ind"ill colla&sed(

Iss%e+?DN the petitioner is %nder the o"li#ation to re&onstr%&t the .ind*ill.
R%lin#+ F>S. In order #or a &arty to clai" e>e"&tion #ro" liability by reason o# a #ortuitous event under
Art(55NC, t$e event s$ould be t$e sole and &ro>i"ate cause o# t$e loss or destruction o# t$e object o# t$e
contract(
OO9SR A ST,ONG WIN* IN THIS +AS) +ANNOT B) 3O,T.ITO.S 2 .N3O,)S))ABL)
AN* .NA:OI*ABL)( H)N+), TH) N)WL/1+ONST,.+T)* WIN*0ILL S/ST)0 WO.L* NOT
HA:) +OLLA9S)* HA* TH),) B))N NO INH),)NT *)3)+T IN IT(
T$e negligence in t$is instance is arrived at by deduction( Tanguilig is not in de#ault( In reci&rocal
obligations, de#ault %ill set in i# t$e ot$er &arty is not ready(
AC>3AGRO D><>LOPB>NT <. COERT O@ APP>ALS 0!! SCRA 408
@a&ts+ Ace1Agro entered a service contact %it$ +os"os Bottlers %$ereby it %ould clean so#t drin' bottles
and re&air %ooden s$ells o# +os"os #or a #ee( T$e contract covers t$e &eriod J5 -anuary 5IIJ to =5
*ece"ber 5IIJ, and rene%able yearly( On ;D A&ril, 5IIJ, a #ire bro'e out in +os"osA &lant( As a result,
Ace1AgroAs %or' %as sto&&ed(
Ace1Agro t$en as'ed +os"os to allo% it to resu"e its service(
,es&ondent advised &etitioner t$at it is ter"inating t$eir contract(
0ean%$ile, &etitioner in#or"ed its e"&loyees o# t$e ter"ination o# t$eir e"&loyees %$ic$ led
t$e e"&loyees to #ile a co"&laint o# illegal dis"issal(
9etitioner t$en sent anot$er letter reiterating its re7uest #or a reconsideration(
5M
,es&ondent advised &etitioner t$at t$e latter resu"e %or' but t$e %or' $ad to be done outside
res&ondentAs &re"ises(
9etitioner re#used t$e o##er and as'ed #or an e>tension o# t$e ter"s o# t$e contract instead,
%$ic$ res&ondent turned do%n(
,es&ondent later advised &etitioner to resu"e %or' inside t$e res&ondentAs &lant(
9etitioner rejected citing t$e &ending labor case(
9etitioner broug$t t$e case to t$e ,T+ #or breac$ o# contract and da"ages(
,T+ decided in #avor o# t$e &etitioner(
,es&ondents a&&ealed to t$e +A, +A reversed t$e ,T+As decision(
Iss%e+ ?DN respondents is #%ilty o) "rea&h.
R%lin#+ NO. Because t$e sus&ension o# %or' %as due to #orce "ajeure, t$ere %as no justi#ication #or
&etitionerAs de"and #or an e>tension o# t$e ter"s o# t$e contract(
T$e &eriod during %$ic$ t$e %or' is sus&ended due to #orce "ajeure *O)S NOT -.STI3/ AN
)FT)NSION O3 TH) T),0S O3 TH) +ONT,A+T(
JEAN NAGPIL AND SONS <. COERT O@ APP>ALS 144 SCRA 8!

@a&ts+ ,es&ondent 9$ili&&ine Bar Association decided to construct an o##ice building( T$e construction
%as underta'en by res&ondent .nited +onstruction +o(( T$e &lans and s&eci#ications %ere &re&ared by
&etitioner -uan Na'&il and Sons( T$e building %as co"&leted in -une 5IMM(
In August ;, 5IMH, an unusually strong eart$7ua'e $it 0anila and t$e building sustained "ajor
da"ages( 9BA co""enced an action #or recovery o# da"ages against .++I( .++I, "ean%$ile #iled a
t$ird &arty co"&laint against t$e arc$itects %$o &re&ared t$e &lans and s&eci#ications( Ot$er eart$7ua'es on
A&ril N, I and 5;, 5INJ caused #urt$er da"age to t$e &ro&erty(

Iss%e+ ?DN an a&t o) God .hi&h &a%sed the )ail%re o) the "%ildin# e6e*pts )ro* lia"ility parties .ho
are other.ise lia"le "e&a%se o) their ne#li#en&e.
R%lin#+ NO. .++I and -uan Na'&il and Sons are solidarily liable #or da"ages(
To e>e"&t t$e obligor #ro" liability due to an act o# God, under Art( 55NC, t$e #ollo%ing re7uisites
"ust concur(<
T$e cause o# t$e breac$ "ust be IN*)9)N*)NT O3 TH) WILL o# t$e debtor(
T$e event "ust be eit$er .N3O,)S))ABL) or .NA:OI*ABL)(
T$e event "ust be suc$ as to render it I09OSSIBL) 3O, TH) *)BTO, TO 3.L3ILL HIS
OBLIGATION in a nor"al "anner(
T$e debtor "ust be 3,)) 3,O0 AN/ 9A,TI+I9ATION in or aggravation o# t$e injury to t$e
creditor(
I# u&on $a&&ening o# a #ortuitous event or an act o# God, t$ere concerns a corres&onding #raud,
negligence, delay or violation or contravention in any "anner o# t$e tenor o# t$e obligation as &rovided #or
in Art( 55NJ %$ic$ results in loss or da"ages, t$e obligor cannot esca&e liability(
T$e &rinci&le e"bodied in t$e act o# God doctrine strictly re7uires t$at t$e act "ust be one
O++ASSION)* )F+L.SI:)L/ B/ TH) :IOL)N+) O3 NAT.,) and all $u"an agencies are to be
e>cluded #ro" creating or entering into t$e cause o# t$e "isc$ie#(
To be e>e"&t #ro" liability #or loss because o# an act o# God, $e "ust be 3,)) 3,O0 AN/
9,):IO.S N)GLIG)N+) or "isconduct by %$ic$ t$at loss or da"age "ay $ave been occasioned(
One %$o negligently creates a dangerous condition cannot esca&e liability #or t$e natural and
&robable conse7uences t$ereo#, alt$oug$ t$e act o# a t$ird &erson or an act o# God #or %$ic$ $e is not
res&onsible, intervenes to &reci&itate t$e loss(
In t$e case at bar, .++I is liable #or<
Substantial deviation #ro" &lans and s&eci#ications(
3ailure to observe t$e re7uisite %or'"ans$i& in construction(
5N
3ailure to e>ercise t$e re7uired degree o# su&ervision(
Also, -uan Na'&il and Sons is liable #or
Inade7uacies or de#ects in t$e &lans and s&eci#ications(
Su&ervision as to co"&liance(
Suc$ negligence %as arrived at by an e>tensive study 4a scienti#ic study, 'unoR6by a +o""issioner
%$o is a"icus curae in t$is case(
NPC <. COERT O@ APP>ALS 000 SCRA 41
@a&ts+ T$e ,ayos and ot$er co"&lainants #iled #or da"ages against N9+ And Benja"in +$ave@( T$ey
soug$t to recover actual and ot$er da"ages #or t$e loss o# lives and destruction o# &ro&erty caused by t$e
inundiation o# t$e to%n o# Nor@agaray, Bulacan( T$e #looding %as caused by t$e negligent release by N9+
o# t$e %ater t$roug$ t$e s&ill%ays o# Angat *a"(
N9+ contends t$at t$ey e>ercised due care, diligence and &rudence in t$e o&eration and
"aintenance o# t$e $ydroelectric &lant( T$e da"ages incurred by t$e &etitioners %ere caused by a #ortuitous
event or #orce "ajeure and N9+ cannot be $eld liable #or suc$ da"ages(
Iss%e+ ?DN it sho%ld "e &onsidered a )ort%ito%s event.
R%lin#+ NO. I# u&on t$e $a&&ening o# t$e #ortuitous event or an act o# God, t$ere concurs a corres&onding
#raud, negligence, delay, violence or contravention in any "anner o# t$e tenor o# t$e obligation as &rovided
#or in Art( 55NJ, %$ic$ results on t$e loss or da"ages, t$e obligor cannot esca&e liability(
N9+ is guilty o# negligence( T$e un$oliness o# t$e $our, t$e e>tent o# t$e o&ening o# t$e s&ill%ays,
and t$e "agnitude o# t$e %ater released, are all but &roducts o# N9+As $eedlessness, slovenliness and
carelessness( T$e early %arning notice %as ine##ectual, insu##icient and inade7uate( It did not &re&ate t$e
&ersons so served, #or t$e volu"e o# t$e %ater to be released, %$ic$ turned out to be o# suc$ "agnitude,
t$at residents near or along t$e Angat ,iver, s$ould $ave been advised to evacuate(
Art. 11(. Es%rio%s transa&tions shall "e #overned "y spe&ial la.s.
WHAT IS TH) LAW AS ,)GA,*S .S.,IO.S T,ANSA+TIONS?
Obviously, t$e .sury La%(
But by virtue o# +(B( IJD, t$e .sury La% %as rendered legally ine##ective, but it can be revived i#
t$e 0onetary Board sees it #it( .ntil a re&ealing legislation is &rovided, t$e .sury La% %ill be dee"ed
sus&ended(
Since t$e .sury La% is substantive la%, it can be a&&lied retroactively over &rocedural la%s(
LIAB LA? <. OLFBPIC SA?BILL 108 SCRA 418
@a&ts + 9etitioner Lia" La% loaned 95J,JJJ %it$out interest to res&ondents +$i( T$e loan beca"e due on
=5 -anuary, 5IMJ but %as not &aid on t$at date, %it$ t$e debtors as'ing #or an e>tension o# u& to = "ont$s(
9arties e>ecuted anot$er loan docu"ent( 9ay"ent o# t$e 95J,JJJ %as e>tended #or = "ont$s but
%as increased by 9M,JJJ 4as attorneyAs #ees, legal interest, and ot$er incidental costs(6
,es&ondents +$i again #ailed to &ay t$eir obligation a#ter t$e = "ont$s e>tension( ,es&ondents
ad"itted t$at 95J,JJJ loan but clai"ed t$at t$e addition 9M,JJJ constituted usurious interest(
Iss%e+ ?DN respondents &an "e &o*pelled to pay the P!'999.
R%lin#+ F>S. T$e Su&re"e +ourt vie%s t$e 9M,JJJ obligation as li7uidated da"ages su##ered by
&etitioner, re&resenting loss o# interest inco"e, attorneyAs #ees and ot$er incidentals(
3or so"eti"e no%, usury $as been legally non1e>istent under +entral Ban' +ircular No( IJD(
Interest can no% be c$arged as lender and borro%er "ay agree u&on(
Art. 11(!. The re&eipt o) the prin&ipal "y the &reditor' .itho%t reservation .ith respe&t to
the interest' shall #ive rise to the pres%*ption that said interest has "een paid.
5H
The re&eipt o) a later install*ent o) a de"t .itho%t reservation as to prior
install*ents' shall li7e.ise raise the pres%*ption that s%&h install*ent have "een paid.
WHAT IS TH) 9,)S.09TION ON TH) 9A/0)NT O3 INT),)ST WH)N TH) 9,IN+I9AL HAS
B))N 9AI*?
T$e recei&t o# t$e &rinci&al by t$e creditor, %it$out reservation %it$ res&ect to t$e interest, s$all
give rise to t$e &resu"&tion t$at said interest $as been &aid(
WHAT IS TH) 9,)S.09TION ON TH) 9A/0)NT O3 LAST INSTALL0)NT?
T$e recei&t o# t$e last install"ent o# a debt %it$out reservation as to &rior interests, s$all li'e%ise
give rise to t$e &resu"&tion t$at suc$ install"ents $ave been &aid(
9resu"&tions in Art( 55NM are so1called dis&utable or rebuttable &resu"&tions( T$e burden o# &roo# lies
on t$e creditor( T$ere#ore, i# t$e creditor s$o%s t$at t$e debtor did not &ay t$e interest or t$e &rior
install"ent, t$ere &resu"&tions %ill be overco"e(
Art. 11((. The &reditors' a)ter havin# p%rs%ed the property in possession o) the de"tor to
satis)y their &lai*s' *ay e6er&ise all the ri#hts and "rin# all the a&tions o) the latter )or the
sa*e p%rpose' save those .hi&h are inherent in his person/ they *ay also i*p%#n the a&ts
.hi&h the de"tor *ay have done to de)ra%d the*.
Art. 11(5. S%"$e&t to the la.s' all ri#hts a&:%ired in virt%e o) an o"li#ation are
trans*issi"le' i) there has "een no stip%lation to the &ontrary.
WHAT A,) SO1+ALL)* A.FILIA,/ A+TIONS?
T$ese are actions %$ic$ a creditor "ay avail o# in case t$e ordinary actions o# s&eci#ic
&er#or"ance, rescission, etc(, are not available( Suc$ are<
456 to levy by attac$"ent or e>ecution u&on all t$e &ro&erty o# t$e debtor, e>ce&t suc$ as are
e>e"&t by la% #ro" e>ecution suc$ as t$e #a"ily $o"e and t$ose "entioned in Sec( 5; o# t$e
,ules o# +ourt8
4;6 To e>ercise all t$e rig$ts and actions o# t$e debotr, )F+)9T suc$ as are in$erently &ersonal to
$i" 4accion subrogatoria6, e(g(, t$e rig$t to go against t$e debtor o# your debtor, in a case
%$ere * o%es + 950 and T o%es * 95(D0 and * cannot &ay + t$e 950, + can go a#er t$e
debt o# T to * &rovided t$ere is a court order8
4=6 To as' #or t$e rescission o# t$e contracts "ade by t$e debtor in #raud o# t$eir rig$ts 4accion
&auliana6, e(g(, A could not &ay B $is obligation in t$e a"oung o# 9=DT( Ho%ever, A o%ns a
car %ort$ about 9;JT and + is indebted to $i" #or 9DT( Be#ore t$e due date o# t$e obligation,
A sold $is land %ort$ 9=J to *( .nder t$ese circu"stances, B "ay as' t$e court to rescind or
cancel t$e sale "ade by A to * on t$e ground t$at t$e transaction is #raudulent in case B
cannot recover in any ot$er "anner $is credit, stressing t$at t$is re"edy can be resorted to
only i# B could not collect in #ull $is credit(
Chapter 1
Di))erent Ginds o) O"li#ations
Se&. 1 L P%re and Conditional O"li#ations
Art. 11(8. >very o"li#ation .hose per)or*an&e does not depend %pon a )%t%re or %n&ertain
event' or %pon a past event %n7no.n to the parties' is de*anda"le at on&e.
>very o"li#ation .hi&h &ontains a resol%tory &ondition shall also "e de*anda"le'
.itho%t pre$%di&e to the e))e&ts o) the happenin# o) the event.
5I
Art. 1159. ?hen the de"tor "inds hi*sel) to pay .hen his *eans per*it hi* to do so' the
o"li#ation shall "e dee*ed to "e one .ith a period' s%"$e&t to the provisions o) Art. 118(.
WHAT A,) TH) *I33),)NT BIN*S O3 OBLIGATIONS?
456 9ure 2 "eans t$at t$ere is no ter", condition, and is legally de"andable at once(
All &ure obligations are de"andable at once( But not all obligations %$ic$ are de"andable
at once are &ure obligations, e(g(, a resolutory condition and ter"( T$e obligation ter"inates
u&on t$e $a&&ening o# t$e event or ter"(
4;6 +onditional 2 subject to a condition %$ic$ is so"et$ing #uture and uncertain8 a condition is
t$at %$ic$ creates or ter"inates an obligation(
3.T.,) but +),TAIN &eriod
9AST but .N+),TAIN ter" 4%$en re#erence is "ade to a &ast event un'no%n to t$e
&arties and t$e uncertainty lies in t$e 'no%ledge o# t$e &arties, it cannot be a condition, it
$as to be a ter"(6
4=6 Wit$ a Ter" 2 obligation occurs at a certain ti"e %$ic$ "ay be<
4a6 #uture and certain,
4b6 &ast and uncertain,
4c6 %$en $is "eans &er"it $i" to do so in accordance %it$ Art( 55HJ, %$ic$ "eans t$at
t$ere s$ould be intent to co"&ly %it$ t$e obligation( It is only t$e ti"e %$ic$ is
de&endent on t$e debtor and not t$e &ay"ent, e(g( i# you do not $ave "oney you cannot
esca&e liability because t$e obligation subsists(
Art. 1151. In &onditional o"li#ations' the a&:%isition o) ri#hts' as .ell as the e6tin#%ish*ent
or loss o) those already a&:%ired' shall depend %pon the happenin# o) the event .hi&h
&onstit%tes the &ondition.
WHAT A,) TH) BIN*S O3 +ON*ITIONAL OBLIGATIONS?
456 Sus&ensive 2 t$at %$ic$ gives rise to t$e obligation %$ere you do not 'no% %$et$er or not
t$ere %ould be an obligation8 i# t$e condition is not #ul#illed t$ere %ould be no obligation,
e(g(, i# you &ass t$e bar, IAll give you a blac' 9ajero %it$ &late nu"ber F*BNJI( TH)
HA99)NING GI:)S ,IS) TO AN OBLIGATION(
GONCAL>S <. CREC 114 SCRA 5
@a&ts+ Gon@ales &aid 95DB 4;DJJFM$as(6 #or t$e annual rental( He, $o%ever, did not e>ercise $is o&tion
to &urc$ase t$e &ro&erty i""ediately a#ter t$e e>&iration o# t$e 5 year lease( T$us, res&ondent #iled a
co"&laint #or recovery o# &ossession o# t$e &ro&erty( T$e &ro&erty in 7uestion is currently subject o# an
e>trajudicial &artition and t$e title re"ains not in t$e na"e o# t$e res&ondent yet but t$e latterAs
&redecessors1in1interest( 9aragra&$ I o# t$e contract &rovides< T$e lessors $ereby co""it t$e"selves and
s$all underta'e to obtain a se&arate and distinct T+T over t$e $erein leased &ortion to t$e lessee %it$in a
reasonable &eriod o# ti"e %$ic$ s$all not in any case e>ceed C years, a#ter %$ic$ a ne% contract s$all be
e>ecuted by t$e $erein &arties %$ic$ s$all be t$e sa"e in all as&ects %it$ t$e contract o# leaseG&urc$ase
inso#ar as t$e ter"s and condition are concerned(
Iss%e+ ?DN para#raph 8 is a &ondition pre&edent "e)ore petitioner &o%ld e6er&ise his option to "%y
the property.
R%lin#+ /es( T$e I
t$
&ar( re7uired res&ondents to obtain a se&arate and distinct T+T in t$eir na"es t$us it is
a condition &recedent to t$e &etitionerAs obligation to &urc$ase and &ay #or t$e land(
W$en t$e consent o# a &arty to a contract is given subject to t$e #ul#ill"ent o# a sus&ensive
condition, t$e contract is not &er#ected unless t$at condition is #irst co"&lied %it$(
T$e obligatory #orce o# a conditional obligation is subordinated to t$e $a&&ening o# a #uture and
uncertain event , so t$at i# t$at event does not ta'e &lace, t$e &arties %ould stand as i# t$e conditional
obligation $ad never e>isted(
;J
T$ere can be no rescission o# an obligation as yet non1e>istent because t$e sus&ensive condition
$as not $a&&ened(
WH)N SHALL 9,)S+,I9TION B)GIN TO ,.N?
9rescri&tion is counted #ro" t$e ti"e o# #ul#ill"ent o# obligation i# t$e obligation is subject to a
sus&ensive condition 4only #ro" t$e ti"e cause o# action accrues6 because only %$en it is #ul#illed "ay one
bring action( 4+ole v( :da( de Gregorio6
COL> <. <DA. D> GR>GORIO 11! SCRA !(9
@a&ts+ A contract %as entered into on August ;I, 5IM=( On August =5, 5IM=, services o# a surveyor %as
$ired( T%o angry! letters dated October ;J, 5IMC and A&ril 5, 5IMD %ere %ritten by +ole to t$e surveyor
%it$ regard to t$e delay in t$e results o# t$e survey( T$e survey &lans %ere delivered on 0ay =5, 5IMM to
t$e c$ildren o# +ole, t$e s&ouses +ole $aving died already( T$e c$ildren discovered t$at t$e &ro&erty %as
already trans#erred to res&ondentAs daug$ter( ,es&ondent contend t$at +ole rescinded t$e contract and
res&ondent returned t$e do%n&ay"ent o# 95B( On -uly ;D, 5INC, &etitioner #iled #or s&eci#ic &er#or"ance
or annul"ent o# t$e subject deed o# sale(
Iss%e< ?DN the petitionerKs a&tion to ann%l the deed o) sale is "arred "y pres&ription ,19 years-
R%lin#+ T$e &rescri&tive &eriod cannot be counted #ro" t$e date o# e>ecution o# t$e deed o# &ro"ise to buy
and sell %$ere it %as sti&ulated t$at t$e balance o# t$e &rice s$all be &aid a#ter t$e results o# t$e land
survey(
T$e &rescri&tive &eriod #or #iling action "ust be co"&uted #ro" t$e date t$e cause o# action
accrues and s$ould not be "ade to retroact to t$e date o# e>ecution o# a conditional contract(
4;6 ,esolutory 2 t$at %$ic$ ter"inates t$e obligation, e(g(, IAll lend you "y car until you graduate
#ro" la% sc$ool, %$erein t$e beginning o# t$e obligation e>ists( TH) HA99)NING
)FTING.ISH)S ,IGHTS AL,)A*/ )FISTING(
DECESIN <. COERT O@ APP>ALS 100 SCRA 059
@a&ts+ *ucusin entered into a contract o# lease %it$ Baliola %$ereby #or a 9;;J "ont$ly rental #or F
years, *ucusin %ould lease $is a&art"ent unit( A#ter al"ost ; years, &etitioner sent a Notice to Ter"inate
Lease +ontract! to res&ondent #or t$e reason t$at &etitionerAs c$ildren %ere getting "arried and did in #act
get "arried( ,eceiving no re&ly, &etitioner #iled an action #or eject"ent( +lause ; o# t$e contract &rovides
T$e ter" o# t$is contract s$all be in a "ont$1to1"ont$ basis FFF until ter"inated by "utual agree"ent or
by t$e lessor on t$e ground t$at $is c$ildren need t$e &re"ises #or t$eir o%n use and residence or u&on any
ground &rovided #or in accordance %it$ la%(!
Iss%e+ ?DN petitioner &an %nilaterally ter*inate the &ontra&t o) lease %nder the ter*s and
&onditions stated therein
R%lin# + Fes. T$e need o# t$e lessorAs c$ildren o# t$e leased &ro&erty is not a condition t$e $a&&ening o#
%$ic$ is de&endent u&on t$e %ill o# t$e lessor( T$e $a&&ening o# t$e condition de&ends u&on t$e %ill o# a
t$ird &ersonEt$e lessorAs c$ildren( T$e condition t$ere#ore is valid being a resolutory condition t$e
$a&&ening o# %$ic$ e>tinguis$es t$e obligation(
JACINTO <. GAPARAC 098 SCRA 04!
@a&ts + -acinto entered into an Agree"ent to sell! %it$ Ba&ara@ %$ereby t$e latter %ill convey a lot and
t$e #or"er %ill &ay 9HJJ *9, t$e balance on install"ent at 95JJ( T$e &ossession o# t$e &ro&erty sold %as
i""ediately delivered to t$e &etitioner( ,es&ondent un7uali#iedly bound t$e"selves to e>ecute t$e #inal
;5
deed o# sale Qas soon as t$e settle"ent o# t$e estate s$all $ave been e##ected not later t$an 0arc$ =5, 5IMN!
and a#ter #ull &ay"ent o# t$e &urc$ase &rice( ,es&ondent did not reserve t$e o%ners$i& o# t$e &ro&erty until
#ull &ay"ent o# un&aid balance o# 95B( T$ere %as no sti&ulation giving t$e res&ondent t$e rig$t to
unilaterally rescind t$e contract t$e "o"ent t$e vendee #ails to &ay %it$in a #i>ed &eriod( .&on t$e re#usal
o# res&ondent to e>ecute t$e deed o# sale, &etitioner #iled a co"&laint #or s&eci#ic &er#or"ance(
Iss%e+ ?DN the Ma#ree*ent to sellN is a &ontra&t o) sale or a &ontra&t to sell.
R%lin#+ T$e agree"ent in t$e instant case $as all t$e ear"ar's o# a contract o# sale( In a contract o# sale,
t$e non&ay"ent o# t$e &rice is a resolutory condition, t$e re"edy o# t$e seller under Art 55I5 is to e>act
#ul#ill"ent or to rescind t$e contract( But t$e delay o# 9etitioner, being a "ere casual breac$, does not
justi#y rescission( T$e &ro"&t &ay"ent o# t$e "ont$ly a"orti@ation %as not a condition &recedent to t$e
e>ecution o# t$e #inal deed o# sale(
Art. 1150. ?hen the )%l)ill*ent o) the &ondition depends %pon the sole .ill o) the de"tor' the
&onditional o"li#ation shall "e void. I) it depends %pon &han&e or %pon the .ill o) a third
person' the o"li#ation shall ta7e e))e&t in &on)ir*ity .ith the provisions o) this Code.

WHAT A,) TH) BIN*S O3 +ON*ITIONS?
456 9OT)STATI:) 2 condition is de&endent u&on t$e sole %ill o# any o# t$e &arties(
i# on t$e &art o# t$e +,)*ITO, 2 t$e obligation and condition is
valid because it is really t$e creditor %$o $as t$e rig$t or is entitled
to en#orce or de"and t$e obligation8
i# on t$e &art o# t$e *)BTO, 2 i# sus&ensive, t$e condition and
obligation are void because it %ould be as i# t$ere %ould be no
obligation at all, and i# resolutory, bot$ t$e condition and t$e
obligation are valid, because t$e obligation subsists even be#ore t$e
$a&&ening o# t$e condition(
4;6 +AS.AL 2 "eans t$at t$e obligation is de&endent u&on c$ance, e(g( ga"es o# lottery8 or
de&endent u&on t$e %ill o# a t$ird &erson( It doesnAt "atter %$et$er sus&ensive or resolutory(
4=6 0IF)* 2 instances<
4a6 &artly de&endent u&on t$e %ill o# one o# t$e &arties and a t$ird &erson(
4b6 +$ance and one o# t$e &arties
4c6 +$ance and a t$ird &erson &lus one o# t$e &arties
0i>ed conditions do not a##ect t$e validity o# t$e obligation(
S>CERITF BANG AND TREST CO. <. COERT O@ APP>ALS 048 SCRA 09!
@a&ts + Building +ontract
Security Ban' 9 5,NMJ,JJJ 3errer
Building
3errer %as able to co"&lete t$e construction %it$in t$e agreed &eriod( He, $o%ever, incurred
additional e>&enses o# 9=MJB due to drastic increase in construction cost, %$ic$ %as "ade 'no%n to
&etitioner( 3errer "ade a ti"ely de"and #or &ay"ent o# increased cost( 9etitioner settled 3errerAs clai" but
only #or 9;JJB based on Art I o# t$e building contract %$ic$ states< I# at any ti"e &rior to t$e co"&letion
o# %or' >>> increases in &rices o# construction "aterials andGor labor s$all su&ervene t$roug$ no #ault on
t$e &art o# t$e contractor >>> o%ner s$all e7uitably "a'e t$e a&&ro&riate adjust"ent on "utual agree"ent
o# bot$ &arties!( ,es&ondent t$us #iled a co"&laint #or breac$ o# contract %it$ da"ages(
Iss%e+ ?DN the &onditional o"li#ation is valid
R%lin#+ No. T$e "utual agree"ent! is in e##ect a condition de&endent on &etitionerAs sole %ill, since
&rivate res&ondent %ould naturally and logically give consent to suc$ an agree"ent %$ic$ %ould allo% $i"
recovery o# t$e increased costs(
;;
NOT)< TH) BANB O33I+), AN* TH) A,+HIT)+T ,)+OGNIO)* TH) :ALI*IT/ O3
TH) +LAI0 AN* TH.S ,)+O00)N*)* TH) 9A/0)NT AT A ,)*.+)* 9,I+)(
RESTAN PELP <. COERT O@ APP>ALS 014 SCRA !!
+ontract o# Sale
,ustan 9=J G cu( "( Lluc$
&ul&%ood
@a&ts+ Sec(N o# t$e contract &rovides< T$e Buyer s$all $ave t$e rig$t to sto& delivery o# t$e said ra%
"aterial FFF %$en su&&ly o# t$e sa"e s$all beco"e su##icient FFF $o%ever, t$e seller is given su##icient
notice( *ue to "ajor de#ects in "ac$inery, &etitioners in#or"ed res&ondent to sto& delivering o# ra%
"aterial( Not%it$standing t$is, su&&ly o# ra% "aterials continues to be delivered by res&ondent and ot$er
su&&liers( Later, &etitioner decided to sus&end ta'ing delivery o# ra% "aterials #ro" res&ondent(
,es&ondent t$us #iled #or contractual breac$(
Iss%e + ?DN petitionerKs de&ision to s%spend ta7in# delivery o) ra. *aterials .as in the la.)%l
e6er&ise o) its ri#ht %nder the &ontra&t o) sale.
R%lin# + No. T$ere is no doubt t$at t$e contract s&ea's loudly about &etitionerAs &rerogative but %$at
di"inis$es t$e legal e##icacy o# suc$ rig$t is t$e condition attac$ed to it %$ic$ is de&endent e>clusively on
t$eir %ill #or %$ic$ reason, We $ave no alternative but to treat t$e controversial sti&ulation as ino&erative(
A &urely &otestative i"&osition o# t$is c$aracter "ust be obliterated #ro" t$e #ace o# t$e contract
%it$out a##ecting t$e rest o# t$e sti&ulations considering t$at t$e condition relates to t$e #ul#ill"ent o# an
already e>isting obligation and not to its ince&tion(
San 9edro $eld < Not really &otestative, S+ "ade a s$ortcut(!
Art. 1151. I*possi"le &onditions' those &ontrary to #ood &%sto*s or p%"li& poli&y and those
prohi"ited "y la. shall ann%l the o"li#ation .hi&h depends %pon the*. I) the o"li#ation is
divisi"le' that part thereo) .hi&h is not a))e&ted "y the i*possi"le or %nla.)%l &ondition
shall "e valid.
The &ondition not to do an i*possi"le thin# shall "e &onsidered as not havin# "een
a#reed %pon.
A,) 9A,TI)S 3,)) TO STI9.LAT) AN/ +ON*ITION?
/)S( Wit$ t$e e>ce&tion t$at it s$ould not be i"&ossible, i""oral and illicit(
WHAT IS AN I09OSSIBL) +ON*ITION?
It is t$at %$ic$ is illogical or legally or &$ysically unattainable(
T$ere is &$ysical i"&ossibility %$en, #or instance, you &ose as condition "a'ing a dead "an live
again(! T$ere is legal i"&ossibility %$en t$e obligation cannot be #ul#illed because it is &ro$ibited by la%(
WHAT IS AN ILLI+IT +ON*ITION?
It is t$at %$ic$ is against good custo"s or &ublic &olicy(
WHAT IS AN I00O,AL +ON*ITION?
It is t$at %$ic$ is against good "orals(
WHAT IS TH) )33)+T O3 TH)S) +ON*ITIONS ON AN OBLIGATION?
It de&ends(
456 I# it is &ositive in nature 4to do or to give6 t$e obligation as %ell as t$e condition is void, so it
is as i# t$ere is no obligation )F+)9T in contacts involving succession and donation because
t$ey are gratuitous and &urely liberal and not given #or any consideration(
;=
4;6 I# it is negative 4not do6 just disregard t$e condition as i# no condition %as i"&osed at all but
t$e obligation re"ains valid e(g(, I %ill give you 950 i# you do not 'ill I"elda in %$ic$ case
t$e condition is considered not %ritten at all(
Art. 1154. The &ondition that so*e event happen at a deter*inate ti*e shall e6tin#%ish the
o"li#ation as soon as the ti*e e6pires or i) it has "e&o*e ind%"ita"le that the event .ill not
ta7e pla&e.
Art. 115. The &ondition that so*e event .ill not happen at a deter*inate ti*e shall render
the o"li#ation e))e&tive )ro* the *o*ent the ti*e indi&ated has elapsed' or i) it has "e&o*e
evident that the event &annot o&&%r.
Art. 115!. The &ondition shall "e dee*ed )%l)illed .hen the o"li#or vol%ntarily prevents its
)%l)ill*ent.
HOW LONG 0.ST TH) 9A,T/ WAIT I3 TH) +ON*ITION IS NOT /)T 0)T?
9eo&le nor"ally do not $ave to %ait #or eternity( It is &ossible #or t$e &arties to #i> a &eriod #or t$e
condition to be #ul#illed( T$is is %$at you call a conditional obligation cou&led %it$ a ter"(
WHAT IS TH) )33)+T O3 A +ON*ITION +O.9L)* WITH A T),0 ON AN OBLIGATION?
It de&ends<
456 I# it is &ositive in nature, t$ere is a #i>ed &eriod, and i# by said date t$ere is no #ul#ill"ent, t$en
t$e &arties are released #ro" t$eir obligation )F+)9T i# it beco"es indubitable i(e(, t$ere is
certainty t$at t$e condition %ill no longer occur, $a&&en or e>ist( I# be#ore t$e &eriod
sti&ulated t$e condition is #ul#illed, t$en t$e obligation beco"es e##ective(
4;6 I# it is negative in nature and t$ere is a #i>ed &eriod, and by said &eriod t$e condition does not
occur, $a&&en, or e>ist, t$en you are legally bound to #ul#ill t$e obligation, e(g(, I %ill give
you 95JJ i# t$ere is no cou& dAetat be#ore *ece"ber =5, ;JJ;, in %$ic$ case, i# *ece"ber =5
arrives and t$ere is no cou& dAetat, t$en you %ill $ave to give t$e 95JJ, )F+)9T i# it
beco"es indubitable t$at no cou& %ill ever $a&&en be#ore t$e =5
st
t$en you $ave to give t$e
95JJ be#ore *ece"ber =5 arrives(
WHAT I3 TH) 9A,TI)S *O NOT AG,)) ON A 9),IO*?
It de&ends<
456 I# t$ere %as no #i>ed &eriod and t$ere %as no intent on t$e &art o# t$e &arties to #i> a &eriod,
t$en t$ey %ould $ave to %ait #or t$e condition to $a&&en(
4;6 I# t$ere %as no #i>ed &eriod but by t$e nature o# t$e obligation t$ere s$ould be a #i>ed &eriod
t$en Art( 55IN s$ould be a&&lied( Art( 55IN being a t%o1ste& &rocess<
4a6 It "ust be s$o%n t$at t$e &arties intended a &eriod(
4b6 I# yes, t$e court actually #i>es a &eriod(
Art( 55IN aut$ori@es t$e court to #i> a &eriod but t$e court cannot do it at its o%n discretion(
T$ey %ould $ave to as' %$at &eriod %as intended by t$e &arties(
In 0illare v( Hernando, t$e court cannot #i> a &eriod because t$ere is no "ore obligation
because t$e lease $as e>&ired and t$e &arties did not see" to $ave rene%ed it(
BILLAR> <. =>RNANDO 11 SCRA 454
+ontract o# Lease
0illare 4Lessor6 9eo&leAs ,estaurant +o 4Lessee6
9=DJG "ont$
;C
@a&ts+ 9ar( 5= o# t$e contract &rovides t$at TH) +ONT,A+T O3 L)AS) IS ONL/ S.B-)+T TO TH)
LAW AN* ,)G.LATIONS O3 TH) GO:),N0)NT8 AN* THAT THIS +ONT,A+T O3 L)AS)!
"aybe rene%ed a#ter a &eriod o# D years .N*), TH) T),0S AN* +ON*ITIONS AS WILL B)
0.T.ALL/ AG,))* u&on t$e &arties at t$e ti"e i# rene%al8 > > >!
9etitioner in#or"ed res&ondent t$at t$ey could continue leasing t$e &ro&erty i# t$ey %ere
a"enable to &aying increased rentals o# 95,;JJ &er "ont$( ,es&ondent counter o##ered 9NJJ( ,es&ondent
#iled a co"&laint ordering t$e rene%al o# t$e lessee(
Iss%e+ ?DN Art. 1181 applies
R%lin#+ NO. T$e duration o# t$e rene%al &eriod %as not le#t to t$e %ill o# t$e lessee alone, but rat$er to t$e
%ill o# bot$ lessor and lessee( T$e &arties reserved to t$e"selves t$e #aculty o# agreeing u&on t$e &eriod o#
t$e rene%al o# t$e contract(
A,T( 55IN A99LI)S ONL/ I3 TH),) IS AN )FISTING +ONT,A+T, AN* IN TH) +AS) AT
BA,, TH),) IS NO 0O,) +ONT,A+T AS IT AL,)A*/ )F9I,)*(
AGCAOILI <. GSIS 1! SCRA 1

+ontract o# Sale
GSIS House and Lot Agcaoili
9=5DMG"ont$
@a&ts+ T$e condition o# t$e contract %as t$at you are, t$ere#ore advised to occu&y t$e said $ouse
i""ediately( I# you #ail to occu&y t$e sa"e %it$in = days > > > your a&&lication s$all be considered
auto"atically disa&&roved(!
Agcaoili tried to #ul#ill t$e condition, but could not #or t$e reason t$at t$e $ouse %as absolutely
unin$abitable( He re#used t$ere#ore to "a'e #urt$er install"ent &ay"ents unless GSIS "ade t$e $ouse
$abitable( GSIS canceled t$is a%ard and re7uired Agcaoili to vacate t$e &re"ises( T$us, Agcaoili instituted
suit #or s&eci#ic &er#or"ance and da"ages(
Iss%e+ ?DN GSIS .as &orre&t in &an&elin# the a.ard.
R%lin#+ NO. T$ere can $ardly be any doubt t$at t$e $ouse conte"&lated %as one t$at could be occu&ied
#or &ur&oses o# residence in reasonable co"#ort and convenience(
T$ere being a 9),3)+T)* +ONT,A+T O3 SAL), it %as t$e duty o# GSIS as seller to deliver
t$e t$ing sold IN A +ON*ITION 3O, ITS )N-O/0)NT B/ TH) B./), 3O, TH) 9.,9OS)
+ONT)09LAT)*(
Since GSIS did not #ul#ill $is obligation, and %as not %illing to &ut t$e $ouse in a $abitable state,
IT +ANAT IN:OB) AG+AOILIAS S.S9)NSION O3 9A/0)NT O3 A0O,ITIOATION AS +A.S) TO
+AN+)L TH) +ONT,A+T(
Note t$at t$e +ourt e>ercised its e7uity jurisdiction( It adjusted t$e rig$ts o# &arties in accordance
%it$ t$e circu"stances obtaining at t$e ti"e o# rendition o# judg"ent due to signi#icant di##erence #ro"
t$ose e>isting at t$e ti"e o# generation o# t$ose rig$ts 4contract e>ecution6(
ROS> PACGING <. COERT O@ APP>ALS 1!( SCRA 198
+ontract o# Loan
,ose 9ac'ing loan 9+I Ban'
real estate and c$attel "ortgage
@a&ts+ T$e conditions o# t$e contract o# loan %as t$e 9+I Ban' %ill a&&oint its &eo&le in 'ey &ositions( 9+I
Ban' a&&roved t$e additional acco""odation to &etitioner consisting o# 9N5J,JJJ but released only
9=JJ,JJJ( 9etitioner o##ered to &artially &ay o## its account and re7uested t$e release o# t$e real estate
;D
"ortgage( ,es&ondent $o%ever re#used stating t$at all obligation s$ould be li7uidated #irst be#ore t$e
release o# titles( ,es&ondent #iled a co"&laint #or collection o# indebtedness( It gave notice t$at it %ould
cause t$e real estate "ortgage to be #oreclosed( 9etitioner #iled %it$ t$e court &reli"inary injunction but t$e
trial court denied(
Iss%e+
?DN private respondent have the ri#ht to the e6tra3$%di&ial )ore&los%re sale o) petitionerKs
*ort#a#ed properties "e)ore trial on the *erits.
?DN petitioner .as in de)a%lt.
?DN respondent .as in de)a%lt.
R%lin#+ NO. W$en t$e lo%er court denied t$e issuance o# t$e %rit &rayed #or t$e dissolved t$e restraining
order it $ad &reviously issued, it &ractically adjudicated t$e case be#ore trial on "erits(
NO. T$e condition t$at &etitioner set #or t$e consolidation o# t$e obligation o# t$e &etitioner 2
li7uidation o# &etitionerAs obligation toget$er %it$ itAs ot$er obligation in t$e #inancing sc$e"e already
a&&roved by t$e NI*+ and 9*+9 2 did not $a&&en(
F>S. It #ailed to release t$e 9N5J,JJJ loan it a&&roved(
Note t$at in 3ili&inas 0arble +or&( v( IA+, it %as $eld t$at %$ere t$e lending cor&oration too'
over t$e "anage"ent o# t$e borro%ing cor&oration, as one o# t$e conditions #or t$e granting o# t$e loan,
and t$e borro%ing cor&oration %as led to ban'ru&tcy t$roug$ "is"anage"ent and "isa&&ro&riation o#
#unds, t$ereby de#eating t$e very &ur&ose o# t$e loan, it is as i# t$e loan %as never delivered, and t$us t$ere
%as #ailure o# consideration on t$e &art o# t$e lending institution(
Art. 115(. The e))e&ts o) a &onditional o"li#ation to #ive' on&e the &ondition has "een
)%l)illed' shall retroa&t to the day o) the &onstit%tion o) the o"li#ation. Nevertheless' .hen
the o"li#ation i*poses re&ipro&al prestations %pon the parties' the )r%its and interests
d%rin# the penden&y o) the &ondition shall "e dee*ed to have "een *%t%ally &o*pensated.
I) the o"li#ation is %nilateral' the de"tor shall appropriate the )r%its and interests re&eived'
%nless )ro* the nat%re and &ir&%*stan&es o) the o"li#ation it sho%ld "e in)erred that the
intention o) the person &onstit%tin# the sa*e .as di))erent.
In o"li#ations to do' and not to do' the &o%rts shall deter*ine' in ea&h &ase' the
retroa&tive e))e&t o) the &ondition that has "een &o*plied .ith.
Art. 1155. The &reditor *ay' "e)ore the )%l)ill*ent o) the &ondition' "rin# the appropriate
a&tions )or the preservation o) his ri#ht.
The de"tor *ay re&over .hat d%rin# the sa*e ti*e he has paid "y *ista7e in &ase
o) a s%spensive &ondition.
Art. 1158. ?hen the &onditions have "een i*posed .ith the intention o) s%spendin# the
e))i&a&y o) an o"li#ation to #ive' the )ollo.in# r%les shall "e o"served in &ase o) the
i*prove*ent' loss or deterioration o) the thin# d%rin# the penden&y o) the &ondition+
,1- I) the thin# is lost .itho%t the )a%lt o) the de"tor' the o"li#ation shall "e
e6tin#%ished/
,0- I) the thin# is lost thro%#h the )a%lt o) the de"tor' he shall "e o"li#ed to pay
da*a#es/ it is %nderstood that the thin# is lost .hen it perished' or #oes o%t o)
&o**er&e' or disappears in s%&h a .ay that its e6isten&e is %n7no.n or it &annot
"e re&overed/
,1- ?hen the thin# deteriorates .itho%t the )a%lt o) the de"tor' the i*pair*ent is to
"e "orne "y the &reditor/
,4- I) it deteriorates thro%#h the )a%lt o) the de"tor' the &reditor *ay &hoose
"et.een the res&ission o) the o"li#ation and its )%l)ill*ent' .ith inde*nity )or
da*a#es in either &ase/
;M
,- I) the thin# is i*proved "y its nat%re' or "y ti*e' the i*prove*ent shall in%re to
the "ene)it o) the &reditor/
,!- I) it is i*proved at the e6pense o) the de"tor' he shall have no other ri#ht that
that #ranted to the %s%)r%&t%ary.
WHAT A,) TH) STAG)S O3 A S.S9)NSI:) +ON*ITIONAL OBLIGATION?
I( Be#ore #ul#ill"ent o# t$e condition 2 no obligation yet but &arties are given rig$ts %$ic$
are "erely &rotective in nature just si"&ly to &revent &arties #ro" being le#t %it$ not$ing<
,ig$ts o# t$e +reditors<
4a6 to &ut &ro&erty in escro%, %$ereby a t$ing %ill be $eld by a t$ird &erson be#ore t$e
condition is #ul#illed8
4b6 to as' #or a bond, a security or collateral so t$at i# t$e obligation is #ul#illed, t$ere is a
rig$t to call u&on t$e security or &ay t$e bond(
,ig$ts o# t$e *ebtors<
4a6 i# t$ere is delivery by "ista'e, $e can de"and t$e return o# %$atever $e delivered
%it$ interest 4solutio indebiti68 "ista'e $ere is conte"&lated in situations %$en t$e
debtor t$oug$t t$at it is a &ure obligation or %$en $e t$oug$t t$at t$e condition $as
arrived8
4b6 i# t$ere is no "ista'e, t$en t$ere is no rig$t to de"and, in %$ic$ case t$ere is
voluntary #ul#ill"ent, but i# it is absolutely certain t$at t$e condition cannot be
#ul#illed, one can de"and t$e return o# t$e object delivered(
In cases o# loss, i"&air"ent, or i"&rove"ent o# S9)+I3I+ not G)N),I+ t$ings, subject
to a S.S9)NSI:) condition or ter"<
LOSS IBPAIRB>NT IBPRO<>B>NT
Wit$out t$e #ault or
negligenceor e>&ense o#
t$e debtor
No Obligation T$e creditor su##ers t$e
*eterioration or s$ould
acce&t t$e &ro&erty in its
*eteriorated state(
T$e creditor is entitled
to t$e i"&rove"ent
Wit$ t$e #ault Or
negligence Or e>&ense
o# t$e debtor
T$e debtor is "ade
liable #or da"ages
+reditor $as o&tions<
4a6 S9)+I3I+
9),3O,0AN+) %it$
delivery not%it$standing
da"ages8 costs are
borne by t$e debtor
4b6 ,)S+ISSION and
*A0AG)S
*ebtor $as usu#ructuary
rig$tsS
S *ean del +astillo says usu#ruct! does not re#er to t$e rei"burse"ent but rat$er, t$e
debtor is given t$e rig$t to re"ove t$e i"&rove"ent as long as t$ere is no da"age to t$e
&ro&erty to %$ic$ it is attac$ed, e(g(, a #ence t$at %as built around a &iece o# land t$at is
su&&osed to be delivered %$ic$ t$e debtor "ay re"ove as long as it %ould not cause
da"age to t$e land(
Ho%ever, t$e debtor can see' rei"burse"ent #or necessary e>&enses, e(g(, "ere
&reservation o# t$e &ro&erty li'e "aintenance e>&enses(
SS O&tions 4a6 and 4b6 are not cu"ulative(
;N
II( A#ter t$e condition $as been #ul#illed 2 t$e arrival o# t$e conditon gives birt$ to t$e
obligation( Its e##ect retroacts to t$e &er#ection o# t$e obligation, so t$at i# on t$e 5
st
o#
Nove"ber, ;JJ;, A obliged $i"sel# to deliver a car to B a#ter t$e latter $as &assed t$e
bar8 %$en results are released on t$e 5=
t$
o# 0arc$, ;JJ=, B is considered t$e o%ner o#
t$e car as o# t$e 5st o# Nove"ber, %$ic$ "eans any deed o# sale A "ig$t $ave e>ecuted
in #avor o# + on t$e 5
st
o# -anuary, ;JJ= is null and void( T$e trans#er o# o%ners$i& $ad
occurred by t$e 5
st
o# Nove"ber, ;JJ;(
T$ere are e>ce&tions to t$e retoractivity rule<
456 ,)AL +ONT,A+TS 2 &er#ected only u&on delivery( *elivery, t$ere#ore, is
essential( )>a"&les< a &ledge or &a%n(
4;6 3,.ITS or INT),)ST 2 in t$e case o# unilateral obligations, t$e #ruits belong to t$e
debtor .NL)SS t$ere is a contrary agree"ent by t$e &arties( In a reci&rocal
obligation, t$ere is no obligation to deliver t$e #ruits because t$ey are dee"ed
"utually co"&ensated(
TO WHAT 9,)STATIONS *O ALL TH)S) A99L/?
T$ese a&&ly to &restations to give( 3or &restations to do and not to do, it is discretionary u&on t$e
court to deter"ine t$e e##ects o# retroactivity(
WHAT IS TH) *I33),)N+) B)TW))N 3,.ITS! AN* I09,O:)0)NTS!?
I"&rove"ents %ould re#er to t$at %$ic$ %ill add to t$e value o# t$e &ro&erty, e(g(, a tree t$at
gro%s out o# a &iece o# land, %$ile #ruits, %ould re#er to s&ontaneous &roducts o# t$e soil, t$e young o#
ani"als, and earnings o# &ro&erty, e(g(, t$e "ango t$at gro%s out o# t$e tree(
Art. 1189. ?hen the &onditions have )or their p%rpose the e6tin#%ish*ent o) an o"li#ation
to #ive' the parties' %pon the )%l)ill*ent o) said &onditions' shall ret%rn to ea&h other .hat
they have re&eived.
In &ase o) the loss' deterioration or i*prove*ent o) the thin#' the provisions .hi&h'
.ith respe&t to the de"tor' are laid do.n in the pre&edin# arti&le shall "e applied to the
party .ho is "o%nd to ret%rn.
As )or o"li#ations to do and not to do' the provisions o) the se&ond para#raph o) Art.
115( shall "e o"served as re#ards the e))e&t o) the e6tin#%ish*ent o) the o"li#ation.

WHAT A,) ,)SOL.TO,/ +ON*ITIONS?
In a resolutory condition, t$e $a&&ening o# t$e condition signals t$e deat$ o# t$e obligation, e(g(,
A gives a $ouse and lot to B on t$e condition t$at B does not "arry be#ore
turning ;5( B "arries be#ore turning ;5( B is obligated to return t$e $ouse and
lot to A(
In resolutory conditions %it$ &restations to give, %$en t$e condition is #ul#illed, t$e debtor $as to
return t$e object in $is &ossession( I# t$e object cannot be returned due to loss, i"&air"ent, a&&ly t$e above
rules on sus&ensive conditions(
It is again discretionary on t$e courts in &restations to do or not to do(
Art. 1181. The po.er to res&ind o"li#ations is i*plied in re&ipro&al ones' in &ase one o) the
o"li#ors sho%ld not &o*ply .ith .hat is in&%*"ent %pon hi*.
The in$%red party *ay &hoose "et.een the )%l)ill*ent and the res&ission o) the
o"li#ation' .ith the pay*ent o) da*a#es in either &ase. =e *ay also see7 res&ission' even
a)ter he has &hosen )%l)ill*ent' i) the latter sho%ld "e&o*e i*possi"le.
The &o%rt shall de&ree the res&ission &lai*ed' %nless there "e $%st &a%se a%thoriAin#
the )i6in# o) a period.
;H
This is %nderstood to "e .itho%t pre$%di&e to the ri#hts o) third persons .ho have
a&:%ired the thin#' in a&&ordan&e .ith Arts. 115 and 1155 and the Bort#a#e La..
WHAT I3 TH),) IS A B,)A+H IN +ON*ITION?
It de&ends<
456 in sus&ensive conditions, &arties are released #ro" eac$ ot$er &recisely because t$ere $as
never been an obligation8
4;6 in resolutory conditions, t$e obligation continues to be e##ective(
4=6 In reci&rocal obligations, t$e #ul#ill"ent o# t$e ot$er is t$e +ON*ITION by %$ic$ t$e ot$er is
to &er#or" $is obligation because t$e obligation o# one is de&endent u&on t$e obligation o# t$e
ot$er8 as long as bot$ o# t$e" do not co"&ly %it$ t$eir res&ective obligations no ine is in
delay(
CO <. COERT O@ APP>ALS 110 SCRA 05
Contract of Sale
+o 4Seller6 Lot +ustodio 4Buyer6
T5JJ,JJJ
@a&ts+ T$e &urc$ase &rice is T5JJ,JJJ and is &ayable in ; install"ents, TCJ,JJJ and TMJ,JJJ( T$e &ay"ent
"ade is only 9CJ,JJJ and T5,JJJ earnest "oney to be deducted #ro" t$e total &urc$ase &rice
Alt$oug$ &eriod o# &ay"ent $ad already e>&ired, +ustodio &aid T=J,JJJ as &artial &ay"ent(
+o de"anded #or t$e balance( Instead o# #iling #or s&eci#ic &er#or"ance or rescission o# t$e
contract, +o #or#eited t$e T=J,JJJ &ay"ent(
+ustodio atte"&ted to &ay t$e re"aining balance o# TNJ,JJJ( +o re#used to acce&t said &ay"ent(
+ustodio t$us sued #or rescission o# t$e contract and &rayed #or t$e return o# t$e T=J,JJJ(
Iss%e+ ?DN the Co%rt o) Appeals erred in orderin# the Cos to ret%rn the O19'999 paid "y C%stodio.
R%lin#+ NO. *es&ite t$e #act t$at +ustodioAs #ailure to &ay t$e a"ounts o# TCJ,JJJ and TMJ,JJJ on t$e
agreed &eriod %as a breac$ o# $er obligation, t$e +oAs did not sue #or eit$er s&eci#ic &er#or"ance or
rescission o# t$e contract( Instead it #or#eited t$e o&tion! %$en s$e #ailed to &ay t$e re"aining TNJ,JJJ(
In t$e absence o# an e>&ress sti&ulation aut$ori@ing t$e sellers to e>tra1judicially rescind t$e
contract o# sale, t$e +oAs cannot unilaterally and e>tra1judicially rescind t$e contract o# sale(
WHAT A,) TH) ,)0)*I)S 3O, B,)A+H IN ,)+I9,O+AL OBLIGATIONS?
T$e &arty %$o $as &er#or"ed or is ready to &er#or" "ay see'<
456 S9)+I3I+ 9),3O,0AN+) &lus *A0AG)S8 or
4;6 ,)S+ISSION &lus *A0AG)S in accordance %it$ Art( 55I5(
IS TH),) A N))* TO GO TO +O.,TS TO ,)S+IN* A ,)+I9,O+AL OBLIGATION?
T$e la% states t$at t$ere is no need as it is i"&lied already B.T #or &ractical &ur&oses it %ould
still be necessary, e(g(<
A &aid B 9DJT( B $as t$e obligation to deliver t$e car to A %it$in 5J days( A#ter 5J days, B #ailed
to deliver t$e car( I# B returns t$e 9DJT, t$ere is no need to go to court( But i# B re#uses to return t$e 9DJT,
it is but natural #or A to go to court(
W$ile you are not re7uired to go to court, by not going you are ta'ing a ris' t$at i# t$e court #inds
t$at you are not entitled to rescission, you %ould su##er t$e conse7uences( 4Eniversity o) the Philippines v.
de los An#eles6
ENI<>RSITF O@ T=> P=ILIPPIN>S <. D> LOS ANG>L>S 1 SCRA 190
Logging Agreement
.9 rig$t to cut, collect and re"ove ti"ber AL.0+O
;I
royalties and #orest #ees
@a&ts+ Alu"co incurred un&aid account o# 9;;J,JJJ %$ic$ des&ite re&eated de"and by .9, t$e #or"er
#ailed to &ay( Alu"co e>ecuted an instru"ent, %$ic$ states< In t$e event t$at t$e debtor #ails to co"&ly
%it$ itAs &ro"ise > > it agrees %it$out reservation t$at t$e creditor s$all $ave t$e rig$t and &o%er to
consider t$e logging agree"ent as rescinded %it$out t$e necessity o# any judicial suit > >!
Alu"co #urt$er incurred an un&aid accout o# 9MJ,JJJ( .9 t$us rescinded t$e logging agree"ent(
Iss%e+ ?DN EP &an treat its &ontra&t .ith the respondent res&inded.
,uling< /)S( T$ere is not$ing in la% t$at &ro$ibits t$e &arties #ro" entering into agree"ent t$at violation
o# t$e ter"s o# t$e contract %ould cause cancellation t$ereo#, even %it$out court intervention( It is not
al%ays necessary #or t$e injured &arty to resort to court act #or t$e rescission o# t$e contract(
-udicial action is necessary #or t$e resolution o# a reci&rocal obligation8 since in every case %$ere
t$e e>tra1judicial resolution is contested only t$e #inal a%ard o# t$e court o# co"&etent jurisdiction can
conclusively settle %$et$er t$e resolution %as &ro&er or not( It is in t$eir sense t$at judicial action %ill be
necessary as %it$out it, t$e e>tra1judicial resolution %ill re"ain contestable and subject to judicial
invalidation, unless an attac' t$ereon s$ould beco"e barred by ac7uiescence, esto&&el or &rescri&tion(
A resolution o# reci&rocal or synallag"atic contracts "ay be "ade e>tra1judicially unless
success#ully i"&ugned in court(
TAN <. COERT O@ APP>ALS 1( SCRA !(
Contract of Sale
Singsons 4Seller6 Lot Tan 4Buyer6
95(H 0 and 9;JJ,JJJ do%n &ay"ent
@a&ts+ Tan is to advance 9;JJ,JJJ to enable Singson to secure t$e cancellation o# t$e "ortgage and lien
annotated on t$e title o# t$e &ro&erty(
T$e &arties agreed on an e>tension o# ; %ee's #or t$e e>ecution o# t$e deed o# sale( .&on
e>ecution by t$e *B9 4"ortgagee6 o# t$e deed o# cancellation o# "ortgage, Singson tried to contact Tan but
to no avail( Instead, Tan canceled t$e sale and de"anded return o# t$e earnest "oney(
Iss%e+ ?DN respondent &o**itted a s%"stantial "rea&h as to .arrant petitionerKs e6er&ise o) her
ri#ht to res&ind the &ontra&t o) sale.
R%lin#+ NO. Singson substantially co"&lied %it$ t$e underta'ing o# clearing t$e title o# t$e &ro&erty(
,escission %ill not be &er"itted #or a slig$t o# casual breac$ o# t$e contract but only #or suc$
breac$es as are so substantial and #unda"ental as to de#eat t$e object o# t$e &arties in "a'ing t$e
agree"ent(
In t$e absence o# a sti&ulation to t$e contrary, t$e &o%er to rescind "ust be invo'ed judicially8 it
cannot be e>ercised solely on a &artyAs o%n judg"ent t$at t$e ot$er $as co""itted a breac$ o# t$e
obligation( W$ere t$ere is not$ing in t$e contract e"&o%ering t$e &etitioner to rescind it %it$out resort to
t$e courts, t$e &etitionerAs action in unilaterally ter"inating t$e contract in t$is case is unjusti#ied(
Note t$at under t$e t$ird &aragra&$ o# Art( 55I5 o# t$e +ivil +ode, t$e court is given a
discretionary &o%er to allo% a &eriod %it$in %$ic$ a &erson in de#ault "ay be &er"itted to &er#ro" $is
obligation(

IS ,)S+ISSION TH) ONL/ ,)0)*/?
NO( ,escission $ere is only one o# t$e re"edies but you are not re7uired to c$oose just t$at
because you can also as' #or s&eci#ic &er#or"ance(
IS TH) ,IGHT TO ,)S+IN* ABSOL.T)?
=J
NO( I# a breac$ is only slig$t, t$e courts "ay not grant rescission( 4Angeles v( +alasan@6
0A/ ON) SI0.LTAN)O.SL/ A:AIL O3 S9)+I3I+ 9),3O,0AN+) AN* ,)S+ISSION?
NO( /ou cannot c$oose bot$( Ho%ever, i# you $ave c$osen s&eci#ic &er#or"ance and %it$out #ault
on your &art t$e ot$er &arty still cannot co"&ly, t$en you "ay c$oose rescission( 4Ayson1Si"on v( Ada"os6
T$e reverse is not allo%ed( I# one $as c$osen rescission and is allo%ed by t$e court, t$e cannot
avail o# s&eci#ic &er#or"ance any"ore as t$ere is no longer a valid obligation(
WHAT IS TH) *I33),)N+) B)TW))N ,)S+ISSION IN A,T( 55I5 AN* A,T( 5=H= AN* 5=HC?
ART. 1181 ART. 1151D1154
It is a &rinci&al action( It is a subsidiary attac'(
T$e basis is B,)A+H( W$et$er or not one su##ers
econo"ic &rejudice, $e can institute action #or
rescission, e(g(, even i# debtor is %illing to &ay bac'
rents, one can still institute suc$ action(
T$e basis is )+ONO0I+ 9,)-.*I+)( I# one
su##ers econo"ically and t$e ot$er is %illing to &ay
t$e bac' rents, t$e #or"er cannot be entitled to
rescission(
SERIA <. INT>RB>DIAT> APP>LLAT> COERT 11 SCRA !!1
Deed of Absolute Sale with Mortgage
+ris&in 4SellerG0ortgagee6 &arcel o# landGsell Suria 4BuyerG0ortgagor6

"ortgage t$e sa"e
@a&ts+ T$e conditions o# t$e contract %as t$at t$e "ortgagee $as t$e rig$t to #oreclose i# "ortgagor #ailed
to &ay( Suria #ailed to &ay sti&ulated install"ents( ,es&ondent t$us #iled a co"&laint #or rescission o#
contract and da"ages(
Iss%e+ ?DN the sellerKs resort to the re*edy o) res&ission %nder Art. 1181 is tena"le.
,uling< NO( T$e &etitionerAs breac$ o# obligation is not %it$ res&ect to t$e &er#ected contract o# sale but in
t$e obligation created by t$e "ortgage contract( TH) ,)0)*/ O3 ,)S+ISSION IS NOT A 9,IN+I9AL
A+TION ,)TALIATO,/ IN +HA,A+T), B.T B)+O0)S A S.BSI*IA,/ ON) WHI+H B/ LAW
IS A:AILABL) ONL/ IN TH) ABS)N+) O3 AN/ OTH), ,)0)*/( 3oreclosure $ere is not only a
re"edy accorded by la% but, is A S9)+I3I+ 9,O:ISION 3O.N* IN TH) +ONT,A+T O3 TH)
9A,TI)S(
Art. 1180. In &ase "oth parties have &o**itted a "rea&h o) the o"li#ation' the lia"ility o) the
)irst in)ra&tor shall "e e:%ita"ly te*pered "y the &o%rts. I) it &annot "e deter*ined .hi&h o)
the parties )irst violated the &ontra&t' the sa*e shall "e dee*ed e6tin#%ished' and ea&h shall
"ear his o.n da*a#e.
WHAT I3 BOTH 9A,TI)S A,) G.ILT/ O3 B,)A+H?
I# &ossible #ind out %$o t$e #irst in#ractor %as and $is liability %ill be te"&ered?
WHAT IS TH) 9.,9OS) O3 T)09),ING!?
T$e second in#ractor is not justi#ied in co""itting t$e breac$ just because o# t$e #irst in#raction(
One cannot derive any bene#it #ro" t$e #ault o# t$e ot$er(
Se&. 0. L O"li#ations .ith a Period
=5
Art. 1181. O"li#ations )or .hose )%l)ill*ent a day &ertain has "een )i6ed' shall "e
de*anda"le only .hen that day &o*es.
O"li#ations .ith a resol%tory period ta7e e))e&t at on&e' "%t ter*inate %pon arrival
o) the day &ertain.
A day &ertain is %nderstood to "e that .hi&h *%st ne&essarily &o*e' altho%#h it *ay
not "e 7no.n .hen.
I) the %n&ertainty &onsists in .hether the day .ill &o*e or not' the o"li#ation is
&onditional and it shall "e re#%lated "y the r%les o) the pre&edin# Se&tion.
WHAT IS AN OBLIGATION WITH A T),0 O, 9),IO*?
T$is is an obligation %$ic$ is to be &er#or"ed at a &eriod or deter"inable #uture ti"e( T$is is a
#uture and certain event but t$e ti"e o# t$e $a&&ening is uncertain( T$e e>a"&les are deat$ or subject to t$e
availability o# #unds(
T$e #ul#ill"ent o# t$e &eriod deter"ines t$e de"andability o# t$e obligation as co"&ared %it$ an
obligation subject to a condition %$erein t$e #ul#ill"ent o# t$e condition deter"ines t$e birt$ or deat$ o#
t$e obligation(
WHAT IS TH) *I33),)N+) B)TW))N A S.S9)NSI:) +ON*ITION AN* A S.S9)NSI:)
9),IO*?
CONDITION P>RIOD
Ha&&ening o# t$e condition signals t$e birt$
o# t$e obligation
Obligation is already t$ere but de"andability is
sus&ended u&on arrival o# t$e ter" or &eriod(
,etroactively a&&lies No retroactivity because t$e obligation is already
e>isting
9rescri&tion begins #ro" t$e "o"ent t$e condition
$a&&ens
9rescri&tion begins #ro" t$e "o"ent o# t$earrival o#
t$e ter"
WHAT IS TH) *I33),)N+) B)TW))N A ,)SOL.TO,/ +ON*ITION AN* A ,)SOL.TO,/
9),IO*?
In a resolutory condition, because t$e obligation ter"inates u&on t$e $a&&ening o# t$e condition,
t$ere is a &ossibility t$at t$e obligation "ay continue to re"ain e##ective #orever( T$is is because a
condition "ay or "ay not $a&&en at all(
In a resolutory &eriod, it is certain t$at so"eti"e t$e obligation %ill ter"inate(
Art. 1184. In &ase o) loss' deterioration or i*prove*ent o) the thin# "e)ore the arrival o) the
day &ertain' the r%les in Art. 1158 shall "e o"served.
WHAT IN +AS)S O3 LOSS, *)T),IO,ATION, O, I09,O:)0)NT?
T$e sa"e la%s in obligations %it$ a condition a&&ly( See t$e table( But *ean del +astillo also
states t$at in obligations %it$ a &eriod, t$ere is "ore reason to ta'e care o# t$e &ro&erty because in so"e
#uture ti"e you "ust deliver, in %$ic$ case you "ust ta'e care o# suc$ &ro&erty be#ore t$e arrival o# t$e
&eriod(
Art. 118. Anythin# paid or delivered "e)ore the arrival o) the period' the o"li#or "ein#
%na.are o) the period or "elievin# that the o"li#ation has "e&o*e d%e and de*anda"le'
*ay "e re&overed' .ith the )r%its and interests.
WHAT A,) TH) ,IGHTS O3 TH) *)BTO, IN +AS) H) *)LI:),S B)3O,) TH) A,,I:AL O3
TH) T),0?
=;
It de&ends( I# t$ere is a "ista'e 2 debtor t$oug$t t$at t$e &eriod $as arrived already or t$e
obligation is already due 2 t$e debtor "ay recover %$at $as been &aid or delivered(
I# t$ere is no "ista'e or %$en t$e &ay"ent is voluntary, t$en t$e debtor can no longer recover as it
beco"es a natural obligation( T$is is a &er"anent &ro$ibition(
In conditional obligations, i# t$e debtor delivers be#ore t$e $a&&ening o# t$e condition %it$ no
"ista'e on $is &art and t$e condition does not $a&&en t$en t$e debtor can recover %$at $e
delivered(
I3 TH) 0ISTAB) WAS *IS+O:),)* A3T), TH) OBLIGATION HAS B)+O0) *.), 0A/ TH)
*)BTO, STILL ,)+O:),?
)(g(, T$e obligation is to &ay 95T on t$e =5
st
o# -anuary, ;JJ= and &ay"ent is "ade on t$e 5
st
-anuary, ;JJ=( T$e "ista'e o# early &ay"ent %as discovered only on t$e 5C
t$
o# 3ebruary, ;JJ=( As regards
t$e &rinci&al, it is settled t$at t$e debtor can no longer recover t$e &rinci&al because it is already
de"andable( But as regards t$e interest, t$ere are di##erent vie%s<
,1- 9A,AS 2 t$e debtor can sill recover interest even a#ter t$e &eriod $as arrived(
,0- +AG.IOA 2 t$e debtor can no longer recover t$e &rinci&al as %ell as t$e interest(
,1- TOL)NTINO 2 it %ill de&end u&on t$e good #ait$ and t$e bad #ait$ o# t$e creditor( T$e
debtor can recover interest only i# creditor is in bad #ait$(
Art. 118!. ?henever in an o"li#ation a period is desi#nated' it is pres%*ed to have "een
esta"lished )or the "ene)it o) "oth the &reditor and the de"tor' %nless )ro* the tenor the
sa*e or other &ir&%*stan&es it sho%ld appear that the period has "een esta"lished in )avor
o) one o) the other.
3O, WHOS) B)N)3IT IS TH) T),0 O, 9),IO* 3O,?
It is #or t$e bene#it o# bot$ t$e debtor and t$e creditor( T$is "eans t$at t$e debtor cannot be
co"&elled to &ay be#ore t$e &eriod arrives and t$e creditor cannot be co"&elled to receive &ay"ent be#ore
t$e arrival o# t$e &eriod( T$is rule is absolute as regards t$e creditor( T$ere is no %ay to co"&el bot$ &arties
to do ot$er%ise, even #or %$i"sical reasons(
WHAT A,) TH) )F+)9TIONS TO TH) ,.L) THAT TH) 9),IO* IS 3O, TH) B)N)3IT O3 TH)
+,)*ITO, AN* TH) *)BTO,?
456 t$ose &rovided by la% 2 in a case o# a de&osit %$erein t$e de&ositor "ay ta'e out t$e &ro&erty
de&osited anyti"e $e %ants regardless o# t$e #act t$at t$e ter" $as no yet arrived8
4;6 by sti&ulation in a contract 2 can be e>&ress or i"&lied8
4a6 can eit$er give t$e bene#it to creditor or debtor, so i# it &ayable on or be#ore a certain date
or %$en you say %it$in =J days! t$at is al%ays #or t$e bene#it o# t$e debtor(
4b6 I# t$ere is an acceleration clause, it is #or t$e creditor(
4c6 I# it says &ayable on t$e 5H
t$
o# -anuary, it is #or bot$(
Art. 118(. I) the o"li#ation does not )i6 a period' "%t )ro* its nat%re and the &ir&%*stan&es
it &an "e in)erred that a period .as intended' the &o%rts *ay )i6 the d%ration thereo).
The &o%rts shall also )i6 the d%ration o) the period .hen it depends %pon the .ill o)
the de"tor.
In every &ase' the &o%rts shall deter*ine s%&h period as *ay %nder the
&ir&%*stan&es have "een pro"a"ly &onte*plated "y the parties. On&e )i6ed "y the &o%rts'
the period &annot "e &han#ed "y the*.
WH)N 0A/ TH) +O.,TS 3IF A 9),IO*?
456 W$en #ro" t$e tenor o# t$e agree"ent, it can be deduced t$at t$e &arties intended a &eriod,
alt$oug$ t$ey #ailed to state %$at t$e &eriod is(
4;6 W$en t$e sti&ulation is t$at t$e debtor %ill &ay %$en able(
==
WHAT I3 TH) +O.,T 3IN*S THAT TH),) WAS NO INT)NTION B/ TH) 9A,TI)S TO 3IF A
9),IO*?
T$e court %ill dis"iss t$e case, %$ic$ "eans t$at t$e obligation is a &ure one and is t$ere#ore
de"andable at once(
WHAT I3 TH) +O.,TS 3IN*S THAT TH) 9A,TI)S TH)0S)L:)S HA:) AL,)A*/ S)T TH)
9),IO*?
W$en t$e &eriod $as been set by t$e &arties, t$e courts $ave no aut$ority nor &ersonality to #i> a
&eriod 4Li* v. People6
LIB <. P>OPL> O@ T=> P=ILIPPIN>S 111 SCRA 11(
@a&ts+
Li" is a business%o"an( S$e &ro&osed to sell AyrosoAs tobacco8 Ayroso agreed to t$e
&ro&osition(
A docu"ent %as signed by Li" stating t$at t$e &roceeds 9NII(DJ %ill be given as soon as it
%as sold(!
Li" &aid to Ayroso only 9;CJ(JJ on = di##erent dates(
As no #urt$er a"ount %as &aid, Ayroso #iled a co"&laint #or esta#a(
Ayroso testi#ied t$at Li" as'ed $er to be $er agent in selling t$e tobacco8 Li" ad"itted t$at
t$ere %as an agree"ent t$at u&on t$e sale o# t$e tobacco, s$e %ould be given so"et$ing(
Iss%e+ ?DN a period e6ists.
R%lin#+ Fes. W$ere a &erson obliged $i"sel# to &ay to anot$er t$e &roceeds o# t$e latterAs tobacco as soon
as t$ey are dis&osed o#, a &eriod e>ists #or &ay"ent o# t$e obligation, and t$ere#ore, Art( 55IN does not
a&&ly(
T$ere is no contract o# sale, but "ere agency to sell( T$e #act t$at a&&ellant Li" received t$e
tobacco to be sold at 95(=J &er 'ilo and t$e &roceeds to be given to Ayroso as soon as it %as sold, strongly
negates a trans#er o# o%ners$i& to Li"(
W$y esta#a? Because o# judicial &ossession8 i# you donAt return t$e
&ro&erty %$en you are t$e agent(
Li" raised t$e #i>ing o# a &eriod as a de#ense(
RO;AS <. ALCANTARA 111 SCRA 01
Lease Contract
,o>as ;1Storey Building Sy
9DJJG"o( 4#or 5J years6
@a&ts+
,o>as %rote Sy re"inding $i" o# t$e #ort$co"ing ter"ination o# t$e contract adding t$at t$e
rental %ill be increased to 9CBG "o starting a#ter t$e la&se o# t$e &eriod, ne% ter" is =1year
rental to be &aid in advance and annual 5DL increase(
Sy did not give a categorical ans%er
,o>as de"anded Sy to vacate t$e &re"ises
Sy "ean%$ile did not vacate, instead sent a c$ec' #or 9DDJ corres&onding #or 5 "ont$ rental
Trial +ourt rendered a decision e>tending t$e contract #or 5J years
Iss%e+ ?DN Art 118( applies
=C
R%lin#+ NO. T$e contract $aving e>&ired already, and no ne% contact %as constituted, Art 55IN is
ina&&licable(
SHO.L* A +,)*ITO, 3IL) TWO S)9A,AT) A+TIONS 3O, 3IFING A 9),IO* AN* S9)+I3I+
9),3O,0AN+)?
NO( T$e creditor is allo%ed by juris&rudence to bring t$e action #i>ing a &eriod and also t$e action
#or s&eci#ic &er#or"ance( T$e creditor need not #ile t%o se&arate actions, in order to &revent "ulti&licity
suits(
3O, WHOS) B)N)3IT IS 3IFING TH) 9),IO* 3O,?
It is #or t$e bene#it o# t$e &erson %$o brings t$e action( T$e rule t$at t$e &eriod is #or t$e bene#it o#
bot$ &arties a&&lies only %$en it is by voluntary or "utual agree"ent(
Art. 1185. The de"tor shall lose every ri#ht to *a7e %se o) the period+
,1- ?hen a)ter the o"li#ation has "een &ontra&ted' he "e&o*es insolvent' %nless he
#ives a #%aranty or se&%rity )or the de"t/
,0- ?hen he does not )%rnish to the &reditor the #%aranties or se&%rities .hi&h he
has pro*ised/
,1- ?hen "y his o.n a&ts he has i*paired said #%aranties or se&%rities a)ter their
esta"lish*ent' and .hen thro%#h a )ort%ito%s event they disappear' %nless he
i**ediately #ives ne. ones e:%ally satis)a&tory/
,4- ?hen the de"tor violates any %nderta7in#' in &onsideration o) .hi&h the
&reditor a#reed to the period/ and
,- ?hen the de"tor atte*pts to a"s&ond.
WH)N *O)S TH) *)BTO, LOS) TH) B)N)3IT O3 TH) 9),IO*?
456 %$en t$e debtor beco"es insolvent a#ter t$e constitution o# t$e obligation 2 insolvency $ere is
not a tec$nical ter"8 instead insolvency $ere %ould "ean t$at t$e debtorAs assets are less t$an
$is liabilities in %$ic$ case t$ere %ould be an acceleration o# &ay"ent to &rotect t$e creditor
and enable $i" to en#orce $is clai" %it$ t$e re"aining assets o# t$e debtor, ot$er%ise $e "ay
lose legal &ersonality to collect #ro" t$e debtor8 TH),) A,) NO -.*I+IAL
9,O+))*ING IN A++O,*AN+) WITH TH) INSOL:)N+/ LAW8
4;6 %$en t$e debtor #ails to #urnis$ t$e security $e &ro"ised to t$e creditor8
4=6 %$en t$ere is loss or i"&air"ent in t$e said guaranty or security due to t$e debtorAs #ault or
#ortuitious event8
4C6 %$en t$e debtor violates an underta'ing %$ic$ creditor relied u&on in giving t$e debtor t$e
bene#it o# t$e &eriod8 t$e underta'ing "ust be t$e reason #or t$e e>tension o# t$e &eriod8
4D6 %$en t$e debtor absconds or atte"&ts to abscond 2 t$e reason $ere is t$at i# t$e debtor
absconds t$en t$e creditor is &rejudiced( 0ere atte"&t %ill evidence t$e bad #ait$ on t$e &art
o# t$e debtor $ence $e loses t$e bene#it o# t$e &eriod(
WH)N *O)S TH) *)BTO, NOT LOS) TH) B)N)3IT O3 TH) 9),IO* IN A +AS) O3
INSOL:)N+/?
He s$all not lose t$e bene#it o# t$e &eriod i# $e #urnis$es a security #or $is obligation %$ic$ cannot
be touc$ed by ot$er creditors &recisely because t$e creditorAs interest is already &rotected(
WHAT IS TH) *I33),)N+) B)TW))N 3AIL.,) TO 3.,NISH S)+.,IT/ AN* LOSS O,
I09AI,0)NT O3 TH) S)+.,IT/?
In #ailure to #urnis$ a security, a debtor cannot give a substitute security( W$ile in loss or
i"&air"ent, t$e debtor can give a substitute security 9,O:I*)* t$at it is e7ual in value(
WHAT A,) TH) )33)+TS O3 LOSS O, I09AI,0)NT O3 TH) S)+.,IT/?
I# it is "ere i"&air"ent and total loss due to debtorAs #ault, t$e creditor can accelerate &ay"ent(
=D
I# i"&air"ent is due to a #ortuitous event, creditor $as to settle #or t$e i"&aired security( I# t$ere is
a &artial loss due to a #ortuitous event, t$e creditor cannot accelerate &ay"ent( I# t$ere is total loss due to a
#ortuitous event, t$e debtor loses t$e bene#it o# t$e &eriod so t$e creditor can accelerate(
+AN TH) +,)*ITO, LOS) TH) B)N)3IT O3 TH) 9),IO*?
It is not &ossible #or t$e creditor to lose t$e bene#it o# a &eriod( T$ere is no &rovision in t$e +ivil
+ode governing suc$(
HOW +AN A +,)*ITO, +LAI0 9A/0)NT IN AN OBLIGATION WITHO.T A 9),IO*?
T$is is a t%o1ste& &rocess<
456 T$e creditor #iles an action be#ore t$e court to #i> t$e &eriod( T$e court %ould ascertain t$e
intention o# t$e &arties, i# t$ey indeed intended to $ave a &eriod in t$e obligation AN* #i> t$e
&eriod, i# t$e intention &roves to $ave a &eriod(
4;6 A#ter %$ic$, u&on arrival o# t$e #i>ed &eriod and t$e debtor #ails to co"&ly, t$e creditor "ay
de"and &ay"ent(
Se&. 1. L Alternative O"li#ations
Art. 1188. A person alternatively "o%nd "y di))erent prestations shall &o*pletely per)or*
one o) the*.
The &reditor &annot "e &o*pelled to re&eive part o) one and part o) the other
%nderta7in#.
WHAT IS A 0.LTI9L) O, +ON-.N+TI:) OBLIGATION?
It is an obligation #ound in one and t$e sa"e agree"ent %$ere t$ere are several &restations and all
o# t$e" are due( One "ust co"&ly %it$ all t$ese &restations to e>tinguis$ t$e obligation(
WHAT IS AN ALT),NATI:) OBLIGATION?
It is an obligation %$ere t$ere are several &restations due but it is e>tinguis$ed by t$e &er#or"ance
o# one( T$ere is only one obligation and #ro" a"ong t$e several &restations t$e &er#or"ance or delivery o#
one %ill e>tinguis$ t$e obligation(
WHAT IS A 3A+.LTATI:) OBLIGATION?
Here t$ere is only one "ain &restation %$ic$ is t$e &rinci&al &restation( T$ere is only one
obligation because t$e second or t$e ot$er &restations %ill be considered as substitutes(
IS AN ALT),NATI:) OBLIGATION *)T),0INAT) O, IN*)T),0INAT)?
Initially, at t$e ti"e t$e alternative obligation is entered into t$e &arties do not 'no% %$ic$ one is
due, t$us "a'ing it indeter"inate( It only beco"es deter"inate later %$en t$e c$oice is "ade by t$e debtor
#ro" a"ong t$e several &restations(
Art. 1099. The ri#ht o) &hoi&e "elon#s to the de"tor' %nless it has "een e6pressly #ranted to
the &reditor.
The de"tor shall have no ri#ht to &hoose those prestations .hi&h are i*possi"le'
%nla.)%l or .hi&h &o%ld not have "een the o"$e&t o) the o"li#ation.
WHO HAS TH) ,IGHT O3 +HOI+)? AN* WH/?
T$e debtor usually $as t$e rig$t o# c$oice( Art( 5;JJ is clear< T$e rig$t o# c$oice belongs to t$e
debtor unless it $as been e>&ressly granted to t$e creditor( > > > ! T$e rig$t o# c$oice t$ere#ore $as been
e>&licitly granted by la%(
WHAT I3 TH) OBLIGATION *O)S NOT S9)+I3/ WHO HAS TH) ,IGHT O3 +HOI+)?
It is t$e debtorAs c$oice(
=M
WHO 0A/ ALSO 0AB) TH) +HOI+) ASI*) 3,O0 TH) *)BTO,?
T$e creditor and a t$ird &erson "ay "a'e t$e c$oice(
T$is rig$t o# c$oice is assigned to t$ese t%o by sti&ulation o# t$e creditor and t$e debtor(
Art. 1091. The &hoi&e shall prod%&e no e))e&t e6&ept )ro* the ti*e it has "een
&o**%ni&ated.
WH)N IS TH) +HOI+) *))0)* TO B) )33)+TI:)?
It beco"es e##ective once it is co""unicated by %$oever %as given t$e rig$t o# c$oice(
I# t$e c$oice belongs to<
a( t$e debtor, $e in#or"s t$e creditor8
b( t$e creditor, $e in#or"s t$e debtor8
c( a t$ird &erson, $e in#or"s bot$ debtor and creditor(
HOW *O)S ON) 0AB) TH) +O00.NI+ATION?
T$e &erson "a'ing t$e c$oice can co""unicate %$atever $e c$ooses, orally or in %riting( T$is is
an e>&ress co""unication(
T$e &erson "ay also "a'e t$e delivery o# t$e t$ing c$osen( T$is is 'no%n as an i"&lied
co""unication( 3or e>a"&le, i# t$e debtor delivers t$e je%elry and it is acce&ted by t$e creditor, t$en t$e
co""unication is i"&lied(
IN AN I09LI)* +O00.NI+ATION, *O)S IT 0AB) AN/ *I33),)N+) I3 TH) +HOI+) IS
WITH TH) *)BTO, O, TH) +,)*ITO,?
/es, at least in ter"s o# noti#ication(
In a case %$ere t$e c$oice is %it$ t$e debtor, t$e noti#ication is not really very "uc$ re7uired or
beco"es i"&ractical because once t$e debtor "a'es t$e delivery and it is acce&ted by t$e creditor t$ere is
an i"&lied c$oice and an i"&lied noti#ication(
In a case %$ere t$e c$oice is %it$ t$e creditor, t$e noti#ication is very i"&ortant because it is not
t$e creditor %$o is re7uired to &er#or"( It is t$e debtor( T$ere#ore, t$e debtor cannot &er#or" $is obligation
because t$e rig$t o# c$oice is not %it$ $i", in %$ic$ case, t$e creditorAs c$oice "ust be "ade 'no%n to t$e
debtor so t$at t$e latter "ay act on t$e obligation(
Art. 1090. The de"tor shall lose the ri#ht o) &hoi&e .hen a*on# the prestations .here"y he
is alternatively "o%nd' only one is pra&ti&a"le.
The sa*e r%les shall "e applied to o"li#ation to do or not to do in &ase one' so*e or
all o) the prestations sho%ld "e&o*e i*possi"le.
WHAT IS A TA+IT +HOI+)?
It is a c$oice %$erein t$e debtor %ould do so"et$ing to li"it $is c$oice or so t$at $e %ould not
$ave any c$oice at all(
3or e>a"&le, i# F c$ooses bet%een a car, a $ouse, and je%elry and sells bot$ t$e car and t$e
$ouse, $e in #act $as "ade t$e c$oice in t$e je%elry(
WHAT I3 TH) *)BTO, *)LA/S IN +HOOSING?
Here t$e obligation $as not beco"e due, so t$e creditor "ay as' t$e court to co"&el #or
&er#or"ance to deliver any o# t$e &restations(
IS TH),) S.+H A THING AS A SHI3T O3 +HOI+)?
No( I# t$e debtor does not %ant to "a'e $is c$oice, t$ere is no %ay t$e creditor "ay as' t$e court
to s$i#t t$e rig$t o# c$oice to $i"(
WHAT IS TH) LI0ITATION ON TH) ,IGHT O3 +HOI+) O3 TH) *)BTO,?
T$e ans%er is in t$e second &ar( o# Art( 5;JJ< > > > T$e debtor s$all $ave no rig$t to c$oose
t$ose &restations %$ic$ are i"&ossible, unla%#ul, or %$ic$ could not $ave been t$e object o# t$e
obligation(!
=N
Art. 1091. I) thro%#h the &reditorKs a&t the de"tor &annot *a7e a &hoi&e a&&ordin# to the
ter*s o) the o"li#ation' the latter *ay res&ind the &ontra&t .ith da*a#es.
Art. 1094. The &reditor shall have a ri#ht to inde*nity )or da*a#es .hen' thro%#h the )a%lt
o) the de"tor' all the thin#s .hi&h are alternatively the o"$e&t o) the o"li#ation have "een
lost' or the &o*plian&e o) the o"li#ation has "e&o*e i*possi"le.
The inde*nity shall "e )i6ed ta7in# as a "asis the val%e o) the last thin# .hi&h
disappeared' or that o) the servi&e .hi&h last "e&a*e possi"le.
Da*a#es other than the val%e o) the last thin# or servi&e *ay also "e a.arded.
WHAT A,) TH) )33)+TS O3 LOSS ON ON) O, SO0) O, ALL O3 TH) 9,)STATIONS *.)?
*ebtorAs +$oice
@AELT ON>DSOB> ALL
*ebtor +$oose #ro" t$e re"aining
&restations because itAs $is c$oice
any%ay
9ays da"ages to t$e creditor
%$ic$ is t$e "onetary value o#
t$e last t$ing lost 4because t$e
obligation by t$e ti"e t$e last
t$ing re"ained beca"e a si"&le
obligation8 $ence its loss leaves
t$e debtor liable(
+reditor *ebtor "ay 4a6 c$oose #ro"
re"aining &restations or 4b6 as'
#or da"ages &lus rescission
4because t$e creditor in e##ect,
$ad li"ited t$e debtorAs c$oice
and so t$e creditor s$ould su##er
#or t$at6
,escission &lus da"ages or
obligation e>tinguis$ed
3ortuitous )vent *ebtor c$ooses #ro" t$e
re"aining &restations
T$e obligation is e>tinguis$ed
+o"binations 4*ebtors c$oice6
456 5
st
2 debtorAs #ault
;
nd
2 debtorAs #ault
=
rd
2 #ortuitous event
1111111111111111111111
Obligation is )FTING.ISH)*
4;6 5
st
2 #ortuitous event
;
nd
2 #ortuitous event
=
rd
2 debtorAs #ault
111111111111111111111
+onvert t$ird &restation to its "onetary value #or *A0AG)S
4=6 5
st
2 creditorAs #ault
;
nd
2 creditorAs #ault
=
rd
2 #ortuitous event
11111111111111111111
=H
*ebtor can as' #or ,)S+ISSION &lus *A0AG)S because creditor $as destroyed t$e
debtorAs rig$t o# c$oice(
4C6 5
st
2 #ortuitous event
;
nd
2 #ortuitous event
=
rd
2 creditorAs #ault
111111111111111111111
*ebtor can as' #or ,)S+ISSION &lus *A0AG)S
Art. 109. ?hen the &hoi&e has "een e6pressly #iven to the &reditor' the o"li#ation shall
&ease to "e alternative )ro* the day .hen the sele&tion has "een &o**%ni&ated to the
de"tor.
Entil then the responsi"ility o) the de"tor shall "e #overned "y the )ollo.in# r%les+
,1- I) one o) the thin#s is lost thro%#h a )ort%ito%s event' he shall per)or* the
o"li#ation "y deliverin# that .hi&h the &reditor sho%ld &hoose )ro* a*on# the
re*ainder' or that .hi&h re*ains i) only one s%"sists/
,0- I) the loss o) one o) the thin#s o&&%rs thro%#h the )a%lt o) the de"tor' the &reditor
*ay &lai* any o) those s%"sistin#' or the pri&e o) that .hi&h' thro%#h the )a%lt
o) the )or*er has disappeared' .ith a ri#ht to da*a#es/
,1- I) all the thin#s are lost thro%#h the )a%lt o) the de"tor' the &hoi&e "y the &reditor
shall )all %pon the pri&e o) any one o) the*' also .ith inde*nity )or da*a#es.
+reditorAs +$oice
@AELT ON>DSOB> ALL
+reditor +reditor "ay c$oose any o# t$e
Obligation is e>tinguis$ed
*ebtor +reditor "ay c$oose #ro" t$e
re"aining or t$e value o# t$e one
destroyed by t$e debtor &lus
da"ages
+reditor "ay c$oose t$e value o#
any o# t$e objects &lus da"ages(
3ortuitous )vent +reditor "ay c$oose #ro"
Obligation is e>tinguis$ed
Art. 109!. ?hen only one prestation has "een a#reed %pon' "%t the o"li#or *ay render
another in s%"stit%tion' the o"li#ation is &alled )a%ltative.
The loss or deterioration o) the thin# intended as a s%"stit%te' thro%#h the
ne#li#en&e o) the o"li#or' does not render hi* lia"le. B%t on&e the s%"stit%tion has "een
*ade' the o"li#or is lia"le )or the loss o) the s%"stit%te on a&&o%nt o) his delay' ne#li#en&e or
)ra%d.
WHAT A,) 3A+.LTATI:) OBLIGATIONS?
T$ey are obligation %it$ only one &rinci&al &restation( T$e ot$er &restations are considered as
substitutes( 3or e>a"&le, I bind "ysel# to deliver a #ountain &en or i# I li'e I %ill deliver a ball &en(
WHAT IS TH) *I33),)N+) B)TW))N AN ALT),NATI:) AN* 3A+.LTATI:) OBLIGATION?
ALT>RNATI<> @ACELTATI<>
a6As to t$e contents o# t$e :arious &restations as &art o# t$e Only &rinci&al &restation
=I
obligations obligations(
Hence, t$e
creditor "ust
de"and all
t$e
&restations
be#ore t$e
debtor $as
"ade $is
c$oice(
constitutes
&art o# t$e
obligation(
Hence, t$e
creditor can
de"and only
t$e &rinci&al
&restations
be#ore t$e
debtor $as
"ade $is
c$oice(
b6 As to nullity T$e nullity o# one &restation do
not invalidate t$e obligation,
%$ic$ is still in #orce %it$ res&ect
to $ave t$ose %$ic$ $ave no vice
T$e nullity o# t$e &rinci&al
invalidates t$e obligation, and t$e
creditor cannot de"and t$e
substitute even %$en t$is is valid(
c6 As to c$oice T$e rig$t to c$oose "ay be given
to t$e creditor
Only t$e debtor can c$oose t$e
substitute &restation
d6 As to e##ect o# loss Only t$e i"&ossibility o# all t$e
&restations due %it$out #ault o#
t$e debtor e>tinguis$es t$e
obligation
T$e i"&ossibility o# t$e &rinci&al
&restation is su##icient to
e>tinguis$ t$e obligation, even i#
t$e substitute is &ossible(
IN 3A+.LTATI:) OBLIGATIONS, TO WHO0 *O)S TH) ,IGHT O3 +HOI+) B)LONG?
T$e rig$t o# c$oice belongs only to t$e debtor(
+AN TH) 9A,TI)S STI9.LAT) THAT TH) ,IGHT O3 +HOI+) B) GI:)N TO TH) +,)*ITO,?
No( 3or i# t$ey sti&ulate t$at t$e creditor $as t$e rig$t o# c$oice, t$en it cannot be a #acultative
obligation, but rat$er an alternative obligation(
WHAT IS TH) )33)+T O3 TH) LOSS O3 TH) S.BSTIT.T)?
As a general rule, not$ing( T$e debtor can still deliver t$e &rinci&al obligation(
I# lost t$roug$ t$e #ault o# t$e
*ebtor 2 no e##ect at all because t$e debtor $as t$e rig$t o# c$oice and "ust deliver t$e
&rinci&al
+reditor 2 no e##ect at all because substitute is not t$e &rinci&al obligation, converting t$e
obligation to a SI09L) OBLIGATION8
3ortuitous event 2 does not a##ect t$e &rinci&al obligation(
B.T WHAT I3 TH) *)BTO, .9ON LOSS O3 TH) S.BSTIT.T), +HOOS)S SAI* S.BSTIT.T)?
I# loss is t$roug$ creditorAs #ault, t$en t$e latter is $eld liable( Note t$at t$e c$oice "ust $ave been
co""unicated to t$e creditor(
WHAT I3 TH) S.BSTIT.T) IS IN:ALI*, I09OSSIBL) O, ILL)GAL?
I# t$e substitute is invalid, i"&ossible or illegal it does not a##ect t$e valid &rinci&al obligation(
WHAT I3 TH) 9,IN+I9AL IS LOST?
CAES> >@@>CT
*ebtorAs #ault *ebtor $as "ade $is c$oice8 substitute no% beco"es &rinci&al
+reditorAs #ault Obligation e>tinguis$ed8 once &rinci&al is e>tinguis$ed, so goes t$e
substitute
3ortuitous event Obligation is e>tinguis$ed(
CJ
WHAT IS TH) ,.L) I3 IT +ANNOT B) *)T),0IN)* WH)TH), AN OBLIGATION IS
3A+.LTATI:) O, ALT),NATI:)?
It is considered alternative because it creates "ore reci&rocity o# rig$ts and t$ere is a &rovision in
t$e la% t$at state t$at be#ore it beco"es a #acultative obligation, t$e intent "ust be clear( IT 0.ST B)
+L)A, THAT ON) IS A 9,IN+I9AL AN* TH) OTH), IS TH) S.BSTIT.T)(
IS TH),) A N))* 3O, ,ATI3I+ATION O3 +HOI+) IN 3A+.LTATI:) OBLIGATIONS?
T$e la% does not &rovide #or rati#ication( But a #acultative obligation can be converted into a
si"&le one by elevating t$e substitute into a &rinci&al and be#ore t$is can be done t$e c$oice and
noti#ication $as to be already done(
Se&. 4. L Joint and Solidary O"li#ations
Art. 109(. The &on&%rren&e o) t.o or *ore &reditors or o) t.o or *ore de"tors in one and
the sa*e o"li#ation does not i*ply that ea&h one o) the )or*er has a ri#ht to de*and' or
that ea&h one o) the latter is "o%nd to render' entire &o*plian&e .ith the prestation. There is
a solidary lia"ility only .hen the o"li#ation re:%ires solidarity.
WHAT A,) -OINT AN* SOLI*A,/ OBLIGATIONS?U
It is an obligation %$ere t$ere is "ulti&licity o# &arties 2 "ore t$an one debtor or "ore t$an one
creditor(
A joint obligation is one in %$ic$ eac$ o# t$e debtors is liable only #or a &ro&ortionate &art o# t$e
debt, and eac$ creditor is entitled only to a &ro&ortionate &art o# t$e credit( A solidary obligation is one
%$ic$ eac$ debtor is liable #or t$e entire obligation, and eac$ creditor is entitled to de"and t$e %$ole
obligation(
HOW 0A/ -OINT +,)*ITO,SG*)BTO,S *)0AN* 9A/0)NT 3O, TH)I, SHA,)S?
I# t$ere are joint creditors, eac$ creditor can de"and only $is s$are( I# t$ere are joint debtors, eac$
debtor "ay be co"&elled to &ay only $is s$are(
In solidary obligations, eac$ creditor "ay en#orce t$e entire obligation, and eac$ debtor "ay be
obliged to &ay it in #ull(
WHAT IS TH) LIABILIT/ O3 TH) -OINT *)BTO,?
I# A and B o%e + 95,JJJ, and t$ere is not$ing t$at %ill s$o% t$at t$ere is an une7ual a"ount o%ed
it is &resu"ed to be e7ual( T$e obligation o# A is to &ay 9DJJ and B also 9DJJ( + can co"&el bot$ A and B
to &ay 9DJJ(
HOW *O -OINT +,)*ITO,S +OLL)+T?
I# A o%es + and *, + can collect 9DJJ #ro" A, and li'e%ise, * can also collect 9DJJ #ro" A(
Art. 1095. I) )ro* the la. or the nat%re or the .ordin# o) the o"li#ation to .hi&h the
pre&edin# arti&le re)ers the &ontrary does not appear' the &redit or de"t shall "e pres%*ed
to "e divided into as *any e:%al shares as there are &reditors or de"tors' the &redits or
de"ts "ein# &onsidered distin&t )ro* one another' s%"$e&t to the R%les o) Co%rt #overnin#
the *%ltipli&ity o) s%its.
WH)N 0A/ AN OBLIGATION B) 9,)S.0)* NOT TO B) -OINT?
456 W$en e>&ressly sti&ulated by t$e &arties
4;6 W$en re7uired by la%, e(g( joint tort#easors
4=6 W$en nature o# t$e obligation re7uires solidarity(
WHAT *O TH) WO,*S -OINTL/ AN* S):),ALL/! AN* -OINTL/! IN*I+AT)?
-ointly and severally! re#ers to a solidary obligation %$ile, jointly! re#ers to a joint obligation(
C5
In addition, i# t$e sti&ulation is W)! %it$ t%o signatories, it is joint and i# I! %it$ t%o
signatories, it is solidary(
Individually and collectively are %ords to denote a solidary obligation(
Also, t$e #ollo%ing %ords are used to indicate solidarity, in solidu"!, "anco"unada o
solidaria(!
WHAT IS TH) ,.L) AS ,)GA,*S 9,)S.09TION O3 -OINT OBLIGATIONS?
T$e general rule is t$at every civil obligation is &resu"ed to be joint, t$at is, t$at eac$ one o# t$e
creditors "ay de"and #ro" eac$ o# t$e debtors $is &ro&ortionate &art o# t$e debt( So t$at t$ere are as "any
debts as t$ere are debtors, and as "any credits are t$ere are creditors(
WH)N *O SOLI*A,/ OBLIGATIONS )FIST?
Solidary liability e>ists only in t$e #ollo%ing cases<
456 W$en t$e obligation so &rovides<
3or e>a"&le, 3erdinand and Angelo borro%ed 9DJJ #ro" +yril( 4Aba "ay &era si +y6( T$ey
e>ecuted a &ro"issory note as #ollo%s< We $ereby &ro"ise to &ay solidarily t$e su" o# 9DJJ
to +yril(!
4;6 W$en t$e la% so &rovides<
3or e>a"&le, so"e instances are obligation arising #ro" torts or 7uasi1delicts, obligations
arising #ro" a 7uasi1contract, testa"entary &rovisions regarding t$e obligation o# devisees
and legatees, liability o# business &artners #or loss or injury o# t$ird &ersons by &artners$i&
tort or %rong#ul act or o"ission, t%o or "ore bailees are liable solidarily #or a t$ing loaned in
t$e sa"e contract, and civil liabilty o# &rinci&als, acco"&lices and accessories #or a cri"e, etc(
A tortious sc$e"e denying a rig$t suc$ as collection o# a certain a"ount o# "oney "ay
$old t$ose %$o set u& suc$ a s$e"e as solidarily liable #or actual da"ages t$e +ourt "ay
a%ard t$e aggrieved based on Art( 5I and ;J o# t$e +ivil +ode 4,ubio v( +ourt o# A&&eals6
REBIO <. COERT O@ APP>ALS 11 SCRA 151
@a&ts+
,ubio as's S+As decision inso#ar as it 456 "a'es no #inding against 9$illi&s #or "oral and
e>e"&lary da"ages and 4;6 absolves #ro" joint and solidary liability 0anu#acturers Ban' and
Trust +o"&any40BT+6, Hacienda Benito 4HB6 and :ictoria :alley *evelo&"ent +o"&any
4::*+6
,ubio $as still a collectible o# 9C,;DJ,JJJ on sale o# HB s$ares #ro" ,O9SI
A 0e"orandu" o# Agree"ent %as entered into by HB, 0BT+ an# ::*+ %$ereby
HBI %ill convey NH $ectares in #avor o# 0BT+
HBI to assign rit$g to redee" &ro&erty to ::*+
0BT+ %ill institute judicial #oreclosure, HB and ot$er co"&anies %ill enter into co"&ro"ise
agree"ent in #ull satis#action o# clai" o# 0BT+
T$is 0OA %as not #ully i"&le"ented, t$oug$(
Iss%e+ ?DN <<DC' BBTC' =BI are solidarily lia"le
R%lin#+ F>S. T$e sc$e"e &rovided #or in t$e 0OA %$erin all t$e &ro&erties o# HB %ill be ulti"ately
trans#erred to ::*+ %it$out any "ention at all and co"&letely ignoring ,ubioAs interest in said Hacienda
&laced t$e &etitionerAs rig$t#ul clai" to t$e &ay"ent o# $is s$ares o# stoc' in clear jeo&ardy(
All t$e res&ondents are, t$ere#ore, solidarily liable( T$e res&onsibility o# ; or "ore &ersons %$o
are liable #or a 7uasi1delict is solidary( 4Art( ;5IC6
4=6 W$en t$e nature o# t$e obligation re7uires solidarity(
3or e>a"&le, A %as e"&loyed in t$e #ir" o# B and +, &artners( A %as 'illed %$ile %or'ing in
$is assigned duty and in t$e &lace o# $is %or'( T$e $eirs de"anded co"&ensation #or t$e
deat$ o# A( Since t$e Wor'"enAs +o"&ensation Act %as enacted to give #ull &rotection to t$e
C;
e"&loyee, reason de"ands t$at t$e nature o# t$e obligation o# t$e e"&loyers to &ay
co"&ensation to t$e $eirs o# t$eir e"&loyee %$o died in t$e line o# duty, s$ould be solidary,
ot$er%ise, t$e &ur&ose o# t$e la% could not be attained(
TIE <. COERT O@ APP>ALS 005 SCRA 1
@a&ts+
George and ,osalina Tiu #iled an action #or re#or"ation o# contract, delivery and &ersonal
&ro&erty, and da"ages against -uan Go and S&ouses Li"(
George Tiu 4o%ner6, e>ecuted a *eed o# Sale 4o# +ondo .nits6 %it$ ,ig$t to ,e&urc$ase and a
+ontract o# lease %it$ S&ouses Li"(
,osalina Tiu $ad secured , on di##erent dates, loan advances totalling 9 5(JMJ0, %$ic$ $as
re"ained un&aid des&ite t$e de"ands(
Tius ad"itted t$at t$ey $ave u&dated t$e real estate ta>es due on t$e condo only u& to t$e ti"e
o# transaction(
T$ey did not #ile an o&&osition to t$e &etition #or consolidation o# o%ners$i&(
George Tiu never signed t$e recei&ts nor received any "oney #ro" Go8 -oa7uin Tiu signed and
received t$e "oney #or and in be$al# o# ,osalina(
Iss%e+ ?DN Geor#e Ti% and Joa:%in Ti% sho%ld "e held $ointly and severally lia"le .ith Rosalina.
R%lin#+ NO. T$ey are not liable solidarily #or t$e said a"ounts even i# t$e "oney %ere used #or t$eir
tobacco business( And even i# t$ey ad"itted t$at t$ey received t$e "oney, bot$ are not liable in solidu"
because t$ere %as no e>&ress &rovision in said recei&ts t$at a&&ellants George and -oa7uin s$ould be liable
in solidu"( T$ere is solidary obligation only %$en t$e obligation e>&ressly so states or %$en t$e la% or
nature o# t$e obligation re7uires solidarity(
Assu"ing arguendo t$at t$ey ad"itted t$eir solidary liability, still t$ey are not liable( Su&re"e
+ourt ruled in .n 3a' Leang v( Nigurra t$at an ad"ission o# t%o debtors in t$eir brie# t$at t$eir liability in
t$e contract is a solidary one does not convert t$e joint c$aracter o# t$eir obligation as a&&earing in t$eir
contract, #or %$at deter"ines t$e nature o# t$e obligation is t$e tenor o# t$eir contract itsel#, not t$e
ad"ission o# t$e &arties(
SBIT=' B>LL AND CO. <. COERT O@ APP>ALS 0!( SCRA 19
@a&ts+
+$ua insured t$e s$i&"ent o# "aterials $e i"&orted %it$ 3irst Insurance(
T$e cargo %as da"aged and #ound to be 5H(D B 'ilo s$ort by a cargo surveyor(
T$us, +$ua in#or"ed S"it$ Bell and de"anded its settle"ent(
S"it$ re&lied t$at its &rinci&al o##ered only DJL o# +$uaAs clai"
No settle"ent o# t$e clai" $aving been "ade, +$ua caused t$e instant case to be #iled(
T$e T+ rendered a decision in #avor o# +$ua and ordered t$at S"it$ be "ade liable solidarily(
Iss%e+ ?DN a lo&al &lai* a#ent o) a dis&losed prin&ipal ,a )orei#n ins%ran&e &o*pany- &an "e held
$ointly and solidarily lia"le' #iven that the a#ent is not a party to the ins%ran&e &ontra&t.
R%lin#+ NO. A settling agent acting %it$in t$e sco&e o# its aut$ority cannot be $eld &ersonally liable and
Gor solidarily liable #or t$e obligation o# its disclosed &rinci&al( Salonga v( Wainer, Barnes V +o< An
adjust"ent agent is no di##erent #ro" any ot$er agent #ro" t$e &oint o# vie% o# $is re&onsibility >>>, $is
actions is binding not u&on $i"sel# but u&on $is &rinci&al( And $ere again, t$e ordinary rule o# agency
a&&lies(
+ontracts are binding only u&on &arties %$o e>ecute t$e"( In t$e case at bar, t$e only
involve"ent o# S"it$ in t$e subject contract o# insurance %as $aving its na"e sta"&ed at t$e botto" le#t
&ortion o# t$e &olicy as Q+lai" AgentA!( Hence, t$ere is no &rivity o# contract, and corres&ondingly t$ere
C=
can be no obligation or liability, and t$us no cause o# action against S"it$ attac$es( >>> T$ere is absolutely
not$ing in t$e contract %$ic$ "entions t$e &ersonal liability o# S"it$(
TH) W)LL1)NT,)N+H)* ,.L) IS THAT SOLI*A,/ OBLIGATION +ANNOT LIGHTL/
B) IN3),,)*( IT 0.ST B) 9OSITI:)L/ AN* +L)A,L/ )F9,)SS)*(
RON2EILLO <. COERT O@ APP>ALS 110 SCRA 0(4
@a&ts+
,on7uillo %as one o# t$e #our de#endants in a civil case #or a collectiono# "oney(
T$e c$ec's issued by ,on7uillo et al %ere dis$onored by dra%ee ban'
T$e T+ declared t$e case based on t$e co"&ro"ise agree"ent sub"itted by t$e &arties
T$e co"&ro"ise &rovides< >>> de#endants individually and jointly agree to &ay >>>!
Iss%e+ ?DN the lia"ility is solidary
R%lin#+ F>S. +learly t$en, by t$e e>&ress ter" o# t$e co"&ro"ise agree"ent and t$e decision based u&on
it, t$e de#endants obligated t$e"selves to &ay t$eir obligation individually and jointly!(
An agree"ent to be individually liable! undoubtedly create a several obligation, and a several
obligation! is one by %$ic$ one individual binds $i"sel# to &er#or" t$e %$ole obligation(
T$e obligation in t$e case at bar being described as individually and jointly!, t$e sa"e is
t$ere#ore en#orceable against one o# t$e nu"erous obligors(
Art. 1098. I) the division is i*possi"le' the ri#ht o) the &reditors *ay "e pre$%di&ed only "y
their &olle&tive a&ts' and the de"t &an "e en)or&ed only "y pro&eedin# a#ainst all the de"tors.
I) one o) the latter sho%ld "e insolvent' the others shall not "e lia"le )or his share.
HOW ABO.T A +AS) O3 9L.,ALIT/ O3 +,)*ITO,S AN* *)BTO,S?
I# A and B o%e + and * 95,JJJ8 t$e rule is t$at + or * cannot recover "ore t$an t$eir res&ective
s$ares o# t$e credit and t$e debtor cannot be re7uired to &ay "ore t$an $is &ro&ortionate s$are in t$e debt(
I# + de"ands 9DJJ #ro" A, +As credit is e>tinguis$ed( * can no longer de"and #ro" A because
AAs obligation $as been e>tinguis$ed( *, $o%ever, "ay collect #ro" B(
WHAT I3 TH),) IS IN)?.ALIT/ O3 +,)*IT?
3or e>a"&le, +, *, and ) are eac$ entitled to 5G= o# t$e credit( A and B is eac$ re7uired to &ay 5G;
o# t$e debt(
Here, eac$ creditor s$all not be allo%ed to recover "ore t$an 5G=( )ac$ debtor s$all not be
re7uired to &ay "ore t$an 5G;(
+ 45G=6 W9=JJX A 45G;6 W9CDJX
* 45G=6 W9=JJX B 45G;6 W9CDJX
) 45G=6 W9=JJX
+ can collect #ro" A t$e 9=JJ but s$all not e>ceed 9CDJ, %$ic$ is t$e "a>i"u" liability o# A(
*, re&resenting ), can collect t$e 9CDJ #ro" B and t$e re"aining 95DJ #ro" A( Not$ing in t$e la%
%ill co"&el + to go against A #or t$e re"aining 95DJ(
A,) TH) OBLIGATION TO )A+H -OINT *)BTO, S)9A,AT) AN* *ISTIN+T 3,O0 ON)
ANOTH),?
/es( T$ere#ore, one debtor cannot use t$e de#ense o# anot$er debtor( Insolvency %ill not a##ect t$e
liability o# t$e debtor(

Art. 1019. The indivisi"ility o) an o"li#ation does not ne&essarily #ive rise to solidarity. Nor
does
solidarity o) itsel) i*ply indivisi"ility.
CC
Art. 1011. Solidarity *ay e6ist altho%#h the &reditors and the de"tors *ay not "e "o%nd in
the sa*e *anner and "y the sa*e periods and &onditions.
WHAT A,) TH) BIN*S O3 SOLI*A,IT/?
456 Active solidarity 2 %$en t$e solidarity e>ists a"ong t$e creditors only
3or e>a"&le< Teresa &ro"ised to &ay Susan, 0arlene, or -oan t$e a"ount o# 9=JJ( T$e
obligation is solidary( In t$is case, any one o# t$e creditors can de"and #ro" teresa t$e %$ole
a"ount o# 9=JJ( Susan can de"and &ay"ent o# 9=JJ #ro" Teresa, So also -oan can de"and
t$e sa"e a"ount( Teresa cannot, $o%ever, be co"&elled to &ay "ore t$at 9=JJ( I# Teresa &ays
Susan t$e %$ole a"ount o# 9=JJ, t$en t$e obligation is dee"ed e>tinguis$ed( T$e solidarity
$ere e>ists a"ong t$e creditors %it$ res&ect to one and t$e sa"e obligation(
4;6 9assive Solidarity 2 %$en t$e solidarity ta'es &lace a"ong t$e debtors only(
3or e>a"&le< )#ren, )d"undo, and ,eynaldo are solidarily indebted to ,ay"undo in t$e
a"ount o# 9=JJ( )ac$ debtor, na"ely )#ren alone, )d"undo alone or ,eynaldo alone, "ay be
re7uired by ,ay"undo to &ay t$e entire a"ount o# 9=JJ( ,ay"undo "ay also de"and
&ay"ent #ro" #ro" bot$ )#ren and )d"undo or #ro" )d"undo and ,eynaldo and #ro" all o#
t$e" at t$e sa"e ti"e( ,ay"undo, $o%ever, "ay not de"and "ore t$at 9=JJ(
4=6 0i>ed Solidarity 2 %$en t$e solidarity e>ists bot$ a"ong t$e creditors and t$e debtors at t$e
sa"e ti"e
3or e>a"&le< 3loren@, )@er, and Leonido are solidary debtors and )nri7ue, 0iguel and
,ecaredo are solidary creditors #or t$e a"ount o# 9=JJ( )ac$ o# t$e debtors, na"ely 3loren@
)@er and Leonido, are liable to &ay t$e entire a"ount o# 9=JJ to any one o# t$e solidary
creditors na"ely )nri7ue, 0iguel and ,ecaredo( +reditor ,ecaredo alone "ay de"and #ro"
any one o# t$e debtors #ro" so"e or all o# t$e" t$e &ay"ent o# t$e a"ount o# 9=JJ( T$e
sa"e rig$t belongs to creditors )nri7ue and 0iguel( On t$e ot$er $and, 3loren@ alone or )@er
alone or Leonido alone "ay &ay any one o# t$e de"anding creditors or any creditor 4i# t$ere
is no de"and6 t$e entire a"ount o# 9=JJ( 9ay"ent by one o# t$e solidary debtors %ill cause
t$e e>tinguis$"ent o# t$e obligation(
Art. 1010. >a&h one o) the solidary &reditors *ay do .hatever *ay "e %se)%l to the others'
"%t not anythin# .hi&h *ay "e pre$%di&ial to the latter.
Art. 1011. A solidary &reditor &annot assi#n his ri#hts .itho%t the &onsent o) the others.
0A/ )A+H O3 TH) SOLI*A,/ +,)*ITO,S *O SO0)THING 3O, TH)I, B)N)3IT?
)ac$ o# t$e solidary creditors cannot do anyt$ing &rejudicial to t$e ot$ers but eac$ "ay do
anyt$ing t$at is bene#icial?
WHAT A,) TH) )F+)9TIONS TO TH) ,.L)?
A solidary creditor cannot do anyt$ing &rejudicial, )F+)9T<
456 +ondonation 2 t$is is valid B.T t$e condoning creditor still $as t$e obligation to rei"burse
t$e ot$er creditors8 +ONS)NT O3 ALL TH) +,)*ITO,S IS NOT N))*)*8
4;6 Assign"ent o# s$ares 2 $ere consent o# everyone is needed %$ic$ "ay be &rior or a#ter suc$
assign"ent(
WHAT I3 A +,)*ITO, ASSIGNS SHA,)S WITHO.T TH) +ONS)NT O3 TH) OTH),
+,)*ITO,S?
T$e assign"ent is voidable( It can be #alsi#ied by t$e ot$er creditors or it can be annulled( It is an
unaut$ori@ed act(
CD
WHAT I3 TH) +,)*ITO, ASSIGNS IT TO AN/ OTH), SOLI*A,/ +,)*ITO,?
+onsent is not re7uired(
IS +ONS)NT N))*)* IN B)N)3I+IAL A+TS?
As a general rule, %it$ res&ect to &rejudicial acts, t$e consent o# all is needed )F+)9T in
condonation and assign"ent( Wit$ res&ect to bene#icial acts, t$ere is no need #or t$e consent o# all
creditors(
An e>a"&le o# a bene#icial act %ould be a de"and o# one creditor so t$at t$e debtor "ay co"&ly
%it$ t$e obligation( T$is is &resu"ed to be in #avor o# t$e ot$er creditors as %ell because t$is gives t$e" a
c$ance to ta'e any action( 4e(g( s&eci#ic &er#or"ance against t$e debtor s$ould $e re#use to co"&ly %it$ t$e
obligation(6 A#ter all, as a general rule "ora or delay only ta'es &lace u&on de"and(
Art. 1014. The de"tor *ay pay any one o) the solidary &reditors/ "%t i) any de*and' $%di&ial
or e6tra$%di&ial' has "een *ade "y one o) the*' pay*ent sho%ld "e *ade to hi*.
IN A+TI:) SOLI*A,IT/, WHO 0A/ +OLL)+T TH) *)BT?
T$ere is no &riority as a"ong t$e solidary creditor as to %$o can collect t$e debt )F+)9T t$at t$e
one %$o #irst "a'es t$e de"and is entitled to t$e &ay"ent because t$e rule is t$at t$e debtor is re7uired to
&ay t$e one %$o "a'es t$e de"and #irst(
WHAT I3 TH) *)BTO, 9A/S TO ON) WHO HAS NOT 0A*) A *)0AN*?
T$e obligation is not yet e>tinguis$ed because &ay"ent %as not "ade to t$e &ro&er &arty(
*O)S A *)0AN* HA:) TH) )33)+T O3 )STO99)L?
A de"and does not $ave t$e e##ect o# esto&&el, because in t$e case o# several debtors, even i# one
creditor "a'es a de"and on one debtor, i# #or any reason, t$e debt is not yet &aid, t$en $e can still "a'e a
de"and on t$e ot$er debtors( T$is is t$e di##erence bet%een t$e rule o# &re#erence in an active and &assive
solidarity( In t$e #or"er, &ay"ent s$ould be "ade to t$e creditor %$o "ade t$e de"and( In t$e latter, t$e
creditor does not $ave to recover only #ro" t$e &erson against %$o" t$e de"and is "ade( In ot$er %ords,
$e is not esto&&ed s$ould $e c$oose to go a#ter t$e ot$er debtors(
Art. 101. Novation' &o*pensation' &on)%sion or re*ission o) the de"t' *ade "y any o) the
solidary &reditors or .ith any o) the solidary de"tors' shall e6tin#%ish the o"li#ation'
.itho%t pre$%di&e to the provisions o) Art. 1018.
The &reditor .ho *ay have e6e&%ted any o) these a&ts' as .ell as he .ho &olle&ts the
de"t' shall "e lia"le to the other )or the share in the o"li#ation &orrespondin# to the*.
WHAT IS TH) )33)+T O3 TH) 3O,0S O3 )FTING.SIH0)NT S.+H AS NO:ATION,
+O09)NSATION, +ON3.SION, O, ,)0ISSION O3 *)BT O3 ON) O3 TH) SOLI*A,/
+,)*ITO,S WITH TH) *)BTO,?
As bet%een t$e solidary creditors and t$e debtor, t$e obligaion is e>tinguis$ed B.T %it$ res&ect
to t$e solidary creditors, as a"ong t$e"selves, t$ere is an obligation on t$e &art o# t$e creditor %$o $as
been satis#ied, to rei"burse t$e s$are o# t$e ot$er solidary creditors(
Art. 101!. The &reditor *ay pro&eed a#ainst any one o) the solidary de"tors or so*e or all
o) the* si*%ltaneo%sly. The de*and *ade a#ainst one o) the* shall not "e an o"sta&le to
those .hi&h *ay s%"se:%ently "e dire&ted a#ainst the others' so lon# as the de"t has not
"een )%lly &olle&ted.
Art. 101(. Pay*ent *ade "y one o) the solidary de"tors e6tin#%ishes the o"li#ation. I) t.o
or *ore solidary de"tors o))er to pay' the &reditor *ay &hoose .hi&h o))er to a&&ept.
CM
=e .ho *ade the pay*ent *ay &lai* )ro* his &o3de"tors only the share .hi&h
&orresponds to ea&h' .ith the interest )or the pay*ent already *ade. I) the pay*ent is
*ade "e)ore the de"t is d%e' no interest )or the intervenin# period *ay "e de*anded.
?hen one o) the solidary de"tors &annot' "e&a%se o) his insolven&y' rei*"%rse his
share to the de"tor payin# the o"li#ation' s%&h share shall "e "orne "y all his &o3de"tors' in
proportion to the de"t o) ea&h.
HOW IS TH) LIABILIT/ O3 TH) SOLI*A,/ +,)*ITO,S *)T),0IN)*?
I# F o%es A, B and + 9=,JJJ and F &ays A, %it$ res&ect to t$e creditors and t$e debtor t$e
obligation is e>tinguis$ed(
IN TH) ABO:) )FA09L), A3T), F 9A/S A, WHAT IS TH) LIABILIT/ TO B AN* +?
A $as to rei"burse B and + 95,JJJ eac$(
A"ong t$e creditors t$e"selves, t$ere is a relations$i& t$at e>ists( T$is is al%ays joint( T$ere
cannot be a sti&ulation t$at as a"ong t$e creditors, t$ere is solidary liability, ot$er%ise t$e "oney %ould
just be going around(
ASS.0ING THAT TH) 3O,0 O3 )FTING.ISH0)NT IS L)GAL +O09)NSATION, AS WH)N F
OW)S A AN* A OW)S F, IS A ,)?.I,)* B/ LAW TO ,)I0B.,S) B AN* +?
/es( T$ere is an obligation a"ong all solidary creditors to rei"burse one anot$er regardless o#
%$at is t$e cause o# e>tinguis$"ent )F+)9T due to loss to #ortuitous event, %$ere t$ere is no
rei"burse"ent o# t$e obligation because t$e relations$i& a"ong creditors is joint(
WHAT ABO.T S)+( M, ,.L) HM O3 TH) ,.L)S O3 +O.,T?
Sec( M o# ,ule HM o# t$e ,ules o# +ourt< W$ere t$e obligation o# t$e decedent is solidary %it$
anot$er debtor, t$e clai" s$all be #iled against t$e decedent as i# $e %ere t$e only debtor, %it$out &rejudice
to t$e rig$t o# t$e estate to recover contribution #ro" t$e ot$er debtor( > > >!
T$is &rovides t$e &rocedure s$ould t$e creditor desire to go against t$e deceased debtor( I# t$e
creditor %ould go against t$e dead, t$en $e s$ould co"&ly %it$ t$is rule(
But t$en $e could also go a#ter t$e living debtors in %$ic$ case you are not re7uired to avail o# t$e
&roceedings in t$e estate o# t$e deceased solidary debtor( 4I"&erial v( *avid6
IBP>RIAL INSERANC> <. DA<ID 111 SCRA 11(
@a&ts+
*avid and $er $usband, ,eyes, e>ecuted ; inde"nity agree"ents in #avor o# I"&erial Insurance
to assure inde"ni#ication #or %$atever liability it "ay $ave in connection %it$ its &osting o#
security bonds to li#t attac$"ents in civil cases(
,eyes died intestate8 and *avid beca"e ad"inistrati> o# t$e intestate estate(
-udg"ent %as rendered in t$e t%o civil cases against t$e s&ouses %$ic$ beca"e #inal and
e>ecutory(
Writs o# e>ecution being unsatis#ied, judg"ent %as rendered against t$e surety bonds(
I"&erial #iled #or collection o# su"s o# "oney a#ter *avid #ailed to "a'e &ay"ents u&on
de"and by I"&erial(
Iss%e+ ?DN David is lia"le to pay.
=eld+ F>S. I# t$e $usband and %i#e bound t$e"selves jointly and severally, in case o# $is deat$ $er
liability is inde&endent o# and se&arate #ro" $er $usbandAs liability, and s$e "ay be sued #or t$e %$ole
debt(
W$en t$e obligation is a solidary one, t$e creditor "ay bring $is action in toto against any o# t$e
debtors obligated in solidu"(
S$e 4*avid6 "ay be sued #or t$e %$ole debt and it %ould be error to $old t$at t$e clai" against
$er as %ell as t$e clai" against $er $usband s$ould be "ade in t$e decedentAs estate(
CN
T$e +ivil +ode e>&ressly allo%s t$e creditor to &roceed against any one o# t$e solidary debtors or
so"e or all o# t$e" si"ultaneously( Hence, t$ere is not$ing i"&ro&er in t$e creditorAs #iling o# an action
against t$e surviving solidary debtors alone, instead o# instituting a &roceeding #or t$e settle"ent o# t$e
estate o# t$e deceased debtor %$erein $is clai" could be #iled(
SHO.L* TH) +O.,T *IS0ISS TH) +AS) WH)N, 9)N*ING A S.IT 3O, TH) +OLL)+TION O3
A S.0 O3 0ON)/ AGAINST SOLI*A,/ *)BTO,S, ON) O3 TH) *)BTO, *I)S, 9.,S.ANT
TO S)+( M, ,.L) HM O3 TH) ,.L)S O3 +O.,T?
No( +reditors $ave a rig$t to recourse against one, so"e or all o# its solidary debtors under Art(
5;5M o# t$e +ivil +ode( Art 5;5M grants t$e creditor t$e substantive rig$t to see' satis#action o# $is credit
#ro" one, so"e or all o# $is solidary debtors, as $e dee"s #it or convenient #or t$e &rotection o# $is
interests( I# during t$e &endency o# an action in a collection suit against so"e or all o# t$e" one o# t$e
de#endants dies, t$e court retains jurisdiction to continue t$e &roceedings and decide t$e case in res&ect to
t$e surviving de#endants( 49$ili&&ine National Ban' v( Inde&endent 9lanters Association, Inc(6
PNB <. IND>P>ND>NT PLANT>RS 110 SCRA 111
@a&ts+
9NB a&&ealed to t$e S+ t$e order o# +3I dis"issing its clai" against several solidary debtors
#or t$e collection o# a su" o# "oney on t$e ground t$at one o# t$e de#endants died during t$e
&endency o# t$e case(
+3I relied on Sec M ,ule HM o# t$e ,ules o# +ourt %$ic$ states< W$ere t$e obligation o# t$e
decedent is solidary %it$ anot$er debtor, t$e clai" s$all be #iled against t$e decedent as i# $e
%ere t$e only debtor >>>!
9NB assails t$e order invo'ing Art 5;5M o# t$e +ivil +ode %$ic$ states< T$e creditor "ay
&roceed against any one o# t$e solidary debtors or so"e or all o# t$e" si"ultaneously >>>!
Iss%e+ ?DN PNB &an &lai* )ro* other solidary de"tors
R%lin#+ F>S. Sec M, ,ule HM o# t$e ,ules o# +ourt &rovides t$e &rocedure s$ould t$e creditor desire to go
against t$e deceased debtor( Art 5;5M o# t$e ++ e>&ressly allo%s t$e credit&r to &roceed against any one o#
t$e solidary debtors or so"e or all o# t$e" si"ultaneosly( T$e #or"er being "erely &rocedural cannot
&revail over t$e latter %$ic$ is a substantive la%(
9NB v( Asuncion< Not$ing in Sec M, ,ule HM o# t$e ,,+ &revents and creditor #ro" &roceeding
against t$e surviving solidary debtors(
I# one o# t$e alleged solidary debtors dies during t$e &endency o# t$e collection case, t$e court
%$ere said case is &ending retains jurisdiction to continue $earing t$e c$arge as against t$e surviving
de#endants(
HOW IS LIABILIT/ A99O,TION)* A0ONG TH) +,)*ITO,S?
Liability is a&&ortioned or distributed &ro&ortionately i# t$ere is an agree"ent as to $o% "uc$ t$e
s$are o# eac$ is( I# t$ere is no agree"ent, t$e, it is e7ually a&&ortioned(
Art. 1015. Pay*ent "y a solidary de"tor shall not entitle hi* to rei*"%rse*ent )ro* his &o3
de"tors i) s%&h pay*ent is *ade a)ter the o"li#ation has pres&ri"ed or "e&o*e ille#al.
Art. 1018. The re*ission *ade "y the &reditor o) the share .hi&h a))e&ts one o) the solidary
de"tors does not release the latter )ro* his responsi"ility to.ards the &o3de"tors' in &ase the
de"t has "een totally paid "y anyone o) the* "e)ore the re*ission .as e))e&ted.
Art. 1009. The re*ission o) the .hole o"li#ation' o"tained "y one o) the solidary de"tors'
does not entitle hi* to rei*"%rse*ent )ro* his &o3de"tors.
CH
Art. 1001. I) the thin# has "een lost or i) the prestation has "e&o*e i*possi"le .itho%t the
)a%lt o) the solidary de"tors' the o"li#ation shall "e e6tin#%ished.
I) there .as )a%lt on the part o) any one o) the*' all shall "e responsi"le to the
&reditor' )or the pri&e and the pay*ent o) da*a#es and interest' .itho%t pre$%di&e to their
a&tion a#ainst the #%ilty or ne#li#ent de"tor.
I) thro%#h a )ort%ito%s event' the thin# is lost or the per)or*an&e has "e&o*e
i*possi"le a)ter one o) the solidary de"tors has in&%rred in delay thro%#h the $%di&ial or
e6tra$%di&ial de*and %pon hi* "y the &reditor' the provisions o) the pre&edin# para#raph
shall apply.
WHAT A,) TH) +AS)S WH),) ,)I0B.,S)0)NT IS 9OSSIBL) O, NOT 3O, A SOLI*A,/
*)BTO,?
R>IBBERS>B>NT NO R>IBBERS>B>NT
9ay"ent
Novation 2 c$ange o# t$e object %it$ t$e
'no%ledge o# t$e creditor, e(g(, TAWA*(T$e
debtor %$o &aid t$e novated a"ount to t$e
creditor is entitled to rei"burse"ent #ro" t$e
ot$er debtors based on t$e novated a"ount, not
t$e original a"ount, e(g( A, B, + and * are
obliged as solidary debtors to &ay F 95,JJJ( I#
A %as able to lo%er t$e a"ount to 9HJJ %it$
FAs 'no%ledge, and A &ays t$e %$ole a"ount
to F, A can only as' #or rei"burse"ent #ro" B,
+, and * based on t$e 9HJJ( T$ere#ore, B, +,
and * "ust &ay A only 9;JJ eac$(
+o"&ensation
+on#usion 2 $ere t$e debtor later beco"es t$e
o%ner o# t$e object by so"e ot$er "eans or t$e
debtor beco"es t$e creditor
9artial condonation 2 just li'e in novation8 a
&ortion o# t$e obligation $as been condoned(
Total +ondonation, e(g( A negotiates to F,
creditor, to #orget t$e loan( T$ere is no
rei"burse"ent #or A as regards ot$er debtors as
no "oney o# A %as ever used(
Obligation is void(
Obligation $as &rescribed(
*ebtor is guilty o# loss

Art. 1000. A solidary de"tor *ay' in a&tions )iled "y the &reditor' avail hi*sel) o) all de)enses
.hi&h are derived )ro* the nat%re o) the o"li#ation and o) those .hi&h are personal to hi*'
or pertain to his o.n share. ?ith respe&t to those .hi&h personally "elon# to the others' he
*ay avail hi*sel) thereo) only as re#ards that part o) the de"t )or .hi&h the latter are
responsi"le.
WHAT A,) TH) *)3)NS)S 3O, A SOLI*A,/ *)BTO, AGAINST HIS +,)*ITO,?
456 *e#enses %$ic$ arise #ro" t$e very nature o# t$e obligation( T$is is a +O09L)T)
*)3)NS), e(g( obligation is void or e>tinguis$ed( T$e creditor cannot go against any o# t$e
debtors(
4;6 9ersonal de#enses "ay be co"&lete i# suc$ a de#ense &ertains directly to t$e debtor, e(g(
"inority or insanity( It can also be &artial as #or t$e ot$er debtors 4not t$e "inor nor insane
debtor6 e(g(, solidary debtors A, B, +, and * are re7uired to &ay F 95,JJJ on 5C 3ebruary,
;JJ=( I# A raises t$e de#ense o# $is being a "inor, and F re7uires B to &ay t$e %$ole a"ount,
AAs "inority is a &artial de#ense to B so B "ust &ay, &artially also, 9NDJ only(
CI
Se&. . Divisi"le and Indivisi"le O"li#ations
Art. 1001. The divisi"ility or indivisi"ility o) the thin#s that are the o"$e&ts o) o"li#ations in
.hi&h there is only one de"tor and only one &reditor does not alter or *odi)y the provisions
o) Chapter 0 o) this Title.
Art. 1004. A $oint indivisi"le o"li#ation #ives rise to inde*nity )or da*a#es )ro* the ti*e
anyone o) the de"tor does not &o*ply .ith his %nderta7in#. The de"tors .ho *ay have
"een ready to )%l)ill their pro*ises shall not &ontri"%te to the inde*nity "eyond the
&orrespondin# portion o) the pri&e o) the thin# or o) the val%e o) the servi&e in .hi&h the
o"li#ation &onsists.
Art. 100. @or the p%rposes o) the pre&edin# arti&les' o"li#ation to #ive de)inite thin#s and
those .hi&h are not s%s&epti"le o) partial per)or*an&e shall "e dee*ed to "e indivisi"le.
?hen the o"li#ation has )or its o"$e&t the e6e&%tion o) a &ertain n%*"er o) days o)
.or7'. The a&&o*plish*ent o) .or7 "y *etri&al %nits' or analo#o%s thin#s .hi&h "y their
nat%re are s%s&epti"le o) partial per)or*an&e' it shall "e divisi"le.
=o.ever' even tho%#h the o"$e&t or servi&e *ay "e physi&ally divisi"le' an
o"li#ation is indivisi"le i) so provided "y la. or intended "y the parties.
In o"li#ations not to do' divisi"ility shall "e deter*ined "y the &hara&ter o) the
prestation in ea&h parti&%lar &ase.
Se&. !. O"li#ations .ith a Penal Cla%se
Art. 100!. In o"li#ations .ith a penal &la%se' the penalty shall s%"stit%te the inde*nity )or
da*a#es and the pay*ent o) interests in &ase o) non&o*plian&e' i) there is no stip%lation to
the &ontrary. Nevertheless' da*a#es shall "e paid i) the o"li#or re)%ses to pay the penalty or
is #%ilty o) )ra%d in the )%l)ill*ent o) the o"li#ation.
The penalty *ay "e en)or&ed only .hen it is de*anda"le in a&&ordan&e .ith the
provisions o) this Code.
WHAT IS A 9)NAL +LA.S)?
A &enal clause is an accessory underta'ing to assu"e greater liability in case o# breac$( Also, it
"ay serve as li7uidated da"ages, "eaning da"ages t$at t$e courts need not decide u&on in case one debtor
breac$es in t$e obligation(
WHAT *O)S AN OBLIGATION WITH A 9)NAL +LA.S) +ONSIST O3?
In an obligation %it$ a &enal clause, t$ere is bot$ t$e &rinci&al obligation and t$e &enalty( T$e
latter is to be dee"ed an accessory obligation, t$us "a'ing its very e>istence de&endent u&on t$e &rinci&al(
0ost obligations %it$ a &enal clause contain a sti&ulation to t$e e##ect t$at #ailure on t$e &art o# t$e debtor
to &er#or" t$e &restation %ill "a'e t$e debtor liable #or a certain consideration( )>a"&le< I# Angelo #ails to
ta'e Arnie to $ave $is $air cut by ; &("( to"orro%, Angelo "ust deliver to Arnie a year o# $air gel 4Ang
ganda ng bagong bu$o' e$(6
WHAT IS TH) 9.,9OS) O3 TH) 9)NAL +LA.S)?
Its &ur&ose is to<
456 strengt$en t$e coercive #orce o# t$e obligation by t$e t$reat o# greater res&onsibility
in t$e event o# breac$ WTolentinoX
4;6 do a%ay %it$ t$e &roo# as to $o% "uc$ t$e da"ages are in all cases, %$ic$ "ostly
do not involve "oney W*ean del +astilloX
DJ
WHAT 3O,0 SHO.L* 9)NALTI)S NO,0ALL/ TAB)?
Nor"ally, t$e &enalty is in t$e #or" o# "oney( T$ere is no &ro$ibition, $o%ever, to "a'e t$e
&enalty in t$e #or" o# goods(
WH)N IS A 9)NALT/ *)0AN*ABL)?
A &enalty is de"andable in cases o# breac$ o# an obligation, t$at is, in cases o#<
456 non1#ul#ill"ent
4;6 &artial #ul#ill"ent
4=6 irregular #ul#ill"ent
4C6 delayed #ul#ill"ent
Ho%ever, breac$ alone does not "a'e t$e creditor entitled to t$e &enalty( T$e en#orce"ent o# t$e
&enalty can be de"anded by t$e creditor only %$en t$e non1&er#or"ance is due to t$e #ault o# t$e
debtor( Nevert$eless, non1&er#or"ance gives rise to t$e &resu"&tion o# #ault8 in order to avoid t$e
&ay"ent o# t$e &enalty, t$e debtor $as t$e burden or &roviding a de#ense(
WH)N 0A/ A 9)NAL +LA.S) NOT B) )N3O,+)* TH)N?
A &enal clause "ay not be en#orced<
456 W$en t$e breac$ is due to t$e #ault o# t$e creditor8
4;6 W$en a #ortuitous event intervened, .NL)SS t$e debtor e>&ressly agreed on $is
liability in case o# a #ortuitous event8 and
4=6 W$en t$e debtor is not yet in de#ault(
0A/ TH) +,)*ITO, +OLL)+T *A0AG)S AN* INT),)ST IN A**ITION TO TH) 9)NALT/?
As a general rule, no( T$e &enalty ta'es t$e &lace o# inde"nity #or da"ages and #or t$e &ay"ent o#
interest( Li7uidated da"ages, re"e"ber?
Ta'e #or e>a"&le, T$ere is an obligation to &ay 95,JJJ cas$ %it$ interest at 5;L &er annu" and a
&enalty o# ;JL i# t$e loan re"ains un&aid a#ter a year( On t$e #irst year, t$e creditor can collect 95,JJJ &lus
95;J %$ic$ constitutes t$e interest( I# t$e debt re"ains un&aid on t$e second year, t$e creditor can collect
95,JJJ &lus 95;J interest and 9;JJ, %$ic$ is t$e ;JL &enalty( In t$e latter case, t$e 5;L interest cannot be
i"&osed on to& o# t$e &enalty because t$e &enalty itsel# ta'es t$e &lace o# li7uidated i"ages and interest(
WH)N 0A/ TH) +,)*ITO, +OLL)+T *A0AG)S AN* INT),)ST IN A**ITION TO TH)
9)NALT/?
T$e creditor "ay do so, %$en<
456 T$ere is an e>&ress sti&ulation to t$at e##ect(
4;6 T$e debtor re#uses to &ay t$e &enalty8 and
4=6 T$e debtor is guilty o# #raud in t$e #ul#ill"ent o# t$e obligation(
Art. 100(. The de"tor &annot e6e*pt hi*sel) )ro* the per)or*an&e o) the o"li#ation "y
payin# the penalty' save in the &ase .here this ri#ht has "een e6pressly reserved )or hi*.
Neither &an the &reditor de*and the )%l)ill*ent o) the o"li#ation and the satis)a&tion o) the
penalty at the sa*e ti*e' %nless this ri#ht has "een &learly #ranted hi*. =o.ever' i) a)ter
the &reditor has de&ided to re:%ire the )%l)ill*ent o) the o"li#ation' the per)or*an&e thereo)
sho%ld "e&o*e i*possi"le .itho%t his )a%lt' the penalty *ay "e en)or&ed.
WHAT A,) TH) TWO BASI+ 9,IN+I9L)S IN AN OBLIGATION WITH A 9)NAL +LA.S)?
3irst, t$e debtor cannot &ay t$e &enalty in &lace o# t$e &rinci&al( T$e creditor cannot be #orced to
acce&t suc$ an o##er #ro" t$e debtor( T$e reason #or t$is is t$at i# t$e debtor can just c$oose to &ay t$e
&enalty instead o# #ul#illing t$e obligation, t$e obligation %ill be, in e##ect, be an alternative obligation(
)F+)9T %$en t$ere is an e>&ress sti&ulation by t$e &arties, t$e debtor "ay &ay t$e &enalty in &lace o# t$e
&rinci&al( T$ere#ore, i"&lied reservation o# suc$ rig$t in #avor o# t$e debtor is not allo%ed(
Second, t$e creditor cannot collect bot$ t$e &rinci&al and t$e &enalty( It %ould be unjust on t$e
debtorAs &art( T$e e>ce&tion is %$en t$ere is a contrary sti&ulation by t$e &arties to t$at e##ect( Note
D5
$o%ever t$at t$e second &rinci&le does not a&&ly in t$e case o# "onetary obligations, because in "onetary
obligation, t$e creditor collects bot$ t$e &rinci&al and t$e &enalty(

Art. 1005. Proo) o) a&t%al da*a#es s%))ered "y the &reditor is not ne&essary in order that the
penalty *ay "e de*anded.
Art. 1008. The $%d#e shall e:%ita"ly red%&e the penalty .hen the prin&ipal o"li#ation has
"een partly or irre#%larly &o*plied .ith "y the de"tor. >ven i) there has "een no
per)or*an&e' the penalty *ay also "e red%&ed "y the &o%rts i) it is ini:%ito%s or
%n&ons&iona"le.
WHO HAS TH) ,IGHT TO 3IF TH) A0O.NT IN A 9)NALT/?
T$e &arties, o# course( Ho%ever, Art( 5;;I also &rovides t$at t$e judge s$all e7uitably reduce t$e
&enalty %$en t$e &rinci&al obligation 456 $as been &artly or irregularly co"&lied %it$ > > >8 or 4;6 even i#
t$ere is no &er#or"ance, > > > i# it is ini7uitous or unconscionable(
JISON <. COERT O@ APP>ALS' ROB>RT P=ILLIPS 1!4 SCRA 118

@a&ts+
-isons entered into a +ontract to Sell %it$ ,O9SI( T$e latter %ill sell to -isons a subdivision lot,
agreed &rice is 9DDB, %it$ HL interest annually &ayable on install"ent(
T$e contract also &rovides t$at it s$ould be auto"atically rescinded u&on #ailure o# vendee to
&ay = or "ore "ont$ly install"ents and t$at any a"ount derived #ro" sale s$all be #or#eited as
li7uidated da"ages(
-isons de#aulted #or = "ont$s
,O9SI in#or"ed -isons t$at t$e contract %as cancelled
T$e e>ecution o# t$e contract %as &rior to t$e e##ectivity o# ,AMDD; 4,ealty Install"ent BuyerAs
9rotection Act6 &roviding t$at t$e notice o# cancellation be by notarial act(
Iss%e+
?DN the &an&ellation .as valid
?DN the )or)eit%re o) all pay*ents .as reasona"le
R%lin#+ F>S. T$e resolution o# t$e contract to sell %as valid as aut$ority to rescind %as sti&ulated in t$e
contract( Also a su##icient notice %as sent to t$e de#aulting buyer( Note t$at ,A MDD; is not yet e##ective(
NO. T$e +ourt is convinced t$at t$e #or#eiture o# t$e a"ount o# 9CNB, alt$oug$ it includes
accu"ulated #ines #or &etitionerAs #ailure to construct a $ouse6, is clearly ini7uitous considering t$at t$e
contract &rice is only 9DDB(
Art ;;;N< Li7uidated da"ages, %$et$er intended as an inde"nity or a &enalty, s$all be e7uitably
reduced i# t$ey are ini7uitous or unconscionable(
Art 5;;I< In obligation %it$ a &enal clause, t$e judge s$all e7uitably reduce t$e &enalty %$en t$e
&rinci&al obligation $as been &artly or irregularly co"&lied %it$ by t$e debtor(
T$e a"ountGc$aracter o# inde"nity is #i>ed %it$out regard to t$e &robable da"ages %$ic$ "ig$t
be antici&ated as a result o# a breac$ o# ter"s o# contract(
Art. 1019. The n%llity o) the penal &la%se does not &arry .ith it that o) the prin&ipal
o"li#ation.
The n%llity o) the prin&ipal o"li#ation &arries .ith it that o) the penal &la%se.
I3 TH) 9,IN+I9AL OBLIGATION IS N.LL AN* :OI*, WHAT B)+O0)S O3 TH) 9)NAL
+LA.S)?
Since t$e &enalty is only an accessory obligation, i# t$e &rinci&al obligation is null and void, t$e
&enal clause is also void( 3or e>a"&le< Angel is obliged to give Ogie a stas$ o# Grade A $as$is$ i"&orted
D;
#ro" Sagada( T$ere is a &enal clause regarding t$e #or#eiture o# 9DJJ in case o# non1co"&liance %it$ t$e
obligation( Here t$e subject "atter is outside t$e co""erce o# "an( 4*i nga?6 T$e &enalty clause $ere,
alt$oug$ in itsel# valid, %ill also be considered null and void because t$e nullity o# t$e &rinci&al obligation
carries %it$ it t$at o# t$e &enal clause(
I3 TH) 9)NAL +LA.S) IS :OI*, WHAT WILL HA99)N TO TH) 9,IN+I9AL OBLIGATION?
I# t$e &enal clause is void, t$e obligation re"ains valid( 3or e>a"&le, 3erdie is obliged to
construct a $ouse #or Beryl %it$in M "ont$s( T$e contract &rovides #or a &enalty clause in case 3erdie is not
able to &er#or" $is obligation %it$in t$e sti&ulated &eriod( T$e &enal clause consists o# 3erdie beco"ing
BerylAs #orever( Here t$e &enalty clause is null and void because it is against good "orals( 4&ero "asaya(( si
Beryl6 But t$e &rinci&al obligation, t$at o# constructing t$e $ouse, re"ains valid( T$e &enal clause %ill be
disregarded( T$e la% &rovides t$at t$e nullity o# t$e &enal clause does not carry %it$ it t$at o# t$e &rinci&al
obligation(
WHAT WO.L* 0AB) TH) 9)NAL +LA.S) :OI*?
T$e &enal clause "ay be void because it is contrary to la%, "orals, good custo"s, &ublic order and
&ublic &olicy(
GSIS <. COERT O@ APP>ALS 14 SCRA
@a&ts+
0edinaAs a&&lication #or loan %it$ GSIS 49=DJB6 %as a&&roved( T$e ter" includes 456 t$at
un&aid install"ents 4%$ic$ include &rinci&al and interest6 bears interest and 4;6 t$at t$e interest
is IL co"&unded "ont$ly(
,eal estate "ortgage %as e>ecuted in #avor o# GSIS(
Additional loan o# 9;=JB %as a&&roved by GSIS
A real estate "ortgage %as a"ended to include guaranty o# additional loan(
0edina de#aulted(GSIS t$us i"&osed interest on un&aid install"ents(
GSIS #iled #or a&&lication #or #oreclosure o# "ortgage and indeed t$e "ortgage %as #oreclosed
Iss%e+
?DN the a*end*ent o) the R>B s%perseded the earlier *ort#a#e &ontra&t parti&%larly
.ith respe&t to &o*po%ndin# o) interest
?DN the interest rates on loan a&&o%nts are %s%rio%s
?DN )ore&los%re .as a proper re*edy
R%lin#+ NO.
NO. Interest by %ay o# da"ages is governed by Art ;;JI %$ic$ states< I# t$e obligation consists
in t$e &ay"ent o# su" o# "oney, and t$e debtor incurs in delay, t$e inde"nity #or da"ages, t$ere being no
sti&ulation to t$e contrary, s$all be t$e &ay"ent o# interest(
In Bac$rac$ case, S+ ruled t$at ++ &er"its t$e agree"ent u&on &enalty a&art #ro" t$e interest(
S$ould t$ere be suc$ an agree"ent, t$e &enalty does not include t$e interest, t$e ; are distinct
t$ings de"andable se&arately(
In t$e )7uitable Ban'ing +or& case, S+ $eld t$at sti&ulation about &ay"ent o# suc$ additional rate
&arta'es o# t$e nature o# a &enalty clause, %$ic$ is sanctioned by la%(
F>S. 0edinaAs #ailure to settle t$eir accounts, GSIS $ad t$e &er#ect rig$t to #oreclose t$e
"ortgage(
Chapter 4
>6tin#%ish*ent o) O"li#ations
General Provisions
D=
Art. 1011. O"li#ations are e6tin#%ished+
,1- By pay*ent o) per)or*an&e/
,0- By the loss o) the thin# d%e/
,1- By the &ondonation or re*ission o) the de"t/
,4- By the &on)%sion or *er#er o) the ri#hts o) &reditor and de"tor/
,- By &o*pensation/
,!- By novation.
Other &a%ses o) e6tin#%ish*ent o) o"li#ations' s%&h as ann%l*ent' res&ission' )%l)ill*ent
o) a resol%tory &ondition' and pres&ription' are #overned else.here in this Code.
WHAT A,) TH) 0O*)S O3 )FTING.ISH0)NT O3 AN OBLIGATION?
Art( 5;=5 &rovides t$at obligations are e>tinguis$ed<
456 By &ay"ent o# &er#or"ance8
4;6 By t$e loss o# t$e t$ing due8
4=6 By t$e condonation or re"ission o# t$e debt8
4C6 By t$e con#usion or "erger o# t$e rig$ts o# creditor and debtor8
4D6 By co"&ensation8
4M6 By novation(!
IS THIS LIST )F+L.SI:)?
No( Art( 5;=5 goes on to say t$at ot$er causes o# e>tinguis$"ent o# obligations, suc$ as
annul"ent, rescission, #ul#ill"ent o# a resolutory condition, and &rescri&tion are governed else%$ere in t$is
+ode(!
Also, an obligation "ay be e>tinguis$ed by deat$, %$en t$e obligation is o# a &urely &ersonal
c$aracter, a&art #ro" its e>tinctive e##ects in so"e contracts, suc$ as &artners$i& and agency, re"ission by
t$e creditor, co"&ro"ise, rescission o# t$e contract, t$e #ul#ill"ent o# a resolutory ter", a c$ange o# civil
status, t$e occurrence o# a #ortuitous event, i"&ossibility o# &er#or"ance and "utual dissent(
Se&. 1 L Pay*ent or Per)or*an&e
Art. 1010. Pay*ent *eans not only the delivery o) *oney "%t also the per)or*an&e' in any
other *anner' o) an o"li#ation.
G)N),ALL/, WHAT 0O*) WO.L* B) 0OST 9,)3),ABL) TO TH) 9A,TI)S?
T$e &arties generally %ould %ant to avail o# &ay"ent(
WHAT IS 9A/0)NT?
Art( 5;=; &rovides t$at 9ay"ent "eans not only t$e delivery o# t$e "oney but also t$e
&er#or"ance, in any "anner, o# an obligation(!
Tolentino says t$at &ay"ent is t$e #ul#ill"ent o# t$e &restation due, a #ul#ill"ent t$at e>tinguis$es
t$e obligation by t$e reali@ation o# t$e &ur&oses #or %$ic$ it %as constituted(
3or legal &ur&oses, &ay"ent does not only "ean &ay"ent o# a "oney obligation( It includes
&er#or"ance o# an obligation not &ayable in "oney, suc$ as delivery o# &ro&erty or &er#or"ance o#
services( In an obligation not to do, &ay"ent %ould "ean re#raining #ro" t$e act %$ic$ $as been
&ro$ibited(
Note t$at &ay"ent! as used $erein re#ers to a &re1e>isting obligation( I# t$ere is no suc$
obligation e>ists, strictly s&ea'ing, t$e delivery o# "oney %ill not constitute &ay"ent( T$us, in t$e e>ercise
o# an o&tion, Arts( 5;=; to 5;=M cannot a&&ly(
Art. 1011. A de"t shall not "e %nderstood to have "een paid %nless the thin# or servi&e in
.hi&h the o"li#ation &onsists has "een &o*pletely delivered or rendered' as the &ase *ay "e.
WHO HAS TH) B.,*)N O3 9,O:ING 9A/0)NT?
DC
T$e debtor $as t$e burden o# &roving t$at $e $as &aid $is debt, granted t$at t$e creditor $as s$o%n
t$at a valid debt e>ists(
WHAT IS TH) ON) O3 TH) B)ST WA/S O3 9,O:ING 9A/0)NT?
One o# t$e best %ays o# &roving &ay"ent is t$e &resentation o# a recei&t( T$e debtor $as a rig$t to
de"and a recei&t #ro" t$e creditor(
WHAT A,) TH) TH,)) 9,IN+I9L)S IN:OL:)* IN 9A/0)NTS?
T$e t$ree &rinci&les involved in &ay"ents are<
456 Integrity8 4co"&lete #ul#ill"ent6
4;6 Identity8 and
4=6 Indivisibility(
WHAT IS INT)G,IT/ O3 9A/0)NT?
Integrity o# &ay"ent "eans t$e co"&lete and #ull &er#or"ance or &ay"ent o# t$e obligation( T$e
&rinci&le o# integrity o# &ay"ents 4as %ell as t$at o# indivisibility6 is e"bodied in Art( 5;== %$ic$ &rovides
t$at A debt s$all not be understood to $ave been &aid unless t$e t$ing or service in %$ic$ t$e obligation
consists $as been co"&letely delivered or rendered, as t$e case "ay be(!
I# it is an obligation to do, it "ust be co"&letely &er#or"ed(
I# it is an obligation to give, it "ust be co"&letely delivered and al%ays in accordance %it$ t$e
ter"s and conditions agreed u&on bet%een t$e &arties(
=A=N <. COERT O@ APP>ALS' SANTOSPPPPPPPPPPPPPPPPPPPPPPPPPPP 1(1 SCRA !(
@a&ts+
Santos received ; dia"ond rings %it$ a total value o# 9CNB #ro" Ha$n(
Santos issued se&arate recei&ts ac'no%ledging t$e delivery #or sale on co""ission and to be
returned u&on de"and i# unsold(
T$e rings %ere not sold nor %ere t$ey returned %$en de"anded by Ha$n(
Ha$n sued #or recovery o# t$e rings or t$eir value
T$e T+ ordered Santos to return t$e ; rigns or &ay Ha$n t$eir value, %$ic$ %as increased to
9MDB 4#ro" 9CNB6 based on Art( 5;DJ
On a&&eal, +A #ound Art 5;DJ ina&&licable( It disallo%ed $o%ever t$e grant o# "oral and
e>e"&lary da"ages(
Iss%e+
WGN t$e re#usal o# Ha$n to acce&t SantosA o##er 456 to &ay #or t$e rings on install"en and 4;6 to
return t$e solitaire ring %as valid
WGN u&%ard adjust"ent under Art 5;DJ can be sustained
R%lin#+ F>S. Art( 5;== re7uires #ull or co"&lete &ay"ent( And creditor cannot be co"&elled to receive a
di##erent t$ing, even i# e7ual to or "ore t$an t$e value %$ic$ is due(
Note< 0oral and e>e"&lary da"ages %ere a%arded due to SantosA dubious conduct
NO. T$ere $as been no e>traordinary in#lation! o# currency %it$in t$e "eaning o# Art 5;DJ(
)>traordinary in#lation or de#lation o# currency is understood to be any unco""on decrease or increase in
t$e &urc$asing &o%er o# currency %$ic$ t$e &arties could not $ave reasonably #oreseen and %$ic$ $as been
due to %ar and t$e e##ects t$ereo#, or any unusual #orce "ajeure or #ortuitous event(
Art. 1014. I) the o"li#ation has "een s%"stantially per)or*ed in #ood )aith' the o"li#or *ay
re&over as tho%#h there has "een a stri&t and &o*plete )%l)ill*ent' less da*a#es s%))ered "y
the o"li#ee.
WHAT A,) TH) )F+)9TIONS TO TH) N))* 3O, +O09L)T) 9),3O,0AN+) O3 9A/0)NT?
T$e e>ce&tions are<
456 Substantial co"&liance in good #ait$ on t$e &art o# t$e debtor8 and
DD
4;6 Waiver on t$e &art o# t$e creditor(
WHAT A,) TH) ,)?.ISIT)S 3O, S.BSTANTIAL +O09LIAN+)?
T$e &ertinent &rovision is Art( 5;=C, %$ic$ &rovides t$at i# t$e obligation $as been substantially
&er#or"ed in good #ait$, t$e obligor "ay recover as t$oug$ t$ere $ad been a strict and co"&lete #ul#ill"ent,
less da"ages su##ered by t$e obligee(
T$e re7uisites are<
456 T$e debtor "ust $ave co"&lied in good #ait$( Good #ait$ $ere "eans t$at t$ere "ust be a
reasonable atte"&t to co"&ly %it$ t$e obligation and t$e #ailure to &er#or" t$e obligation
co"&letely is not due to t$e #ault or negligence o# t$e debtor but because o# so"e ot$er #actor(
4;6 T$ere "ust only be slig$t and casual breac$( W$at is slig$t or %$at is "aterial %ill $ave to
de&end on t$e #acts and circu"stances o# eac$ case, and t$e nature o# t$e obligation( Slig$t
and casual breac$ "eans t$e &er#or"ance "ust a&&ro>i"ate t$e #ull and co"&lete
&er#or"ance o# t$e obligation( T$us, i# t$e breac$ is "aterial, t$e rule on substantial
co"&liance cannot be a&&lied(
WHAT IS TH) ,ATIONAL) B)HIN* THIS 9,O:ISION?
According to t$e +ode +o""ission, in case o# substantial &er#or"ance, t$e obligee is bene#ited(
So t$e obligor s$ould be allo%ed to recover as i# t$ere $ad been a strict and co"&lete &er#or"ance, less
da"ages su##ered by t$e obligee( T$is last condition a##ords a just co"&ensation #or t$e relative breac$
co""itted by t$e obligor( 4Tolentino, &( ;NH6
WHAT *O)S ,)+O:),! O, ,)+O:),/! 0)AN IN A,T( 5;=C?
,ecovery! $ere does not "ean t$at t$e obligor %ill recover %$at $e $as already &aid( Suc$
recovery &arta'es o# t$e action #or rescission( T$e recovery re#erred to $ere "eans t$at i# t$ere is
substantial co"&liance in good #ait$, t$e debtor is entitled to en#orce t$e obligation as i# $e $as already
co"&leted t$e agree"ent( T$e recovery $ere is in relation to t$e en#orce"ent, not t$e rescission, o# t$e
obligation(
3or e>a"&le, i# t$e obligation is to deliver 5JJ bags o# co##ee #or a su" o# "oney, and t$e debtor
delivers II bags o# co##ee, t$e delivery o# t$e II bags, i# done in good #ait$, is considered substantial
co"&liance( T$e debtor "ay t$us re7uire t$e creditor to &er#or" $is &art o# t$e obligation, t$at is, to &ay #or
t$e II bags( T$e debtor "ay even institute an action #or s&eci#ic &er#or"ance to co"&el t$e creditor 4or t$e
buyer6 to &ay #or t$e co##ee( Ho%ever, in a se&arate action #or as a counterclai", t$e buyer "ay as' #or
da"ages #ro" t$e debtor #or $is non1delivery o# 5 bag o# co##ee(

IS TH),) ,)+O:),/ IN .NILAT),AL OBLIGATIONS?
Strictly s&ea'ing, t$ere is no recovery, but "erely an e>tension o# ti"e #or t$e obligor, since $e
cannot as' t$e creditor to &er#or" $is &art o# t$e obligation 4as only t$e obligor is obliged to do, not to do,
or to give so"et$ing(6

IS S.BSTANTIAL +O09LIAN+) *))0)* TO B) 3.LL +O09LIAN+) TH)N?
Tec$nically, t$ere is no #ull &er#or"ance( T$e creditor "ay still sue #or da"ages but $e cannot
see' relie# in actions t$at #lo% #ro" t$e breac$, suc$ as s&eci#ic &er#or"ance and rescission( Suc$ rig$ts are
sus&ended( A#ter see'ing da"ages, t$e court %ill give t$e debtor ti"e to &ay #or t$e re"aining &art o# t$e
obligation so t$at t$ere "ay be #ull co"&liance( T$is &eriod is given as an additional lease on li#e,! to give
t$e debtor ti"e to #ul#ill $is obligation co"&letely( Suc$ &eriod does not give t$e debtor all t$e ti"e in t$e
%orld to co"&ly( A#ter t$is &eriod, t$e creditor beco"es entitled to t$e re"edies #or t$e breac$, i# t$e
debtor $as not yet #ully co"&lied %it$ t$e obligation( *uring t$is &eriod, it is as i# t$ere $as been no breac$
by t$e debtor(
T$ere is really no #i>ed yardstic' to "easure substantial co"&liance( It really all de&ends u&on
t$e court %$o, in turn, %ill $ave to consider t$e out&ut o# t$e debtor and t$e #acts and
circu"stances o# eac$ case(
DM
Substantial co"&liance $ere ta'es t$e debtorAs side o# a situation concerning t$e rig$t o#
rescission 4i(e(, t$e rig$t o# rescission is not absolute(6 Inas"uc$ as t$e creditor could not avail
o# rescission %$ere t$ere is only a slig$t breac$, it cannot be gainsaid t$at li'e%ise, t$e debtor
can still en#orce t$e obligation even i# t$ere $as only been substantial co"&liance(

Art. 101. ?hen the o"li#ee a&&epts the per)or*an&e' 7no.in# his in&o*pleteness or
irre#%larity' and .itho%t e6pressin# any protest or o"$e&tion' the o"li#ation is dee*ed )%lly
&o*plied .ith.
WHAT +ONSTIT.T)S A WAI:),?
T$ere is a %aiver %$en, in accordance %it$ Art( 5;=D, > > > t$e obligee acce&ts t$e &er#or"ance,
'no%ing it inco"&leteness or irregularity, and %it$out e>&ressing any &rotest or objection > > >,! in %$ic$
case, t$e obligation is dee"ed #ully co"&lied %it$(!
Ho%ever, t$ere "ust be an intentional relin7uis$"ent o# a 'no%n rig$t( A %aiver %ill not result
#ro" a "ere #ailure to assert a clai" #or de#ective &er#or"ance %$en t$e t$ing or %or' is received, or #ro"
"ere &ay"ent in accordance %it$ t$e ter"s o# t$e contract( T$ere "ust $ave been acce&tance o# t$e
de#ective &er#or"ance %it$ actual 'no%ledge o# t$e inco"&leteness or t$e de#ect, under circu"stances t$at
%ould indicate an intention to consider t$e &er#or"ance as co"&lete and renounce any clai" arising #ro"
t$e de#ect( T$e %ord acce&t! as used in Art( 5;=D "eans to ta'e as satis#actory or su##icient, or agree to an
inco"&atible or irregular &er#or"ance(
T$e essential condition o# a %aiver is t$at t$e &erson "a'ing t$e %aiver 'no%s t$at $e is %aiving(
0A/ A ,)+)I9T +ONSTIT.T) A WAI:),?
No( T$e "ere recei&t o# a &artial &ay"ent is not e7uivalent to t$e re7uired acce&tance o#
&er#or"ance as %ould e>tinguis$ t$e %$ole obligation( 4)sguerra v( :illanueva6
0A/ A +,)*ITO, OB-)+T TO A *)3)+TI:) 9),3O,0AN+) A3T), H) HAS 0A*) A :ALI*
WAI:),?
No( T$e creditor is said to be esto&&ed( T$e #ailure to &rotest be#or$and &recludes t$e obligee #ro"
t$erea#ter 7uestioning t$e &er#or"ance o# t$e obligorAs obligation under t$e contract( 4Grace 9ar'
)ngineering v( /u@on6
Also, %$ere a &arty "a'es &articular objections to t$e su##iciency o# &er#or"ance, $e is esto&&ed
to later set u& ot$er objections 4Bansas .nion Li#e Insurance +o( v( Bur"an6
WHAT IS TH) *I33),)N+) B)TW))N A WAI:), AN* S.BSTANTIAL 9),3O,0AN+)?
Substantial &er#or"ance does not &er se e>tinguis$ t$e obligation( It only sto&s t$e cloc' inso#ar
as &ay"ent is concerned( W$atever is lac'ing %ould still $ave to be delivered or &er#or"ed(
In a %aiver, t$e creditor decides to #orego t$e balance(
ACCONA <. JABANDR> 11 SCRA 11(
@a&ts+
T$e &arties entered into a contract o# lease %$ereby A@cona %ould lease HJ $ectares o# $is
5DJ $ectares 4&ro diviso6 s$are to -a"andre(
T$a annual &ay"ent %as &egged at 9N,;JJ
-a"andre actually entered t$e &re"ise a#ter &ay"ent o# 9N,JJJ( T$e &re"ises %as not
delivered to A@cona(
T$e &ay"ent %as ac'no%ledged by A@cona in a recei&t( He did not $o%ever e>&ress any
objection as to t$e 9;JJ balance(
Iss%e+ ?DN the a*o%nt o) P(999 paid "y Ja*andre and a&&epted "y AA&ona represented )%ll
pay*ent
DN
R%lin#+ Fes. W$ere landlord signs a recei&t #or 9N,JJJ as rental &ay"ent as &er contract! $e cannot as'
#or cancellation o# t$e lease on t$e ground t$at t$e lessee did not &ay t$e #ull rent o# 9N,;JJ #i>ed in t$e
contract( T$e landlord s$ould $ave "ade an e>&ress reservation #or t$e de#iciency
INT>STAT> >STAT> O@ T=> LAT> RICARDO PR>SBIT>RO SR. <. CA 01( SCRA 1(1
@a&ts+
9resbitero entered into a +ontract o# Service! %it$ +anoso( +anoso %ill negotiate %it$ t$e
LB9 and *A, #or t$e sale o# 9resbiteroAs &ro&erty( T$e latter %ill &ay +anoso 5N YL 4t$e
reduced rate6 o# gross sales
9resbitero re7uested LB9 to allocate 5N YL o# t$e cas$ and LB9 bonds to +anoso until t$e
#inal release(
On $is second letter1re7uest, 9resbitero in#or"ed LB9 to re#rain #ro" releasing +anoso
&ro&ortionate s$are( He %ill &ersonally deliver it to +anoso
+anoso %as not given $is &ro&ortionate s$are by 9resbitero(
+anoso #iled a co"&laint
Iss%e+ ?DN the o"li#ation o) Canoso ,o) ne#otiatin# in "ehal) o) Pres"itero- is dee*ed )%lly &o*plied
.ith
R%lin#+ Fes. 9resbiteroAs act o# %riting a letter to LB9 aut$ori@ing t$e re8ease o# 5N Y L o# t$e &roceeds to
+anoso is evidenced t$at strict co"&liance %it$ t$e contract %ere no longer e>&ected and de"anded by
9resbitero, resulting in a %aiver o# t$e sti&ulations or a novation o# t$e agree"ents entered into(
W$en t$e obligee acce&ts t$e &er#or"ance 'no%ing its inco"&leteness or irregularity and %it$out
e>&ressing any &rotest or objection, t$e obligation is dee"ed #ully co"&lied %it$(( 4Art 5;=D6
0oreover Art 5;=C states< I# t$e obligation $as been substantially &er#or"ed in good #ait$, t$e
obligor "ay recoverer as t$oug$ t$ere $ad been a strict and co"&lete #ul#ill"ent, less da"ages su##ered by
t$e obligee(
Art. 101!. The &reditor is not "o%nd to a&&ept pay*ent or per)or*an&e "y a third person
.ho has no interest in the )%l)ill*ent o) the o"li#ation' %nless there is a stip%lation to the
&ontrary.
?hoever pays )or another *ay de*and )ro* the de"tor .hat he has paid' e6&ept
that i) he paid .itho%t the 7no.led#e or a#ainst the .ill o) the de"tor' he &an re&over only
inso)ar as the pay*ent has "een "ene)i&ial to the de"tor.
Art. 101(. ?hoever pays on "ehal) o) the de"tor .itho%t the 7no.led#e or a#ainst the .ill
o) the latter' &annot &o*pel the &reditor to s%"ro#ate hi* in his ri#hts' s%&h as those arisin#
)ro* a *ort#a#e' #%aranty' or penalty.
Art. 1015. Pay*ent *ade "y a third person .ho does not intend to "e rei*"%rsed "y the
de"tor is dee*ed to "e a donation' .hi&h re:%ires the de"torKs &onsent. B%t the pay*ent is
in any &ase valid as to the &reditor .ho has a&&epted it.
Art. 1018. In o"li#ations to #ive' pay*ent *ade "y one .ho does not have the )ree disposal
o) the thin# d%e and &apa&ity to alienate it shall not "e valid' .itho%t pre$%di&e to the
provisions o) Art. 104( %nder the Title on Nat%ral O"li#ations.
WHO 0AB)S TH) 9A/0)NT?
T$ree &ersons "ay "a'e t$e &ay"ent<
456 T$e debtor at t$e ti"e o# &ay"ent, and includes $eirs, successors1in1interest8
4;6 A t$ird &erson %$o is not a debtor, $eir, or successor8 and
4=6 A t$ird &erson %$o $as no intention o# being rei"bursed(
DH
WHAT I3 TH) +,)*ITO, ,)3.S)S TH) *)BTO,AS 9A/0)NT?
T$e creditorAs re#usal %ould be tanta"ount to "ora acci&iendi(
WHAT I3 TH) *)BTO, AT TH) TI0) O3 9A/0)NT IS IN+A9A+ITAT)*?
His legal re&resentatives, e(g(, $is guardian, s$all $ave t$e rig$t to annul suc$ &ay"ent(
T$e obligation, aside #ro" t$e &ay"ent, is li'e%ise voidable in t$is case(
T$is envisions a situation %$ere t$e inca&acity does not e>ist at t$e ti"e o# t$e constitution o# t$e
obligation( I# it did e>ist t$en, t$e obligation %ill be dee"ed as void(
But note t$at t$ere is an e>ce&tion in Art( 5C;N, %$ic$ &rovides t$at %$en a "inor bet%een 5H and
;5enters into a contract %it$out t$e consent o# t$e &arent or guardian and voluntarily &ays a su" o# "oney
or delivers a #ungible t$ing in #ul#ill"ent o# t$e obligation, t$ere s$all be no rig$t to recover said &ay"ent
#ro" t$e obligee %$o $as s&ent or consu"ed it in good #ait$( In t$is case, t$e legal re&resentatives "ay not
annul &ay"ent(
0A/ THI,* 9),SONS 0ABING 9A/0)NT B) INT),)ST)* IN TH) OBLIGATION?
T$ey "ay or "ay not be interested in t$e obligation(
I# t$ey are interested, t$eir interest "ust be in suc$ a %ay t$at t$ey "ay be #ound liable in t$e cast
t$at t$e debtor #ails to &ay, e(g(, in t$e case o# guarantors(
0A/ TH) +,)*ITO, B) +O09)LL)* TO A++)9T 9A/0)NT B/ THI,* 9),SONS?
It de&ends(
I# &ay"ent %as "ade by a t$ird &erson interested in t$e obligation, t$en t$e creditor is still
co"&elled to acce&t &ay"ent( Ot$er%ise, $e %ill be considered in "ora acci&iendi(
I# &ay"ent %as "ade by a t$ird &erson not interested in t$e obligation, t$e creditorAs consent is
necessary( In ot$er %ords, t$e creditor cannot be co"&elled to acce&t &ay"ent( Tolentino, 7uoting +a"us,
said t$at t$e reason is t$at %$enever a t$ird &erson &ays, t$ere is a "odi#ication o# t$e &restation t$at is due(
I# t$e creditor does not acce&t and &ay"ent is not "ade in due ti"e, t$e debtor %ill be considered in
de#ault(

WH/ 0A/ A +,)*ITO, ,)3.S) 9A/0)NT B/ AN .NINT),)ST)* THI,* 9),SON?
According to t$e +ode +o""ission, T$e creditor s$ould not be co"&elled to acce&t &ay"ent
#ro" a t$ird &erson %$o $e "ay disli'e or distrust( T$e creditor "ay not, #or &ersonal reasons, desire to
$ave any business dealings %it$ a t$ird &erson8 or t$e creditor "ay not $ave con#idence in t$e $onesty o#
t$e t$ird &erson %$o "ig$t deliver a de#ective t$ing or to &ay %it$ a c$ec' %$ic$ "ay not be $onored(!
WHAT I3 TH) +,)*ITO, A++)9TS 9A/0)NT 3,O0 A THI,* 9),SON WHO IS NOT
INT),)ST)* IN AN OBLIGATION?
T$e &ay"ent is considered valid( Actually, in a relations$i& bet%een a t$ird &erson &ayor and t$e
creditor, %$at is crucial is t$e creditorAs consent to t$e #or"erAs &ay"ent( T$is "ust be distinguis$ed #ro"
t$e created relations$i& bet%een t$e t$ird &erson &ayor and t$e debtor(
T$oug$ &ay"ent by a t$ird &erson &ayor is valid once acce&ted by t$e creditor, t$is is not t$e end
o# t$e story( In #act, inso#ar as t$e t$ird &erson and debtor are concerned, it can only be t$e beginning( And
%it$ t$is, t$e crucial is t$e 'no%ledge or consent o# t$e debtor to t$e t$ird &ersonAs &ay"ent(
HOW I09O,TANT, ,)ALL/, IS TH) *)BTO,AS BNOWL)*G) O, +ONS)NT TO TH)
9A/0)NT?
It bears re&eating t$at t$e consent or non1consent o# t$e debtor is only essential #or &ur&oses o#
rei"burse"ent and not #or &ur&oses o# validity o# &ay"ent( As long as t$e creditor acce&ts &ay"ent, suc$
&ay"ent is valid(
Note t$at t$e creditorAs consent "ay be e>&ress, i"&lied, or tacit(
WHAT I3 TH) *)BTO, +ONS)NTS TO TH) 9A/0)NT B/ A THI,* 9),SON?
T$ere is #ull rei"burse"ent and subrogation(
DI
3ull rei"burse"ent si"&ly "eans t$at a &erson is entitled to recover %$at $e $as &aid(
Subrogation, by lay "anAs language, "eans ta'ing t$e &lace o# t$e creditor( In legal ter"s, t$is %ill entitle a
t$ird &erson &ayor to en#orce all ot$er rig$ts %$ic$ t$e creditor "ay e>ercise against t$e debtor(
IN TH) +AS) O3 S.B,OGATION, IS TH) +,)*ITO,AS +ONS)NT N)+)SSA,/ SO THAT TH)
THI,* 9),SON 0A/ )F),+IS) +,)*ITO,AS ,IGHTS?
No( Art( 5=J; states t$at legal subrogation is &resu"ed( > > > 4;6 %$en a t$ird &erson, not
interested in t$e obligation, &ays %it$ t$e e>&ress or tacit a&&roval o# t$e debtor8 > > >!(
T$ere#ore, %$at is being s&o'en o# $ere is t$at subrogation ta'es &lace by o&eration o# la%( T$e
la% &rovides #or an auto"atic subrogation o# rig$ts as soon as t$e t$ird &erson, %it$ t$e consent o# t$e
debtor, &ays t$e creditor(
*es&ite t$e clarity o# t$e la% as to t$e auto"atic o&eration o# subrogation, govern"ent &eo&le still
%ould not acce&t deeds o# sale t$at bear na"es di##erent #ro" t$ose o# t$e &ersons &ossessing t$e"(
Govern"ent &robably does not acce&t t$is as&ect o# t$e la%(
IS ASSIGN0)NT O3 ,IGHTS O3 TH) +,)*ITO, N)+)SSA,/?
No( As stated, rig$t o# subrogation is auto"atic(
Ho%ever, #or &ractical &ur&oses, t$ere is no $ard to "ove #or an assign"ent o# rig$t by t$e
creditor to t$e &erson( But re"e"ber t$is is not really necessary(
But it is note%ort$y to state t$at a creditor "ay assign $is rig$ts to a t$ird &erson( But in t$is case,
t$e resulting rig$ts and obligations o# t$e creditor and t$e t$ird &erson %ould be di##erent #ro" t$ose arising
#ro" &ay"ent( 4Tolentino, 0anresa6
IS 9A/0)NT INSO3A, AS IT HAS B)N)3IT)* TH) *)BTO, 0AT),IAL H),)?
No( T$e debtor gave $is consent any%ay, so it is assu"ed t$at $e %ill acce&t t$e conse7uences t$at
"ay arise #ro" t$e t$ird &ersonAs &ay"ent(
3or e>a"&le, debtor * o%es creditor ) a su" o# "oney( As a security, debtor "ortgages $is $ouse
to creditor( T$ird &arty F t$roug$ debtorAs e>&ress a&&roval &ays t$e debt( No% creditorAs rig$ts are
subrogated to t$e t$ird &arty F( 0ay F no% #oreclose t$e "ortgage on t$e $ouse? NOT ,IGHT AWA/(
0ortgages are "erely accessory to t$e &rinci&al obligation( T$is along %it$ collateral agree"ents,
&enalties, and surc$arges can only be en#orced i# debtor #ails to "a'e a #ull rei"burse"ent o# t$e su" &aid
by t$ird &arty F(
WHAT I3 TH) *)BTO, *O)S NOT +ONS)NT TO TH) 9A/0)NT B/ A THI,* 9),SON?
T$ere is only bene#icial rei"burse"ent(
T$is "eans t$at t$e debtor s$all &ay t$e t$ird &erson only to t$e e>tent t$at it $as bene#ited t$e
debtor(
3or e>a"&le, i# 3erdie, %it$out t$e 'no%ledge or consent o# Beryl, &ays ,SSSS 95,JJJ instead
o# 9DJJ %$ic$ is t$e actual indebtedness o# Beryl, t$e obligation o# Beryl to 3erdie %ill only be 9DJJ and
not 95,JJJ because it is only to t$e e>tent o# t$e 9DJJ t$at Beryl $as been bene#ited(
Anot$er e>a"&le, A o%es B 95,JJJ( +, %it$out AAs consent, &ays B 95,JJJ %$ic$ t$e latter
graciously acce&ted( 0uc$ to +As sur&rise t$oug$, A $ad already &aid t$e said debt a %ee' be#ore( 0ay +
still recover %$at $e $as &aid? /)S( T$e rig$t o# recovery o# + %ill be against t$e creditor B, subject to t$e
rules o# solutio indebiti(
/et anot$er e>a"&le, %$at i# #or instance, instead o# A $aving &aid B, + discovered t$at t$e
obligation to &ay t$e debt $ad already &rescribed? STILL /)S( T$e rules o# solutio indeiti and natural
obligations still a&&ly(
WHAT I3 9A/0)NT WAS 0A*) B/ A THI,* 9),SON AGAINST TH) *)BTO,AS WILL?
T$ere is also bene#icial rei"burse"ent(
WHAT I3 A THI,* 9),SON 9A/S WITHO.T TH) INT)NTION O3 B)ING ,)I0B.,S)*?
Art( 5;=H &rovided t$at 9ay"ent "ade by a t$ird &erson %$o does not intend to be rei"bursed by
t$e debtor is dee"ed to be a donation, %$ic$ re7uires t$e debtorAs consent( But t$e &ay"ent is in any case
valid as to t$e creditor %$o $as acce&ted it(!
MJ
3or e>a"&le, +y is indebted to 3erdie 4"ay utang na na"an si +y6 in t$e a"ount o# 95,JJJ( On
t$e due date o# t$e obligation, Tonette tells +y, I %ill &ay your debt to 3erdie( /ou do not $ave to re&ay
"e(! 4Scary6 +y, being +y, consents, so Tonette &ays 3erdie t$e 95,JJJ( T$e &ay"ent "ade by $er to
3erdie, s$all be considered a donation to +y( Ho%ever, i# +y does not consent to t$e &ay"ent o# Tonette but
3erdie acce&ts t$e &ay"ent, t$e debt is e>tinguis$ed, 3erdie cannot be co"&elled to return to Tonette t$e
a"ount &aid( On t$e ot$er $and, +y "ay re#use to acce&t TonetteAs liberality 4HAHAHA +y, re#use?
HAHAHA6 and so $e "ay co"&el t$e latter to receive t$e rei"burse"ent(
Note, t$at it is a donation as bet%een t$e &ayor and t$e debtor(
IS +ONS)NT O3 TH) *)BTO, IN THIS +AS) N)+)SSA,/?
/es( T$e rules on donation re7uire consent because t$e debtor or any &erson receiving a donation
"ay not be co"&elled to acce&t suc$ a donation( +onsent, t$ere#ore, is necessary so t$at t$e donation "ay
be &er#ected(
T$e +ode +o""ission states t$at no one s$ould be co"&elled to acce&t t$e generosity o#
anot$er(!
WHAT IS TH) )33)+T I3 TH) *ONATION HAS TH) *)BTO,AS +ONS)NT?
It %ill be considered bot$ a valid &ay"ent and donation(
T$e creditor %$o $as acce&ted it as &ay"ent dee"s t$e obligation as bet%een $i" and t$e debtor
as e>tinguis$ed(
As to t$e debtor and t$e t$ird &erson, t$is being a &er#ect donation does not re7uire t$at t$e #or"er
rei"burse t$e latter( Ho%ever, i# t$e t$ird &erson s$ould %ant to collect, $e is entitled to collect on t$e basis
o# bene#icial rei"burse"ent(
WHAT I3 TH) *)BTO, OB-)+TS TO TH) :),/ 9A/0)NT?
T$e e##ect %ould be as i# t$e obligation %as &aid by a t$ird &erson %it$out t$e 'no%ledge and
consent o# t$e debtor in %$ic$ case t$e t$ird &erson is only entitled to bene#icial rei"burse"ent(
WHAT I3 TH) OB-)+TION 9),TAINS ONL/ TO TH) *ONATION?
I#, #or instance, a debtor says, Go a$ead and &ay but I do not %ant t$is to be a donation,! t$e
e##ect is t$at t$is is &ay"ent %it$ t$e 'no%ledge and consent o# t$e debtor, in %$ic$ case $e is entitled to
#ull rei"burse"ent and subrogation(
Art. 1049. Pay*ent shall "e *ade to the person in .hose )avor the o"li#ation has "een
&onstit%ted' or his s%&&essor in interest' or any person a%thoriAed to re&eive it.
TO WHO0 SHO.L* 9A/0)NT B) 0A*)?
T$ree &ersons "ay acce&t &ay"ent<
456 T$e creditor at t$e ti"e o# &ay"ent %$ic$ includes $is $eirs, assigns, or successors1in
interest8
4;6 A t$ird &erson aut$ori@ed by la% or by agree"ent o# t$e &arties8 and
4=6 A t$ird &erson %$o is not aut$ori@ed by la% or by agree"ent(
3or e>a"&le, Angel, a "e"ber o# a &artners$i& o#, entered into a contract %it$ 0ar' #or t$e
construction o# a building( He signed t$e contract &ersonally, and did not "ention t$at it %as "ade
on be$al# o# t$e &artners$i&( In reality, $o%ever, it %as on be$al# o# t$e &artners$i&, and actually it
%as t$e &artners$i& %$ic$ &er#or"ed t$e %or' agreed u&on( S$ould &ay"ent on t$e contract be
"ade to t$e &artners$i&?
It a&&earing t$at everyt$ing Angel "ig$t $ave done under t$e contract and a#ter its #ul#ill"ent $as
been done by t$e &artners$i&, and t$at t$e real &arty to t$e contract %as t$e &artners$i&, t$e result
is t$e sa"e %$et$er t$e action is broug$t by Angel &ersonally or by t$e &artners$i&( T$e &ay"ent
%ill be "ade to t$e &artners$i& under t$ese circu"stances %ill be &er#ectly legal( 4Tua@on and San
9edro v( Oa"ora and Sons, 5; 9$il =JD6
M5
Art. 1041. Pay*ent to a person .ho is in&apa&itated to ad*inister his property shall "e
valid i) he has 7ept the thin# delivered' or inso)ar as the pay*ent has "een "ene)i&ial to hi*.
Pay*ent *ade to a third person shall also "e valid inso)ar as it has redo%nded to the
"ene)it o) the &reditor. S%&h "ene)it to the &reditor need not "e proved in the )ollo.in#
&ases+
,1- I) a)ter the pay*ent' the third person a&:%ires the &reditorKs ri#hts/
,0- I) the &reditor rati)ies the pay*ent to the third person/
,1- I) "y the &reditorKs &ond%&t' the de"tor has "een led to "elieve that the third
person had a%thority to re&eive the pay*ent.
WHAT I3 TH) +,)*ITO,S IS IN+A9A+ITAT)*?
Art( 5;C5 states t$at 9ay"ent to a &erson %$o is inca&acitated to ad"inister $is &ro&erty s$all be
valid i# $e $as 'e&t t$e t$ing delivered, or inso#ar as t$e &ay"ent $as been bene#icial to $i"( > >!
I# &ay"ent is "ade to t$e creditor %$o is inca&acitated, it s$all be valid only inso#ar as it accrued
to t$e creditorAs bene#it( In t$e absence o# t$is bene#it, t$e debtor "ay be "ade to &ay again by t$e
inca&acitated $i"sel# %$en $e attains ca&acity, or $is legal re&resentatives during suc$ inca&acity
WTolentino, 0anresaX
9ay"ent s$all be considered as $aving bene#ited t$e inca&acitated &erson i# $e "ade an intelligent
and reasonable use t$ereo#, #or &ur&oses necessary or use#ul to $i", suc$ as t$at %$ic$ $is legal
re&resentatives s$ould $ave done under si"ilar circu"stances, even i# at t$e ti"e o# t$e co"&laint t$e
e##ect o# suc$ use no longer e>ists( WTolentino, Gas&eriX
*ean del +astillo also suggest t$at &ay"ent s$ould be "ade to t$e legal re&resentative o# t$e
inca&acitated in order to avoid double &ay"ent( Tolentino adds t$at i# t$ere I no legal re&resentative, t$e
re"edy is consignation &ursuant to Art( 5;DM< > > t$e debtor s$all be released #ro" res&onsibility by t$e
consignation o# t$e t$ing or su" due > > >! 4;6 %$en Wt$e creditorX is inca&acitated to receive &ay"ent > >
>!
3or e>a"&le, Angel delivers 95,JJJ to 0ar', a "inor under guardians$i&, in &ay"ent o# a debt(
0ar' loses 9NJJ o# t$e "oney in ga"bling, or due to negligence or ignorance( In t$is case, t$e &ay"ent
s$ould be considered as "ade only to t$e e>tent o# 9=JJ( On t$e ot$er $and, i# 0ar' 'e&t t$e "oney &aid
or s&ent t$at #or &ur&oses use#ul to $i", t$e &ay"ent s$all be valid8 ot$er%ise, 0ar' s$ould unduly enric$
$i"sel# at t$e e>&ense o# Angel(
Art. 1040. Pay*ent *ade in #ood )aith to any person in possession o) the &redit shall release
the de"tor.
Art. 1041. Pay*ent *ade to the &reditor "y the de"tor a)ter the latter has "een $%di&ially
ordered to retain the de"t shall not "e valid.
WHAT IS TH) )33)+T O3 9A/0)NT TO TH) +,)*ITO,?
It e>tinguis$es t$e obligation, o# course( Bung binasa "o &a yung sagot na to, "agdro& 'a na,
$abang $indi &a nag"i"idter"s(
WH)N 0A/ 9A/0)NT TO A +,)*ITO, NOT )FTING.ISH TH) OBLIGATION?
Art( 5;C= &rovides t$at 9ay"ent "ade to t$e creditor by t$e debtor a#ter t$e latter $as been
judicially ordered to retain t$e debt s$all not be valid(!
3or e>a"&le, +y o%ed Angelo 95J,JJJ( Angelo sued +y #or collection and obtained a judg"ent in
$is #avor( But %$en $e tried to engorce t$e judg"ent, $e #ound out t$at +y $ad no &ro&erty( Ho%ever,
Angelo learned t$at 3erdie o%ed +y 9H,JJJ %$ic$ %ould #all due a "ont$ later( 4di nga, "ay na&a&autang
si +y?6 So Angelo obtained an order #ro" court ordering 3erdie not to &ay +y( 3erdie, t$ere#ore s$ould not
&ay +y as $e %as ordered to retain suc$ debt( I# 3erdie &ays +y, $e "ay &ay Angelo again, as t$e %$ole
&rocess o# retention o# t$e debt %as #or Angelo( But note t$at i# Angelo #iled suit against +y and t$e court
orders +y to &ay t$e a"ount given by 3erdie, 3erdie need not &ay Angelo(
M;
In t$e above e>a"&le, considering t$at t$e court ordered 3erdie not to &ay $er debt to +y, %$at
$a&&ens i# as based on t$e original agree"ent 3erdieAs debt $ad long beco"e due and de"andable? 0ay $e
be declared in de#ault?
I# t$e debt is overdue, t$e judicial order #or retention o# debts beco"es a legal e>cuse( 3erdie
s$ould not be $eld liable #or any &enalties or surc$arges( *ean del +astillo also states t$at t$e ris' o#
disobeying t$e court is greater, t$ere#ore 3erdie is still sa#e(
WHAT IS AN )FA09L) O3 A THI,* 9),SON A.THO,IO)* B/ LAW TO A++)9T 9A/0)NT?
An e>a"&le %ould be a guardian or legal re&resentative o# an inca&acitated creditor(
*ean del +astillo suggest t$at %$en "a'ing &ay"ent, al%ays as' #or t$e aut$ority o# t$e &erson to
receive suc$ &ay"ent(
WHAT IS TH) )33)+T O3 9A/0)NT 0A*) TO THI,* 9),SONS A.THO,IO)* B/ LAW O, B/
TH) AG,))0)NT O3 TH) 9A,TI)S?
T$e obligation is e>tinguis$ed(
WHAT I3 9A/0)NT 0A*) TO THI,* 9),SONS NOT A.THO,IO)* B/ LAW NO, B/ TH)
9A,TI)S?
T$e general rule is t$at t$e obligation %ill be e>tinguis$ed only inso#ar as it bene#itted t$e creditor(
3or e>a"&le, +y is indebted to Angelo in t$e a"ount o# 95,JJJ( 4na na"an6 On t$e "aturity o# t$e
debt, +y &ays $is indebtedness to 3erdie, a t$ird &erson( 3erdie delivers 9HJJ o# t$e a"ount to Angelo, t$e
creditor( T$e &ay"ent is valid to t$e e>tent t$at t$e &ay"ent to 3erdie $ad bene#itted Angelo, %$ic$ is 9HJJ
only(
WHO IS ,)?.I,)* TO 9,O:) THAT B)N)3IT ,)*O.N*)* TO TH) +,)*ITO,?
It is t$e debtor(
WHAT I3 TH),) IS NO 9,OO3 O3 B)N)3IT?
In t$e absence o# &roo#, it %ill be considered as t$oug$ no bene#it $ad been derived by t$e
creditor( T$us, t$e debtor can be "ade to &ay again(
WH)N 0A/ A *)BTO, NOT 9,)S)NT 9,OO3 O3 B)N)3IT?
Art( 5;C5 &rovides t$at > > bene#it to t$e creditor need not be &roved in t$e #ollo%ing cases< 456 i#
a#ter &ay"ent, t$e t$ird &erson ac7uires t$e creditorAs rig$ts8 > >!
3or e>a"&le, +y o%es ,$ys t$e a"ount o# 95,JJJ 4Hay na'u, %ala 'ang cases nyan6( Later, +y
&ays -ane, a t$ird &erson, t$e 95,JJJ( A#ter +yAs &ay"ent to -ane, creditor ,$ys assigns $is credit to -ane(
In t$is case t$ere is no need #or +y to &rove t$at ,$ys $as been bene#ited by $is &ay"ent to -ane(
4;6 > > i# t$e creditor rati#ies t$e &ay"ent to t$e t$ird &erson8 > >!
In t$e e>a"&le above, su&&ose ,$ys does not assign credit to -ane( Instead, a#ter learning o# t$e
&ay"ent "ade by +y to -ane, ,$ys noti#ies +y t$at t$e &ay"ent to -ane is valid( In suc$ case t$ere is no
need on t$e &art o# +y to &rove t$at t$e &ay"ent to -ane $as bene#ited ,$ys, because t$e latter $ad rati#ied
&ay"ent(
4=6 and > > i# by t$e creditorAs conduct, t$e debtor $as been led to believe t$at t$e t$ird &erson
$ad aut$ority to receive t$e &ay"ent(!
Su&&osing in t$e above e>a"&le, at t$e ti"e o# &ay"ent, ,$ys, +y and -ane are toget$er and -ane
de"ands t$e &ay"ent( ,$ys %$o $ears t$e de"and and sees t$e &ay"ent to -ane o##ers no objection or
&rotest( T$e &ay"ent e>tinguis$es t$e obligation(
Note t$at t$is is an e>tre"e e>a"&le( 0ere silence o# t$e creditor in cases %$ere t$e latter %as not
around at t$e ti"e o# &ay"ent is not enoug$(
Anot$er good e>a"&le o# t$is t$ird e>ce&tion is %$en utility co"&anies send collectors to
&eriodically receive &ay"ent #ro" clients( I# t$e collector $as been #ired and co"es to collect &ay"ent
%earing t$e re7uired uni#or" and issues an o##icial recei&t, it can be ta'en to be t$e co"&anyAs #ault t$at it
#ailed to re&ossess t$e uni#or" and t$e o##icial recei&ts( But t$e &ayor "ust be able to &rove t$at t$e
&ay"ent redounded to t$e &ay"ent o# t$e co"&any( 3ailure to &rove suc$ bene#it to t$e co"&any %ill
re7uire t$e &ayor to &ay again( It is not t$e duty o# t$e creditor to go a#ter t$e t$ird &erson %$o received t$e
M=
unaut$ori@ed &ay"ent( It is #or t$e debtor to &ay t$e creditor again, and t$en t$e debtor "ay elect to go
a#ter t$e collector %$o" $e &aid by "ista'e(
0A/ 9A/0)NT B) 0A*) TO A 9),SON IN 9OSS)SSION O3 TH) +,)*IT?
Art( 5;C; &rovides t$at 9ay"ent "ade in good #ait$ to any &erson in &ossession o# t$e credit
s$all release t$e debtor(!
3or e>a"&le, +y e>ecuted a negotiable &ro"issory note #or 95JJ in #avor o# 3erdie( On t$e
"aturity date o# t$e &ro"issory note, Angelo, a t$ird &erson, &resented t$e note, &ro&erly endorsed , and
de"anded &ay"ent o# t$e sa"e( +y &aid in good #ait$( T$e trut$ %as, Angelo obtained t$e note #ro" 3erdie
%it$out &aying t$e &ro"ised consideration( T$e &ay"ent released +y because $e &aid in good #ait$ to a
&erson in &ossession o# t$e credit %$o t$e la% &resu"es to be t$e o%ner o# t$e note &ro&erly endorsed(
Note t$at t$ere are t%o "ajor re7uire"ents $ere< 456 &ossession o# t$e credit %$ic$ "ust be legal8
and 4;6 good #ait$ on t$e &art o# t$e debtor as #ar as &ay"ent to t$e t$ird &erson in &ossession is concerned(
*ean del +astillo states t$at instru"ents &ayable to order re7uires endorse"ent .NL)SS t$e
creditor $as been s$o%n to $ave bene#itted(
ARANAS <. TETAAN' ENI<>RSAL T>;TIL> BILLS' INC. 10( SCRA 505
@a&ts+
T$e Trial +ourt declared t$e o%ner o# CJJ .T)F s$ares are t$e s&ouses Aranas( It ordered
t$at t$e dividends 4cas$ and stoc'6 &ertaining t$ereto s$all be &aid to Aranas( Only t$e cas$
dividends %$ic$ accrued a#ter t$e rendition o# t$e decision e>cluding dividends already &aid
to 0anuel and +astaneda(
Trail +ourtAs decision beca"e #inal and e>ecutory( Nevert$eless, .te> c$ose to &ay t$e %rong
&arties, not%it$standing its #ull 'no%ledge and understanding o# t$e #inal judg"ent(
Iss%e+ ?DN ET>;Ks pay*ent is valid
R%lin#+ NO. T$e &ay"ent "ade by a judg"ent debtor to a %rong &arty cannot e>tinguis$ t$e obligation o#
suc$ debtor to its creditor(
Art. 1044. The de"tor o) a thin# &annot &o*pel the &reditor to re&eive a di))erent one'
altho%#h the latter *ay "e o) the sa*e val%e as' or *ore val%a"le than that .hi&h is d%e.
In o"li#ations to do or not to do' an a&t or )or"earan&e &annot "e s%"stit%ted "y
another a&t or )or"earan&e a#ainst the o"li#eeKs .ill.
WHAT *O)S I*)NTIT/ O3 9A/0)NT 0)AN?
Art( 5;CC &rovides t$at t$e debtor o# a t$ing cannot co"&el t$e creditor to receive a di##erent one,
alt$oug$ t$e latter "ay be o# t$e sa"e value as, or "ore valuable t$at t$at %$ic$ is due(!
In obligations to do or not to do, an act or #orbearance cannot be substituted by anot$er act or
#orbearance against t$e obligeeAs %ill(
Identity o# &ay"ent si"&ly "eans t$at t$e very &restation due "ust be co"&lied %it$( T$e debtor
cannot co"&el t$e creditor to acce&t so"et$ing di##erent #ro" %$at %as agreed u&on even i# t$e debtor
%ants to deliver so"et$ing o# a $ig$er value( Note, $o%ever, t$at t$is rule is a rule against co"&ulsion(
T$us, i# t$e creditor decides to acce&t a t$ing di##erent #ro" t$at %$ic$ is due, $e or s$e $as t$e rig$t to do
so(
In t$e case o# an obligation to deliver a s&eci#ic t$ing, a t$ing di##erent #ro" t$at due cannot be
o##ered or de"anded against t$e %ill o# t$e creditor or t$e debtor, as t$e case "ay be(
3or e>a"&le, +y is obliged to deliver to 3erdie ; cases o# Absolut vod'a( On t$e due date, +y
cannot deliver Stolic$noya vod'a and co"&el 3erdie to acce&t t$e sa"e &recisely because %$at %as agreed
u&on %as Absolut not Stolic$noya( Hence, 3erdie %ould be justi#ied in re#using to acce&t( I# +y consigns
t$e Stolic$ vod'a, suc$ consignation %ill not be considered &ro&er, since 3erdie %as justi#ied in re#using to
acce&t( Also, 3erdie "ay not be considered in "ora acci&iendi(
*O)S TH) ,.L) O3 I*)NTIT/ O3 9A/0)NT A99L/ TO 9),SONAL OBLIGATIONS?
MC
/es( T$e act to be &er#or"ed or t$e act &ro$ibited cannot be substituted against t$e obligeeAs %ill(
O# course i# t$e obligee consent, t$is is all rig$t(
WH)N 0A/ TH),) B) A S.BSTIT.TION O3 TH) 9,)STATION?
T$e #ollo%ing are t$e e>ce&tions to t$e above rule o# identity o# &ay"ent, %$ere substitution o#
t$e t$ing due is allo%ed<
456 %$ere t$e obligation is #acultative( In suc$ cases, t$e debtor "ay substitute anot$er in lieu o#
t$at %$ic$ is &ro"ised, since t$e rig$t o# c$oice belongs to t$e debtor8
4;6 in case o# %aiver by t$e creditor, e>&ressly or i"&liedly or by novation8
4=6 %$ere t$ere is anot$er agree"ent resulting in *ation in &ay"ent, 4*acion en &ago6 T$ere %as
a&&arently a "istranslation( Here, instead o# &aying a "onetary obligation %it$ "oney, t$e
debtor delivers &ro&erty(
Art. 104. Dation in pay*ent' .here"y property is alienated to the &reditor in satis)a&tion o)
a de"t in *oney' shall "e #overned "y the la. o) Sales.
WHAT IS *A+ION )N 9AGO?
It is t$at "ode o# e>tinguis$ing an obligation %$ereby t$e debtor alienates in #avor o# t$e creditor
&ro&erty #or t$e satis#action o# a "onetary debt( *acion en &ago is &ossible only i# t$e creditor consents(
T$e debtor cannot co"&el t$e creditor to acce&t t$e &ro&erty in lieu o# "oney(
*acion en &ago $as also been de#ined as t$e delivery and trans"ission o# o%ners$i& o# a t$ing by
t$e debtor to t$e creditor as an acce&ted e7uivalent o# t$e &er#or"ance o# t$e obligation( T$e &ro&erty given
"ay consist, not only o# a t$ing, but also o# a real rig$t 4suc$ as usu#ruct6, or a credit against a t$ird &erson(
WH/ IS *A+ION )N 9AGO GO:),N)* B/ TH) LAW ON SAL)S?
T$is is so because t$e trans#er or conveyance o# o%ners$i& o# a t$ing as an acce&ted e7uivalent o#
&er#or"ance, really &arta'es in one sense o# t$e nature o# t$e sale, t$at is, t$e creditor is really buying so"e
&ro&erty o# t$e debtor, &ay"ent #or %$ic$ is to be c$arged against t$e debtorAs debt(
TO WHAT )FT)NT *O)S *A+ION )N 9AGO )FTING.ISH TH) OBLIGATION?
Tolentino says t$at t$e dacion en &ago e>tinguis$es t$e obligation to t$e e>tent o# t$e value o# t$e
t$ings delivered, eit$er as agreed u&on by t$e &arties or as "ay be &roved, unless t$e &arties by agree"ent,
e>&ress or i"&lied, or by t$eir silence, consider t$e t$ing as e7uivalent to t$e obligation, in %$ic$ case t$e
obligation is totally e>tinguis$ed(
WHAT IS TH) I09LI+ATION O3 TH) 3A+T THAT *A+ION )N 9AGO SHALL B) GO:),N)* B/
TH) LAW ON SAL)S?
T$e e##ect o# t$is is t$at t$e &rovision on sales, regarding %arranty against eviction and $idden
de#ects o# t$e t$ing, are a&&licable to t$e object given in e>c$ange o# t$e credit, %it$ t$e debtor being
considered as t$e vendor(
3or e>a"&le, +y o%es Angel 95,JJJ( 4Bung 'ani1'anino na lang6 Instead o# giving or &aying
Angel in cas$, +y a#ter $aving obtained t$e consent o# Angel, delivers instead $is brand ne% +alvin Blein
under%ear t$ereby e>tingus$ing $is debt to t$e latter(
W$at i# later on, Angel discovers t$at t$e +alvin Blein! under%ear %as actually "ade in
Bacnotan, La .nion? Angel "ay recover t$e 95,JJJ #ro" +y, but not on t$e basis o# t$e dacion 4#or
tec$nically, t$e #or"er obligation $as been e>tinguis$ed6, but based on t$e %arranty attac$ed to t$e sale(
WHAT HA99)NS I3 TH) *)BTO, 9A/S TH) W,ONG 9),SON?
I# t$e debtor later &roves $e &aid by "ista'e, $e can recover, not t$e &rice by %$ic$ t$e t$ing %as
a&&arently conveyed t$e very t$ing itsel#, because t$e &erson to %$o" it %as delivered received it solely as
a creditor(
*ISTING.ISH SAL) 3,O0 *A+ION )N 9AGO(
SAL> DACION >N PAGO
MD
No &re1e>isting credit T$ere is &re1e>isting credit
T$is gives rise to obligations T$is e>tinguis$es t$e obligation
T$e cause or consideration $ere is t$e &rice #ro" t$e
vie%&oint o# t$e seller or t$e obtaining o# t$e object
#ro" t$e vie%&oint o# t$e buyer(
+ause or consideration $ere is t$e e>tinguis$"ent o#
t$e debt #ro" t$e vie%&oint o# t$e debtor8 or
ac7uisition o# t$e object o##ered in credit(
T$ere is greater #reedo" in t$e deter"ination o# t$e
&rice(
T$ere is less #reedo" in deter"ining t$e &rice(
T$e giving o# t$e &rice "ay generally end t$e
obligation o# t$e buyer
T$e giving o# t$e object is lieu o# t$ecredit "ay
e>tinguis$ co"&letely or &artially t$e credit
de&ending on t$e agree"ent(
WHAT A,) TH) +ON*ITIONS .N*), WHI+H A *ATION IN 9A/0)NT WO.L* B) :ALI*?
456 I# t$e creditor consent #or a sale &resu&&oses t$e consent o# bot$ &arties(
4;6 I# t$e dation in &ay"ent %ill not &rejudice t$e ot$er creditors #or t$e absence o# t$is re7uisite
"ay lead t$e debtor to connive %it$ one creditor in de#rauding t$e ot$er creditors(
4=6 I# t$e debtor is not judicially declared insolvent #or $ere $is &ro&erty is su&&osed to be
ad"inistered by t$e assignee(
WHAT ,.L)S A99L/ AS ,)GA,*S *A+ION )N 9AGO?
*acion en &ago is an onerous contract o# alienation, because an object is given in e>c$ange o#
credit( T$e &rovisions on sales, regarding %arranty against eviction and $idden de#ects o# t$e t$ing are
t$ere#ore a&&licable, t$e debtor being considered as a vendor 4Tolentino6
TO WHAT OBLIGATIONS WO.L* *A+ION )N 9AGO A99L/?
It a&&lies to "onetary obligation( I# it is not a "onetary obligation, #or instance in an obligation to
deliver a car, and t$e debtor delivered so"et$ing else and %as acce&ted by t$e creditor, t$ere is also a
co"&lete e>tinguis$"ent o# t$e obligation, but $ere t$ere is novation(
CALT>; <. INT>RB>DIAT> APP>LLAT> COERT 01 SCRA 59
@a&ts+
+alte> entered into an agree"ent %it$ Asia 9aci#ic %$ereby it %ill su&&ly aviation #uel to Asia
9aci#ic #or ; years
+alte> indeed su&&lied AsiaAs #uel re7uire"ents
Asia $ad outstanding obligation o# 9C0P
Asia t$us e>ecuted a *eed o# Assign"ent o# receivablesGre#unds #ro" National Treasury in
#avor o# +alte>
National Treasury issued to +alte> 9D(C0P
+alte> re#unded 9IJJBP to Asia but %it$$eld 9D5JBP re&resenting interest and service c$arges
Iss%e+ ?DN the Deed o) Assi#n*ent &onstit%ted da&ion en pa#o
R%lin#+ No. T$e S+ ruled t$at t$e *eed o# Assign"ent is not a dation en &ago and did not totally
e>tinguis$ AsiaAs obligation(
T$e conce&t o# dation is t$at *ATION IN 9A/0)NT *O)S NOT N)+)SSA,IL/ 0)AN
TOTAL )FTING.ISH0)NT O3 TH) OBLIGATIONS( TH) OBLIGATION IS TOTALL/
)FTING.ISH)* ONL/ WH)N TH) 9A,TI)S, B/ AG,))0)NT, )F9,)SS O, I09LI)*, O, B/
TH)I, SIL)N+), +ONSI*), TH) THING AS )?.I:AL)NT TO TH) OBLIGATION(!
MM
In t$e instant case, it can be gleaned #ro" t$e e>&ress recitals o# t$e *eed o# Assign"ent t$at it
s&ea's o# = obligationsEoutstanding obligation o# 9C0P, interest c$arges, and avturbo #uel(
Art. 104!. ?hen the o"li#ation &onsists in the delivery o) an indeter*inate or #eneri& thin#'
.hose :%ality and &ir&%*stan&es have not "een stated' the &reditor &annot de*and a thin# a
s%perior :%ality. Neither &an the de"tor deliver a thin# o) in)erior :%ality. The p%rpose o)
the o"li#ation and other &ir&%*stan&es shall "e ta7en into &onsideration.
HOW *O)S TH) ,.L) O3 I*)NTIT/ O3 9A/0)NT A99L/ TO OBLIGATIONS TO *)LI:),
G)N),I+ O, *)T),0INAT) THINGS?
Art( 5;CM &rovides t$e rule o# t$e "ediu" 7uality, and states t$at, W$en t$e obligation consists in
t$e delivery o# an indeter"inate or generic t$ing, %$ose 7uality and circu"stances $ave not been stated, t$e
creditor cannot de"and a t$ing o# su&erior 7uality( Neit$er can t$e debtor deliver a t$ing o# in#erior 7uality(
T$e &ur&ose o# t$e obligation and ot$er circu"stances s$all be ta'en into consideration(
W$ere t$ere is disagree"ent bet%een t$e &arties or %$en t$ere is lac' o# &recise declaration in t$e
obligation as %$en t$e contract does not s&eci#y t$e 7uality, t$e #ollo%ing &rinci&les s$ould be #ollo%ed to
deter"ine t$e 7uality or 'ind o# t$ing to be delivered a#ter $aving ta'en into consideration t$e &ur&ose o#
t$e obligation, t$e nature o# t$e obligation, and ot$er circu"stances<
4a6 t$e creditor cannot de"and a t$ing o# su&erior 7uality 4but i# $e desires, $e "ay de"and and
acce&t one o# in#erior 7uality(6
4b6 t$e debtor cannot deliver a t$ing o# in#erior 7uality, but i# $e so desires, $e "ay deliver one o#
su&erior 7uality 4&rovided it is not a di##erent 'ind(6
3or e>a"&le, +y &ro"ised to deliver to 0ar' a car( 4Obviously breac$ lang aabutin nito 6 0ar'
cannot co"&el +y to deliver a B0W and neit$er can +y co"&el 0ar' to acce&t a dila&idated Bia 9ride(
Note, $o%ever, t$at in t$e case o# an obligation to deliver generic t$ings, t$e &arties $ave to agree
u&on t$e 'ind or class o# t$e t$ing, and t$e 7uantity "ust be deter"inable( Ot$er%ise, t$ere %ill be no
obligation, because t$ere %ill be no object to t$e obligation(
No% let us loo' into t$e &ur&ose o# t$e obligation and t$e ot$er circu"stances<
456 I# 0ar' o%ns a race driver and being a driver is $is "ain diversion in li#e, %$ic$ #act is
'no%n to +y, and t$e &rice agreed u&on is t$e reasonable &rice o# a decent car, t$en "ust
deliver a race car(
4;6 I# 0ar' $a&&ens to be a ta>i driver and +y agreed to &ay #or t$e car on a"ount %$ic$ is t$e
reasonable &rice #or a car #or a ta>i, t$en t$at 'ind o# car "ay be delivered(
4=6 I# 0ar' is a "ec$anic, and $is only &ur&ose is to e>a"ine its "ac$ine in connection %it$ $is
researc$, t$is, and ot$er circu"stances s$o% t$at t$e old dila&idated Bia 9ride %as intended
by t$e &arties to be delivered(
WHO *)+I*)S WH)TH), TH) ?.ALIT/ O3 TH) THING *)LI:),)* +O09LI)S WITH TH)
OBLIGATION?
I# t$ere is a disagree"ent bet%een t$e debtor and t$e creditor as to 7uality o# t$e t$ing delivered,
t$e court s$ould decide %$et$er t$e t$ing delivered co"&lies %it$ t$e obligation(
Art. 104(. Enless it is other.ise stip%lated' the e6tra3$%di&ial e6penses re:%ired "y the
pay*ent shall "e )or the a&&o%nt o) the de"tor. ?ith re#ard to $%di&ial &osts' the R%les o)
Co%rt shall #overn.
WHO B)A,S TH) )FT,A1-.*I+IAL )F9)NS)S ,)?.I,)* B/ 9A/0)NT?
Art( 5;CN &rovides t$at unless it is ot$er%ise sti&ulated, t$e e>tra1judicial e>&enses re7uired by
t$e &ay"ent s$all be #or t$e account o# t$e debtor( Wit$ regard to judicial costs, t$e ,ules o# +ourt s$all
govern(!
T$e reasons #or t$is is because t$e &ay"ent is t$e debtorAs duty, and &ay"ent inures to $os bene#it
in t$at $e is disc$arged #ro" t$e burden o# t$e obligation(
MN
Art. 1045. Enless there is an e6press stip%lation to that e))e&t' the &reditor &annot "e
&o*pelled partially to re&eive the prestations in .hi&h the o"li#ation &onsists. Neither *ay
the de"tor "e re:%ired to *a7e partial pay*ents.
=o.ever' .hen the de"t is in part li:%idated and in part %nli:%idated' the &reditor
*ay de*and and the de"tor *ay e))e&t the pay*ent o) the )or*er .itho%t .aitin# )or the
li:%idation o) the latter.
WHAT IS TH) 9,IN+I9L) O3 IN*I:ISIBILIT/ O3 9A/0)NT?
Art( 5;CH &rovides t$at<
.nless t$ere is an e>&ress sti&ulation to t$at e##ect, t$e creditor cannot be co"&elled &artially to
receive t$e &restations in %$ic$ t$e obligation consists( Neit$er "ay t$e debtor be re7uired to "a'e &artial
&ay"ents(
Ho%ever, %$en t$e debt is in &art li7uidated and in &art unli7uidated, t$e creditor "ay de"and
and t$e debtor "ay e##ect t$e &ay"ent o# t$e #or"er %it$out %aiting #or t$e li7uidation o# t$e latter(
9er#or"ance t$ere#ore "ust be co"&lete( T$e creditor cannot be co"&elled to receive &artial
&restations in %$ic$ t$e obligation consists and neit$er "ay t$e debtor be re7uired to "a'e &artial
&ay"ents( In case o# re#usal by t$e creditor to acce&t &artial &ay"ents, t$e creditor cannot be $eld to in
"ora acci&iendi(
3or e>a"&le, +y is indebted to -ay #or 9DJJ due today( +y cannot co"&el -ay to receive 9CJJ in
&artial &ay"ent o# t$e obligation and neit$er can -ay re7uire +y to &ay only 9CJJ(
WHAT A,) TH) )F+)9TIONS TO TH) ,.L) ON IN*I:ISIBILIT/?
456 +ontrary Sti&ulation(
W$en t$ere is an agree"ent bet%een t$e &arties to "a'e t$e obligation divisible, dividing in
several deter"inable &arts( Ho%ever, t$e rule o# indivisibility %ill still a&&ly %it$ res&ect to
eac$ &art(
3or e>a"&le, +y is indebted to 9aul #or 9DJ,JJJ 4+y na"an, san "o na"an yan gaga"itin?6
T$ey agreed t$at +y %ill &ay $is debt in ; e7ual install"ents( Ho%ever, %it$ regard to eac$
install"ent +y cannot co"&el 9aul to receive less t$at 9;D,JJJ, in t$e sa"e %ay t$at 9aul
cannot co"&el +y to &ay less t$an t$at sti&ulated( T$is is because t$e rule o# indivisibility
s$all be a&&lied %it$ res&ect to eac$ &art(
4;6 9artial Li7uidation
W$en t$e debt is in &art li7uidated 4de#initely deter"ined or deter"inable t$roug$ si"&le
co"&utation6 and in &art unli7uidated( In %$ic$ case, t$e debtor can co"&el t$e creditor to
acce&t t$at &ortion %$ic$ $as already been li7uidated because t$e &arties cannot %ait until
suc$ ti"e as t$e re"aining &ortion %ill be li7uidated be#ore t$e "a'ing o# t$e &ay"ent( T$is
rule a&&lies to running accounts(
3or e>a"&le, +y o%es Angelo 9DJJ &lus da"ages( )ven i# t$e a"ount o# da"ages $as not yet
been ascertained, and t$e 9DJJ is already li7uidated, t$e 9DJJ is already de"andable and
&ayable(
4=6 W$en t$e obligation is subject to di##erent ter"s and conditions( 3ro" t$e "o"ent t$e #irst
condition $as been co"&lied %it$, t$e debtor can co"&el t$e creditor to acce&t &ay"ent( I#
t$e obligation is &ayable in di##erent ter"s, #ro" t$e ti"e eac$ ter" arrives, t$e debtor can
co"&el t$e creditor to acce&t &ay"ent(
3or e>a"&le, I# 9CJJ o# t$e debt o# +y to Angel is due today, and 95JJ is due to"orro%, t$e
obligation can be co"&lied %it$ &artially as o# today(
4C6 +o"&ensation(
In cases o# co"&ensation, %$en t$e &arties beco"e creditor and debtor %it$ res&ect to eac$
ot$er, i# one debt is larger t$an t$e ot$er, it #ollo%s t$at a balance is le#t(
3or e>a"&le, i# +y o%es 0ar' ND cents and 0ar' o%es +y CD cents, t$ere is auto"atic
co"&ensation( T$is %ay, +y %ill only $ave to &ay 0ar' =J cents(
,e"e"ber t$oug$ t$at a necessary re7uisite o# co"&ensation is t$at t$e obligations are o# t$e
sa"e 'ind and 7uality(
MH
Art. 1048. The pay*ent o) de"ts in *oney shall "e *ade in the &%rren&y stip%lated' and i) it
is not possi"le to deliver s%&h &%rren&y' then in the &%rren&y .hi&h is le#al tender in the
Philippines.
The delivery o) pro*issory notes paya"le to order' or "ills o) e6&han#e or other
*er&antile do&%*ents shall prod%&e the e))e&t o) pay*ent only .hen they have "een &ashed'
or .hen thro%#h the )a%lt o) the &reditor they have "een i*paired.
In the *eanti*e' the a&tion derived )ro* the ori#inal o"li#ation shall "e held in
a"eyan&e.
WHAT IS L)GAL T)N*),?
Legal tender is suc$ currency %$ic$ in a given jurisdiction can be used #or t$e &ay"ent o# debts,
&ublic and &rivate, and %$ic$ cannot be re#used by t$e creditor(
Art( 5;CI 456 &rovides t$at T$e &ay"ent o# debts in "oney s$all be "ade in t$e currency
sti&ulated, and i# it is not &ossible to deliver suc$ currency, t$en in t$e currency %$ic$ is legal tender in t$e
9$ili&&ines(!
IN +AS)S IN:OL:ING 9A/0)NT O3 3O,)IGN +.,,)N+/, O, O3 GOL*, O, O3 TH) :AL.)
O3 TH) 9HILI99IN) 9)SO +O09.T)* ON TH) BASIS O3 3O,)IGN +.,,)N+/, TH)
OBLIGATION TO 9A/ ,)0AINS( B.T WHI+H +ON:),SION ,AT) SHALL B) .S)*?
It de&ends on t$e ti"e t$e obligation %as entered into(
,1- In t$e case o# an obligation entered into be#ore 5IDJ and &ayable be#ore 5IDJ, any currency
sti&ulation %ill generally be valid(
,0- In t$e case o# obligations incurred &rior to 5IDJ, i# t$e re7uired &ay"ent is in a &articular 'ind
o# coin or currency ot$er t$at t$e 9$ili&&ine currency, t$e rate o# e>c$ange to be used %ould
be t$at &revailing at t$e ti"e t$e obligation %as incurred(
3or e>a"&le, I# in 5ICI, -udge 9i"entel 4Oscar6 borro%ed 95J,JJJ #ro" Atty( San 9edro 4-ose&$6,
&ayable in 5IIJ in its dollar e7uivalent, co"e 5IIJ, t$e rate o# e>c$ange as o# 5ICI %ill be used
to co"&ute t$e &eso e7uivalent due -ose&$, so t$at i# t$e rate o# e>c$ange in 5ICI %as 9ZT5, t$en
OscarAs &rinci&al debt %ould be TDJJ F ; Z 95J,JJJ( In ot$er %ords, t$e creditor is not "ade to
gain #ro" any currency a&&reciation(
,1- I# t$e obligation %as entered into be#ore 5IDJ and is &ayable a#ter 5IDJ, t$e rate o# e>c$ange
&revailing at t$e ti"e o# t$e sti&ulated date o# &ay"ent s$all be a&&lied i# t$e loan %as "ade
in #oreign currency and is &ayable in local currency(
3or e>a"&le, Oscar borro%ed TDJJ #ro" -ose&$ in 5ICH, &ayable in .S dollars in 5IIJ, t$en
-ose&$ "ust be &aid t$e TDJJ in t$e 9$ili&&ine currency co"&uted at t$e &revailing rate in 5IIJ(
,4- In t$e case o# obligation entered into and &ayable a#ter 5IDJ, t$e e>c$ange rate to be used is
t$at &revailing at t$e ti"e o# t$e &ay"ent o# t$e obligation(
Note t$at t$ere is t$e a&&arent ine##ectivity o# t$e sti&ulation against &ay"ent in an a"ount o#
"oney o# t$e 9$ili&&ines "easured in ter"s o# #oreign currency or gold, because alt$oug$ suc$
sti&ulation %ould be void, to give e##ect to t$e obligation to &ay, t$e #oreign currency %ill still
$ave to be converted to a &eso value e7uivalent t$ereby(
WHAT IS TH) )33)+T O3 9A/0)NT O3 9,O0ISSO,/ NOT)S, BILLS O3 )F+HANG), O,
OTH), 0),+ANTIL) *O+.0)NTS?
Art( 5;CI 4;6 &rovides t$at t$e delivery o# &ro"issory notes &ayable to order or bills o# e>c$ange
or ot$er "ercantile docu"ents s$all &roduce t$e e##ect o# &ay"ent ONL/ %$en t$ey $ave been cas$ed, or
%$en t$roug$ t$e #ault o# t$e creditor t$ey $ave been i"&aired(
In t$e "eanti"e t$e action derived #ro" t$e original obligation s$all be $eld in abeyance(
MI
HOW ABO.T 9),SONAL +H)+BS?
9ersonal c$ec's are not considered legal tender( T$ere#ore, creditors can re#use to acce&t &ersonal
c$ec's, .NL)SS t$ere is a &rior agree"ent( Once a &ersonal c$ec' is acce&ted, t$oug$, it s$all &roduce
&ay"ent only %$en suc$ c$ec' is i"&aired t$roug$ t$e act o# t$e creditor(
WHAT IS 0)ANT B/ I09AI,)*! B/ TH) A+T O3 TH) +,)*ITO,?
T$e la%, t$roug$ suc$ &$rase, conte"&lates a situation %$ere, t$roug$ t$e act o# t$e creditor, t$e
value o# t$e c$ec' or "ercantile docu"ent is i"&aired( T$e usual e>a"&le given is t$at o# a stale c$ec', a
c$ec' %$ic$ is not cas$ed %it$in M "ont$s a#ter its issuance( 4Trivia< did you 'no% t$at Albert )instein
%as so absent1"inded t$at $e once used a c$ec' #or T5JJ,JJJ as a boo'"ar' and #orgot about it?6
Note, $o%ever, t$at *ean del +astillo considers a stale c$ec' &er se not an i"&air"ent o# t$e
c$ec' %$ic$ %ould $ave t$e e##ect o# &ay"ent, because as long as "oney can still be %it$dra%n, t$e c$ec'
is not really i"&aired( T$e creditor can still as' t$e debtor to re&lace t$e c$ec', but during t$e intervening
&eriod, you cannot c$arge t$e debtor additional &enalties or interest, because i# you $ad cas$ed or de&osited
t$e c$ec' %it$ due diligence, &ay"ent %ould $ave been e##ected( It %as not $is #ault t$at t$e &ay"ent %as
not &roduced i""ediately( I#, $o%ever, you as creditor acce&t a c$ec', %$ic$ you lose later on, i# suc$
c$ec' is cas$ed by anot$er &erson, suc$ encas$"ent %ould constitute an i"&air"ent o# t$e c$ec' su##icient
to e##ect &ay"ent( Anot$er e>a"&le %ould be i# you donAt de&osit or cas$ t$e c$ec' &ro"&tly, and t$e
9+GG or ot$er creditorAs "anage to get $old o# your debtorAs ban' account ot t$e BS9 order t$e closing o#
t$e ban'(
See t$e cases o# Ne. Pa&i)i& Ti*"er v. Seneris' Ti"a$ia v. Co%rt o) Appeals and B&la%#hlin v.
Co%rt o) Appeals #or "ore on c$ec's and t$eir a&&licability(
WHAT IS 0)ANT B/ IN TH) 0)ANTI0), TH) A+TION *),I:)* 3,O0 TH) O,IGINAL
OBLIGATION, SHALL B) H)L* IN AB)/AN+)?!
Art( 5;CI 4=6 "eans t$at alt$oug$ t$e issuance o# a "ercantile docu"ent or c$ec' &roduces t$e
e##ect o# &ay"ent only u&on encas$"ent or its i"&air"ent by t$e creditorAs act, once t$e debtor &ays $is
obligation using instru"ents, no &enalties s$all be c$arged during t$e intervening &eriod bet%een t$e
acce&tance o# t$e creditor o# t$ese instru"ents and t$eir encas$"ent or i"&air"ent, granted t$at suc$
instru"ents are eventually encas$ed( In ot$er %ords, t$e e##ect o# &ay"ent retroacts to t$e day t$e
instru"ent %as received by t$e creditor(
3or e>a"&le, -ose&$ borro%ed #ro" ,+B+, $is #avorite ban', t$e a"ount o# 950, %$ic$ $e &aid
t$e day be#ore its "aturity, on ;H 3ebruary, %it$ an )7uitable Ban' c$ec', alt$oug$ suc$ is cleared only =
days a#ter t$e &ay"ent is received by ,+B+, in t$e "eanti"e, no &enalties %ill be c$arged to $i"(
Ho%ever, i# -ose&$As c$ec' bounces, t$en $e %ill be considered in de#ault, until $e &ays t$e loan(
Anot$er e>a"&le, in &ay"ent o# $is debt, +y &aid -ay a &ro"issory note &ayable to -ayAs orders(
-ay acce&ted t$e note( *oes t$is "ean t$at t$e &ay"ent $as been e##ected? No, not yet( T$e e##ect o#
&ay"ent in t$is case %ill be &roduced only %$en t$e note $as been cas$ed8 and also, even i# it cannot be
cas$ed because o# t$e creditorAs #ault(
/et anot$er e>a"&le, +y, in &ay"ent o# a debt &aid 9aul %it$ t$e latterAs consent, a &ro"issory
note &ayable ; "ont$s later( *uring t$e intervening &eriod, "ay 9aul bring an recover #ro" +y? No, at
least not under t$e la%, &ending t$e cas$ing o# t$e "ercantile docu"ent, !t$e action derived #ro" t$e
original obligation s$all be $eld in abeyance(!
Hay na'u isa &ang e>a"&le( +y %as in &ossession o# a bill o# e>c$ange endorsed to $i" or $is
&rder( In &ay"ent o# "erc$andise, +y indorsed t$e bill o# e>c$ange to 3erdie %$o %illingly acce&ted it(
W$en 3erdie &resented t$e bill o# e>c$ange to t$e ban', t$e ban' re#used to &ay, on t$e ground t$at t$e
su&&osed acce&tance 4%ritten on t$e bill6 by t$e ban' %as a #orgery( 3erdie did not "a'e a &rotest and in
t$e course o# ti"e, t$e bill co"&letely lost its value( Later, 3erdie sued +y #or t$e &rice o# t$e "erc$andise(
+an 3erdie recover? OO, i'ulong si +y( Actually, no( 3erdie cannot recover #ro" +y( By reason o# t$e
neglect o# 3erdie, t$e creditor, t$e valur o# t$e bill $as been i"&aired( 3erdie cannot bla"e +y, and
t$ere#ore t$e delivery o# t$e bill by +y to 3erdie a"ounts to co"&lete &ay"ent o# t$e "erc$andise( 42%iros
v. Tan G%inlay-
N>? PACI@IC TIBB>R AND SEPPLF CO.' INC. <. S>N>RIS 191 SCRA !5!
NJ
Iss%e+ ?DN private respondent &an validly re)%se a&&eptan&e o) the pay*ent o) the $%d#*ent
o"li#ation &onsistin# o) P9'999 in CashierKs &he&7 and P11'119 in &ash.
R%lin#+ No. It is a %ell 'no%n and acce&ted &ractice in t$e business sector t$at a cas$ierAs c$ec' is
*))0)* AS +ASH(
W$ere a c$ec' is certi#ied by t$e ban' on %$ic$ it is dra%n, t$e certi#ication is e7uivalent to
acce&tance( It i"&lies t$at<
T$e c$ec' is dra%n u&on su##icient #unds
3unds $ave been set a&art #or debts satis#action(
3unds s$all be so a&&lied %$enever t$e c$ec' is &resented #or &ay"ent(
T$e object o# certi#ying a c$ec', is to enable t$e $older to use it as "oney( Sec( M= o# t$e +entral
Ban' Act &rovides t$at c$ec's re&resenting de&osit "oney do not $ave legal tender &o%er and t$eir
acce&tance in &ay"ent o# debts, bot$ &ublic and &rivate, is at t$e o&tion o# t$e creditor( 9rovided $o%ever,
t$at a c$ec' %$ic$ $as been cleared and credited to t$e account o# t$e creditor s$all be e7uivalent to a
delivery to t$e creditor in cas$ in an a"ount e7ual to t$e a"ount credited to $is account(!
TIBAJIA' JR. <. COERT O@ APP>ALS 001 SCRA 1!1
Ruling& A check is not legal tender and that a creditor may validly refuse payment
by check, whether it be a managers, cashiers or personal check.
'()A*+,)$- .. (/*RT /0 A112A)3 144 3(RA
56!
Note: This case followed the ruling of New Pacic that o!er of payment by certied
check is valid tender of payment
Art. 109. In &ase an e6traordinary in)lation or de)lation o) the &%rren&y stip%lated sho%ld
s%pervene' the val%e o) the &%rren&y at the ti*e o) the esta"lish*ent o) the o"li#ation shall
"e the "asis o) pay*ent' %nless there is an a#ree*ent to the &ontrary.
WHAT HA99)NS IN A +AS) O3 )FT,AO,*INA,/ IN3LATION O, *)3LATION?
Art( 5;DJ &rovides t$at In case an e>traordinary in#lation or de#lation o# t$e currency sti&ulated
s$ould su&ervene, t$e value o# t$e currency at t$e ti"e o# t$e establis$"ent o# t$e obligation s$all be t$e
basis o# &ay"ent, unless t$ere is an agree"ent to t$e contrary(!
WHAT IS )FT,AO,*INA,/ IN3LATION O, *)3LATION?
)>traordinary in#lation or de#lation e>ists %$en t$ere is a decrease or increase in t$e &urc$asing
&o%er o# t$e 9$ili&&ine currency %$ic$ is unusual or beyond t$e co""on #luctuations in t$e value o# suc$
currency, and suc$ decrease or increase could not $ave been reasonably #oreseen or %as "ani#estly beyond
t$e conte"&lation o# t$e &arties at t$e ti"e o# t$e establis$"ent o# t$e obligation(
WHO SHALL *)T),0IN) TH) )FIST)N+) O3 )FT,AO,*INA,/ IN3LATION O,
*)3LATION?
T$e e>istence o# e>traordinary in#lation or de#lation is so"et$ing #or t$e court to e>clusively
deter"ine( I# t$e courts do not &ronounce t$e e>istence o# e>traordinary in#lation or de#lation, t$e
&rovisions o# Art( 5;DJ cannot be a&&lied( In any case, i# t$e courts do declare t$e e>istence o# an
e>traordinary in#lation or de#lation, t$ey %ould do so on t$e basis o# t$e consu"er &rice inde> 4+9I6 %$ic$
s$o% $o% "uc$ &rices o# a selected bas'et o# goods $ave c$anged #ro" a certain base year(
3or e>a"&le, +y borro%s 95,JJJ #ro" Angelo t$is year, and &ro"ises to &ay $i" bac' in ;JJM
%it$ interest, i# , bet%een t$en and no%, t$e +9I rises #ro" 5JJ in ;JJ= to DJJ in ;JJM, t$en t$at "eans
4"ala'i na "ga s%eldo natin, &ero %ala &a rin tayong "abibili( 6 t$e &eso in 5IIJ %ill be %ort$ only ;J
cents in 5II=, so i# t$e court declare suc$ situation to be one o# e>traordinary in#lation, +y %ill $ave to &ay
9D,JJJP interest( 4.NL)SS, by reason o# interest, Angelo condones suc$ obligation(6
N5
SHO.L* TH) *)T),0INATION O3 AN )FT,AO,*INA,/ IN3LATION O, *)3LATION B)
BAS)* .9ON TH) 9)SO1*OLLA, )F+HANG) ,AT)?
No( T$e lesson t$at %e learn #ro" Sangrador v( :alderra"a is t$at, strictly or tec$nically s&ea'ing,
t$ere is no connection bet%een t$e &eso1e>c$ange rate and t$e in#lation rate( T$e &arties in t$is case "ade
t$e "ista'e o# assu"ing t$at by &roving an e>traordinary #luctuation in t$e &eso1dollar e>c$ange rate, t$ey
could &rove t$e e>traordinary in#lation conte"&lated in Art( 5;DJ( I# t$ey $ad instead si"&ly sti&ulated t$at
t$e a"ount to be &aid u&on "aturity o# t$e debt %ould be de&endent on t$e c$ange in t$e e>c$ange rate,
suc$ %ould $ave been a valid sti&ulation(
In #act, t$e Sangrador case "ade "ention o# t$e Ger"an e>&erience o# e>traordinary in#lation in
5I;J<
0ore recently in t$e 5I;JAs Ger"any e>&eriences a case o# $y&erin#lation( In
early 5I;5, t$e value o# t$e Ger"an 0ar' %as C; to t$e .S *ollar( By 0ay o# t$e sa"e
year, it $ad stu"bled to M; to t$e .S *ollar( And as &rices %ent u& ra&idly, so t$at by
October ;=, it $ad reac$ed C(; trillion to t$e .S *ollar(
As re&orted &rices %ere going u& every %ee', t$en every day, t$en every $our(
Wo"en %ere &aid several ti"es a day so t$at t$ey could rus$ out and e>c$ange t$eir
"oney #or so"et$ing o# value be#ore %$at little &urc$asing &o%er %as le#t dissolved in
t$eir $ands( So"e %or'ers tried to bear t$e constantly rising &rices by t$ro%ing t$eir
"oney out o# t$e %indo% to t$eir %aiting %ives, %$o %ould rus$ to unload t$e nearly
%ort$less &a&er( A &ostage sta"& cost "illions o# "ar's, and a loa# o# bread, billions(!
Si"&ly, it %ould ta'e t$is 'ind o# situation be#ore t$e courts %ould declare an e>traordinary
in#lation or de#lation(
I# you %ant to &rove t$e e>istence o# e>traordinary in#lation or de#lation to t$e justices o# t$e
court, you "ust s$o% t$e" t$e +9Is #or t$e years in 7uestion, not t$e &eso1dollar e>c$ange rate( Also, do
not "a'e t$e "ista'e o# si"&ly using t$e in#lation rate, because t$e in#lation rate re#ers only to t$e c$ange
in t$e value o# t$e &eso #ro" year to year(
Assu"ing t$at t$ere is an e>traordinary in#lation or de#lation, &ay"ent s$all be "ade on t$e basis
o# t$e value at t$e ti"e o# t$e constitution o# t$e obligation(
Note t$at t$is article ad"its o# a contrary sti&ulation( T$us, i# t$e &arties sti&ulate in t$e contract
t$at t$e a"ount to be &aid %ill be co"&uted based on t$e +9I #or t$e year %$en &ay"ent is to be "ade,
regardless o# t$e e>istence or non1e>istence o# e>traordinary in#lation or de#lation, suc$ sti&ulation %ould
govern(
SANGRADOR <. <ALD>RRABA 1!5 SCRA 014
@a&ts+
On A&ril M, 5IHC, t$e :alderra"as obtained a 950 loan #ro" Sangrador( A real estate "ortgage
%as underta'en as security o# t$e loan(
9art o# t$e agree"ent %as t$at in t$e event t$at an e>traordinary in#lation o# t$e 9$ili&&ine &eso
s$ould su&ervene, t$e value o# t$e currency at t$e ti"e o# t$e e>ecution o# t$e contract s$ould
be t$e basis o# &ay"ent &ursuant to Art( 5;DJ( 4)scalation clause ta'es e##ect in t$e event o#
e>traordinary in#lation(6
Sangrador contended t$at since A&ril M, 5IHC, t$e e>c$ange rate %as 95C to T5 and on
*ece"ber, 5IHC, t$e e>c$ange rate %as 95I(NJ to T5, t$ere %as an increase o# CJ(NL, t$us t$e
a"ount o# loan $ad to be adjusted by t$e sa"e &ercentage resulting to an additional 9DMI,JJJ(
Iss%e+ ?DN ad$%stin# the val%e o) the Philippine peso is .arranted.
R%lin#+ NO. T$ere is no reason or basis, legal or #actual, #or adjusting t$e value o# t$e 9$ili&&ine &eso in
t$e settle"ent o# :alderra"aAs obligation(
In 3ili&ino 9i&e and 3ounding +or&( v( NAWASA, it states t$at e>traordinary in#lation e>ists
%$en t$ere is a decrease or increase in t$e &urc$asing &o%er o# t$e 9$ili&&ine currency %$ic$ is unusual or
beyond t$e co""on #luctuation in t$e value o# said currency, and suc$ decreases or increases could not
N;
$ave been reasonably #oreseen or %as "ani#estly beyond t$e conte"&lation o# t$e &arties at t$e ti"e o# t$e
establis$"ent o# t$e obligation( 4Tolentino6
AN )FT,AO,*INA,/ IN3LATION +ANNOT B) ASS.0)*( 9etitionerAs #ailed to &rove t$e
su&ervening o# e>traordinary in#lation by %$ic$ on A&ril M, 5IHC and *ece"ber N, 5IHC, no &roo#s %ere
&resented on $o% "uc$ #or instance, t$e &rice inde> o# goods and services $ad arose during t$e intervening
&eriod(
S>RRA <. COERT O@ APP>ALS 008 SCRA !9
@a&ts+ 9etitioner is t$e o%ner o# a =NC s7uare "eter &arcel o# land located at ?ue@on St(, 0asbate,
0asbate( So"eti"e in 5IND, res&ondent ban', in its desire to &ut u& a branc$ in 0asbate, 0asbate,
negotiated %it$ &etitioner #or t$e &urc$ase o# t$e t$en unregistered &ro&erty( On 0ay ;J, 5IND, a contract
o# L)AS) WITH O9TION TO B./ %as instead #orged by t$e &arties( T$e contract indicated t$at t$e
Lessee can lease t$e land #or ;D years #or 9NJJ a "ont$( T$e lessee s$all $ave t$e o&tion to buy t$e land
%it$in t$e &eriod o# 5J years #or 9;5JGs7" %it$ t$e condition t$at t$e Lessor %ill register under t$e Torrens
syste" %it$in 5J years( It also "entions t$at i#, #or any reason, said &arcel o# land is not registered under
t$e Torrens syste" %it$in t$e a#or"entioned ten1year &eriod, t$e lessee s$all $ave t$e rig$t, u&on
ter"ination o# t$e lease to be &aid by t$e lessor t$e "ar'et value o# t$e building and i"&rove"ents
constructed on said &arcel o# land(
T$e lessee is aut$ori@ed to construct a building and suc$ ot$er i"&rove"ents( Ho%ever, i# t$e
lessee s$all #ail to e>ercise $is o&tion on t$e rig$t to &urc$ase in case t$e lessor %as able to register t$e land
under t$e Torrens syste" %it$in 5J years, t$e lessor s$all $ave t$e rig$t to #or#eit t$e building and
i"&rove"ents a#ter t$e e>&iration o# ;D year lease &eriod(
T$ereby, a building and ot$er i"&rove"ents %ere constructed on t$e land, %$ic$ $oused t$e
branc$ o##ice o# ,+B+ in 0asbate, 0asbate( Wit$in t$ree years #ro" t$e signing o# t$e contract, &etitioner
co"&lied %it$ $is &art o# t$e agree"ent by $aving t$e &ro&erty registered and &laced under t$e Torrens
syste"(
9etitioner 'e&t on &ursuing t$e "anager o# t$e branc$ to e##ect t$e sale o# t$e lot as &er t$eir
agree"ent( It %as not until Se&te"ber C, 5IHC, $o%ever, %$en t$e res&ondent ban' decided to e>ercise its
o&tion and in#or"ed &etitioner, t$roug$ a letter o# its intention to buy t$e &ro&erty at t$e agreed &rice o# not
greater t$an 9;5J(JJ &er s7uare "eter or a total o# 9NH,C=J(JJ But "uc$ to t$e sur&rise o# t$e res&ondent,
&etitioner re&lied t$at $e is no longer selling t$e &ro&erty(
A co"&laint #or s&eci#ic &er#or"ance and da"ages %as #iled by res&ondent against &etitioner( In
t$e co"&laint, res&ondent alleged t$at during t$e negotiations it "ade clear to &etitioner t$at it intends to
stay &er"anently on t$e &ro&erty(
Iss%e+
?DN there is no "asis in #rantin# no "asis in #rantin# an ad$%st*ent in rental.
R%lin#+ F>S. T$ere is no basis, legal or #actual, in adjusting t$e a"ount o# t$e rent( T$e contract is t$e la%
bet%een t$e &arties and i# t$ere is indeed reason to adjust t$e rent, t$e &arties could by t$e"selves negotiate
#or t$e a"end"ent o# t$e contract(
Neit$er could %e consider t$e decline o# t$e &urc$asing &o%er o# t$e 9$ili&&ines &eso #ro" 5IH=
to t$e ti"e o# t$e co""ence"ent o# t$e &resent case in 5IHD, to be SO G,)AT AS TO ,)S.LT IN AN
)FT,AO,*INA,/ IN3LATION(
)>traordinary in#lation e>ists %$en t$ere is an .NI0AGINABL) increase or decrease i# t$e
&urc$asing &o%er o# t$e 9$ili&&ine currency, or #luctuation in t$e value o# &esos "ani#estly beyond t$e
conte"&lation o# t$e &arties at t$e ti"e o# t$e establis$"ent o# t$e obligation(
=EIBON=EA <. COERT O@ APP>ALS 109 SCRA !0
@a&ts+
Huibon$ua entered into a contract o# lease %it$ Gojoccos %$ereby s$e %ould lease #ro" t$eir
co""ercial lots( 9art o# t$e contract is t$e construction o# C1storey building %it$in H "ont$s
#ro" date o# e>ecution o# lease contract(
N=
Huibon$ua #ailed to co"&lete t$e construction o# t$e building %it$in t$e sti&ulated H "ont$
&eriod #ro" -uly 5, 5IH=( He also #ailed to &ay t$e rental %$ic$ is su&&osed to start in 0arc$
5IHC(
*uring t$e construction o# t$e building, Ninoy %as assassinated(
Huibon$ua contended t$at t$e in#lation borne by t$e 3ili&inos in 5IH= justi#ied t$e delayed
accrual o# "ont$ly rental, t$e reduction o# its a"ount and t$e e>tension o# t$e lease by =
"ont$s(
Iss%e+ ?DN =%i"onh%aKs &ontention is *eritorio%s.
R%lin#+ NO. W$ile it is o# judicial notice t$at t$ere $as been a decline in t$e &urc$asing &o%er o# t$e
9$ili&&ine &eso, t$is do%n%ard #all o# t$e currency cannot be considered un#oreseeable +ONSI*),ING
THAT SIN+) TH) 5INJAS W) HA:) B))N )F9),I)N+ING IN3LATION( IT IS SI09L/ A
.NI:),SAL T,)N* THAT HAS NOT S9A,)* O., +O.NT,/(
No decrease in t$e &eso value o# suc$ "agnitude 4re#erring to t$e 5I;J *eutsc$e 0ar' e>a"&le6
$aving occurred, Huibon$ua $as no valid ground to as' t$is +ourt to intervene and "odi#y t$e lease
agree"ent to suit $er &ur&ose(
H.IBONH.A ):)N 3AIL)* TO 9,O:) B/ ):I*)N+), *O+.0)NTA,/ ON
T)STI0ONIAL, THAT TH),) WAS AN )FT,AO,*INA,/ IN3LATION 3,O0 -.L/ 5IH= TO
3)B,.A,/ 5IHC( AN )FT,AO,*INA,/ IN3LATION +ANNOT B) ASS.0)*(
Art. 101. Pay*ent shall "e *ade in the pla&e desi#nated in the o"li#ation.
There "ein# no e6press stip%lation and i) the %nderta7in# is to deliver a deter*inate
thin#' the pay*ent shall "e *ade .herever the thin# *i#ht "e at the *o*ent the o"li#ation
.as &onstit%ted.
In any other &ase the pla&e o) pay*ent shall "e the do*i&ile o) the de"tor.
I) the de"tor &han#es his do*i&ile in "ad )aith or a)ter he has in&%rred in delay' the
additional e6penses shall "e "orne "y hi*.
These provisions are .itho%t pre$%di&e to ven%e %nder the R%les o) Co%rt.
WH)N SHO.L* 9A/0)NT B) 0A*)?
I# it is a &ure obligation, &ay"ent s$ould be u&on de"and o# t$e creditor(
I# it is an obligation %it$ a &eriod, &ay"ent s$ould be "ade u&on arrival o# t$e &eriod( .nless
e>ce&ted by la%, t$ere still s$ould be de"and %$en t$e &eriod arrives(
WH),) SHO.L* 9A/0)NT B) 0A*)?
Art( 5;D5 &rovides t$at<
456 9ay"ent s$all be "ade in t$e &lace designated in t$e obligation(!
3or e>a"&le, +y obliged $i"sel# to deliver to Angelo a stas$ o# c$ong's 4T$is is considering
c$ong's is a valid &restation( 6 T$ey agreed t$at +y s$ould deliver t$e stas$ at ,oc'%ell( Since t$e
&arties $ave designated a &lace o# delivery, t$e &lace s&eci#ied "ust be #ollo%ed and &ay"ent "ust be
"ade in t$at &lace(
4;6 T$ere being no e>&ress sti&ulation and i# t$e underta'ing is to deliver a deter"inate t$ing, t$e
&ay"ent s$all be "ade %$erever t$e t$ing "ig$t be at t$e "o"ent t$e obligation %as constituted(!
In t$e above e>a"&le, i# t$e &arties did not agree as to t$e &lace o# delivery, t$en delivery or
&ay"ent "ust be "ade by +y in t$e &lace %$ere t$e c$ongs 4assu"ing t$ere is deter"inate6 %as at t$e ti"e
t$e obligation %as constituted(
4=6 In any ot$er case, t$e &lace o# &ay"ent s$all be t$e do"icile o# t$e debtor(!
T$us, i# +y, a resident o# 0a'ati o%es Angelo, a resident o# 0andaluyong, a su" o# "oney and
t$ere is no agree"ent as to t$e &lace o# &ay"ent, t$en t$e &lace o# &ay"ent "ust be t$e do"icile o# +y( I#
+y c$anges $is residence in bad #ait$, t$en $e is liable #or t$e e>&enses o# &ay"ent to Angelo, t$e creditor(
Ordinarily, a tenant o# a $ouse $as t$e rig$t to %ait #or t$e landlord in t$e $ouse since t$is is an
obligation to &ay "oney, a generic t$ing(
NC
T$is includes cases %$ere a deter"inate t$ing to be delivered at t$e ti"e o# t$e constitution o# t$e
obligation %as in a certain &lace #or only a te"&orary &eriod o# ti"e, as %$en it is on a vessel or a train in
transit(
WH/ 0.ST TH) +,)*ITO, +OLL)+T IN TH) *)BTO,AS *O0I+IL) IN 0OST +AS)S?
T$e creditor is 'no%n to be t$e active &arty in an obligation( T$ere#ore, t$e debtor $as t$e rig$t to
%ait until t$e creditor arrives de"anding &ay"ent( So long as t$e creditor does not arrive t$e debtor %ill
not be considered in de#ault(
WHAT I3 9A/0)NT IS TO B) 0A*) AT TH) *O0I+IL) O3 TH) *)BTO,, AN* TH) LAT),
+HANG)S HIS *O0I+IL) IN BA* 3AITH?
T$e duty o# t$e creditor to go to t$e debtor re"ains( Ho%ever, t$e debtor bears all e>tra c$arges
occasioned by suc$ trans#er(
S%"se&tion 1. L Appli&ation o) Pay*ents
Art. 100 =e .ho has vario%s de"ts o) the sa*e 7ind in )avor o) one and the sa*e &reditor'
*ay de&lare at the ti*e o) *a7in# the pay*ent' to .hi&h o) the* the sa*e *%st "e applied.
Enless the parties so stip%late' or .hen the appli&ation o) pay*ent is *ade "y the party )or
.hose "ene)it the ter* has "een &onstit%ted' appli&ation shall not "e *ade as to de"ts .hi&h
are not yet d%e.
I) the de"tor a&&epts )ro* the &reditor a re&eipt in .hi&h an appli&ation o) the
pay*ent is *ade' the )or*er &annot &o*plain o) the sa*e' %nless there is a &a%se )or
invalidatin# the &ontra&t.
WHAT A,) TH) S9)+IAL 3O,0S O3 9A/0)NT?
T$e s&ecial #or"s o# &ay"ent are<
456 A&&lication o# &ay"ent 4Art( 5;D;6
4;6 *acion en 9ago 4Art( 5;CD6
4=6 9ay"ent by +ession 4Art( 5;DD6
4C6 Tender o# 9ay"ent and +onsignation 4Art( 5;DM15;M56
WHAT IS A99LI+ATION O3 9A/0)NTS?
It is t$e designation o# t$e debt to %$ic$ s$ould be a&&lied a &ay"ent "ade by a debtor %$o o%es
several debts in #avor o# t$e sa"e creditor(
WHAT A,) TH) ,)?.ISIT)S 3O, A99LI+ATION O3 9A/0)NT?
456 T$ere "ust be t%o or "ore debts(
4;6 T$ere "ust be t$e sa"e debtor and creditor 4%$ic$ "eans one debtor and one creditor6( T$ere
can be several debtors but t$ey "ust re&resent ON) INT),)ST, li'e in t$e case o# co1debtor
and co1creditor(
4=6 All t$e debts "ust be due(
4C6 9ay"ent is not su##icient to cover all obligations(
4D6 T$e obligations are o# t$e sa"e 'ind( I# one obligation is &ayable in &ro&erty and t$e ot$er are
&ayable in "oney, t$en necessarily, under t$e rules o# identity and integrity o# &ay"ent, i#
&ay"ent is "ade in "oney, it $as to be a&&lied and credited to t$e obligation %$ic$ is &ayable
in "oney(
4M6 T$ere is no &revious sti&ulation %it$ res&ect to a&&lication(
0A/ TH),) B) A99LI+ATION TO *)BTS WHI+H A,) NOT /)T *.)?
/es( W$en, according to Art( 5;D;< .NL)SS
456 T$e &arties so sti&ulate, or
4;6 W$en t$e a&&lication o# &ay"ent is "ade by t$e &arty %$ose bene#it t$e ter" $as been
constituted, a&&lication s$all not be "ade to debts %$ic$ are not yet due(!
ND
3or e>a"&le, +y o%ed -ay 95JJ due on 0arc$ N, ;JJ= and 9;JJ due and de"andable on or
be#ore 0arc$ 5I, ;JJ=( +o"e 0arc$ N, ;JJ=, +y "ay "a'e t$e a&&lication to t$e 95JJ and 9;JJ
obligation since t$e &eriod sti&ulated #or t$e latter obligation is #or $is bene#it(
WHO HAS TH) ,IGHT TO 0AB) TH) A99LI+ATION?
T$e la% gives t$e debtor t$e rig$t to select %$ic$ o# t$e debts $e is &aying(

Art. 101 I) the de"t prod%&es interest' pay*ent o) the prin&ipal shall not "e dee*ed to
have "een *ade %ntil the interest have "een &overed.
WHAT A,) TH) LI0ITATIONS TO S.+H ,IGHT?
456 I# t$e debtor o%es ; debts, one #or 9DJ and anot$er #or 9;JJ, and $e "a'es a &ay"ent o# 9DJ,
$e cannot c$oose to a&&ly it to t$e 9;JJ debt because t$e creditor cannot be co"&elled to
acce&t &artial &ay"ent( Art( 5;CH &rovides t$at .NL)SS t$ere is an e>&ress sti&ulation to
t$at e##ect, t$e creditor cannot be co"&elled &artially to receive t$e &restation in %$ic$ t$e
obligation consists( > >! T$is is, o# course, t$e rule o# indivisibility o# &ay"ent
4;6 Art( 5;D= &rovides i# t$e debt &roduces interest, &ay"ent o# t$e &rinci&al s$all not be
dee"ed to $ave been "ade until interest $ave been covered(!
4=6 T$e debtor cannot a&&ly t$e &ay"ent to a debt t$at is not yet li7uidated, Art( 5;CH 4;6
&rovides t$at $o%ever %$en t$e debt is in &art li7uidated and in &art unli7uidated, t$e
creditor "ay de"and and t$e debtor "ay e##ect t$e &ay"ent o# t$e #or"er %it$out %aiting #or
t$e li7uidation o# t$e latter(!
4C6 He cannot c$oose a debt %it$ a &eriod #or t$e bene#it o# t$e creditor, %$en t$e &eriod $as not
yet arrived( 4Tolentino6
4D6 W$en t$ere is an agree"ent as to t$e debts %$ic$ are to be &aid #irst, t$e debtor cannot vary
t$e agree"ent 4Tolentino, Salvat6
WH)N 0.ST A99LI+ATION B) 0A*)?
A&&lication "ust be "ade at t$e ti"e o# &ay"ent by t$e debtor and NOT a#ter%ards(
0A/ AN A99LI+ATION B) ,):OB)*?
No, .NL)SS bot$ &arties agree( )ven i# bot$ &arties agree, $o%ever, still t$e revocation or
c$ange in t$e a&&lication %ill not be allo%ed i# t$ird &ersons are &rejudiced(
WHAT HA99)NS I3 TH) *)BTO, *O)S NOT 0AB) AN A99LI+ATION AT TH) TI0) O3
9A/0)NT?
T$e rig$t o# a&&lication is dee"ed %aived i# not raised at t$e ti"e o# &ay"ent( T$e rig$t to "a'e
t$e a&&lication itsel# does not s$i#t to t$e creditor( T$e latter only $as t$e rig$t to "a'e a &ro&osal(
HOW 0A/ TH) 9,O9OSAL B) 0A*)?
)it$er, )F9,)SSL/, by telling or as'ing t$e debtor t$at $e 4t$e creditor6 %ill a&&ly &at"ent to a
certain obligation and i# t$e debtor agrees, t$en a&&lication is "ade, and, I09LI)*L/, as %$en t$e creditor
gives a recei&t to t$e &ay"ent, li'e %$en a recei&t indicates, t$is is &ay"ent #or you so1and1so(!
Atty( Tolentino adds t$e real intent o# t$e la% is t$at t$e a&&lication "ade by t$e creditor can be
contested by t$e debtor i# t$e latterAs assent to suc$ a&&lication %as vitiated by suc$ causes as "ista'e,
violence, inti"idation, #raud, etc,! %$ic$ can invalidate not only contracts but also ot$er judicial acts(!
WHAT HA99)NS WH)N TH) +,)*ITO, 0AB)S A99LI+ATION WITHO.T TH) BNOWL)*G)
O, +ONS)NT O3 TH) *)BTO,?
T$e a&&lication is not valid(
Art. 104 ?hen the pay*ent &annot "e applied in a&&ordan&e .ith the pre&edin# r%les' or i)
appli&ation &an not "e in)erred )ro* other &ir&%*stan&es' the de"t .hi&h is *ost onero%s to
the de"tor' a*on# those d%e' shall "e dee*ed to have "een satis)ied.
NM
I) the de"ts d%e are o) the sa*e nat%re and "%rden' the pay*ent shall "e applied to
all o) the* proportionately.
WHAT HA99)NS WH)N TH) *)BTO, *O)S NOT 0AB) AN A99LI+ATION AN* TH)
+,)*ITO, *O)S NOT 0AB) A 9,O9OSAL?
T$ere are t%o &ossible scenarios(
3irst, a&&ly &ay"ent to t$e "ost onerous debt( But t$is is ONL/ in case t$e due and de"andable
debts are o# di##erent natures(
Art( 5;DC 456 &rovides t$at %$en t$e &ay"ent cannot be a&&lied in accordance %it$ t$e &receding
rules or i# a&&lication can not be in#erred #ro" ot$er circu"stances, t$e debt %$ic$ is "ost onerous to t$e
debtor, a"ong t$ose due, s$all be dee"ed to $ave been satis#ied(!
T$is is still subject to t$e rules on integrity, identity, and indivisibility o# &ay"ent(
3or e>a"&le, +y is obligated to &ay t$e #ollo%ing to -ay< 95JJ %$ic$ is not secured, 9;JJ %$ic$
is guaranteed by 0ar' and Angel +o(, and 9=JJ %$ic$ is interest bearing( +y $as only 95JJ( T$us, $e $as
to "a'e an a&&lication( It cannot be a&&lied to t$e 9=JJ obligation not%it$standing t$e #act t$at it is, by #ar,
t$e "ost onerous because it %ould violate t$e rule on indivisibility o# &ay"ent( T$ere#ore, a&&lication can
be $ad only to t$e 95JJ des&ite its being t$e least onerous(
As to %$ic$ o# ; debts is "ore onerous is #unda"entally a 7uestion o# #act, %$ic$ courts "ust
deter"ine on t$e basis o# t$e circu"stances o# eac$ case( T$e condition o# being "ore burdenso"e is
relative, and cannot be deter"ined %it$ &recision by general rules( Ho%ever, t$ere "ay be stated as bases
#or suc$ deter"ination(
AS 9,IN+I9AL AS SOL) *)BTO, OL*)ST *)BTS
Over Over Over
AS S.,)T/ AS SOLI*A,/ *)BTO, ,)+)NT *)BTS
WITH INT),)ST HIGH), INT),)ST 9)NAL +LA.S)
Over Over Over
NO INT),)ST LOW), INT),)ST G)N),AL *A0AG)S
):)N I3 OL*),
.NS)+.,)* *)BT WITH G.A,ANT/ LI?.I*AT)*
WITH INT),)ST Over Over
Over WITHO.T G.A,ANT/ .NLI?.I*AT)*
S)+.,)* *)BT
WITHO.T INT),)ST
IN *)3A.LT
Over
NOT IN *)3A.LT
Second, i# t$e obligations are o# t$e sa"e burden 2 %$ic$ "eans 4a6 t$ey are e7ually onerous or
4b6 it cannot be deter"ined %$ic$ is "ost onerous 2 t$en a&&lication %ill $ave to be "ade &ro&ortionately(
A&&lication %ill $ave to be &ro&ortionate B.T NOT necessarily e7ual(
Art( 5;DC &rovides t$at %$en t$e &ay"ent cannot be a&&lied in accordance %it$ t$e &receding
rules, or i# a&&lication can not be in#erred #ro" ot$er circu"stances, t$e debt %$ic$ is "ost onerous to t$e
debtor, a"ong t$ose due, s$all be dee"ed to $ave been satis#ied(
I# t$e debts due are o# t$e sa"e nature and burden, t$e &ay"ent s$all be a&&lied to all o# t$e"
&ro&ortionately(
T$e rules on &ay"ent E integrity, identity and indivisibility 2 %ill no longer a&&ly(
3or e>a"&le, +y set u& a bond o# 95J,JJJ by a surety %$o agreed to be solidary res&onsible %it$
+y but only u& to 9H,JJJ( +y &ays 95,DJJ to t$e creditor %it$out s&eci#ying t$e a&&lication in &ay"ent(
+yAs obligation "ay no% be divided into ; 2 9H,JJJ %$ic$ is guaranteed, and 9;,JJJ %$ic$ is not( T$e
&ay"ent s$ould be a&&lied to t$e 9;,JJJ obligation because as regards t$e &rinci&al debtor, +y, suc$ is t$e
"ore onerous obligation( T$is $a&&ened because t$e surety #i>ed $is liability in an a"ount lo%er t$an t$at
due #ro" t$e &rinci&al debtor(
NN
Anot$er e>a"&le, +y o%es 3erdie ; debts bot$ o# %$ic$ are already due( T$e #irst is secured by a
"ortgage, t$e second is not( +y tells 3erdie t$at t$e &ay"ent $e is no% "a'ing s$ould be a&&lied to t$e
second debt instead o# t$e #irst( 3erdie re#used to acce&t suc$ a&&lication %it$ t$e contention t$at t$e #irst
debt is "ore onerous to +y and t$at t$ere#ore, &ay"ent "ust be a&&lied to t$e #irst debt( 3erdieAs contention
is %it$out "erit( T$e "ore burdenso"e! rule does not a&&ly %$en t$e debtor $as "ade t$e a&&lication o#
&ay"ent( Art( 5;DC cannot be es&oused in case a&&lication $as been "ade by t$e debtor in consonance %it$
Art( 5;D;(
/et anot$er e>a"&le, +y o%es 9aul 95;,JJJ and 9M,JJJ, eac$ constituting one obligation( He
gives 9=,JJJ %it$out "a'ing any a&&lication( In t$is situation, t$e &ay"ent %ill be a&&lied &ro&ortionately(
Hence 9;,JJJ %ill be deducted #ro" t$e #irst debt and 95,JJJ #ro" t$e second( T$e #irst obligation %ill
no% be 95J,JJJ and t$e second 9D,JJJ(
S%"se&tion 0. L Pay*ent "y Cession
Art. 10 The de"tor *ay &ede or assi#n his property to his &reditors in pay*ent o) his
de"ts. This &ession' %nless there is stip%lation to the &ontrary' shall only release the de"tor
)ro* responsi"ility )or the net pro&eeds o) the thin# assi#ned. The a#ree*ents .hi&h' on the
e))e&t o) the &ession' are *ade "et.een the de"tor and his &reditors shall "e #overned "y
spe&ial la.s.
WHAT IS 9A/0)NT B/ +)SSION 4ASSIGN0)NT O3 9,O9),T/6?
T$is is anot$er s&ecial #or" o# &ay"ent( It is t$e assign"ent or abandon"ent o# all t$e &ro&erties
not subject to e>ecution o# t$e debtor #or t$e bene#it o# $is creditors in order t$at t$e latter "ay sell t$e
sa"e and a&&ly t$e &roceeds t$ereo# to t$e satis#action o# t$eir credits( 40anresa6
WHAT A,) TH) BIN*S O3 ASSIGN0)NT?
456 Legal( T$is is governed by t$e insolvency la%( Here "ajority o# t$e creditors "ust agree to
t$e assign"ent o# &ro&erty( 4involuntary6
4;6 :oluntary( Art( 5;DD &rovides t$at T$e debtor "ay cede or assign $is &ro&erty to $is creditors
in &ay"ent o# $is debts( T$is cession, unless t$ere is sti&ulation to t$e contrary, s$all only
release t$e debtor #ro" res&onsibility #or t$e net &roceeds o# t$e t$ing assigned( T$e
agree"ents %$ic$, on t$e e##ect o# t$e cession, are "ade bet%een t$e debtor and $is creditors
s$all be governed by s&ecial la%s(!
3or e>a"&le, +y is indebted to Angelo, 0ar' and -ay in t$e a"ount o# 95J,JJJ( He $as "ore
debts t$an assets( Because +y cannot &ay all o# t$e" #or t$e #ull a"ounts o# t$eir credits, +y
"ay assign or cede to Angelo, 0ar' and -ay $er &ro&erties valued at 9M,JJJ so t$at t$ey can
sell t$e sa"e and t$e net &roceeds a&&lied in &ay"ents o# $is debts &ro&ortionately( Ho%ever,
t$e consent o# t$e creditors is necessary in order t$at t$e cession "ay be valid(
WHAT A,) TH) ,)?.ISIT)S O3 9A/0)NT B/ +)SSION?
456 T$ere "ust be "ore t$at one debt(
4;6 T$ere "ust be t%o creditors or "ore(
4=6 T$ere "ust be co"&lete or &artial insolvency o# t$e debtor(
4C6 T$e abandon"ent o# all t$e debtorAs &ro&erty %$ic$ is not e>e"&t #ro" e>ecution(
)>e"&tion, $o%ever, "ay be validly %aived by t$e debtor(
4D6 T$e acce&tance or consent on t$e &art o# all t$e creditors(
WHAT IS TH) )33)+T O3 9A/0)NT B/ +)SSION?
456 .nless t$ere is a sti&ulation to t$e contrary, t$e assign"ent does not "a'e t$e creditors t$e
o%ners o# t$e &ro&erty o# t$e debtor( T$ey are "erely assignees %it$ aut$ority to sell( 4I#
o%ners$i& is trans#erred, t$ere is dacion en &ago(6
4;6 T$e debtor is released u& to t$e a"ount o# t$e net &roceeds o# t$e sale, .NL)SS t$ere is a
sti&ulation to t$e contrary( T$e balance re"ains collectible(
4=6 +reditors %ill collect credits in order o# &re#erence agreed u&on, or in de#ault o# agree"ent, in
t$e order establis$ed by la%(
NH
WHAT A,) TH) *I33),)N+)S B)TW))N *A+ION )N 9AGO AN* ASSIGN0)NT O3
9,O9),T/?
DACION >N PAGO PAFB>NT BF C>SSION
Trans#ers o%ners$i& o# t$ing alienated Only &ossession and ad"inistration are trans#erred
%it$ an aut$ori@ation to convert t$e &ro&erty into
cas$ %it$ debts s$all be &aid
0ay totally e>tinguis$ obligation Only e>tinguis$es credits to t$e e>tent o# t$e
a"ount reali@ed #ro" t$e &ro&erties assigned
.NL)SS ot$er%ise agreed u&on(
Only cession o# so"e s&eci#ic t$ing Assign"ent involves all t$e &ro&erty o# t$e debtor(
Trans#er is only in #avor o# one to satis#y a debt( T$ere are various creditors
Note t$at bot$ are substitute #or"s o# t$e &er#or"ance o# t$e obligation(
WHAT IS TH) ,.L) TO B) 3OLLOW)* +ONSI*),ING THAT TH),) A,) S):),AL
+,)*ITO,S AN* TH)/ WANT TO B) SATIS3I)* IN 3.LL?
I# t$ey can agree to &articular &ortions t$en t$at %ould be #ollo%ed(
I# not, t$en t$e rules regarding &re#erence o# &ay"ent "ust be #ollo%ed(
WHAT IS TH) ,.L) ,)GA,*ING 9,)3),)N+) O3 9A/0)NT?
T$e credit %$ic$ is &re#erred %ill necessarily $ave to be satis#ied #irst( T$ose credits %$ic$ $ave
no security at all %ill $ave to ta'e t$eir s$are on t$e basis o# &ro&ortionate s$aring(
WHAT IS TH) *I33),)N+) B)TW))N 9A/0)NT B/ +)SSION AN* A99LI+ATION O3
9A/0)NT?
PAFB>NT BF C>SSION APPLICATION O@ PAFB>NT
Only one creditor but %it$ several debts( Several creditors and several debts(
Note t$at bot$ only involve one debtor(
S%"se&tion 1. L Tender o) Pay*ent and Consi#nation
Art. 10! I) the &reditor to .ho* tender o) pay*ent has "een *ade re)%ses .itho%t $%st
&a%se to a&&ept it' the de"tor shall "e released )ro* responsi"ility "y the &onsi#nation o) the
thin# or s%* d%e.
Consi#nation alone shall prod%&e the sa*e e))e&t in the )ollo.in# &ases+
,1- ?hen the &reditor is a"sent or %n7no.n' or does not appear at the pla&e o)
pay*ent/
,0- ?hen he is in&apa&itated to re&eive the pay*ent at the ti*e it is d%e/
,1- ?hen' .itho%t $%st &a%se' he re)%ses to #ive a re&eipt/
,4- ?hen t.o or *ore persons &lai* the sa*e ri#ht to &olle&t/
,- ?hen the title o) the o"li#ation has "een lost.
WHAT IS T)N*),?
Tender, as de#ined by Tolentino, is t$e "ani#estation "ade by t$e debtor to t$e creditor o# $is
desire to co"&ly %it$ $is obligation, %it$ t$e o##er o# i""ediate &er#or"ance( In *ean del +astilloAs ter"s,
tender is not$ing "ore t$an "a'ing an o##er to oneAs creditor, I %ant to &ay, &lease acce&t "y &ay"ent(!
No "atter $o% you de#ine tender, it is i"&ortant to 'ee& in "ind t$at oneAs o##er to &ay, in order to be
considered tender, "ust actually e>&ress, %$et$er e>&ressly or i"&liedly, t$e ability to &ay( Ot$er%ise, you
can i"agine $o% "ay bad debtors not actually $aving t$e ability to &ay, %ill &retend to "a'e a valid tender
to enjoy its e##ects( T$us, %e learned #ro" :da( de Oulueta v( Octaviano t$at a letter %it$ an o##er to &ay is
not su##icient to constitute tender, in t$e absence o# &roo# o# ability to &ay(
NI
Tender, as a general rule, is e>trajudicial( Ho%ever, not$ing %ill &revent you #ro" going to court
#or tendering &ay"ent( T$is %as illustrated by t$e case o# Hulgan@a v( +A %$ere t$e court $eld t$at t$e
institution o# action to co"&el t$e o%ner o# land to sell suc$ land to its occu&ants %as considered valid
tender(
WHAT A,) TH) )33)+TS O3 T)N*),?
3ro" t$e "o"ent t$at a valid tender is "ade, auto"atically 4or by o&eration o# la%6
456 T$e &rescri&tion &eriod sto&s(
T$is "eans t$at once a valid tender is "ade %it$in t$e &eriod o# &ay"ent, oneAs o&tion or
rig$t o# rede"&tion is &reserved( 4In e##ect, t$ere is a lengt$ening o# t$e &eriod during %$ic$
t$e &erson %$o $as a rig$t or o&tion "ay e>ercise suc$ rig$t(
4;6 T$e liability to &ay interest, eit$er #or t$e use o# t$e "oney or one t$e basis o# duty, also
sto&s<
Note t$at t$ere are t%o ty&es, interest #or t$e use o# "oney, and interest #or t$e delay in
&ay"ent( Bot$ ty&es o# interest can not be collected a#ter a valid tender $as been "ade
because, assu"ing t$at a valid tender $as been "ade %it$in t$e &rescribed &eriod, alt$oug$
suc$ tender does not &roduce &ay"ent, suc$ valid tender gives t$e debtor t$e rig$t to continue
as an obligor %$o is not in de#ault( T$us, as %e learned #ro" 0claug$lin v( +A, once valid
tender $as been "ade, t$e creditor $as no rig$t to rescind(
According to Art( 5;DM, consignation %it$out a &revious valid tender s$all release t$e debtor #ro"
res&onsibility %$en<
456 T$e creditor is absent or un'no%n, or does not a&&ear at t$e &lace o# &ay"ent(
T$e #irst &art conte"&lates o# a situation %$ere t$e creditorAs address is un'no%n, or t$e
debtor does not even 'no%n i# t$e creditor is dead or alive( In *ean del +astilloAs, in suc$
case, you are not re7uired to searc$ t$e %$ole %orld to &ay your creditor, because youAll lose
too "uc$ ti"e(
3or t$e second &art, relate t$is &rovision to Art( 5;D5, %$ic$ s&ea's o# t$e &lace %$ere
&ay"ent s$all be "ade(
I# a &lace is designated #or t$e &ay"ent, or %$en t$ere is no e>&ress sti&ulation and i# t$e
understanding is to deliver a deter"inate t$ing, so t$at &ay"ent s$all be "ade %$erever t$e
t$ing "ay be at t$e "o"ent t$e obligation %as constituted, i# at t$e designated ti"e o#
&ay"ent, t$e creditor does not a&&ear, t$en t$e debtor "ay validly "a'e a consignation(
In any ot$er case, t$e &lace o# &ay"ent s$all be "ade at t$e do"icile o# t$e debtor, but
note t$at in t$is case, t$e debtor is not re7uired to go any%$ere, but si"&ly %aits #or t$e
creditor to a&&ear( T$us, as long as t$e creditor does not go to t$e debtorAs do"icile to collect
&ay"ent, t$e debtor is not in de#ault, and it "ay not be necessary to consign t$e &ay"ent(
4;6 T$e creditor is inca&acitated to receive t$e &ay"ent at t$e ti"e it is due(
T$e inca&acity $ere s$ould e>ist at t$e ti"e o# t$e &ay"ent and not at ti"e t$e obligation
%as incurred because i# t$e creditor %as inca&acitated at t$e ti"e t$e obligation %as incurred
t$en t$e obligation is considered as annullable or voidable( ,e"e"ber t$at %$en &ay"ent is
"ade to an inca&acitated creditor, suc$ &ay"ent %ill be considered valid only to t$e e>tent
t$at suc$ inca&acitated creditor is bene#ited or $as 'e&t suc$ &ay"ent(
T$us, in t$e absence o# a legal re&resentative or guardian 4or, according to 9aras, even in
t$e &resence o# one, i# $is &resence could not $ave reasonably been 'no%n by t$e debtor6,
consignation %it$out a &rior valid tender %ill be valid( I# t$ere is a guardian or legal
re&resentative, t$e tender or &ay"ent 4i# suc$ tender is subse7uently acce&ted6 "ust be "ade
to $i"(
4=6 W$en, %it$out just cause, t$e creditor re#uses to give a recei&t(
+o"e to t$in' o# it( Ho% can you say t$at t$e creditor $as re#used to give a recei&t
%it$out just cause i# you $ave not "ade a valid tender o# &ay"ent? I# t$ere $as been no valid
tender in t$e #irst &lace, t$ere naturally, t$e creditor %ould be justi#ied in re#using to issue a
recei&t( T$is situation sounds "ore li'e an e>a"&le o# a situation %$ere, a#ter valid tender,
consignation "ust be "ade(
4C6 T%o or "ore &ersons clai" t$e sa"e rig$t to collect(
HJ
Tolentino &oints out t$at it is not enoug$ in t$is case t$at various &ersons ca&riciously
clai" t$e rig$t to collect #ro" t$e debtor( T$ey "ust $ave t$e a&&earance o# a rig$t to collect
suc$ t$at t$e debtor %ould $ave a reasonable doubt, not based on negligence, as to %$o is
entitled to &ay"ent(
T$ere are several o&tions, actually, aside #ro" t$e consignation, suc$ as t$e re"edy o#
inter&leader 4%$ere t$e &erson in &ossession o# t$e &ro&erty, %$o $as not interest in it, as's
t$e &ersons clai"ing o%ners$i& to litigate bet%een t$e" regarding o%ners$i&6( Ho%ever,
consignation is one o# t$e sa#est o&tions, as consignation %ill release t$e $older o# suc$
&ro&erty #ro" any liability #or less or da"age o# t$e &ro&erty a#ter consignation(
+onsignation %it$out &rior valid tender %ould be &ro&er $ere because i# t$e debtor just
"a'es &ay"ent to any o# t$ose clai"ing &ay"ent, and it turns out t$at suc$ &ay"ent is
erroneous, t$e debtor %ill be doubly burdened(
4D6 T$e title o# t$e obligation $as been lost
W$at "a'es consignation %it$out &rior valid tender %ould be &ro&er $ere because i# t$e
debtor just "a'es &ay"ent to any o# t$ose clai"ing &ay"ent, and it turns out t$at suc$
&ay"ent is erroneous, t$e debtor %ill be doubly burdened(
IS TH) )N.0),ATION AN )F+L.SI:) ON)?
No( Tolentino says, T$e enu"eration in t$is article(( "ust not be inter&reted in a restrictive sense,
but in t$e lig$t o# t$e &ur&ose o# t$e institution o# consignation, %$ic$ is to avert t$e &er#or"ance o# an
obligation being "ore onerous to t$e debtor by reasons o# causes not i"&utable to $i"(!
WHAT TH)N A,) OTH), )FA09L)S?
One ot$er e>a"&le, added by juris&rudence, is t$e case %$ere, in advance, t$e creditor tells t$e
debtor t$at $e %ill not acce&t &ay"ent( In suc$ case, it %ould be useless to "a'e a &rior tender to t$e
creditor( Suc$ is t$e case, #or e>a"&le, %$en a lessor %$o is deter"ined to eject $is lessee, re#uses to acce&t
&ay"ent #ro" $i", and t$e issue o# %$et$er or not t$e lessee $as a rig$t to re"ain "ust be resolved(
WHAT A,) TH) ,)?.I,)0)NTS O3 A :ALI* T)N*),?
T$e re7uire"ent o# a valid tender are t$e sa"e as t$ose #or &ay"ent, t$at is, INT)G,IT/,
I*)NTIT/, IN*I:ISIBILIT/, and t$e rules on L)GAL T)N*),(
STAT> IN<>STB>NT =OES>' INC. <. COERT O@ APP>ALS 185 SCRA 189
@a&ts+
A7uinos secured a #irst loan #ro" State Invest"ent House( As a security t$ereo#, t$ey &ledged
certain s$ares o# stoc's(
9rior to t$e e>ecution o# t$e &ledge, A7uinos served as acco""odation &arty #or anot$er
s&ousesA debt to State Invest"ent House(
.&on due o# A7uinosA debt, t$ey &aid State Invest"ent House(
T$ey $o%ever, secured a second debt #ro" State Invest"ent House, &art o# %$ic$ %as used to
&ay t$e #irst debt( T$is second debt is secured by t$e sa"e &ledge agree"ent on t$e #irst loan(
W$en t$e ne% loan "atured, State Invest"ent House de"anded &ay"ent(
S&ouses e>&ressed %illingness to &ay, re7uesting t$at u&on &ay"ent, t$e s$ares o# stoc' &ledged
be released(
State Invest"ent House denied t$e re7uest on t$e ground t$at t$e loan it e>tended to t$e ot$er
s&ouses 4%$ere A7uinos %ere acco""odation &arties6 %as not yet settled(
A7uinos #ailed to consign(

Iss%e+ ?DN A:%inos are lia"le to pay the interest.
R%lin#+ F>S. 3act t$at res&ondent A7uinos %ere not in de#ault did not "ean t$at t$ey %ere relieved #ro"
t$e &ay"ent not only o# &enalty 4co"&ensatory interest o# ;CL &(a(6 but also o# regular or "onetary interest
o# 5NL &er annu"(
H5
T$e regular or "onetary interest continued to accrue under t$e ter"s o# t$e relevant &ro"issory
note until actual &ay"ent is e##ected( T$e &ay"ent o# regular interest constitutes t$e &rice or cost o# t$e use
o# "oney and t$is, until t$e &rinci&al su" due is returned to t$e creditor, regular interest continues to
accrue since t$e debtor continues to use suc$ &rinci&al a"ount(
Tender o# &ay"ent alone, %it$out consignation in court o# t$e su" due, does not sus&end t$e
accruing o# regular or "onetary interest(
<ALARAO < COERT O@ APP>ALS 194 SCRA 1
@a&ts+
:alarao sold to Arellano a &arcel o# land under a *eed o# +onditional Sale(!
T$e *eed o# +onditional Sale &rovided #or auto"atic rescission in case Arellano #ailed to &ay =
successive "ont$ly install"ents(
T$e install"ents #or October and Nove"ber 5IIJ %ere not &aid(
Arellano o##ered to &ay 9CH,JJJ 4total a"ount due in October, Nove"ber and *ece"ber6 to
Gon@ales, :alaraoAs "aid but t$e latter re#used to acce&t u&on instruction o# :alarao(
Gon@ales, $ad acce&ted t$e &revious &ay"ent "ade by Arellano
Arellano #iled a &etition #or consignation, but t$e "oney %as nevert$eless de&osited in court(
Iss%e+ ?DN <alarao &an en)or&e the a%to*ati& )or)eit%re &la%se.
R%lin#+ NO. :alaraoAs %ere not justi#ied in re#using to acce&t t$e tender o# &ay"ent "ade by Arellano(
T$ey are esto&&ed #ro" denying t$at t$e "aid $ad no aut$ority to acce&t &ay"ent(
Art( 5;C5( I# by t$e creditorAs conduct, t$e debtor $as been led to believe t$at t$e t$ird &erson $ad
aut$ority to receive &ay"ent(!
T$e tender o# &ay"ent could bloc' t$e en#orce"ent o# #or#eiture clause because t$e latter is
&re"ised on de#ault(
ArellanoAs obligation is not e>tinguis$ed as $e #ailed to consign t$e a"ount due(
@AR >AST BANG <. DIAC R>ALTF 01 AEGEST' 0991
@a&ts+
*ia@ got a loan #ro" 9aci#ic Ban'ing( T$e loan %as secured by a real estate "ortgage(
3)BT+ &urc$ased t$e credit o# *ia@ a#ter 9aci#ic %as &laced under receivers$i&(
*ia@ tendered &ay"ent t$roug$ a c$ec' "ade on 5C Nove"ber, 5IHH(
3)BT+ %as in t$e &ossession o# t$e "oney #or several "ont$s( It contended t$at i# treated t$e
c$ec' as a de&osit(
*ia@ subse7uently %it$dra% t$e "oney(
Iss%e+
?DN there .as a valid tender o) pay*ent
?DN &onsi#nation is ne&essary.
R%lin#+ F>S. True, juris&rudence $olds t$at, in general, a c$ec' does not constitute legal tender, and t$at a
creditor "ay validly re#use it( IT 0.ST B) )09HASIO)*, HOW):),, THAT THIS *I+T.0 *O)S
NOT 9,):)NT A +,)*ITO, 3,O0 A++)9TING A +H)+B AS 9A/0)NT( IN OTH), WO,*S,
TH) +,)*ITO, HAS TH) O9TION AN* *IS+,)TION O3 ,)3.SING O, A++)9TING IT( Subject
to t$e rule o# actual encas$"ent( In t$e case at bar, 3)BT+ %aived t$e de#ect o# t$e tender o# &ay"ent(
NO. 3or a consignation to be necessary, t$e creditor "ust $ave re#used %it$out just causes, to
acce&t t$e debtorAs &ay"ent(
On a&&licable interest rates< because t$ere %as a valid tender o# &ay"ent on 5C Nove"ber,
5IHH, t$e accrual o# interest based on t$e sti&ulated rate s$ould sto& on t$at date(
H;
W$at is a valid tender o# &ay"ent? It is a "ani#estation by debtor to creditor, t$at t$e #or"er is
ready, %illing and able to &ay( T$ere#ore intent, ability and ca&ability is i"&ortant(
Assign"ent o# credit is t$e &urc$ase by 3)BT+ o# *ia@A account(
IS T)N*), S.33I+I)NT?
Tender alone is su##icient %$en %$at is to be &aid is not a debt( Bee& in "ind t$e #act t$at a debt
"eans an obligation to &ay( T$us, %$en t$ere is only an o&tion or rig$t to &urc$ase, consignation is not
necessary to &reserve suc$ rig$t( We do not a&&ly t$e rules o# tender and consignation to t$ese t%o(
Ho%ever, i# t$e &ersion in %$ose suc$ rig$t #or o&tion $as been establis$ed #ollo%s tender %it$
consignation, t$en, not only %ould $e $ave &reserved suc$ rig$t #or o&tion, but actually e>ercised it(
BCLAEG=LIN < COERT O@ APP>ALS 144 SCRA !81
@a&ts+
0claug$lin and 3lores entered into a contract o# conditional sale o# real &ro&erty(
A co"&ro"ise %as arrived at a#ter 3lores #ailed to &ay #ully t$e install"ent &ay"ent(
Again, 3lores #ailed to &ay on t$e date agreed u&on(
A#ter due date, 3lores tendered &ay"ent %$ic$ %as re#used by 0claug$lin(
3lores did not consign t$e su" due %it$ t$e court(
Iss%e+ ?DN tender o) pay*ent .as valid.
R%lin#+ F>S. .nder t$e 0aceda la%, a lot install"ent buyer is given a grace &eriod to &ay install"ents in
arrears( In t$e case at bar, t$e grace &eriod $as not yet e>&ired, %$en a tender o# &ay"ent %as "ade(
T$e o##er o# &ay"ent by certi#ied c$ec' is valid tender o# &ay"ent(
W$ere an obligor #ails to #ollo% a valid tender o# &ay"ent %it$ a court consignation, t$e court "ay allo%
$i" to &ay $is obligation %it$out rescinding t$e deed o# sale(
L>GASPI <. COERT O@ APP>ALS 140 SCRA 50
@a&ts+
Legas&i sold ; &arcels o# land to Salcedo %it$ a rig$t to re&urc$ase t$e sa"e %it$in D years
#ro" t$e e>ecution o# t$e deed o# sale(
Be#ore t$e e>&iry date o# t$e re&urc$ase &eriod, Legas&i o##ered and tendered to Salcedo t$e
a"ount o# &urc$ase &rice(
Salcedo re#used %it$out justi#iable legal grounds(
Legas&i de&osited t$e a"ount %it$ t$e court( 4T$ese #actual #indings %as con#ir"ed by t$e trial
court(6
Iss%e+ ?DN tender o) pay*ent is s%))i&ient )or the e6er&ise o) ri#ht to rep%r&hase.
R%lin#+ F>S. A s$o%ing t$at &etitioner "ade a valid tender o# &ay"ent is su##icient( It is enoug$ t$at a
sincere or genuine tender o# &ay"ent and not a "oc' or dece&tive one %as "ade( T$e #act t$at $e de&osited
t$e a"ount o# t$e re&urc$ase "oney %it$ t$e +ler' o# +ourt %as si"&ly an additional security #or Legas&i,
it %as not an essential act t$at $ad to be &er#or"ed a#ter t$e tender o# &ay"ent %as re#used by Salcedo
alt$oug$ it "ay serve to indicate t$e veracity o# t$e desire to co"&ly %it$ t$e obligation(
<DA. D> CELE>TA <. OCTA<IANO 101 SCRA 114
@a&ts+
:da( de Ouleta sold to Octaviano DD $ectares o# riceland(
Octaviano, in a se&arate docu"ent, gave :da( de Oulueta t$e o&tion to re&urc$ase! t$e
&ro&erty
H=
T%o years a#ter t$e deadline to re&urc$ase,! :da( de Oulueta desired to re&urc$ase! t$e land(
0ean%$ile, Octaviano $as already sold t$e &ro&erty to $is brot$er(
Iss%e+
?DN there is &ontra&t o) rede*ption.
?DN there is a valid tender o) pay*ent' #rantin# )irst iss%e to "e tr%e.
R%lin#+ NO. W$ere t$e vendee in a subse7uent docu"ent gave t$e vendor t$e rig$t to buy bac' t$e
&ro&erty sold, t$ere is no contract o# rede"&tion( A contract o# rede"&tion is not a rig$t guaranteed by t$e
vendee to t$e vendor(
In :illarica v( +A, t$e rig$t o# re&urc$ase is not a rig$t granted t$e vendor by t$e vendee in a
subse7uent instru"ent, but is a ,IGHT ,)S),:)* B/ TH) :)N*O, in TH) SA0) INST,.0)NT o#
sale as one o# t$e STI9.LATIONS O3 TH) +ONT,A+T(
NO. 0ere letter e>&ressing intention to &ay %it$out acco"&anying &ay"ent is not a valid tender
o# &ay"ent(
To e##ectively e>ercise t$e rig$t to re&urc$ase, t$e vendor a retro "ust 0AB) AN A+T.AL AN*
SI0.LTAN)O.S T)N*), O3 9A/0)NT O, +ONSIGNATION(
=ELGANCA <. COERT O@ APP>ALS 14( SCRA ((
@a&ts+
Hulgan@a, be#ore $er deat$, sold a &ro&erty to Basilia
Hulgan@aAs $eirs and %i#e #iled a co"&laint see'ing to re&urc$ase t$e &ro&erty under t$e &rovisions o#
Sec 55I o# 9ublic Land Act 5C5, as a"ended(
Iss%e+ ?DN it is ne&essary that a )or*al o))er to redee* the land in :%estion "e a&&o*panied "y a
"ona )ide tender o) pay*ent' or the rep%r&hase pri&e "e &onsi#ned in &o%rt' .ithin the period o)
rede*ption even i) the ri#ht is e6er&ised thro%#h the )ilin# o) a $%di&ial a&tion.
R%lin#+ NO. 0ere judicial action even %it$out tender o# &ay"ent is su##icient(
T$e #or"al o##er to redee", acco"&anied by a bona #ide tender o# rede"&tion &rice, %it$in t$e
&eriod o# rede"&tion &rescribed by la%, is only essential to &reserve t$e rig$t o# rede"&tion #or #uture
en#orce"ent beyond suc$ &eriod o# rede"&tion and %it$in t$e &eriod &rescribed #or t$e action by t$e
statute o# li"itations(
W$ere, as in t$e instant case, t$e rig$t to redee" is e>ercised t$roug$ t$e #iling o# judicial action
%it$in t$e &eriod o# rede"&tion &rescribed by t$e la%, t$e #or"al o##er to redee", acco"&anied by a bona
#ide tender o# rede"&tion &rice, "ig$t be &ro&er, but is not essential( T$e #iling o# t$e action itsel#, %it$in
t$e &eriod o# rede"&tion, is e7uivalent to a #or"al o##er to redee"(
WHAT IS +ONSIGNATION?
+onsignation, according to Tolentino, is t$e de&osit o# t$e object o# t$e obligation in a co"&etent
court in accordance %it$ rules &rescribed by la%, a#ter t$e tender o# &ay"ent $as been re#used or because o#
circu"stances %$ic$ render direct &ay"ent to t$e creditor i"&ossible or inadvisable(
WHAT A,) TH) *I33),)N+)S B)TW))N T)N*), AN* +ONSIGNATION?
As a general rule, tender and consignation "ust go toget$er( T$ese ; ste&s are intricately
connected, so t$at in general, consignation is not valid %it$out legal tender, and tender is not valid %it$out
consignation( Ho%ever, t$ere are several di##erences<
456 Tender does not e>tinguis$ t$e obligation because tender is "erely &re&aratory to t$e act o#
consignation( It "erely &reserves oneAs rig$ts or o&tions( It is t$e act o# consignation t$at
e>tinguis$es t$e obligation(
4;6 Tender is generally e>tra1judicial 4Ho%ever, suc$ re7uire"ent is "erely directory6 Ho%ever
in t$e case o# consignation, suc$ consignation "ust be judicial( 4T$e only e>ce&tion being B9
HNN %$ic$ says t$at in case o# a lessor1lessee relations$i&, t$e lessee is allo%ed to de&osit t$e
rentals in a ban' account under t$e na"e o# t$e lessor, u&on notice o# t$e lessor(
HC
WHAT IS TH) G)N),AL ,.L) AS ,)GA,*S TH) ,)?.I,)0)NT O3 T)N*), B)3O,)
+ONSIGNATION?
As a general rule, consignation "ust be &receded by a valid tender(
WH)N *O)S +ONSIGNATION 9,O*.+) TH) )33)+T O3 9A/0)NT?
+onsignation &roduces t$e e##ect o# &ay"ent<
456 #ro" t$e "o"ent t$at t$e court a&&roves t$e consignation and orders t$e cancellation o# t$e
obligation8 or
4;6 even be#ore suc$ order, %$en t$e creditor acce&ts t$e &ay"ent(
WH)N T)N*), 9,IO, TO +ONSIGNATION IS NOT ,)?.I,)*, WH)N *O TH) INT),)ST AN*
9,)S+,I9TI:) 9),IO* STO9 ,.NNING?
T$e e##ects o# cessation o# t$e running o# t$e interest and t$e &rescri&tive &eriod are auto"atic
e##ects o# t$e declaration o# t$e validity o# t$e consignation and retroact to t$e date o# actual consignation(
Art. 10( In order that &onsi#nation o) the thin# d%e *ay release the o"li#or' it *%st )irst "e
anno%n&ed to the persons interested in the )%l)ill*ent o) the o"li#ation.
The &onsi#nation shall "e ine))e&t%al i) it is not *ade stri&tly in &onsonan&e .ith the
provisions .hi&h re#%late pay*ent.
Art. 105 Consi#nation shall "e *ade "y depositin# the thin#s d%e at the disposal o) $%di&ial
a%thority' "e)ore .ho* the tender o) pay*ent shall "e proved' in a proper &ase' and the
anno%n&e*ent o) the &onsi#nation in other &ases.
The &onsi#nation havin# "een *ade' the interested parties shall also "e noti)ied
thereo).
SOCO <. BILITANT> 101 SCRA 1!1
@a&ts+
Soco entered into a contract o# lease %$ereby Soco %ill lease $er co""ercial building and lot to
3rancisco #or a "ont$ly rental o# 9HJJ #or a &eriod o# 5J years
3rancisco $ad religiously &aid Soco t$e corres&onding rentals
Ho%ever, beginning 0ay 5INN, 3rancisco $as not "ade valid &ay"ents u&on de"and by Soco
3rancisco contended t$at &ay"ents o# rental t$ru c$ec's %ere "ade to Soco but t$e latter
re#used( He instructed, t$us, $is ban' to "a'e consignation %it$ t$e court(
T$e letter allegedly delivered to Soco in 0ay 5INN did not contain cas$ "oney, c$ec', "oney
orders, etc(
No actual consignation and &rior or subse7uent notice %ere given to Soco
Soco #iled #or eviction
Iss%e+ ?DN the &onsi#nation o) the rentals .as valid
R%lin#+ NO. T$e tenant "ust co"&ly strictly and #ully, not "erely substantially %it$ t$e re7uisites o#
consignation #or t$e sa"e to &roduce t$e e##ects o# &ay"ent
Wit$out t$e notice #irst announced to t$e &ersons interested in t$e #ul#ill"ent o# t$e obligation t$e
consignation as a &ay"ent is void(
S+ $eld t$at 3rancisco #ailed to &rove t$e #ollo%ing re7uisites o# a valid consignation
5
st
1 Tender o# &ay"ent o# "ont$ly rentals to Soco e>ce&t t$at indicated in -une I, 5INN letter
;
nd
2 3irst notice to Soco &rior to consignation e>ce&t &ay"ent re#erred to in )>$ibit 5J
=rd1 Second notice to Soco, t$at is a#ter consignation $as been "ade, e>ce&t t$at re#erred in
)>$ibit 5;
HD
C
t$
1 Actual de&osit or consignation o# t$e "ont$ly rentals e>ce&t t$e ; cas$ierAs c$ec' re#erred to
in )>$ibit 5;
9ur&oseG ,ationale o# Notice 9rior and A#ter +onsignation
a( In order to give t$e creditor an o&&ortunity to reconsider $is unjusti#ied re#usal and to acce&t
&ay"ent t$ereby avoiding consignation and t$e subse7uent litigation 4True to 5
st
Notice6
b( To enable t$e creditor to %it$dra% t$e goods or "oney de&osited( Indeed, it %ould be unjust to
"a'e $i" su##er t$e ris' #or any deterioration, de&reciation or loss o# suc$ goods or "oney by
reason o# lac' o# 'no%ledge o# t$e consignation(
WHAT IS TH) 3I,ST ,)?.I,)0)NT 3O, A :ALI* +ONSIGNATION?
T$e #irst re7uire"ent is t$e e>istence o# a valid debt %$ic$ is already due( In ot$er %ords, t$ere
"ust be an obligation to &ay(
T$e #irst 7uestion to as' t$en is t$is< Is t$ere an e>ercise o# a rig$t or &rivilege, or t$e disc$arge o#
an obligation? It is i"&ortant to as' t$is 7uestion because #or t$e &ur&oses o# a valid consignation, o&tions
and rig$t are not considered debts( T$us, i# t$ere is only a rig$t or &rivilege, valid tender %ill be su##icient
to entitle t$e &erson to suc$ rig$t or &rivilege( Ho%ever, t$e rig$ts over t$e &ro&erty in t$e case o# rig$ts
and o&tions are ac7uired only u&on actual &ay"ent or t$e co"&letion o# t$e consignation( I# t$ere is a debt,
tender and consignation are necessary to release t$e debtor #ro" t$e obligation( +o"&are t$e situation
%$ere tender is su##icient to t$ose situations %$ere consignation %it$out tender is su##icient(
3or e>a"&le, i# +y enters into a contract %it$ Angel %$ereby u&on &ay"ent o# 9M,JJJ to Angel,
+y %ould $ave t$e rig$t to cancel t$e sa"e, %$at is involved?
A rig$t, not an obligation, is involved( T$ere#ore, tender %ould be su##icient to entitle +y to
cancellation(
WHAT IS TH) S)+ON* ,)?.I,)0)NT 3O, A :ALI* +ONSIGNATION?
T$e second re7uire"ent is a &rior valid tender unless t$e case #alls %it$in one o# t$e e>ce&tions
given in Art( 5;DM( I# t$e reason #or consignation is t$e unjust re#usal o# t$e creditor to acce&t &ay"ent,
suc$ unjust re#usal %ill be establis$ed by s$o%ing<
456 t$at t$ere %as a &revious tender o# &ay"ent8
4;6 t$at t$e tender o# &ay"ent %as o# t$e very t$ing due or, in case o# "oney obligation, t$at legal
currency %as o##ered8
4=6 t$at t$e tender o# &ay"ent %as unconditional8
4C6 t$at t$e creditor re#used to acce&t &ay"ent %it$out just cause(
According to Tolentino, at t$e ti"e t$e de&osit is "ade, it is not necessary #or t$e debtor to s$o%
t$e insu##iciency o# cause #or t$e re#usal o# t$e creditor( Suc$ #act "ay be establis$ed during t$e $earing o#
t$e case(
WHAT IS TH) THI,* ,)?.I,)0)NT?
T$ere "ust be &revious notice by t$e debtor to t$e ot$er &arties %$o are interested in t$e
obligation( T$e &ur&ose o# t$is notice &rior to t$e #iling o# t$e consignation in court is to enable t$e creditor
and &arties interested 4suc$ as t$e "ortgages, &ledges, guarantors, solidary co1creditors and solidary co1
debtors6 to reconsider t$e &revious re#usal8 and t$us avoid litigation by t$e si"&le e>&edient o# acce&ting
&ay"ent(
Note t$at in cases #alling %it$in t$e &urvie% o# B9HNN 4rental %$ic$ are de&osited in t$e ban'6,
&rior notice to t$e &ersons interested is also essential( T$us, in Valdellon v. Tengco, %$ere t$e lessee
continued to de&osit $is rentals to t$e +A %it$out giving any notice to t$e lessor, $is de&osits %ere
considered invalid consignation( 3urt$er"ore t$e +A %as no longer t$e &ro&er entity to receive t$e de&osits
since t$e case $as already been re"anded to t$e +ity +ourt(
<ALD>LLON <. T>NGCO 141 SCRA 101
@a&ts+
:aldellon, u&on a verbal agree"ent to &ay a "ont$ly rental to t$e original o%ner, constructed
$is $ouse on t$e lot in 7uestion
HM
Geralde@ $ad boug$t t$e lot and t$us noti#ied :aldellon to vacate t$e &re"ises( T$ey also
de"and &ay"ent o# "ont$ly rental until :aldellon $ave actually vacated t$e land
:aldellon re#used to vacate
*uring t$e &endency o# t$e case, :aldellon $as been de&ositing $is "ont$ly rentals
T$e +A ruled in #avor o# Geralde@ 8 +AAs rule beca"e #inal
:aldellon o##ered to &ay rentals #or A&ril, 0ay and -une 5INI
Geralde@ re#used to acce&t &ay"ent

Iss%e+ ?DN the &onsi#nation .as proper
R%lin#+ NO. 3or consignation to be valid, t$e notice re7uire"ents "ust be co"&lied %it$11Art 5;DN, &re1
consignation notice and Art( 5;DH, &ost1cogsignation notice(
*e&osit o# rentals in t$e +A a#ter t$at court $ad already rendered a #inal decision in a &rior
eject"ent case bet%een t$e &arties is ine##ectual as consignation(
9etitioner %as undoubtedly a%are o# t$e #act t$at t$e case &ending bet%een $i" and res&ondents
in said a&&ellate court $ad already been ter"inated and t$ere#ore, t$ere %as no justi#iable cause #or $i" to
continue "a'ing said de&osits in t$at court as &rivate res&ondents $ad in #act so advised &etitioners by
letter on 3eb 5I, 5INJ(!
Note< B9 HNN s&eci#ically directs t$at notice o# t$e de&osit s$ould t$erea#ter be given to t$e &erson
in %$ose #avor suc$ de&osits are "ade(
WHO A,) TH) 9),SONS INT),)ST)* IN TH) OBLIGATION?
T$e &erson "ost interested in t$e obligation is, o# course, t$e creditor( Ot$er &ersons interested in
t$e obligation are t$ose &ersons %$o %ould be &rejudiced by t$e non1#ul#ill"ent o# t$e obligation, suc$ are
guarantors and sureties(
0.ST TH) +,)*ITO, TH)N, B) NOTI3I)*?
T$e courts $ave consistently $eld 4borro%ing *ean del +astilloAs %ords6 t$at t$e re7uire"ent o#
&rior notice does not a&&ly to t$e creditor any"ore because t$e tender is su##icient notice( ,e"e"ber to
t$at i# no tender is necessary because t$e case is any o# t$ose enu"erated in Art( 5;DM, noti#ication is
li'e%ise e>cused( 4A#ter all, i# you couldnAt #ind t$e creditor %$en you %anted to &ay $i", $o% do you
e>&ect to #ind $i" no%?6
To t$ose &oor souls disturber by TolentinoAs re"ar' t$at lac' o# &rior notice does not invalidate t$e
consignation, but si"&ly "a'es t$e debtor liable #or t$e e>&enses incurred t$ereby, your %orries are over(
T$e con#lict as -(-( Laurel %ould say, is only a&&arent, not real( Tolentino "ade t$is conclusion based on
case involving rig$ts and o&tions 2 not debts( T$us, t$e rules on consignation necessarily did not a&&ly to
suc$ cases(
WHAT IS TH) 3O.,TH ,)?.I,)0)NT?
T$e debtor #iles t$e action #or action in court(
T$is ste& is initiated by #iling a co"&laint #or consignation, %it$ t$e debtor as &lainti## and t$e
creditor as de#endant, %it$ a &rayer to co"&el t$e creditor to acce&t t$e object consigned( In case o# real
&ro&erty, it is unnecessary 4and i"&ossible, really6 to de&osit suc$ %it$ t$e judicial aut$orities( Ho%ever, it
is still &ossible to consign real &ro&erty because, going bac' to our de#inition, %$at is necessary is t$at t$e
debtor &laces suc$ &ro&erty at t$e dis&osal o# t$e judicial aut$ority( W$en t$e obligation consists in t$e
&ay"ent o# a su" o# "oney, currency %$ic$ is legal tender "ust be de&osited %it$ t$e court( /ou "ust
a&&ly all t$e rules o# &ay"ent to your de&osit(
WHAT IS TH) 3I3TH ,)?.I,)0)NT?
Subse7uent notice "ust be given to t$ose &ersons interested in t$e obligation to in#or" t$e" t$at
t$e action #or consignation $as been #iled( T$e subse7uent notice $ere re#ers to t$e se&arate notices 4service
o# su""ons6 to be given to t$ese &ersons, ot$er t$an t$e creditor, %$o are interested in t$e obligation( T$e
creditor is dee"ed noti#ied o# t$e consignation u&on service o# t$e su""ons 4%$ic$ co"&els $i" to ans%er
t$e co"&laint6, and t$e co"&laint itsel#( Wit$out t$is re7uisite, t$e consignation %ill be void(
HN
WHAT 0A/ HA99)N A3T), TH) +ONSIGNATION?
T$ere are t$ree &ossibilities<
456 T$e creditor "ay acce&t t$e t$ing or a"ount de&osited, in %$ic$ case t$e "atter o# &ay"ent is
ter"inated(
4;6 He "ay re#use to acce&t t$e t$ing or a"ount, in %$ic$ case a trial "ust be $ad to deter"ine
t$e validity o# t$e consignation(
4=6 He "ay neit$er acce&t nor re#use, in %$ic$ case t$e debtor "ay as' t$e court to cancel t$e
obligation a#ter s$o%ing t$at t$e re7uisites o# consignation $ave been co"&lied %it$(
WHAT IS TH) SIFTH ,)?.I,)0)NT?
A $earing on t$e "erits to deter"ine<
456 W$et$er or not t$ere $as been a valid tender and an unjusti#iable re#usal and8
4;6 W$et$er t$e &rocedure #or consignation $as been &ro&erly #ollo%ed(
WHAT IS S):)NTH ,)?.I,)0)NT?
I# t$e court #inds t$at t$e ans%er to 456 and 4;6 above are co"&lied, it can "a'e a declaration t$at
t$e consignation $as been &ro&erly "ade and order t$e cancellation o# t$e obligation( T$is order is %$at
%ill e>tinguis$ t$e obligation(
WHAT I3 AT TH) H)A,ING, TH) +O.,T 3IN* 456 AN* 4;6 NOT TO B) IN O,*),?
T$e debtor s$all revert to $is original condition be#ore $e "ade t$e tender and consignation( He
s$all be considered in delay o# &ay"ent #ro" t$e ti"e t$e debt is due, and t$e &rescri&tion &eriod %ill
continue to run(
Art. 108 The e6penses o) &onsi#nation' .hen properly *ade' shall "e &har#ed a#ainst the
&reditor.
Art. 10!9 On&e the &onsi#nation has "een d%ly *ade' the de"tor *ay as7 the $%d#e to order
the &an&ellation o) the o"li#ation.
Be)ore the &reditor has a&&epted the &onsi#nation' or "e)ore a $%di&ial de&laration
that the &onsi#nation has "een properly *ade' the de"tor *ay .ithdra. the thin# or the
s%* deposited' allo.in# the o"li#ation to re*ain in )or&e.
0A/ TH) *)BTO, WITH*,AW TH) THING +ONSIGN)* B)3O,) TH) +O.,TAS
*)+LA,ATION O, B)3O,) TH) A++)9TAN+) B/ TH) +,)*ITO, O3 TH) A0O.NT?
/es( A#ter all, t$e debtor is still t$e o%ner o# t$e t$ing or a"ount de&osited, and by %it$dra%ing
suc$ t$ing or a"ount, t$e debtor is "erely e>ercising $is rig$t( A#ter t$e courts declaration, $o%ever, or
acce&tance by t$e creditor o# t$e &ay"ent, t$e debtor can no longer %it$dra% t$e a"ount because t$e
a"ount or t$ing no longer belongs to $i"( In case o# %it$dra%al by t$e debtor, $e bears t$e e>&enses o#
consignation(
R>IS>NB>CG <. COERT O@ APP>ALS 098 SCRA !!
@a&ts+
,eisenbec' #iled %it$ ,T+ a co"&laint #or consignation and da"ages against 0aile
He consigned and de&osited %it$ cler' o# court o# t$e ,T+ t$e su" o# 955=,NJJ
0aile #iled a 0ani#estation Acce&ting +onsignation %it$out necessarily ad"itting t$e
correctness o# t$e obligation! o# ,eisenbec' to $i"(
Iss%e+ ?DN the a&&eptan&e o) &onsi#nation .ith reservation is valid.
R%lin#+ F>S. T$ere is aut$ority #or t$e vie% t$at be#ore a consignation can be judicially declared &ro&er8
t$e creditor "ay &revent t$e %it$dra%al o# t$e a"ount consigned by t$e debtor, by acce&ting t$e
consignation, even %it$ reservations( 4Tolentino6
HH
W$en t$e creditorAs acce&tance o# t$e "oney consigned is conditional and %it$ reservations, $e is
not dee"ed to $ave %aived t$e clai" $e reserved against $is debtor( t$us, %$en t$e a"ount consigned does
not cover t$e entire obligations, t$e creditor "ay acce&t it, reserving $is rig$t to t$e balance 4Tolentino6
As res&ondent1creditorAs acce&tance o# t$e a"ount consigned %as %it$ reservation, it did not
co"&letely e>tinguis$ t$e entire indebtedness o# t$e &etitioner1debtor( It is a&&osite to note t$at
consignation is co"&leted at t$e ti"e t$e creditor acce&ts t$e sa"e %it$out objections, or, i# $e objects, at
t$e ti"e t$e court declares t$at it $as been validly "ade in accordance %it$ la%( 4Tolentino6
T$e consignation $as retroactive e##ect( T$e &ay"ent is dee"ed to $ave been "ade at t$e ti"e o#
t$e de&osit o# t$e "oney in court, or %$en it %as &laced at t$e dis&osal o# t$e judicial aut$ority(
Art. 10!1 I)' the &onsi#nation havin# "een *ade' the &reditor sho%ld a%thoriAe the de"tor to
.ithdra. the sa*e' he shall lose every pre)eren&e .hi&h he *ay have over the thin#. The
&o3de"tors' #%arantors and s%reties shall "e released.
WHAT IS TH) )33)+T O3 +ONS)NT B/ TH) +,)*ITO, ON TH) WITH*,AWAL?
3irst o# all, 'ee& in "ind t$at t$is re#ers to consent by t$e creditor to t$e %it$dra%al be#ore t$e
courtAs declaration o# t$e e>istence o# a valid consignation and be#ore t$e creditorAs acce&tance( In ot$er
%ords, at t$is &oint, t$e creditor need not consent( But i# $e does, t$e e##ect is t$at t$e creditor loses
%$atever rig$t o# &re#erence $e $as 4i# $e $as any6, and t$e co1debtors, guarantors and sureties s$ould be
released
WHAT IS TH) ,ATIONAL) 3O, S.+H )33)+T?
T$e creditor loses $is &re#erence because t$e object %as already consigned and i# suc$
consignation $ad subse7uently been declared valid, t$e creditor %ould $ave $ad &re#erence( His
aut$ori@ation a"ounts to a %aiver o# t$e &re#erence( As to t$e release o# t$e guarantors, sureties and co1
debtor, suc$ is only a logical conse7uence since t$e debtor, by %it$dra%ing t$e action #or consignation,
i"&oses u&on suc$ &ersonAs additional ris'(
WHAT 0.ST TH) +,)*ITO, *O TH)N TO 9,)S),:) HIS ,IGHTS?
T$e creditor "ust object to t$e %it$dra%al to &reserve $is rig$t o# &re#erence to &ay"ent and to
&reserve t$e accessory obligations(
+AN TH) *)BTO, OB-)+T TO TH) WITH*,AWAL B/ TH) +,)*ITO,? I3 SO, 3O, WHAT
,)ASON?
T$e only reason %$y t$e debtor "ay object, tec$nically, is i# t$e acce&tance o# t$e creditor o# t$e
t$ing consigned is conditional( A#ter all, t$e debtor #iled t$e action #or consignation to co"&el t$e debtor to
acce&t &ay"ent, so nor"ally, t$e debtor %ould not object to t$e creditorAs acce&ting suc$ &ay"ent(
3or e>a"&le, i# creditor 3erdie acce&ts t$e 95J,JJJ consigned by debtor +y, but says, %it$ one
eyebro% raised, t$at $e %ill acce&t suc$ a"ount only u&on condition t$at +y %ill still &ay interest, t$en +y
"ay validly object to suc$ acce&tance(
WHAT IS TH) )33)+T O3 TH) LOSS O3 TH) THING O, A0O.NT +ONSIGN)*?
Loss or deterioration o# t$e t$ing or a"ount consigner occurring %it$out t$e #ault o# t$e debtor,
granted t$at t$e consignation is valid, is borne by t$e creditor( Any suc$ loss or deterioration t$roug$ t$e
#ault o# t$e debtor is borne by $i"( Also, i# t$e consignation %as invalid, t$e loss is li'e%ise borne 4Wit$
"ore reason6 by t$e debtor, no "atter %$at t$e reason #or suc$ loss or deterioration "ay be, since $e $ad no
rig$t to consign t$e object(
I# t$e consignation %as valid and t$e object is lost t$roug$ t$e #ault o# t$e court or t$e #ault o# t$e
s$eri## or anyone %$o is in &ossession o# suc$ object, t$e creditor assu"es %$atever action t$e debtor "ay
ta'e against t$e judge, s$eri##, or %$oever(
HOW ABO.T AN IN+,)0)NT O, IN+,)AS) IN TH) :AL.) O3 TH) THING?
Granted t$at t$e consignation is valid, suc$ incre"ent or increase inures to t$e bene#it o# t$e
creditor(
T$ese re7uisites are not a&&licable to t$e de&osit o# t$e a"ount o# a judg"ent in court(
HI
Se&. 0 L Loss o) the Thin# D%e
Art. 10!0. An o"li#ation .hi&h &onsists in the delivery o) a deter*inate thin# shall "e
e6tin#%ished i) it sho%ld "e lost or destroyed .itho%t the )a%lt o) the de"tor' and "e)ore he
has in&%rred in delay.
?hen "y la. or stip%lation' the o"li#or is lia"le even )or )ort%ito%s events' the loss
o) the thin# does not e6tin#%ish the o"li#ation' and he shall "e responsi"le )or da*a#es. The
sa*e r%le applies .hen the nat%re o) the o"li#ation re:%ires the ass%*ption o) ris7.
WH)N IS TH),) LOSS?
In obligations TO GI:)< Art( 55HI4;6 &rovides t$at > > it is understood t$at t$e t$ing is lost
%$en it &eris$es, or goes out o# co""erce, or disa&&ears in suc$ a %ay t$at its e>istence is un'no%n or it
cannot be recovered(!
It "eans t$at aside #ro" t$e destruction o# t$e t$ing due, its disa&&earance by loss, t$e#t, or
robbery, t$at is to say its non1e>istence in t$e $ands o# t$e obligor or %$en, t$roug$ any cause, t$e
co"&liance o# t$e obligation beco"es i"&ossible(
In obligation TO *O and NOT TO *O< Art( 5;MM &rovides t$at T$e debtor in obligations to s$all
also be released %$en t$e &restations beco"es legally or &$ysically i"&ossible %it$out t$e #ault o# t$e
obligor(!
T$ere#ore, in obligation to do and not to do loss! "eans t$e i"&ossibility o# t$e &er#or"ance(
AS A G)N),AL ,.L), WHAT HA99)NS I3, *.,ING TH) 9)N*)N+/ O3 TH) +ON*ITION, TH)
THING IS LOST TH,O.GH TH) 3A.LT O3 TH) *)BTO,?
T$e debtor s$all be obliged to &ay da"ages a"ounting to t$e value o# &ro&erty lost, in addition to
ot$er da"ages incurred u&on t$e creditor, as &rovided in Art( 55HI4;6(
WHAT HA99)NS I3, *.,ING TH) 9)N*)N+/ O3 TH) +ON*ITION, TH) THING IS LOST
WITHO.T TH) 3A.LT O3 TH) *)BTO,?
I# t$e t$ing is lost %it$out t$e #ault o# t$e debtor, t$e obligation s$all be dee"ed e>tinguis$ed as
&rovided by Art( 55HI456
WHAT A,) TH) ,)?.ISIT)S SO THAT LOSS 0A/ )FTING.ISH TH) OBLIGATION AN*
)F)09T TH) OBLIGO, 3,O0 AN/ 3.,TH), LIABILIT/?
456 T$e t$ing lost "ust be deter"inate(
Art( 5;M; &rovides t$at An obligation %$ic$ consists in t$e delivery o# a deter"inate t$ing
s$all be e>tinguis$ed i# it s$ould be lost or destroyed %it$out t$e #ault o# t$e debtor, and
be#ore $e $as incurred in delay(!
4;6 T$e obligor "ust not be at #ault 4cul&a6 2
Art( 55M= &rovides t$at )very &erson obliged to give so"et$ing is also obliged to ta'e care
o# it %it$ t$e &ro&er diligence o# a good #at$er o# a #a"ily > >!
Art( 55NJ also &rovides t$at T$ose %$o in t$e &er#or"ance o# t$eir obligations are guilty o#
#raud, negligence, or delay, and t$ose %$o in any "anner contravene t$e tenor t$ereo#, are
liable #or da"ages(!
Note t$at Art( 5;MD &rovides t$at t$e burden or &roving t$at t$e loss occurred %it$out t$e
obligorAs #ault rests u&on $i"sel#(
4=6 T$e obligor "ust not incure in delay 4"ora6
Art( 55MD &rovides t$at > > i# t$e obligor delays > > $e s$all be res&onsible #or any #ortuitous
event until $e $as e##ected t$e delivery(!
4C6 T$e obligor "ust not act in bad #ait$ 4dolo6
Art( 55MD also &rovides t$at > > i# t$e obligor > > $as &ro"ised to deliver t$e sa"e t$ing to
t%o or "ore &ersons %$o do not $ave t$e sa"e interest, $e s$all be res&onsible #or any
#ortuitous event until $e $as e##ected t$e delivery(!
IJ
WHAT A,) TH) )F+)9TIONS TO TH) ,.L) THAT LOSS O3 TH) *)T),0INAT) OB-)+T B/
3O,T.ITO.S ):)NT )FTING.ISH)S TH) OBLIGATION?
Art( 55NC &rovides t$e t$ree e>ce&tions<
456 e>&ressly s&eci#ied by la%, or %$en
4;6 It is ot$er%ise declared by sti&ulation o# t$e &arties, or %$en
4=6 T$e nature o# t$e obligation re7uires t$e assu"&tion o# ris'(

A,) STI9.LATIONS STATING THAT A *)BTO, SHALL ,)0AIN LIABL) ):)N IN TH)
O++.,,)N+) O3 A LOSS B/ 3O,T.ITO.S ):)NT :ALI*?
/)S( Art( 55NC &er"its t$e"(
WHAT 9,O:ISIONS O3 LAW HOL* A *)BTO, LIABL) IN +AS)S O3 LOSS *.) TO
3O,T.ITO.S ):)NT?
456 Art( 55NJ and Art 55MD4=6 &rovides t$at even i# t$e loss s$ould occur by reason o# #ortuitous
event, i# t$e obligor is in delay, $e is not e>e"&t #ro" liability(
4;6 Art( 55MD4=6 &rovides t$at an obligor %$o $as &ro"ised to deliver t$e sa"e t$ing to t%o or
"ore &ersons s$all in any case be res&onsible #or any #ortuitous event( T$ere is obviously
#raudulent design $ere(
4=6 Art( 5JC o# t$e ,evised 9enal +ode &rovides t$at t$e civil liability incurred by t$e
co""ission o# cri"inal acts includes restitution, loss o# t$e t$ing to be delivered due to a
#ortuitous event does not e>tinguis$ t$e obligation o# t$e o##ender(
Also, Art( 5;MH o# t$e +ivil +ode &rovides t$at W$en t$e debt o# a t$ing certain and
deter"inate &roceeds #ro" a cri"inal o##ense, t$e debtor s$all not be e>e"&ted #ro" t$e
&ay"ent o# its &rice, %$atever "ay be t$e cause #or t$e loss, unless t$e t$ing $aving been
o##ered by $i" to t$e &erson %$o s$ould receive it, t$e latter re#used %it$out justi#ication to
acce&t it(!
4C6 Art( 5CI; &rovides t$at T$e bailee is liable #or t$e loss o# t$e t$ing, even i# it s$ould be
t$roug$ a #ortuitous event<
a( I# $e devotes t$e t$ing to any &ur&ose di##erent #ro" t$at %$ic$ it $as been loaned8
b( I# $e 'ee&s it longer t$an t$e &eriod sti&ulated, or a#ter t$e acco"&lis$"ent o# t$e
use #or %$ic$ t$e co""odatu" $as been constituted8
c( I# t$e t$ing loaned $as been delivered %it$ a&&raisal o# its value, .NL)SS t$ere is a
sti&ulation e>e"&ting t$e bailee #ro" res&onsibility in case o# a #ortuitous event8
d( I# $e lends or leases t$e t$ing to a t$ird &erson, %$o is not a "e"ber o# $is
$ouse$old8
e( I#, being able to save eit$er t$e t$ing borro%ed or $is o%n t$ing, $e c$ose to save t$e
latter(!
*ean del +astillo also e>&lains t$at as a general rule in a contract o# co""odatu" 4a
gratuitous contract %$ere one o# t$e &arties delivers to anot$er so"et$ing not consu"able
so t$at t$e latter "ay use t$e sa"e #or a certain ti"e and return it6 loss by #ortuitous event
also e>tinguis$es t$e obligation( S$e did "ention letters 4c6 and 4d6 as e>ce&tions to t$is
general rule( 3or our &ur&oses, it is sa#e to consider 4a6, 4b6 and 4e6 as e>ce&tions, too(
Art. 10!1. In an o"li#ation to deliver a #eneri& thin#' the loss or destr%&tion o) anythin# o)
the sa*e 7ind does not e6tin#%ish the o"li#ation.
IN AN OBLIGATION TO *)LI:), A G)N),I+ THING, *O)S LOSS B/ 3O,T.ITO.S ):)NT
)FTING.ISH TH) OBLIGATION?
Art( 5;M= &rovides t$at In an obligation to deliver a generic t$ing, t$e loss or destruction o#
anyt$ing o# t$e sa"e 'ind does not e>tinguis$ t$e obligation(!
As long as t$ere are t$ings o# t$e 'ind sti&ulated, %$et$er or not t$ey are &ossessed by t$e obligor,
t$e obligation subsists, because t$e generic objects are not considered lost( Genus nun7ua" &erit( 4T$e
genus never &eris$es(6
,e"e"ber t$at an obligation to &ay "oney is generic( 3ailure to raise #unds is not a de#ense(
I5
3or e>a"&le, A obtained a loan #ro" a ban'( As security, A e>ecuted a "ortgage on $is cro&s( T$e
cro&s $o%ever, %ere destroyed by t$e -a&s during t$e %ar( Is $e still liable?
/)S( A is still liable #or $is obligation %as not to deliver deter"inate t$ings, t$e cro&s, but to
deliver a generic t$ing, "oney( 4,e&ublic o# t$e 9$ili&&ines v( Grijaldo6
IS TH),) AN )F+)9TION TO THIS ,.L)?
T$is rule $as an e>ce&tion in %$at is 'no%n in Ger"an la% as a deli"ited generic obligations(
.nder t$is e>ce&tion, %$en t$ere is a li"itation o# t$e generic object to a &articular e>isting "ass or a
&articular grou& or o# t$ings, t$e obligation is e>tinguis$ed by t$e loss o# t$e &articular "ass or grou& or
li"ited 7uantity #ro" %$ic$ t$e &restation $as to be ta'en, or by t$e i"&ossibility o# getting #ro" it t$e
t$ings #or t$e &restation(
3or e>a"&le, %$en a &erson is obliged to deliver t$e #irst DJ cavans o# rice #ro" $is $arvest, and
t$e $arvest is destroyed by #ortuitous event, or to deliver 5J $eads o# cattle #ro" $is stoc', and all $is cattle
&eris$ %it$out $is #ault, t$e obligation is e>tinguis$ed and it is not necessary #or t$e debtor to get rice or
cattle o# t$e sa"e 'ind #ro" t$e o&en "ar'et #or delivery to t$e cattle(
3urt$er"ore, in t$e above e>a"&les, a#ter DJ cavans o# rice or 5J $eads o# cattle $ave been
individuali@ed and segregated #ro" t$e rest, and t$is is "ade 'no%n to t$e creditor %$o agrees to t$e",
t$ey beco"e deter"inate objects8 i# t$ey are t$erea#ter lost %it$out #ault o# t$e debtor, t$e obligation is
e>tinguis$ed, even i# t$e debtor $as ot$er rice or cattle( 4Tolentino6
Art. 10!4. The &o%rts shall deter*ine .hether' %nder the &ir&%*stan&es' the partial loss o)
the o"$e&t o) the o"li#ation is so i*portant as to e6tin#%ish the o"li#ation.
IS TH) LOSS WHI+H WILL GI:) ,IS) TO TH) )FTING.ISH0)NT N)+)SSA,IL/ TOTAL?
NO( Art( 5;MC &rovides t$at T$e courts s$all deter"ine %$et$er, under t$e circu"stances, t$e
&artial loss o# t$e object o# t$e obligation is so i"&ortant as to e>tinguis$ t$e obligation(!
Ordinarily, &artial loss does not e>tinguis$ t$e obligation8 t$e t$ing s$ould be delivered to t$e
creditor in its i"&aired condition, %it$out any liability #or da"ages on t$e &art o# t$e debtor(
But, i# t$e &ortion t$at is lost is o# suc$ an e>tent or nature t$at t$e obligation %ould not $ave been
constituted %it$out it, t$en t$e obligation is e>tinguis$ed( T$us, in a sale o# a $ouse and lot, %$ere t$e
$ouse is accidentally destroyed by #ire, t$e obligation subsists i# t$e $ouse is negligible in value and t$e lot
%as t$e "ain object o# t$e sale, but t$e obligation is e>tinguis$ed i# t$e ac7uisition o# t$e $ouse %as t$e
&rinci&al &ur&ose o# t$e buyer(
T$e intention o# t$e &arties is t$e controlling #actor in t$e solution o# eac$ case o# &artial loss(
4Tolentino6
Art. 10!. ?henever the thin# is lost in the possession o) the de"tor' it shall "e pres%*ed
that the loss .as d%e to his )a%lt' %nless there is proo) to the &ontrary' and .itho%t pre$%di&e
to the provisions o) Art. 11!. This pres%*ption does not apply in &ase o) earth:%a7e' )lood'
stor* or other nat%ral &ala*ity.
WHAT IS TH) 9,)S.09TION WITH ,)S9)+T TO LOSS?
Art( 5;MD &rovides t$at W$enever t$e t$ing is lost in t$e &ossession o# t$e debtor, it s$all be
&resu"ed t$at t$e loss %as due to $is #ault, .NL)SS t$ere is &roo# to t$e contrary, and %it$out &rejudice to
t$e &rovisions o# Art( 55MD( > >!
Here, t$e burden o# e>&laining t$e loss o# a t$ing in t$e &ossession o# t$e debtor rests u&on t$e
latter(
WH)N IS THIS 9,)S.09TION INA99LI+ABL)?
Art( 5;MD &rovides t$at > > t$is &resu"&tion does not a&&ly in case o# eart$7ua'e, #lood, stor" or
ot$er natural cala"ity(!
In cases li'e t$ese, $e %$o alleges t$e loss due to t$e debtorAs #ault "ust &rove suc$ #ault(
I;
WHAT ABO.T A++I*)NTAL +ALA0ITI)S OTH), THAN )A,TH?.AB)S, 3LOO*S O,
STO,0S?
Art( 5;MD "ust be construed in relation to Art( 5;M; 4An obligation > > s$all be e>tinguis$ed i# it
s$ould be lost or destroyed %it$out #ault o# t$e debtor > >6 T$us, %$ere it is #ound, and t$e #act is
undis&uted, t$at t$e #ire %$ic$ destroyed t$e t$ing %as accidental, t$is is e7uivalent to a #inding t$at t$e
#ire %as not attributable to t$e #ault o# t$e de#endant and negatives t$e very idea o# negligence on $is &art
%it$ re#erence to t$e origin o# t$e #ire(
Alt$oug$ t$is it not a natural cala"ity, t$ere %ould be a casus #ortuitus as %ould e>e"&t t$e
de#endant #ro" liability(
WHAT I3 TH) +A.S) O3 TH) LOSS IS .NBNOWN?
T$e a#oresaid &resu"&tion &revails(

Art. 10!!. The de"tor in o"li#ations to do shall also "e released .hen the prestation
"e&o*es le#ally or physi&ally i*possi"le .itho%t the )a%lt o) the o"li#or.
Art. 10!(. ?hen the servi&e has "e&o*e so di))i&%lt as to "e *ani)estly "eyond the
&onte*plation o) the parties' the o"li#or *ay also "e released there)ro*' in .hole or in
part.
IN OBLIGATIONS TO *O AN* NOT TO *O, WH)N SHALL TH) *)BTO, B) ,)L)AS)*?
Art( 5;MM &rovides t$at > > in obligations to do 4t$e obligor6 s$all be released #ro" t$e &restation
beco"es legally or &$ysically i"&ossible %it$out t$e #ault o# t$e obligor(!
In &lace o# loss by #ortuitous event, t$e "ore a&&ro&riate ter" in cases o# obligations to do and not
to do is i"&ossibility o# &er#or"ance(
WH)N SHO.L* TH) I09OSSIBILIT/ )FIST?
Art( 5;MM re#ers to an i"&ossibility %$ic$ arise a#ter t$e obligation $as been constituted(
T$ere is a distinction bet%een i"&ossibility e>isting at t$e ti"e t$e obligation is constituted,
%$ic$ brings about t$e nullity o# t$e contract, and i"&ossibility %$ic$ su&ervenes at t$e ti"e o#
&er#or"ance, %$ic$ brings about a "odi#ication or e>tinguis$"ent o# t$e obligation, de&ending on %$et$er
or not it is i"&utable to t$e debtor(
3or e>a"&le, +$arles sold a $al#1interest in $is "otorboat to B( It %as agreed t$at t$e &rice to be
&aid by B %ould be used in installing a "otor on t$e vessel( Later, t$e vessel %as destroyed by a #ortuitous
event( Is BAs obligation to &ay t$e &rice e>tinguis$ed?
NO( B "ust still &ay because $is obligation is generic( T$is is so even i# t$ere is no "ore use o#
installing t$e "otor since t$e boat $as already been destroyed by t$e #ortuitous event( It s$ould be noted
t$at it is not t$e &aying t$at $as beco"e i"&ossible( T$us, t$e obligation re"ains(
WHAT IS 9H/SI+AL AN* L)GAL I09OSSIBILIT/?
T$ere is &$ysical i"&ossibility %$en t$e act by reason o# its nature cannot be acco"&lis$ed(
3or e>a"&le, in an obligation to &aint a &articular building, i# t$e building is ra@ed to t$e ground
by an eart$7ua'e be#ore t$e %or' can be begun, t$ere is &$ysical i"&ossibility t$us "a'ing t$e obligation
e>tinguis$ed(
*ean del +astillo $as t$e "ore "orbid e>a"&le o# a &ainter $aving $is $ands cut o## be#ore
&ainting a &ortrait(
T$ere is legal i"&ossibility %$en t$e act, by reason o# a subse7uent la%, is &ro$ibited(
3or e>a"&le, in an obligation to render services as an entertainer in a nig$t club, a subse7uent la%
or ordinance &ro$ibits t$e e"&loy"ent o# entertainers in nig$t clubs, t$e obligation "ay also be
e>tinguis$ed as it is legally i"&ossible to &er#or" t$e obligation(
WHAT IS 0O,AL I09OSSIBILIT/?
*ean del +astillo %ould li'e to distinguis$ legal #ro" "oral i"&ossibility( T$e di##erence %ould
be bet%een t$e degree o# i"&ossibility and intent or &ur&ose o# t$e &arties( I# an obligation %as rendered
i"&ossible to &er#or" it is a legal i"&ossibility( Ho%ever, i# an obligation %as rendered di##icult by la%
I=
&assed and suc$ di##iculty could not $ave been #oreseen by t$e &arties, t$ere is "oral i"&ossibility( It is
basically an additional burden &laced u&on t$e &arties in t$e &er#or"ance o# t$e obligation(
In deter"ining %$et$er or not t$ere is a "oral i"&ossibility, t$e circu"stances concerning
inserviceablility and di##iculty to &er#or" t$e obligation "ust be considered(
IS TH),) S.+H A THING AS T)09O,A,/ I09OSSIBILIT/?
/)S( Te"&orary obstacles to t$e &er#or"ance o# t$e &restation, %$ic$ "ay be e>&ected to
disa&&ear in t$e near #uture, do not e>tinguis$ t$e obligation, but "erely delay its #ul#ill"ent .NL)SS by
its nature or by t$e %ill o# t$e &arties it $as to be &er#or"ed at a deter"inate ti"e(
But i# t$e obstacles are o# an un'no%n and un#oreseen duration, t$e obligation "ay be considered
juridically i"&ossible o# &er#or"ance8 it is e>tinguis$ed, and is not revived by t$e #act t$at it beco"es
&ossible later %$en circu"stances c$ange( 4Tolentino6

Art. 10!5. ?hen the de"t o) a thin# &ertain and deter*inate pro&eeds )ro* a &ri*inal
o))ense' the de"tor shall not "e e6e*pted )ro* the pay*ent o) its pri&e' .hatever *ay "e
the &a%se )or the loss' %nless the thin# havin# "een o))ered "y hi* to the person .ho sho%ld
re&eive it' the latter re)%sed .itho%t $%sti)i&ation to a&&ept it.
Art. 10!8. The o"li#ation havin# "een e6tin#%ished "y the loss o) the thin#' the &reditor
shall have all the ri#hts o) a&tion .hi&h the de"tor *ay have a#ainst third persons "y reason
o) the loss.
WHAT I3 TH) LOSS IS *.) TO A THI,* 9),SONAS 3A.LT?
Art( 5;MI &rovides t$at T$e obligation $aving been e>tinguis$ed by t$e loss o# t$e t$ing, t$e
creditor s$all $ave t$e rig$ts o# action %$ic$ t$e debtor "ay $ave against t$ird &ersons by reason o# t$e
loss(!
T$is "eans t$at i# t$e loss is due to t$e act o# a t$ird &ersons #or %$ic$ t$e debtor is not
res&onsible, suc$ loss e>tinguis$es t$e obligation( But t$e debtorAs rig$ts to t$at t$ird &erson are subrogated
to t$e creditor( T$e article re#ers not only to t$e tig$ts and actions %$ic$ t$e debtor "ay $ave against t$ird
&ersons, but also to any inde"nity %$ic$ t$e debtor "ay $ave already received( 4Tolentino6 T$e rig$t o#
action #or inde"nity "ay only be e>ercised by t$e creditor, #or ot$er%ise t$e debtor %ould &ro#it by suc$
loss i# $is obligation is e>tinguis$ed and $e can still recover inde"nity #ro" anot$er( 49adilla6
WHAT I3 TH) *)BTO, IS IN +OLL.SION WITH TH) THI,* 9),SON?
T$e debtor is guilty o# #raud( I# t$ere is collusion, t$e act o# t$e t$ird &erson is also considered t$e
act o# t$e debtor in %$ic$ case, it %ill be considered as lost t$roug$ t$e #ault o# t$e debtor(
Se&. 1. L Condonation or Re*ission o) the De"t
Art. 10(9. Condonation or re*ission is essentially #rat%ito%s' and re:%ires the a&&eptan&e
"y the o"li#or. It *ay "e *ade e6pressly or i*pliedly.
One and the other 7ind shall "e s%"$e&t to the r%les .hi&h #overn ino))i&io%s
donations. >6press &ondonation shall' )%rther*ore' &o*ply .ith the )or*s o) donation.
WHAT IS +ON*ONATION O, ,)0ISSION?
It is an act o# liberality by %$ic$ t$e obligee, %$o receives no &rice or e7uivalent t$ereo#,
renounces t$e en#orce"ent o# t$e obligation, %$ic$ is e>tinguis$ed in its entirety or in t$at &art or as&ect o#
t$e sa"e to %$ic$ t$e re"ission re#ers( 40anresa6
It is t$e gratuitous abandon"ent by t$e creditor o# $is rig$t( 4Sanc$e@ ,o"an6
WHAT A,) TH) BIN*S O3 +ON*ONATION?
As to 3O,0, t$e re"ission "ay be e>&ress or i"&lied( It is e>&ress %$en it is "ade #or"ally and
s$ould be in accordance %it$ t$e #or"s o# ordinary donations( It is i"&lied %$en it can be in#erred #ro" t$e
acts o# t$e &arties(
IC
As to )FT)NT, t$e re"ission "ay be total or &artial( 9artial re"ission "ay re#er to t$e a"ount o#
t$e indebtedness, or to an accessory obligation only, suc$ as &ledge or interest, or to so"e ot$er as&ect o#
t$e obligation, suc$ as solidarity(
As to 0ANN), O3 ,)0ISSION, it "ay be inter vivos 4e##ective during t$e li#eti"e o# t$e
creditor6 or "ortis causa 4e##ective u&on t$e deat$ o# t$e creditor6( W$en t$e re"ission is "ortis causa, it
"ust be contained in a %ill or testa"ent(
WHAT IS AN )SS)NTIAL ,)?.ISIT) O3 A +ON*ONATION?
It is an essential c$aracteristic o# re"ission t$at it be gratuitous, t$at t$ere is no e7uivalent
received #or t$e bene#it o# given8 once suc$ e7uivalent e>ists, t$e nature o# t$e act c$anges( *ean del
+astillo really considers condonations in a conce&t o# a donation(
It "ay beco"e a dation in &ay"ent %$en t$e creditor recieves a t$ing di##erent #ro" t$at
sti&ulated(
It "ay beco"e a novation %$en t$e object or &rinci&al conditions o# t$e obligation s$ould be
c$anged(
It "ay beco"e a co"&ro"ise %$en t$e "atter renounced is in litigation or dis&ute and in
e>c$ange o# so"e concession %$ic$ t$e creditor receives( 4Tolentino, 0anresa6
WHAT TH)N I3 A +ON*ONATION IS )SS)NTIALL/ A *ONATION?
It is t$ere#ore, subject to t$e rules on donations %it$ res&ect to 456 acce&tance, 4;6 a"ount, and 4=6
revocation(
In relation to re"ission, t$e rules on donation s$ould be read so t$at donor! re#ers to t$e creditor,
donee! to t$e debtor, and donation! to t$e re"ission or condonation(
WHAT A,) 9,O:ISIONS ON *ONATIONS IN TH) +I:IL +O*)?
As to<
456 0ANN), O3 A++)9TAN+)< Art( NCD &rovides t$at T$e donee "ust acce&t t$e donation
&ersonally, or t$roug$ an aut$ori@ed &erson %it$ a s&ecial &o%er #or t$e &ur&ose, or %it$ a
general and su##icient &o%er8 ot$er%ise, t$e donation s$all be void, Art( NCM also &rovide t$at
Acce&tance "ust be "ade during t$e li#eti"e o# t$e donor and o# t$e donee(
4;6 A0O.NT< Art( NDJ &rovide t$at T$e donation "ay co"&re$end all t$e &resent &ro&erty o#
t$e donor, or &art t$ereo#, &rovided $e reserves, in #ull o%ners$i& or in usu#ruct, su##icient
"eans #or t$e su&&ort o# $i"sel#, and o# all relatives %$o, at t$e ti"e o# t$e acce&tance o# t$e
donation, are by la% entitled to be su&&orted by t$e donor( Wit$out suc$ reservation, t$e
donation s$all be reduced on &etition o# any &erson a##ected( Art( ND; also &rovide t$at T$e
&rovisions o# Art( NDJ not %it$standing, no &erson "ay give or receive by %ay o# donation,
"ore t$an $e "ay give or receive by %ill(
T$e donation s$all be ino##icious in all t$at it "ay e>ceed t$is li"itation(
4=6 ,):O+ATION< Art( NMJ &rovides t$at )very donation inter vivos "ade by a &erson $aving
no c$ildren or descendants, legiti"ate or legiti"ated by subse7uent "arriage, or illegiti"ate,
"ay be revo'ed or reduced as &rovided in t$e ne>t article, by t$e $a&&ening o# any o# t$ese
events(
456 I# t$e donor, a#ter t$e donation s$ould $ave legiti"ate or legiti"ated or illegiti"ate
c$ildren, even t$oug$ t$ey be &ost$u"ous8
4;6 I# t$e c$ild o# t$e donor, %$o" t$e latter believed to be dead %$en $e "ade t$e
donation, s$ould turn out to be living8
4=6 I# t$e donor s$ould subse7uently ado&t a "inor c$ild(
Art( NM5 &rovides t$at In t$e cases re#erred to in t$e &receding article, t$e donation s$all be
revo'ed or reduced inso#ar as it e>ceeds t$e &otion t$at "ay be #reely dis&osed o# by %ill,
ta'ing into account t$e %$ole estate o# t$e donor at t$e ti"e o# t$e birt$, a&&earance or
ado&tion o# a c$ild(
Art( NMC &rovides t$at T$e donation s$all be revo'ed at t$e instance o# t$e donor, %$en t$e
donee #ails to co"&ly %it$ any o# t$e conditions %$ic$ t$e #or"er i"&osed u&on t$e latter(
ID
In t$is case, t$e &ro&erty donated s$all be returned to t$e donor, t$e alienations "ade by t$e
donee and t$e "ortgages i"&osed t$ereon by $i" being void, %it$ t$e li"itations establis$ed,
%it$ regard to t$ird &ersons, by t$e 0ortgage La% and t$e Land ,egistration La%s(
T$is action s$all &rescribe a#ter C years #ro" t$e non1co"&liance %it$ t$e condition, "ay be
trans"itted to t$e $eirs o# t$e donor, and "ay be e>ercised against t$e doneeAs $eirs(
Art( NMD &rovides t$at T$e donation "ay also be revo'ed at t$e instance o# t$e donor, by
reason o# ingratitude in t$e #ollo%ing cases<
456 I# t$e donee s$ould co""it so"e o##ense against t$e &erson, t$e $onor, or t$e
&ro&erty o# t$e donor, or $is %i#e or c$ildren under $is &arental aut$ority8
4;6 I# t$e donee i"&utes to t$e donor any cri"inal o##ense, or any act involving "oral
tur&itude, even t$oug$ $e s$ould &rove it, unless t$e cri"e or t$e act $as been
co""itted against t$e donee $i"sel#, $is %i#e or c$ildren under $is aut$ority8
4=6 I# $e unduly re#uses $i" su&&ort %$en t$e donee is legally or "orally bound to give
su&&ort to t$e donor(
WHAT A,) TH) ,)?.ISIT)S O3 A +ON*ONATION?
456 T$e debtor "ust acce&t t$e condonation &ersonally( 4Art( 5;NJW5X in consonance %it$ Art(
NCD6
4;6 It "ust be gratuitous 40anresa 2 already "entioned above6
4=6 I# it is an e>&ress condonation, it "ust #ollo% t$e #or"alities set by la% concerning donations(
4Art( 5;NJW;X6
WH/ IS A++)9TAN+) O3 TH) *)BTO, N))*)*?
*ean del +astillo e>&lains t$is by saying t$at one cannot be co"&elled to acce&t any act o#
benevolence or generosity #ro" anot$er(
WHAT HA99)NS I3 TH) *)BTO, *O)S NOT A++)9T TH) +ON*ONATION?
,e#usal on t$e &art o# t$e debtor "eans t$at t$e obligation re"ains outstanding( T$e suggested
re"edy o# t$e creditor $ere, i# $e is insistent on t$e e>tinguis$"ent o# t$e obligation %it$out &ay"ent #ro"
t$e debtor, is to let t$e obligation &rescribe(
WH)N 0A/ A++)9TAN+) B) GI:)N?
It de&ends(
I# it is a condonation inter vivos, acce&tance "ust be "ade during t$e li#eti"e o# t$e credtior( Here
t$e acce&tance "ust be )F9,)SS( 4Art( NCD &rovides t$at T$e donee "ust acce&t t$e donation &ersonally
>>>!6
I# it is a condonation "ortis causa, it "ust be "ade #ro" t$e deat$ o# t$e creditor( Here an
I09LI)* condonation is available( T$e rules o# succession on t$e legacy o# t$e debt states t$at i# t$e
legacy $ad not be re&udiated %it$in =J days, t$ere %ould be i"&lied acce&tance(
WHAT A,) 3O,0ALITI)S?
T$ey are t$e %ritten #or" %$ic$ govern t$ose in t$e rules o# donation(
WHAT I3 TH) ,)0ISSION IS NOT G,AT.ITO.S?
It %ould a"ount to dation en &ago or a novation(
3or e>a"&le, 0aro broug$t #urniture #ro" :al on credit( On t$e date o# &ay"ent, :al told 0aro
t$at s$e %ould condone t$e debt &rovided t$at 0aro %ould return t$e #urniture %$ic$ $as been #urnis$ed
$i"( 0aro agreed( Is t$ere re"ission $ere?
T$is is a co"&ro"ise since t$ere is no re"ission #or it is not gratuitous(
WHAT I3 TH) *)BTO, 9A/S IN 9,O9),T/?
It %ould also be considered as dacion en &ago(
WHAT I3 TH),) IS NO +ONSI*),ATION O33),)* 3O, TH) ,)0ISSION?
IM
I# consideration is o##ered #or t$e dro&&ing o# %$atever clai" against t$e debtor, t$en t$ere %ould
be a novation or a co"&ro"ise( W$atever t$e situation is, t$ere is, essentially, no condonation i# t$ere is a
consideration "ade(
WHAT 3O,0ALITI)S S)T B/ LAW A,) ,)?.I,)* IN A +ON*ONATION?
It is i"&ortant to stress t$at t$e #or"alities a&&ly only to e>&ress condonation( In an i"&lied
condonation, no #or"alities are necessary(
In inter vivos re"ission, i# t$e donation involves t$e delivery o# real &ro&erty, t$en suc$ donation
"ust be included in t$e instru"ent(
I# t$e condonation involves t$e delivery o# &ersonal &ro&erty valued "ore t$an 9D,JJJ, it "ust be
%ritten at least in a &rivate docu"ent(
I# t$e condonation involves t$e delivery o# &ersonal &ro&erty valued at less t$at 9D,JJJ, t$e
delivery "ust be acco"&anied by t$e instru"ent o# credit evidencing t$e debt(
In "ortis causa re"ission, t$e #or"ality o# t$e condonation re7uires t$at it "ust ta'e t$e #or" o# a
%ill(
0A/ A +ON*ONATION B) ,):OB)*?
As a general rule, an obligation t$at is once condoned is condoned #orever(
A,) TH),) AN/ )F+)9TIONS?
/)S( *ean del +astillo gives t%o instances< 456 ingratitude, and 4;6 ino##iciousness(
9adilla adds t%o "ore birt$, a&&earance, or ado&tion o# c$ildren in Art( NMJ and non1co"&liance
o# condition in Art( NMC( 4Bot$ &rovisions are included above(6
WH)N 0A/ A +ON*ONATION B) ,):OB)* B/ ,)ASON O3 ING,ATIT.*)?
See Art( NMD above( But #or &ur&oses o# revie%, t$ere are t$ree instances enu"erated by la%<
456 I# t$e donee s$ould co""it so"e o##ense against t$e &erson, t$e $onor or t$e &ro&erty o# t$e
donor, or $is %i#e or c$ildren under $is &arental aut$ority8
4;6 I# t$e donee i"&utes to t$e donor any cri"inal o##ense, or any act involving "oral tur&itude,
even t$oug$ $e s$ould &rove it, .NL)SS t$e cri"e or t$e act $as been co""itted against t$e
donee $i"sel#, $is %i#e or c$ildren under $is aut$ority8
4=6 I# t$e donee unduly re#uses to give t$e donor su&&ort %$en t$e #or"er is legally or "orally
bound to give su&&ort to t$e latter8 and
4C6 ,ea&&earance or birt$ o# c$ild(
WHAT IS TH) )SS)N+) O3 INO33I+IO.SN)SS!?
Art( ND; &rovides t$at > > no &erson "ay give or receive, by %ay o# donation, "ore t$an $e "ay
give or receive by %ill( > > T$e donation s$all be ino##icious in all t$at it "ay e>ceed its li"itations(!
Art( NN5 &rovides t$at donation %$ic$ > > are ino##icious, bearing in "ind t$e esti"ated value o#
t$e donorAs &ro&erty o# t$e ti"e o# $is deat$, s$all be reduced %it$ regard to t$e e>cess8 > >!
W$ile a &erson "ay "a'e donations, no one can give "ore t$at t$at %$ic$ $e can give by %ill,
ot$er%ise, t$e e>cess s$all be ino##icious, and s$all be reduced accordingly( And as a rule, testa"entaty
dis&ositions %$ic$ i"&air t$e legiti"e s$all be reduced on &etition o# t$e $eirs inso#ar as t$ey are
ino##icious or e>cessive(
3or e>a"&le, I# +$arles died, and is survived by $is only $eir, :al, $is son, and in $is last %ill and
testa"ent, +$arles renounced a debt due $i" #ro" 0aro in t$e a"ount o# 9DJ,JJJ( T$e debt constituted $is
only estate( Since +$arles could only dis&ose o# one1$al# o# $is estate as t$e ot$er $al# belonged to $is $eir,
:al, as $is legiti"e, t$e renunciation %as ino##icious and s$ould be reduced(
Art. 10(1. The delivery o) a private do&%*ent eviden&in# a &redit' *ade vol%ntarily "y the
&reditor to the de"tor' i*plies the ren%n&iation o) the a&tion .hi&h the )or*er had a#ainst
the latter.
I) in order to n%lli)y this .aiver it sho%ld "e &lai*ed to "e ino))i&io%s' the de"tor
and his heirs *ay %phold it "y provin# that the delivery o) the do&%*ent .as *ade in virt%e
o) pay*ent o) the de"t.
IN
WH)N IS TH),) AN I09LI)* +ON*ONATION?
W$en according to Art( 5;N5, t$ere is delivery o# a &rivate docu"ent evidencing t$e credit, "ade
voluntarily by t$e creditor to t$e debtor(!
3or e>a"&le, +$arles is indebted to 0ar' in t$e a"ount o# 9DJJ %$ic$ is evidenced by a
&ro"issory note( Angel returns t$e &ro"issory note to +$arles( A &ro"issory note is an evidence o# credit8
its voluntary return by 0ar' to +$arles is an i"&lied condonation o# +$arlesA debt( T$e reason #or t$is is
t$at 0ar' %ould not $ave returned t$e &ro"issory note to +$arles $ad $e still %anted to collect +$arlesA
debt( 4T$ere is dis&utable &resu"&tion t$at t$ere $as been a re"ission( T$e &resu"&tion is "erely
dis&utable and not conclusive because it "ay be t$at t$e instru"ent %as delivered only #or e>a"ination by
0ar' or #or collection(6
W$enever t$ere is a docu"ent or an instru"ent o# credit, t$e creditor 'ee&s suc$ docu"ents
evidencing t$e credit until suc$ ti"e as t$e obligation is &aid or condoned( Hence, i# t$ere is voluntary
delivery o# t$ese instru"ents t$en t$e creditor is said to $ave &er"itted t$e obligation to be e>tinguis$ed(
T$e delivery o# t$e docu"ent evidencing t$e obligation by t$e creditor to $is debtor i"&lies a
%aiver o# t$e rig$t to collect said credit( T$e &ossession by t$e debtor o# said docu"ent gives rise to t$e
&resu"&tion t$at it %as voluntarily delivered to $i" by t$e creditor, eit$er because t$e debt $as been &aid
or t$e obligation $as been re"itted( 49adilla6
NOT)< T$e "ere #act t$at t$e creditor $as o"itted a certain debt or t$e na"e o# t$e debtor #ro" an
inventory "ade by $i" does not i"&ly a tacit re"ission(
WH),) IS TH),) TA+IT +ON*ONATION?
Along %it$ t$e a#oresaid &rovision 4Art( 5;N56, t$ere is also tacit condonation %$en t$e creditor
voluntarily destroys or cancels t$e evidence o# t$e credit, %it$ t$e intent to renounce $is rig$t( 4Tolentino6
WHAT I3 TH) *O+.0)NT ):I*)N+ING +,)*IT IS STILL IN TH) +,)*ITO,AS HAN*S?
A creditor %$o is in &ossession o# t$e docu"ent by %$ic$ $is credit is &roven, $as in $is #avor t$e
&resu"&tion o# la% t$at t$e a"ount o# t$e debt $as not yet been recovered, .NL)SS, t$e debtor
satis#actorily s$o%s, by one o# t$e "et$ods recogni@ed by la%, t$at $e $ad already satis#ied t$e clai"(
4Bantug v( del ,osario, 55 9$il D556
WO.L* A,T( 5;N5456 A99L/ TO 9.BLI+ *O+.0)NTS ):I*)N+ING +,)*IT?
NO( In Art( 5;N5456, t$e +ode &resu&&oses t$at %$en t$e creditor delivers a &rivate docu"ent
evidencing a debt to $is debtor, $e surrenders t$e %ea&on #or t$e en#orce"ent o# $is rig$t( 4:alverde6
WHAT *O)S A,T( 5;N54;6 9,)S.0)?
Art( 5;N54;6 &rovides t$at > > I# in order to nulli#y t$is %aiver 4o# t$e rig$t to collect credit by
voluntary delivery o# t$e instru"ent evidencing suc$ credit6, it s$ould be clai"ed to be ino##icous, t$e
debtor and $is $eirs "ay u&$old it by &roving t$at t$e delivery o# t$e docu"ent %as "ade in virtue o#
&ay"ent o# t$e debt(!
It &resu"es t$at t$e voluntary return o# t$e title o# t$e credit is by reason o# condonation and not
by reason o# &ay"ent o# t$e debt( So"e co""entators %ould lead us to believe t$at t$is act o# declaring an
i"&lied condonation as ino##icious is, in e##ect, an act o# rebutting t$is &resu"&tion(
*ean del +astillo dissents, #or in t$e very desire to annul an i"&lied condonation it "ust be
assu"ed t$at it %as an i"&lied condonation in t$e #irst &lace( S$e also adds, by t$e %ay, t$at ingratitude as
anot$er ground to assail an i"&lied condonation(
Note t$at ino##iciousness a&&lied ONL/ in cases %$ere t$ere is a donation(
WHAT I3 TH) +,)*ITO, G,ANTS A ,)LAS) TO HIS *)BTO, B/ 0ISTAB)?
Tolentino o##ers an ans%er #or t$is( T$e debtor is obliged to recogni@e t$e debt again( And i# t$e
debtor re#uses to "a'e a voluntary recognition, t$e judg"ent co"&elling $i" to recogni@e t$e debt %ill
serve as t$e title o# t$e obligation u&on its "aturity(
T$ese can be justi#ied by Art( ;;, %$ic$ &rovides t$at )very &erson %$o t$roug$ an act or
&er#or"ance by anot$er, or by any ot$er "eans, ac7uires or co"es into &ossession o# so"et$ing at t$e
IH
e>&ense o# t$e latter %it$out just or legal ground, s$all returen t$e sa"e to $i"(! T$ere is also Art( ;5DC on
solution indebiti, %$ic$ &rovides t$at I# so"et$ing is received %$en t$ere is no rig$t to de"and it, and it
%as unduly delivered t$roug$ "ista'e, t$e obligation to return it arises(!
Art. 10(0. ?henever the private do&%*ent in .hi&h the de"t appears is )o%nd in the
possession o) the de"tor' it shall "e pres%*ed that the &reditor delivered it vol%ntarily'
%nless the &ontrary is proved.
WHAT I3 TH) 9,I:AT) *O+.0)NT ):I*)N+ING *)BT IS IN TH) HAN*S O3 TH) *)BTO,?
Art( 5;N; &rovides t$at W$enever t$e &rivate docu"ent in %$ic$ t$e debt a&&ears is #ound in t$e
&ossession o# t$e debtor, it s$all be &resu"ed t$at t$e creditor delivered it voluntarily, .NL)SS t$e
contrary is &roved(!
T$e &ossession o# t$e debtor o# t$e &rivate docu"ent evidencing $is debt gives rise to t$e
&resu"&tion t$at it %as voluntarily delivered to $i" by t$e creditor(
3or e>a"&le, +$arles o%ed 0aro a su" o# "oney( 0aro sent a recei&t signed by $i" to +$arles
t$roug$ a collector %$o %as su&&osed to collect t$e debt( +$arles did not &ay $o%ever, alt$oug$ $e 'e&t
t$e recei&t( 0aro %as able to &rove t$at t$e only reason $e $ad sent t$e recei&t %as to collect t$e "oney( Is
t$ere re"ission $ere?
NO( T$ere is no re"ission( 0aro %as able to &rove t$e real reason %$y t$e debtor $as in $is
&ossession t$e recei&t( Hence, t$e &resu"&tion o# re"ission $as been overco"e(
WHAT I3 TH) OBLIGATION IS -OINT?
W$en t$e obligation is joint, and t$e &rivate docu"ent evidencing debt is #ound in t$e &ossession
o# one debtor, t$e &resu"&tion o# condonation can re#er only to t$e &ortion o# t$e debtor %$o is in
&ossession o# t$e instru"ent(
3or e>a"&le, i# t$e &rivate docu"ent is #ound in t$e &ossession o# :al, %$o is a joint debtor
4toget$er %it$ $is son +$arles6, %$at is t$e &resu"&tion?
T$e &resu"&tion is only :alAs debt $as been re"itted(
I# delivery %as "ade to one joint debtor, only t$e s$are &ertaining to $i" s$all be dee"ed re"itted
or condoned( 40anresa6
WHAT I3 TH) OBLIGATION IS SOLI*A,/?
I# t$e obligation is solidary, t$e re"ission "ust be considered as total( 40anresa6
3or e>a"&le, i# t$e &rivate docu"ent is #ound in t$e &ossession o# 0aro, %$o is a solidary debtor,
%$at is t$e &resu"&tion?
Since t$is is a solidary obligation, t$e &resu"&tion is t$at t$e %$ole obligation $as been re"itted(
0A/ THIS 9,)S.09TION O3 :OL.NTA,/ *)LI:),/ B) O:),+O0)?
O3 +O.,S)( T$e &resu"&tion cannot stand %$en #ro" t$e evidence it a&&ears t$at t$e evidence
o# t$e obligation %as not returned to debtor, but %as sent to $i" solely #or t$e &ur&ose o# collecting t$e
debt, and t$at t$e creditorAs &ur&ose %as to leave t$e instru"ent evidencing t$e credit in &ossession o# t$e
debtor, i# t$e latter did not #ort$%it$ &ay t$e a"ount "entioned t$erein(
TO WHO0 *O)S TH) B.,*)N O3 O:),+O0ING TH) 9,)S.09TION LI)?
It rests on t$e creditor( 49adilla6
I# t$e creditor cannot &rove evidence to dis&ute t$e &resu"&tion, t$e latter stands(
Art. 10(1. The ren%n&iation o) the prin&ipal de"t shall e6tin#%ish the a&&essory o"li#ations/
"%t the .aiver o) the latter shall leave the )or*er in )or&e.
Art. 10(4. It is pres%*ed that the a&&essory o"li#ation o) pled#e has "een re*itted .hen the
thin# pled#ed' a)ter its delivery to the &reditor' is )o%nd in the possession o) the de"tor' or o)
a third person .ho o.ns the thin#.
II
IS TH),) S.+H A THING AS A 9,)S.09TION O3 I09LI)* +ON*ONATION!?
*ean del +astillo says NO( Art( 5;N5456 "a'es voluntary delivery t$e basic ele"ent o# an i"&lied
condonation( Once t$ere is voluntary delivery, i"&lied condonation i""ediately arises( T$e &resu"&tion
lies in t$e voluntary delivery(
WHAT A,) TH) OTH), BIN*S O3 I09LI)* +ON*ONATION?
456 Art( 5;N= &rovides t$at T$e renunciation o# t$e &rinci&al debt s$all e>tinguis$ t$e accessory
obligation8 > >!
3or e>a"&le, +y is indebted 4Nabu$ay din ang "ga utang ni +y6 to Angel in t$e a"ount o#
95,JJJ( T$e debt o# +y is guaranteed by 3erdie( T$e &rinci&al debt $ere is 95,JJJ %$ile t$e
accessory obligation is t$e guaranty o# 3erdie( I# Angel s$ould renounce t$e obligation o# +y
in t$e a"ount o# 95,JJJ t$en t$e accessory obligation o# 3erdie is t$ereby e>tinguis$ed
because it #ollo%s t$e rule t$at accessory derives it li#e #ro" t$e &rinci&al obligation( Once t$e
&rinci&al goes, so goes t$e accessory( But, based on t$e second sentence o# Art( 5;N=, %$ic$
is, >>> but t$e %aiver o# t$e latter s$all leave t$e #or"er in #orce,! i# %$at is renounced by
Angel is t$e guaranty o# 3erdie, t$en t$e &rinci&al obligation o# +y subsists(
4;6 Art( 5;NC &rovides t$at It is &resu"ed t$at t$e accessory obligation o# &ledge $as been
re"itted %$en t$e t$ing &ledged, a#ter its delivery to t$e creditor, is #ound in t$e &ossession o#
t$e debtor, or o# a t$ird &erson %$o o%ns t$e t$ing(!
3or e>a"&le, +y is indebted to Angel in t$e a"ount o# 95JJ, secured by $is ne% %$ite barong
as a &ledge( A#ter receiving t$e a"ount o# 95JJ #ro" Angel, +y delivers to Angel $is ne%
%$ite barong in &ledge #or t$e &er#or"ance o# t$e &rinci&al obligation o# 95JJ( Later t$e
%$ite barong is #ound in t$e &ossession o# +y( In suc$ case, t$e &resu"&tion o# la% is t$at t$e
accessory obligation o# &ledge "ust $ave been re"itted leaving t$e &rinci&al obligation o#
95JJ %it$out secutiry( It does not a##ect t$e &rinci&al obligation, %$ic$ re"ains subsisting(
WH/ *O)S A,T( 5;NC ONL/ A99L/ TO 9L)*G)S?
*ean del +astillo %ants to di##erentiate a &ledge #ro" a "ere c$attel "ortgage(
In a &ledge, t$e &ledged &ro&erty is delivered to creditor( A contract o# &ledge can only be
&er#ected t$is %ay( 4Art( 5=5M6 T$ere#ore, in a &ledge, you actually lose retention o# your &ro&erty( To be
later #ound in t$e &ossession o# &ledged &ro&erty %ould indeed be unusual and so %e $ave t$e &resu"&tion
o# condonation in Art( 5;NC(
0A/ TH) 9,)S.09TION IN A,T( 5;NC B) *IS9.T)*?
O3 +O.,S)( It "ay be s$o%n t$at t$e debtor recovered t$e t$ing &ledged %it$out t$e consent o#
t$e creditor, %$o "ay $ave lost it, or #ro" %$o" it "ay $ave been stolen, or t$at t$e return to t$e debtor is
#or a li"ited ti"e and a s&ecial &ur&ose, suc$ as to "a'e re&airs t$ereon or to allo% t$e o%ner to "a'e
&articular use t$ereo#( 40anresa6
T$e &resu"&tion is not conclusive but only dis&utable or &ri"a #acie subject to &roo# t$at t$e
delivery to t$e debtor or t$e t$i# &erson %as not voluntary(
WH/ *O)S A,T( 5;NC S9)AB O3 A THI,* 9),SON AS ON) WHO HA:) IN HIS 9OSS)SSION
TH) 9L)*G)* 9,O9),T/?
A contract o# &ledge "ay involve a t$ird &arty(
Se&. 4. L Con)%sion or Ber#er o) Ri#hts
Art. 10(. The o"li#ation is e6tin#%ished )ro* the ti*e the &hara&ters o) &reditor and
de"tor are *er#ed in the sa*e person.
WHAT IS +ON3.SION O, 0),G), O3 ,IGHTS?
T$is is t$e "eeting in one &erson o# t$e 7ualities o# creditor and debtor %it$ res&ect to t$e sa"e
obligation( In si"&le %ords, t$e creditor beco"es t$e debtor in t$e sa"e obligation(
+on#usion or "erger e>tinguis$es t$e obligation &recisely because it %ould be absurd to en#orce
oneAs clai" against onesel#( Suc$ e>tinguis$"ent ta'es &lace by o&eration o# la%(
5JJ
At t$e start o# t$e obligation, t$ere are t%o &arties, but because o# subse7uent events, t$e role o#
debtor and creditor are "erged into one &arty(
3or e>a"&le, +y o%es Angel 9DJJ( Angel assigns $er credit to 3erdie %$o later on assigns it to
+y( So, a#ter a series o# assign"ents, +y %$o is originally t$e debtor, no% beco"es t$e creditor t$ereby
e>tinguis$ing t$e %$ole obligation(
WHAT I3 ANG)L ASSIGNS HIS ,IGHTS *I,)+TL/ TO +/, WO.L* TH),) B) +ON3.SION?
NO( T$ree %ould instead be a case o# condonation( In con#usion, it is necessary to $ave an
inter"ediary(
WHAT A,) TH) ,)?.ISIT)S 3O, A :ALI* 0),G),?
9aras gives t$e #ollo%ing re7uisites #or a valid "erger<
456 T$e "erger s$ould ta'e &lace bet%een t$e &rinci&al debtor and creditor( 4T$us, con#usion o#
t$e creditor %it$ t$e &erson o# t$e guarantor does not e>tinguis$ t$e &rinci&al obligation(
T$ere can also be no con#usion or "erger i# t$e debtor and creditor re&resent di##erent judicial
entities even i# t$e o##icers o# bot$ are t$e sa"e( 4Ba&isanan ng "ga 0anggaga%a sa 0,, v(
+redit .nion, etc(, L15C=;;6
4;6 T$e "erger "ust be clear and de#inite(
4=6 T$e very obligation involved "ust be t$e sa"e or identical(
NOT)< T$e "ere trans#er to a t$ird &erson o# rig$ts belonging to bot$ t$e debtor and t$e creditor B.T not
t$e credit as against t$e debt does not result in con#usion(
Art. 10(!. Ber#er .hi&h ta7es pla&e in the person o) the prin&ipal de"tor or &reditor
"ene)its the #%arantors. Con)%sion .hi&h ta7es pla&e in the person o) any o) the latter does
not e6tin#%ish the o"li#ation.
HOW *O)S +ON3.SION A33)+T TH) LIABILIT/ O3 TH) G.A,ANTO,?
0erger in t$e &erson o# t$e &rinci&al debtor or creditor e>tinguis$es t$e obligation( Hence, t$e
accessory obligation o# guaranty is also e>tinguis$ed in accordance %it$ t$e &rinci&le t$at t$e accessory
#ollo%s t$e &rinci&al(
3or e>a"&le, +y is indebted to -ay %it$ 0ar' as guarantor( T$e "erger o# t$e c$aracters o# debtor
and creditor in +y s$all #ree 0ar' #ro" liability as guarantor(
WHAT IS TH) )33)+T O3 0),G), IN TH) 9),SON O3 TH) G.A,ANTO,?
T$e e>tinguis$"ent o# t$e accessory obligation does not carry %it$ it t$e e>tinguis$"ent o# t$e
&rinci&al obligation( +onse7uently, "erger %$ic$ ta'es &lace in t$e "erger o# t$e guarantor, %$ile it
e>tinguis$es t$e guarantee, leaves t$e &rinci&al obligation in #orce(
3or e>a"&le, +y is indebted to Angelo %it$ 3erdie as guarantor( Angelo assigns $is credit to 0ar',
%$o in turn, assigns $is credit to 3erdie, t$e guarantor( In t$is case, t$e contract o# guarantee is
e>tinguis$ed(
Art. 10((. Con)%sion does not e6tin#%ish a $oint o"li#ation e6&ept as re#ards the share
&orrespondin# to the &reditor or de"tor in .ho* the t.o &hara&ters &on&%r.
*O)S +ON3.SION HA:) TO B) TOTAL TO )FTING.ISH TH) OBLIGATION?
NO( T$ere can be &artial con#usion, %$ic$ leads to &artial e>tinguis$"ent o# t$e obligation(
456 Art( 5;NN &rovides t$at +on#usion does not e>tinguis$ a joint obligation e>ce&t as regards
t$e s$are corres&onding to t$e creditor and debtor in %$o" t$e t%o c$aracters concur(!
3or e>a"&le, +y and 9aul are joint debtors o# +$arles #or 95,JJJ( T$en +$arles assigns $is
credit to 3erdie, %$o in turn assigns $is credit to +y( T$ere#ore, +y beco"es creditor #or
95,JJJ and debtor #or 9DJJ( 9DJJ %as e>tinguis$ed on t$e basis o# con#usion but 9DJJ
re"ains collectible #ro" 9aul, $is co1debtor(
4;6 T$ere "ay also be &artial con#usion i# t$e creditor assigns only &art o# $is credit(
5J5
3or e>a"&le, +y is t$e debtor and +$arles is t$e creditor #or t$e su" o# 95,JJJ( I# +$arles
assigns 9DJJ to Angel, and Angel assigns t$is credit to +y, t$ere %ill be &artial con#usion to
t$e e>tent o# 9DJJ(
IN TH) +AS) O3 SOLI*A,/ OBLIGATION, I3 TH),) IS 3.LL ASSIGN0)NT O3 +,)*IT IS TH)
+ON3.SION TOTAL O, 9A,TIAL?
T$e con#usion is total, but on t$e basis o# legal subrogation, t$e solidary debtor $as a rig$t to
collect #ro" $is ot$er co1debtors(
0A/ A 0),G), O, +ON3.SION B) ,):OB)*?
/)S( I# t$e reason #or t$e con#usion ceases, t$e con#usion or "erger "ay be revo'ed, and t$e
obligation is revived(
WHAT IS TH) )33)+T I3 TH) 0O,TGAG)) B)+O0)S TH) OWN), O3 TH) 0O,TGAG)*
9,O9),T/?
I# t$e "ortgagee beco"es t$e o%ner o# t$e &ro&erty t$at $as beco"e "ortgaged to $i", t$e
"ortgage is naturally e>tinguis$ed, but t$e &rinci&al obligation "ay re"ain. ,Yek Ton Lin Fire v.
Yusingco !" #hil $%!&6
3or e>a"&le, +y borro%ed 95J,JJJ #ro" -ay, and as a security, and "ortgaged $is land in -ayAs
#avor( Later, +y sold t$e land to -ay( T$e "ortgage is e>tinguis$ed but +y still o%es -ay 95J,JJJ(
Had $e assigned $is credit o# 95J,JJJ to a #riend and t$e #riend assigned t$e credit to +y, bot$ t$e
&rinci&al obligation and t$e "ortgagee %ould $ave been e>tinguis$ed(
Se&. L Co*pensation.
Art. 10(5. Co*pensation shall ta7e pla&e .hen t.o persons' in their o.n ri#ht' are
&reditors and de"tors o) ea&h other.
Art. 10(8. In order that &o*pensation *ay "e proper' it is ne&essary+
,1- That ea&h one o) the o"li#ors "e "o%nd prin&ipally' and that he "e at the sa*e
ti*e a prin&ipal &reditor o) the other/
,0- That "oth de"ts &onsist in a s%* o) *oney' or i) the thin#s d%e are &ons%*a"le'
they "e o) the sa*e 7ind' and also o) the sa*e :%ality i) the latter has "een
stated/
,1- That the t.o de"ts "e d%e/
,4- That they "e li:%idated and de*anda"le/
,- That over neither o) the* there "e any retention or &ontroversy' &o**en&ed "y
third persons and &o**%ni&ated in d%e ti*e to the de"tor.
WHAT IS +O09)NSATION?
+o"&ensation is t$e e>tinction in t$e concurrent a"ount o# obligations o# t$ose &ersons %$o are
reci&rocally debtors and creditors o# eac$ ot$er(
It is a s&ecial "ode o# e>tinguis$ing an obligation(
*ISTING.ISH +O09)NSATION 3,O0 0),G), O, +ON3.SION?
COBP>NSATION B>RG>R OR CON@ESION
T$ere are at least t%o &ersons %$o are debtors and
creditors o# eac$ ot$er(
T$ere is only one &erson %$o is bot$ debtor and
creditor
T$ere are t%o debts( T$ere is only one debt
WHAT A,) TH) BIN*S O3 +O09)NSATION?
5J;
456 Legal 2 Ta'es e##ect by o&eration o# la%, t$ere#ore, need not be &leaded(
4;6 -udicial 2 Also called set1o##,! %$ic$ "ust be &leaded and is e##ective by decision o# t$e
court(
4=6 3acultative 2 W$en one o# t$e &arties $as t$e o&tion to clai" co"&ensation or to object to it(
4C6 :oluntary and +onventional 2 9arties agree to co"&ensate t$eir res&ective obligations even
t$oug$ all t$e re7uisites are not yet &resent(
IN O,*), THAT L)GAL +O09)NSATION 0A/ B) 9,O9),, WHAT IS N)+)SSA,/?
,1- Bot$ &arties "ust be &rinci&ally bound(
3or e>a"&le, +y, o%es 9aul 95JJ and 9aul o%es +y, 95JJ, t$ere can be co"&ensation since
bot$ o# t$e" are &rinci&ally bound to eac$ ot$er(
+$arles, as guardian #or 0aro, is a creditor o# :al( :al in turn is a creditor o# +$arles %$o
o%es $i" a &ersonal debt( T$ere can be NO co"&ensation because it is 0aro %$o is t$e real
creditor, not +$arles(
,0- Bot$ debts consist in t$e su" o# "oney or i# t$e t$ings are consu"able 4#ungible6 t$ey be o#
t$e sa"e 'ind, and also o# t$e sa"e 7uality(
3or e>a"&le, +y o%es 0ar' a s$irt 4generic6( 0ar' o%es +y also a s$irt 4generic6( T$ere can
be co"&ensation $ere because t$e object are #ungible 4alt$oug$ not consu""able6
NOT)< Ten sac's o# rice cannot be co"&ensated %it$ ten sac's o# corn( T$ey "ust be o# t$e
sa"e 7uality and 'ind(
,1- T$e t%o debts are due(
3or e>a"&le, 9aul o%es +y 9DJJJ &ayable A&ril 5,;JJ=( +y o%es 9aul 9DJJJ &ayable in -une
C, ;JJ=, legal co"&ensation cannot $a&&en on A&ril 5, ;JJ=, #or t$e debts are not yet due(
Ho%ever, t$ere can be voluntary co"&ensation u&on agree"ent(
,4- T$ey be li7uidated and de"andable(
,- Neit$er o# t$e" t$ere by any retention or controversy, co""enced by t$ird &ersons and
co""unicated in due ti"e to t$e debtor(
PNB <' <DA D> ONG AC>RO 145 SCRA 1!!
@a&ts+ Isabela Wood +onstruction and *evelo&"ent +or&oration 4Isabela6 o&ened %it$ t$e 9NB on
0arc$ I, 5INI a savings account in t$e a"ount o# 9;0( T$is a"ount is t$e subject o# t%o con#licting
clai"s( One clai" is asserted by t$e Aceros, judg"ent creditors o# t$e de&ositor, %$o see' to en#orce
against said savings account t$e #inal and e>ecutory judg"ent rendered in t$eir #avor by t$e +3I( T$e ot$er
clai" $as been &ut #ort$ by 9NB, %$ic$ clai"s t$at since Isabela %as at so"e &oint in ti"e bot$ its debtor
and creditor, t$ere $ad occurred a "utual set1o## bet%een t$e", %$ic$ e##ectively &recluded t$e AcerosA
recourse to t$e de&osit(
9NBAs "ain t$esis is t$at %$en it o&ened a savings account #or Isabela, it 49NB6 beca"e indebted
to Isabela( So t$at %$en Isabela itsel# subse7uently ca"e to be indebted to it on account o# IsabelaAs breac$
o# t$e ter"s o# t$e credit agree"ent, 4t$e agree"ent $ere establis$es a de#erred letter o# credit #or IsabelaAs
account in #avor o# a Ger"an cor&oration6, it and Isabela beca"e creditors and debtors o# eac$ ot$er(
Iss%e+ ?DN le#al &o*pensation too7 pla&e
R%lin#+ No. T$ere is no co"&ensation %$ere t$e &arties are not creditors and debtors o# eac$ ot$er( T$e
insu&erable obstacle to t$e success o# 9NBAs cause is t$e #actual #inding o# t$e t$e IA+, by %$ic$ u&on
#ir"ly establis$ed rules even t$is +ourt is bound, t$at it $as not &roven by co"&etent evidence t$at it is a
creditor o# Isabela( T$e only evidence &resented by 9NB to%ards t$is end, t$e IA+ cogently observed, do
not &rove any indebtedness o# Isabela to 9NB( All t$ey &rove is t$at a letter o# credit "ig$t $ave been
o&ened #or IsabelaAs #oreign corres&ondent, or t$at t$e goods t$ereby covered %ere in #act s$i&&ed, and
received by Isabela(
BINDANAO PORTLAND C>B>NT <. CA 109 SCRA 819
5J=
@a&ts+ Atty( La7ui$on, in be$al# o# 9ac%eld Steel +or&(, #iled a &leading addressed to t$e de#endant
0indanao 9ortland +e"ent +or&( 409++6 entitled Q0otion To *irect 9ay"ent O# AttoneyAs 3ees To
Hi"sel#!, invo'ing t$at 09++, in a court decision, %as adjudged to &ay 9ac%eld t$e su" o# 95JB as
attorneyAs #ees( 09++ #iled an o&&osition stating t$at it $as been set1o## by a li'e su" o# 95JB %$ic$
09++ $as in its #avor #ro" 9ac%eld by %ay o# attorneyAs #ees %$ic$ 09++ recovered in a di##erent case(
Iss%e+ ?DN le#al &o*pensation *ay ta7e pla&e
R%lin#+ Bot$ cor&orations %ere creditors and debtors o# eac$ ot$er arising #ro" #inal and e>ecutory
judg"ents in di##erent cases( T$e t%o obligations res&ectively o##set eac$ ot$er, co"&ensation $aving ta'en
&lace by o&eration o# la% &ursuant to Arts( 5;NH, 5;NI, and 5;IJ o# t$e +ivil +ode(
EF TONG <. SIL<A 110 SCRA 445
@a&ts+ .y Tong %as indebted to Lo&e@ in t$e a"ount o# 95JJ,DND( Lo&e@, in turn, is indebted to .y Tong
#or rentals o# a building #ro" 3ebruary ;H, 5IDD to -une 5M, 5IM5( Ho%ever, .y Tong #iled a &etition #or
voluntary insolvency &roceedings on ;D 0ay 5IDD(
Iss%e+ ?DN &o*pensation o) the rentals d%e in )avor o) the insolvent "e)ore and a)ter the )ilin# o)
the insolven&y pro&eedin#s *ay "e &o*pensated .ith the de"t o) the insolvent.
R%lin#+ +o"&ensation "ay ta'e e##ect only %it$ regard to t$e rentals due be#ore t$e ban'ru&tcy because
a&&lying Article 5;NI, t$e D
t$
re7uisite is t$at over neit$er o# t$e" t$ere be any retention or controversy,
co""enced by t$ird &ersons >>>!( T$us, co"&ensation is li"ited to t$e rentals due in #avor o# t$e ban'ru&t
.y Tong #ro" ;H 3ebruary to ;D 0ay 4t$e date o# t$e #iling o# t$e &etition #or voluntary insolvency6, and
not t$e %$ole a"ount because to allo% #ull co"&ensation %ould be to give undue &re#erence to Lo&e@ over
t$e ot$er creditors o# .y Tong(
>G< R>ALTF D><>LOPB>NT <. CA 119 SCRA !(
@a&ts+ )G: is t$e o%ner o# a condo"iniu"( +istina +ondo"iniu" +or&oration 4+++6 is in c$arge o#
"anaging, "aintaining and ad"inistering t$e co""on areas and &roviding security o# t$e said &ro&erty(
.nis&$ere is an occu&ant o# t$e unit t$ereo#( On t%o occassions, .nis&$ere alledged t$at robbery $as ta'en
&lace and t$e total value o# t$e ite"s lost a"ounted to 95;,;ID( .nis&$ere de"anded rei"burse"ent #ro"
+++ but t$e latter denied liability since, it alleged, t$at t$e goods lost are not o%ned by .nis&$ere but by
A"trade( .nis&$ere %it$$eld &ay"ent o# rental install"ents( )G: issued deed o# absolute sale but t$e
corres&onding title t$ereto %as annotated %it$ t$e un&aid balance %$ic$ .nis&$ere %it$$eld #ro" +++(
Iss%e+ ?DN set3o)) or le#al &o*pensation has ta7en pla&e
R%lin#+ +o"&ensation "ay ta'e e##ect %$en t%o &ersons are creditors and debtors o# eac$ ot$er( A
distinction "ust be "ade bet%een a debt and a "ere clai"( A debt is a clai" %$ic$ $as been #or"ally
&assed u&on by t$e $ig$est aut$ority to %$ic$ it can, in la%, be sub"itted and $as been declared to be a
debt( A clai", on t$e ot$er $and, is a debt in e"bryo( It is "ere evidence o# a debt and "ust &ass t$roug$
t$e &rocess &rescribed by la% be#ore it develo&s into %$at is &ro&erly called a debt(
It is undis&uted t$at .nis&$ere is indebted to )G:, %$ile t$e latter does not ad"it o#
res&onsibility( At best, %$at .nis&$ere $as is a just clai" and not a debt( .nder Art 5;NI, one re7uisite #or
legal co"&ensation is t$at t$ey be li7uidated and de"andable!( Hence, in t$e instant case, co"&ensation
"ay not ta'e e##ect(
BPI <. CA 010 SCRA 190
@a&ts+ )astern 9ly%ood +or&( 4)astern6 and Li", an o##icer and stoc'$older o# )astern, $eld one joint
ban' account 4andGor account6 %it$ +BT+, &redecessor1in1interest o# B9I( Subse7uently, Li" and :elasco
o&ened a joint account 4and! account6 %it$ #unds %it$dra%n #ro" t$e account o# )astern andGor Li"
5JC
account( :elasco died and a case #or settle"ent #or $is estate %as #iled( On I Se&te"ber 5IHM, t$e court
aut$ori@ed t$e $eirs o# :elasco to %it$dra% t$e balance o# 9==5,;M5(CC a#ter t$e %it$dra%al o# Li" o# $al#
o# t$e a"ount o# t$e Li" and :elasco joint account
0ean%$ile, on 5H August 5INH, )astern obtained a loan o# 9N=,JJJ( T$is loan %as subjected to a
$oldout agree"ent! on t$e joint account o# Li" and :elasco as a security #or t$e loan, %$ic$ +BT+
acce&ted( So"eti"e in 5IHJ, +BT+ "erged %it$ B9I and on 5IHN B9I #iled a case de"anding &ay"ent o#
t$e loan( )astern, on t$e ot$er $and, #iled a counterclai" #or t$e return o# t$e balance o# t$e joint account
a#ter deducting t$e a"ount o# t$e loan( T$e trial court ruled, and %as a##ir"ed by t$e +A, t$at it %as t$e
duty o# B9I to set1o## t$e loan in accordance %it$ t$e $oldout agree"ent( Wit$ regard to t$e counterclai",
t$e T+ denied it since t$ere is already a decision in t$e intestate court aut$ori@ing t$e %it$dra%al by t$e
$eirs o# :elasco and to do so 4"eaning to grant t$e counterclai"6 %ould disturb t$e intestate courtAs ruling
as t$e $eirs $ave already %it$dra%n t$e "oney( +A, $o%ever, reversed and granted t$e counterclai" saying
t$at as t$ey %ere not &rivy to t$e intestate case, t$e counterclai" can be granted(
Iss%e+ ?DN BPI &an de*and pay*ent o) the loan despite the e6isten&e o) the =oldo%t A#ree*ent
R%lin#+ Fes. W$at t$e agree"ent con#erred on +BT+ 4later B9I6 %as a &o%er and not a duty( To a&&ly t$e
de&osit to t$e &ay"ent o# t$e loan is a &rivilege, a rig$t to set1o## %$ic$ t$e ban' $as o&tion to e>ercise(
T$e ban' is not &recluded #ro" de"anding &ay"ent( B9I $ad o&ted not to e>ercise t$e rig$t to a&&ly &art
o# t$e de&osit subject to t$e Holdout Agree"ent( Wit$ res&ect to t$e counterclai", t$e S+ ruled t$at B9I
s$ould still &ay because t$ey 'ne% t$at t$e real o%ner is )astern and not Li" and :elasco( Also, t$e order
o# t$e intestate court %as only aut$ori@ation not judicial co"&ulsion to release to t$e $eirs $al# t$e a"ount
o# t$e joint account(
+AN A STO+BHOL*),AS *)BT B) +O09)NSAT)* WITH TH) :AL.) O3 HIS SHA,)S
TH),)IN?
NO( T$ere being no relation o# debtor and creditor %it$ regard to suc$ s$ares( 4Garcia v( Li" +$u
Sing, DI 9$il DM;6
But a &artyAs debt to t$e cor&oration as treasurer is co"&ensable %it$ $is credit against t$e
cor&oration( 4Bri"a v( Goldenberg, MI 9$il DJ;6
+AN A BANB S)T1O33 A *)9OSIT IN ITS HAN*S TO )FTING.ISH TH) IN*)BT)*N)SS O3 ITS
*)9OSITO,?
/)S( T$e relation bet%een t$e ban' and de&ositor being t$at o# a creditor and debtor( 4Gullas v(
9NB, M; 9$il D5I6
Art( 5IHJ o# t$e +ivil +ode e>&ressly rules t$at ban' de&osits are regarded as loans 4to t$e ban'6
NOT)< +redits or debts o# a &erson as guardian, agent or trustee are not debtors or creditors in $is
o%n rig$t(
Art. 1059. Not.ithstandin# the provisions o) the pre&edin# arti&le' the #%arantor *ay set %p
&o*pensation as re#ards .hat the &reditor *ay o.n the prin&ipal de"tor.
+AN A G.A,ANTO, S)T .9 +O09)NSATION?
/)S( In case t$e &ay"ent is de"anded #ro" $i", t$e guarantor "ay set u& co"&ensation, not
only #or %$at suc$ creditor o%es $i", but also #or %$at suc$ creditor o%es t$e &rinci&al debtor(
NOT)< T$is is an e>ce&tion to t$e rule stated in Art( 5;NI 456, in relation to Art( 5;NH(
Art. 1051. Co*pensation *ay "e total or partial. ?hen the t.o de"ts are o) the sa*e
a*o%nt' there is total &o*pensation.
WHAT IS TH) )FT)NT O3 +O09)NSATION?
456 Total 2 I# t$e debts are o# t$e sa"e a"ount 4Art( 5;H56
4;6 9artial 2 W$en debts to be co"&ensated are not e7ual in a"ount(
5JD
+AN +O09)NSATION TAB) 9LA+) I3 BOTH *)BTS A,) NOT )?.AL?
/)S( It e>tinguis$es bot$ debts on t$e concurrent a"ount(
Art. 1050. The parties *ay a#ree %pon the &o*pensation o) de"ts .hi&h are not yet d%e.
+AN TH),) B) +O09)NSATION, ):)N I3 BOTH *)BTS A,) NOT /)T *.)?
/)S( I# by agree"ent o# t$e &arties( T$is is an e>a"&le o# %$at is 'no%n as voluntary
co"&ensation(
Art. 1051. I) one o) the parties to a s%it over an o"li#ation has a &lai* )or da*a#es a#ainst
the other' the )or*er *ay set it o)) "y provin# his ri#ht to said da*a#es and the a*o%nt
thereo).
+AN A 9A,T/ TO A S.IT O:), AN OBLIGATION WHO HAS A +LAI0 3O, *A0AG)S
AGAINST TH) OTH), S)T .9 +O09)NSATION AGAINST TH) LATT),?
/)S( In reality %$at is set o## against t$e ot$er &arty is t$e counterclai"( T$e counterclai" "ust
be &leaded to be e##ectual(
NOT)< W$en t$e de#endant %$o $as an unli7uidated clai" #or da"ages against t$e &lainti## sets i#
o## by &roving $is rig$t to said da"ages and t$e a"ount t$ereo#, it is controverted into a li7uidated
clai" by court decree, in %$ic$ case co"&ensation s$all ta'e e##ect #ro" t$e "o"ent t$e
judg"ent li7uidating t$e clai" $as beco"e #inal(
Art. 1054. ?hen one or "oth de"ts are res&issi"le or voida"le' they *ay "e &o*pensated
a#ainst ea&h other "e)ore they are $%di&ially res&inded or voided.
WHAT IS TH) ,.L) IN +AS) O3 ,)S+ISSIBL) O, :OI*ABL) *)BTS?
T$ey "ay be co"&ensated against eac$ ot$er be#ore t$ey are judicially rescinded or avoided(
Art. 105. The de"tor .ho has &onsented to the assi#n*ent o) ri#hts *ade "y a &reditor in
)avor o) a third person' &annot set %p a#ainst the assi#nee the &o*pensation .hi&h .o%ld
pertain to hi* a#ainst the assi#nor' %nless the assi#nor .as noti)ied "y the de"tor at the
ti*e he #ave his &onsent' that he reserved his ri#ht to the &o*pensation.
I) the &reditor &o**%ni&ated the &ession to hi* "%t the de"tor did not &onsent
thereto' the latter *ay set %p the &o*pensation o) de"ts previo%s to the &ession' "%t not o)
s%"se:%ent ones.
I) the assi#n*ent is *ade .itho%t the 7no.led#e o) the de"tor' he *ay set %p the
&o*pensation o) all &redits prior to the sa*e and also later ones %ntil he had 7no.led#e o)
the assi#n*ent.
WHAT IS TH) )33)+T O3 AN ASSIGN0)NT O3 TH) OBLIGATIONS TO A ST,ANG),?
456 I# co"&ensation $as ta'en &lace<
I# t$e assign"ent is "ade A3T), bot$ debts $as beco"e due and t$e ot$er re7uisites o# Art(
5;NI concur, t$e assign"ent is ine##ective, bot$ debts $aving been &reviously e>tinguis$ed by
co"&ensation(
4;6 W$en co"&ensation $as NOT ta'en &lace<
4a6 Wit$ consent o# debtor
I# t$e debtor consented to t$e assign"ent by $is creditor in #avor o# a t$ird &erson, t$e
debtor cannot set u& 4is esto&&ed6 against t$e assignee, t$e co"&ensation %$ic$ %ould
&ertain to $i" 4t$e debtor6 against t$e assignor8 unless t$e assignor %as noti#ied by t$e
debtor at t$e ti"e t$e debtor gave $is consent, t$at $e 4t$e debtor6 reserved $is rig$t to
co"&ensation(
5JM
4b6 Wit$ 'no%ledge, but %it$out t$e consent o# debtor(
T$e debtor "ay set u& co"&ensation o# debts 4"aturing6 &revious to t$e cession but not
o# subse7uent ones(
4c6 Wit$out t$e 'no%ledge o# t$e debtor
T$e debtor "ay set u& co"&ensation o# all credits 4"aturing6 &rior to t$e assign"ent and
also later ones until $e $ad 'no%ledge o# t$e assign"ent 4even creditors against t$e
assignor "aturing a#ter t$e assign"ent but be#ore t$e debtor learned o# it(6
Illustration<
A o%es B, t$e latter assigns t$e credit to F obligation 5
B o%es A obligation ;
+AN /O. HA:) +O09)NSATION IN TH) ABO:) +AS)?
I# B assigns $is credit to F a#ter bot$ debts beca"e due, t$e assign"ent is ine##ective because bot$
debts are already e>tinguis$ed(
I# A gives $is consent to t$e assign"ent o# credit, $e %aives $is rig$t to co"&ensation(
I# A gives $is consent to t$e assign"ent o# credit, but "a'es a reservation as to $is rig$t to
co"&ensation, $e can en#orce t$e co"&ensation(
NOT)< T$e "ost i"&ortant &oint to consider is t$e ti"e t$e assign"ent %as "ade(
Any assign"ent %$ic$ ta'es &lace A3T), t$e 'no%ledge o# t$e debtor, is binding and bars
co"&ensation(
Any assign"ent %$ic$ ta'es &lace B)3O,) t$e 'no%ledge o# t$e debtor, still gives t$e debtor t$e
rig$t to clai" co"&ensation(
*ate o# cession< 3ebruary 5;, ;JJ=
, o%es S, t$e latter assigns t$e credit to / obligation 5
S o%es , obligation ;
WHAT WILL HA99)N I3 S +O00.NI+AT)* TH) +)SSION TO ,?
I# , did not consent to t$e cession, , "ay set u& co"&ensation &revious to 3eb 5;, ;JJ=, but not
to debts a#ter 3eb 5;,;JJ=( But i# , consented $e "ay not set u& co"&ensation be#ore and a#ter t$e cession(
WHAT I3 TH) +)SSION TO / WAS NOT +O00.NI+AT)* TO ,?
, "ay set u& co"&ensation o# all credits &rior to an a#ter t$e cession until $e $ad 'no%ledge o#
t$e cession(
NOT)< T$e assign"ent does not a##ect t$e rig$t o# , until suc$ ti"e t$at $e is in#or"ed(
,)ASON 3O, A,T( 5;HD?
To &revent one &arty #ro" being #raudulently de&rived o# t$e bene#its o# co"&ensation( 40anresa6
P>R>C <. CA 10( SCRA !1!
@a&ts+
+ONG)N),I+ is a cor&oration engaged in "oney "ar'et! o&erations(
On H 0ay 5INC, +ONG)N),I+ issued a &ro"issory note 4Bill 5;IH6 a"ounting to 9555,IN=(DH
to ,a"on +( 0O-I+A( T$e &ro"issory note %as to "ature on M August 5INC(
On 5D 0ay 5INC, +ONG)N),I+ issued anot$er bearer &ro"issory note 4Bill 5C5I6 #or t$e su"
o# 9;JH,MMM(MN, also in #avor o# 0O-I+A( T$e &ro"issory note %as to "ature on 5= August 5INC(
On D -une 5INC, 0):), 3il"s borro%ed 9DJJB #ro" +ONG)N),I+( It issued in #avor o#
+ONG)N),I+ a negotiable &ro"issory note 4N+I1J=D;6 to "ature on D August 5INC(
On = -uly 5INC, +ONG)N),I+ received #ro" 9ere@ 9;JJB and issued to t$e latter a
con#ir"ation o# sale 4+S1J=MM6( .nder t$e ter"s o# +S1J=MM, 9ere@ %as to be &aid 9;J=,CH=(== on D
5JN
August 5INC, +ONG)N),I+ %ould "a'e collection on be$al# o# 9),)O, and ALL O3 +ONG)N),I+AS
INT),)ST IN N+I1J=D; WAS B)ING T,ANS3),,)* TO 9),)O(
On D August 5INC, 0):), &aid 95JJB to +ONG)N),I+ on account o# N+I1J=D;(
Also, on D August 5INC, +ONG)N),I+ &aid 9ere@ t$e su" o# 95J=,CH=(==, t$e 9=,CH=(==
co"ing #ro" its o%n #unds(
On M August 5INC, +ONG)N),I+ &aid 0O-I+A t$e interest due Bill 5;IH, t$e &rinci&al being
rolled1over to "ature on C October 5INC( T$e roll1over %as annotated on t$e original o# Bill 5;IH(
On 5= August 5INC, +ONG)N),I+ &aid 0O-I+A t$e interest due on Bill 5C5I, t$e &rinci&al
being rolled1over to "ature on 55 October 5INC( T$e roll1over %as annotated on Bill 5C5I(
ON I S)9T)0B), 5INC, 0O-I+A ASSIGN)* BILL 5;IH AN* BILL 5C5I TO 0):),
TH,O.GH A NOTA,IO)* *))*(
On = October 5INC, 0):), surrendered t$e originals o# BILL 5;IH AN* BILL 5C5I to
+ONG)N),I+, and as'ed t$e latter to co"&ute t$e balance o# t$e account o# 0):), %it$
+ONG)N),I+, ta'ing into account t$e a"ount o# t$e t%o bills, %$ic$ balance 0):), %ould &ay(
On N October 5INC, 0):), %as served %it$ garnis$"ent in t%o collection cases #iled against
+ONG)N),I+ by t%o o# its creditors(
On N t$e sa"e date, +ONG)N),I+ advised 0):), by tele&$one t$at o# t$e original a"ount o#
9DJJB o# N+I1J=D;, t$e su" o# 9;JJB %as sold on -uly =, 5INC to a t$ird &arty, but not na"ing 9),)O as
t$e t$ird &arty(

Iss%e+ Sho%ld Arti&le 1!0! o) the Civil Code' .hi&h re)ers to a de"tor .ho pays his &reditor "e)ore
7no.led#e o) an assi#n*ent' "e applied' or .as there &o*pensation rather than pay*ent.
R%lin#. No Co*pensation( Since on t$e res&ective dates o# "aturity, s&eci#ically August M, 5INC and
August 5=, 5INC, ,a"on 0ojica %as still t$e $older o# t$ose bills, it can be sa#ely assu"ed t$at it %as $e
%$o $ad as'ed #or t$e roll1overs on t$e said dates( 0):), %as bound by t$e roll1overs since t$e
assign"ent to it %as "ade only on Se&te"ber I, 5INC( T$e enivitable result o# t$e roll1overs o# t$e
&rinci&als %as t$at Bill No( 5;IH and Bill No( 5C5I %ere NOT /)T *.) AN* *)0AN*ABL) AS O3
TH)I, *AT) O3 ASSIGN0)NT B/ 0O-I+A TO 0):), ON S)9T)0B), I, 5INC NO, AS O3
O+TOB), =, 5INC WH)N 0):), S.,,)N*),)* SAI* BILL TO +ONG)N),I+( As a
conse7uence, no legal co"&ensation could $ave ta'en &lace because, #or it to e>ist, t$e t%o debts, a"ong
ot$er re7uisites, "ust be due and de"andable(
T$e S+ #ound no a&llicability o# Article 5;HD, =
rd
&arargra&$ o# t$e +ivil +ode( ,at$er it is t$e
#irst &aragra&$ o# t$e sa"e legal &rovision t$at is a&&licable(
+AN +O09)NSATION B) WAI:)*?
/)S( At t$e ti"e t$e obligation is incurred or later since its %aiver is not contrary to &ublic &olicy
but t$e %aiver "ust be agreed to(
3or e>a"&le, +y o%es 3erdie 9D,MJJ( 9aul is t$e guarantor o# +y( 3erdie o%es +y 9MJJ( I# 3erdie
sues +y and +y cannot &ay, $o% "uc$ %ill 9aul be liable?
9aul %ill only be liable #or 9D,JJJ because $e can set u& t$e 9MJJ credit o# +y as t$e basis #or
&artial co"&ensation(
A,) TAF)S S.B-)+T TO +O09)NSATION?
@RANCIA <. IAC 1!( SCRA !1!
@a&ts+ 3rancia is o%ner o# t$e subject land and a t%o1storey $ouse built on it( On 5D October 5INN, 5;D
s7" &ortion o# 3ranciaAs &ro&erty %as e>&ro&riated #or t$e su" o# 9C,55M( Since 5IM= u& to 5INN, 3rancia
#ailed to &ay $is real estate ta>es( T$us, on D *ece"ber 5INN, $is &ro&erty %as sold at a &ublic auction in
order to satis#y a ta> delin7uency o# 9;,CJJ(
Ho 3ernande@ %as t$e $ig$est bidder #or t$e &ro&erty( 3rancia %as not &resent during t$e auction
sale( 3rancia discovered t$at a 3inal Bill o# Sale $ad been issued in #avor o# Ho 3ernande@ on 55 *ece"ber
5INH( On ;J 0arc$ 5INI, 3rancia #iled a co"&laint to annul t$e auction sale(
5JH
Iss%e+ ?DN the s%pposed ta6 delin:%en&y o) P0'499 .as set3o)) "y the a*o%nt o) P4'11! .hi&h the
Govern*ent o.es @ran&ia.
R%lin#+ No. By legal co"&ensation, obligations o# &ersons, %$o in t$eir o%n rig$t are reci&rocally debtors
and creditors o# eac$ ot$er, are e>tinguis$ed( T$e #ollo%ing re7uisites, 456 and 4=6, #or legal co"&ensation
are absent in t$e instant case< 456 t$at eac$ one o# t$e obligors be bound &rinci&ally and t$at $e be at t$e
sa"e ti"e a &rinci&al creditor o# t$e ot$er8 =6 t$at t$e t%o debts be due(
T$ere can be no o##1setting o# ta>es against t$e clai"s t$at t$e ta>&ayer "ay $ave against t$e
govern"ent( A &erson cannot re#use to &ay a ta> on t$e ground t$at t$e govern"ent o%es $i" an a"ount
e7ual to or greater t$an t$e ta> being collected( T$e collection o# a ta> cannot a%ait t$e results o# a la%suit
against t$e govern"ent(
Ta>es are not in t$e nature o# contracts bet%een t$e &arties, but gro% out o# duty to, and are
&ositive acts o# t$e govern"ent t$e "a'ing and en#orcing o# %$ic$, necessitates not t$e &ersonal consenbt
o# individual ta>&ayers( A clai" #or ta>es is not suc$ a debt, de"and, contract or judg"ent t$at "ay be set1
o##(
0oreover, t$e ta> %as due to t$e city govern"ent %$ile t$e e>&ro&riation %as e##ected by t$e
national govern"ent( Also, t$e a"ount o# 9C,55M &aid by t$e national govern"ent #or t$e 5;D s7" lot %as
de&osited %it$ t$e 9NB long be#ore t$e sale at a &ublic auction o# $is re"aining &ro&erty( Notice o# t$e
de&osit dated ;H Se&te"ber 5INN %as received by t$e &etitioner on =J Se&te"ber 5INN( T$e latter ad"itted
in $is testi"ony t$at $e 'ne% about t$e 9C,5MM a"ount de&osited but $e did not %it$dra% t$e sa"e( It
%ould $ave been an easy "atter to %it$dra% #ro" 9NB so t$at $e could &ay t$e ta> obligation, t$us
aborting t$e sale at a &ublic auction(
Art. 105!. Co*pensation ta7es pla&e "y operation o) la.' even tho%#h the de"ts *ay "e
paya"le at di))erent pla&es' "%t there shall "e an inde*nity )or e6penses o) e6&han#e or
transportation to the pla&e o) the pay*ent.
+AN +O09)NSATION TAB) 9LA+) I3 TH) *)BTS A,) 9A/ABL) AT *I33),)NT 9LA+)S?
/)S( But t$ere s$all be an inde"nity #or e>&enses o# e>c$ange or trans&ortation to t$e &lace o#
&ay"ent(
Art. 105(. Co*pensation shall not "e proper .hen one o) the de"tors arises )ro* a
deposit%* or )ro* the o"li#ations o) a depositary or o) a "ailee in &o**odat%*.
Neither &an &o*pensation "e set %p a#ainst a &reditor .ho has a &lai* )or s%pport
d%e "y #rat%ito%s title' .itho%t pre$%di&e to the provisions o) par. 0 o) Art. 191.
Art. 1055. Neither shall there "e &o*pensation i) one o) the de"ts &onsists in &ivil lia"ility
arisin# )ro* a penal o))ense.
WHAT A,) TH) *)BTS O, OBLIGATIONS WHI+H A,) NOT S.S+)9TIBL) O3 L)GAL
+O09)NSATION?
456 *ebts arising #ro" contracts o# de&ositu"8
4;6 *ebts arising #ro" contracts o# co""odatu"8
4=6 +lai"s #or su&&ort due by gratuitous title8
4C6 Obligations arising #ro" cri"inal o##enses8 and
4D6 +ertain obligations in #avor o# t$e govern"ent(
3or e>a"&le, ta>es, #ees, duties and ot$er si"ilar #or"(
Art. 1058. I) a person sho%ld have a#ainst hi* several de"ts .hi&h are s%s&epti"le o)
&o*pensation' the r%les on the appli&ation o) pay*ents shall apply to the order o) the
&o*pensation.
+AN +O09)NSATION TAB) 9LA+) I3 TH),) A,) S):),AL *)BTS AGAINST A *)BTO,
WHI+H A,) S.S+)9TIBL) TO +O09)NSATION?
5JI
/)S( T$e rules on a&&lication o# &ay"ent s$all a&&ly to t$e order o# co"&ensation(
Art. 1089. ?hen all the re:%isites *entioned in Art. 10(8 are present' &o*pensation ta7es
e))e&t "y operation o) la.' and e6tin#%ishes "oth de"ts d%e to the &on&%rrent a*o%nt' even
tho%#h the &reditors and de"tors are not a.are o) the &o*pensation.
Se&. !. L Novation
Art. 1081. O"li#ations *ay "e *odi)ied "y+
,1- Chan#in# their o"$e&t or prin&ipal &onditions/
,0- S%"stit%tin# the person o) the de"tor/
,1- S%"ro#atin# a third person in the ri#hts o) the &reditor
WHAT IS NO:ATION?
Novation is understood as t$e substitution or c$ange o# an obligation by anot$er, %$ic$
e>tinguis$es or "odi#ies t$e #irst(
HOW 0A/ OBLIGATIONS B) 0O*I3I)* B/ NO:ATION?
Art( 5;I5 &rovides t$at Obligations "ay be "odi#ied by<
456 +$anging t$eir object or &rinci&al conditions8
4;6 Substituting t$e &erson o# t$e debtor8
4=6 Subrogating a t$ird &erson in t$e rig$ts o# t$e creditor(
WHAT A,) TH) BIN*S O3 NO:ATION A++O,*ING TO ITS 9.,9OS) O, OB-)+T?
456 ,)AL or OB-)+TI:)( T$is is a c$ange in t$e object or &rinci&al conditions o# t$e obligation(
4Art( 5;I5W5X6
3or e>a"&le, +y agreed to deliver to 3erdie a car( Later, t$ey entered into anot$er contract
%$ereby instead o# +y delivering a car, $e %ould deliver 5J air conditioners( T$e obligation to
deliver a car is e>tinguis$ed by t$e obligation to deliver t$e air conditioners( T$is is real
novation since t$e object o# t$e obligation, t$e car, %as c$anged(
I# a contract o# &ledge is c$anged into a dacion en &ago, t$is %ould be a real novation, as t$is
c$ange in t$e cause(
I# t$e novation involves t$e ter"s, t$ere is a true novation8 but i# t$e c$ange is one on sa"e
incidental &oints, t$ere is only 0O*I3I+ATO,/ novation( Here you $ave to &ic' out t$e
&rinci&al and accidental conditions, t$e #or"er being t$at %$ic$ "oved t$e &arties to enter
into agree"ent( But as a general rule, t$e #ollo%ing a&&lies<
4a6 I# t$e &eriod is e>tended, it is "erely 0O*I3I+ATO,/
4b6 I# t$e &eriod is s$ortened, it is )FTIN+TI:)(
4c6 I# t$ere is c$ange in t$e rate o# interest, 0O*I3I+ATO,/(
4d6 I# t$ere is a c$ange in a"ount, 0O*I3I+ATO,/(
4e6 I# t$ere is a c$ange in "anner o# &ay"ent 4i(e( #ro" #ull to install"ent6,
0O*I3I+ATO,/(
4;6 9),SONAL AN* S.B-)+TI:) NO:ATION( T$ere is a c$ange in t$e &arties, eit$er t$e
creditor or t$e debtor 4Art( 5;I5W;X and W=X6
4a6 Substitution o# t$e &erson o# t$e debtor 4Art( 5;I5 W;X6
T$ere is )F9,O0ISION %$en t$e initiative #or c$ange does not e"anate #ro" t$e
debtor and "ay be "ade even %it$out $is 'no%ledge, since it consists in a t$ird &erson
assu"ing t$e obligation( It logically re7uires t$e consent o# t$e t$ird &erson and t$e
creditor(
3or e>a"&le, +y is indebted to Angelo in t$e a"ount o# 95,JJJ( 3erdie, a t$ird &erson,
goes to Angelo and re7uests t$at $e be "ade t$e debtor instead o# +y( I# Angelo acce&ts
3erdie in &lace o# +y, t$en a substitution o# debtor by e>&ro"ision ta'es &lace and t$e
55J
obligation o# +y to Angelo e>tinguis$ed and a ner o%n 4T$e obligation o# 3erdie to
Angelo6 is created( T$e consent o# Angelo to t$e substitution even i# "ade %it$out t$e
'no%ledge and consent o# +y is necessary because 3erdie, t$e t$ird &erson "ay not be
reliable or solvent(
T$ere is *)L)GA+ION %$en t$e debtor o##ers and t$e creditor acce&ts a t$ird &arty
%$o consent to t$e substitution, so t$at t$e consent o# t$ere t$ree is necessary( Note t$at
delegation notably di##ers #ro" t$e "ere indication "ade by t$e debtor t$at a t$ird &erson
s$all &ay t$e debt(
3or e>a"&le, +y obliged $i"sel# to deliver to 9aul ten sac's o# #irst class sugar(
Subse7uently, +y broug$t to 9aul, $is #riend 0ar' and &ro&osed to 9aul t$at 0ar' ta'e
$er &lace as obligor as t$e latter %as %illing to underta'e t$e delivery o# t$e ten sac's o#
#irst class sugar( I# 9aul agreed to t$e &ro&osal o# +y, t$en +yAs obligation %as
e>tinguis$ed and a substitution o# debtor by delegacion too' &lace( In t$is 'ind o#
novation, t$e consent o# t$e t$ree &arties is necessary(
4b6 Subrogating a t$ird &erson in t$e rig$ts o# t$e creditor( 4Art( 5;I5W=X6 "ay be L)GAL or
+ON:)NTIONAL subrogation(

I# a#ter t$e constitution o# t$e above obligation bot$ &arties agree t$at Angel %ill
substitute #or +y or t$at -ay %ill be subrogated in t$e rig$ts o# Angelo, t$ere is &ersonal
novation as t$e c$anges are in t$e &ersons o# t$e debtor or t$e creditor 4t$e air con
e>a"&le6
4=6 0IF)*( T$is is a c$ange in t$e object and t$e &arties(
3or e>a"&le, i# all o# t$e" decided t$at Angel %ill deliver to -ay t$e 5J airconditioners,
instead o# +y delivering a car to Angelo, t$ere is "i>ed novation, because t$e object o# t$e
obligation and t$e creditor are c$anged( 4Still not done %it$ t$e air con6
WHAT A,) TH) BIN*S O3 NO:ATION A++O,*ING TO ITS )33)+T?
456 TOTAL or )FTIN+TI:) NO:ATION( T$e old obligation is e>tinguis$ed by t$e ne%
obligation(
4;6 9A,TIAL or 0O*I3I+ATO,/( T$e old obligation $ere is "erely "odi#ied t$us still re"ains
in #orce e>ce&t inso#ar as it $as been "odi#ied( S$ould t$ere by any doubt as to %$et$er t$e
novation is total or &artial, it s$all be &resu"ed to be "erely "odi#icatory(
Art. 1080. In order that an o"li#ation *ay "e e6tin#%ished "y another .hi&h s%"stit%te the
sa*e' it is i*perative that it "e so de&lared in %ne:%ivo&al ter*s' or that the old and ne.
o"li#ations "e on every point in&o*pati"le .ith ea&h other.
WHAT A,) TH) OTH), BIN*S O3 NO:ATION A++O,*ING TO ITS 3O,0 O3 ITS
+ONSTIT.TION?
,1- )F9,)SS( T$e &arties declare t$at t$e old obligation is e>tinguis$ed and t$e ne% one is to
ta'e its &lace(
3or e>a"&le, 9Are i&alit na lang natin Qtong ibibigay "ong c$ong's &ara dAun sa
&ag'a'autang "ong bagoong( O's ba? 2 Syur &Are( Basta i'a%(!
,0- I09LI)*( It ta'es &lace %$en t$ere is no e>&ress agree"ent bet%een t$e &arties( T$ey
si"ilar enter into a ne% obligation %$ic$ is essentially inco"&atible %it$ t$e old and
irreconcilably di##erent #ro" t$e old obligation( 4Art( 5;I;Elast &$rase6
WHAT IS TH) ,.L) ,)GA,*ING TH) 9,)S.09TION O3 TH) )FIST)N+) O3 NO:ATION?
Novation is never &resu"ed( It "ust be clearly and un"ista'ably establis$ed eit$er by t$e e>&ress
agree"ent o# t$e &arties or acts o# e7uivalent i"&ort or by t$e inco"&atibility o# t$e t%o obligations %it$
eac$ ot$er in every "aterial as&ect(
555
WHAT IS TH) T)ST ,)GA,*ING TH) IN+O09ATIBILIT/ B)TW))N TWO OBLIGATIONS O,
+ONT,A+TS?
T$e test is %$et$er t$ey can stand toget$er, eac$ one $aving an inde&endent e>istence( I# t$ey
cannot, t$ey are inco"&atible and t$e subse7uent obligation novates t$e #irst( .&on t$e novation, t$e
#or"er obligation loses all its #orce and e##ect only t$e ne% obligation can be en#orced(
WHAT A,) )FA09L)S O3 I09LI)* NO:ATION?
4a6 +y o%ed t$e t$e su"s o# 9DJJ and 9=,JJJ u&on t%o overdue &ro"issory notes( T$ese
obligations %ere included in a ne% instru"ent under %$ic$ +y is obligated to &ay 9=,DJJ on a
s&eci#ied #uture date( T$e latter obligation novated t$e #or"er debts because bot$ %ere
"erged into a ne% obligation under ne% ter"s and conditions( T$e #or"er cannot legally e>ist
%it$ t$e latter, t$us inco"&atibility(
4b6 T$e duration i# a rig$t o# %ay given to +y as one o# t$e &rinci&al conditions o# t%o contracts
o# di##erent dates( T$e second contract reduced t$e sti&ulated duration in t$e #irst( Obviously,
t$ese cannot e>ist at t$e sa"e ti"e( T$e second agree"ent $as e##ectively novated t$e #irst(
@ORTEN> BOTORS <. CA 0!( SCRA !1
@a&ts+ +$ua and ,odrigue@a entered into a surety underta'ing %it$ 3ilinvest( .nder t$e underta'ing,
+$ua and ,odrigue@a are solidarily bound #or all obligations o# 3ortune 0otors( 0ean%$ile, an
Auto"otive W$olesale and 3inancing Agree"ent 43inancing Agree"ent!6 %as entere into by +arco,
3ortune 0otors and 3ilinvest( .nder suc$ agree"ent, +arco %ill deliver "otor ve$icles to #ortune #or
resale8 3ortune %ill t$erea#ter issue trust recei&ts a#ter delivery( It %ill also $ave to assign recei&ts and
invoices to 3ilinvest, %ill e>ecute trust recei&ts over ve$icles in #avor o# 3ilinvest, and %ill re"it and re&ort
&roceeds o# sale %it$out necessity o# de"and to 3ilinvest( I# t$ere %ill be unsold ve$icles, t$ey s$all be
turned1over to 3ilinvest(
3ortune #ailed to re"it so"e o# t$e &roceeds( It also #ailed to turn1over several unsold ve$icles to
3ilinvest covered by t$e trust recei&ts( 3ilinvest sent de"and letters to 3ortune, +$ua and ,odrigue@a(
Iss%e+ ?DN there .as novation
R%lin#+ None. T$e 3inancing Agree"ent did not contain onerous obligations not conte"&lated in t$e
surety underta'ings, t$us c$anging t$e &rinci&al ter"s t$ero# and e##ecting a novation(
T$e test o# inco"&atibility is %$et$er t$e t%o obligations can stand toget$er, eac$ one $aving its
inde&endent e>istence( I# t$ey cannot, t$ey are inco"&atible and t$e latter novates t$e #irst( Novation "ust
be establis$ed eit$er by t$e e>&ress ter"s o# t$e ne% agree"ent or by t$e acts o# t$e &arties clearly
de"onstrating t$e intent to dissolve t$e old obligation as a consideration #or t$e e"ergence o# t$e ne% one(
T$e %ill to novate, %$et$er totally or &artially, "ust a&&ear by e>&ress agree"ent o# t$e &arties, or by t$eir
acts %$ic$ are too clear and une7uivocal to be "ista'en(
.nder t$e Surety .nderta'ings, t$ere %ere no 7uali#ications, conditions or reservations stated
t$erein as to t$e e>tent o# t$e suretys$i& but "ere solidary guarantee o# &ay"ent by +$ua and ,odrigue@a(
T$e 3inancing Agree"ent, on t$e ot$er $and, "erely detailed t$e obligations o# 3ortune to +arco
4succeeded by 3ilinvest as assignee6( T$e allegation o# novation is, t$ere#ore, "is&laced( T$ere is no
inco"&atibility o# obligations to s&ea' o# in t$e t%o contracts( T$ey can stand toget$er %it$out con#lict(
3urt$er"ore, t$e &arties $ave not &er#or"ed any e>&licit and une7uivocal act to "ani#est t$eir
agree"ent or intention to novate t$eir contratc( Neit$er did t$e sureties object to t$e 3inancing Agree"ent
nor try to avoid liability t$ereunder at t$e ti"e o# its e>ecution(
RILLO <. CA 0(4 SCRA 4!1
@a&ts+ ,illo entered into a contract to sell %it$ +orb ,ealty( T$e subject o# suc$ contract is t$e sale o# a
condo"iniu" unit at 95DJB %it$ t$e #ollo%ing condition< 456 $al# o# t$e a"ount s$all be &aid u&on
contract e>ecution, 4;6 $al# %ill be &aid in 5; "ont$ly install"ents, 4=6 #or#eiture clause< &ay"ents s$all be
#or#eited u&on =1C ti"es de#ault in &ay"ent o# install"ents( ,illo de#aulted( +orb ,ealty in#or"ed ,illo
55;
t$ru a letter t$at it is cancelling t$e contract, and e>&ressed %illingness to return ,illoAs "oney(
+ancellation did not ta'e &lace( T$era#ter, ,illo &aid MB( ,illo de#aulted #or t$e C
t$
ti"e( T$us, +orb ,ealty
in#or"ed ,illo t$at it %as rescinding t$e contract(
A co"&ro"ise agree"ent %as entered into by t$e &arties %$ere t$e balance o# ,illo %as #i>ed
do%n to 9DJB8 ot$er ter"s o# &ay"ent %ere also agreed u&on including t$e "ont$ly install"ents o# 9;JB(
,illo de#aulted again(
Iss%e+ ?DN there .as novation thr% the &o*pro*ise a#ree*ent
R%lin#+ No. Art( 5;I; o# t$e +ivil +ode &rovides t$at In order t$at an obligation "ay be e>tinguis$ed by
anot$er %$ic$ substitutes t$e sa"e, it is i"&erative t$at it be so declared in une7uivocal ter"s, or t$at t$e
old and ne% obligations be on every &oint inco"&atible %it$ eac$ ot$er(! Novation is never &resu"ed(
9arties to a contract "ust e>&ressly agree t$at t$ey are abrogating t$eir old contract in #avor o# a ne% one(
In t$e absence o# an e>&ress agree"ent, novation ta'es &lace only %$en t$e old and t$e ne% obligations are
inco"&atible on every &oint(
In t$e case at bar, t$e &arties e>ecute t$eir co"&ro"ise agree"ent! &recisely to give li#e to t$eir
+ontact to Sell!( It "erely clari#ied t$e total su" o%ed by &etitioner ,illo to &rivate res&ondent +orb
,ealty %it$ t$e vie% t$at t$e #or"er %ould #ind it easier to co"&ly %it$ $is obligations under t$e +ontract
to Sell( In #ine t$e co"&ro"ise agree"entN can stand toget$er %it$ t$e +ontract to Sell(
>SPINA <. CA 114 SCRA 15!
@a&ts+ *ia@ is a lessee o# t$e condo unit o%ned by )s&ina( Later, t$ey e>ecuted a 9rovisional *eed o#
Sale, %$ereby )s&ina sold to *ia@ t$e said condo unit #or 95JJB to be &aid u&on t$e e>ecution o# t$e
contract and t$e balance to be &aid t$roug$ 9+I ban' &ostdated c$ec's(
*ia@ in#or"ed )s&ina, t$roug$ a letter, t$at $is c$ec'ing account in 9+I ban' $as been closed and
a ne% one %as o&ened #or &ractical &ur&oses in t$e sa"e ban'( T$e %i#e o# *ia@ &aid )s&ina a &artial
&ay"ent #or t$e condo unit( )s&ina sent a Notice o# +ancellation! o# t$e 9rovisional *eed o# Sale(
Ho%ever, )s&ina still acce&ted t$e &ay"ent #ro" *ia@ &er 0etroban' c$ec'( )s&ina #iled a co"&laint #or
unla%#ul detainer(
Iss%e+ ?DN the MProvisional Deed o) SaleN novated the e6istin# &ontra&t o) lease
R%lin#+ No. Novation "ust clearly be &roved since its e>istence is not &resu"ed( It "ust be &roven as a
#act eit$er by e>&ress sti&ulation o# t$e &arties or by i"&lication derived #ro" an irreconcilable
inco"&atibility bet%een old and ne% obligations or contracts( Novation only ta'es &lace only i# t$e &arties
e>&ressly so &rovide, ot$er%ise t$e original contract re"ains in #orce( W$ere t$er is no clear agree"ent to
create a ne% contract in &lace o# e>isting one, novation cannot be &resu"ed to e>ist, unless t$e ter"s o# t$e
ne% contract are #ully inco"&atible %it$ t$e #or"er agree"ent on every &oint( T$us, a deed o# cession o#
t$e rig$t to re&urc$ase a &iece o# land does not su&ersede a contract o# lease over t$e sa"e &ro&erty(
T$e contention o# *ia@ t$at t$e subse7uent acce&tance o# &ay"ent %it$dre% t$e cancellation o#
&rovisonal sale, S+ did not agree( .nless t$e a&&lication o# &ay"ent is e>&ressly indicated, t$e &ay"ent
s$all be a&&lied to t$e obligation "ost onerous to t$e debtor( In t$is case, t$e un&aid rentals constituted t$e
"ore onerous obligation o# *ia@ to )s&ina( As t$e &ay"ent did not #ully settle t$e un&aid rentals, )s&inaAs
cause o# action #or eject"ent survives(
COC=INGFAN' JR. <. R Q B SER>TF AND INSERANC> CO.' INC. 11 SCRA 118
@a&ts+ 9AG,I+O a&&lied #or and %as granted an increase in its line o# credit #ro" 9CJJB to 9HJJB %it$
t$e 9NB( As an underta'ing, 9AG,I+O sub"itted a surety bond issued by , V B Surety and Insurance
+o(, Inc( in #avor o# 9NB( .nder t$e ter"s o# t$e surety bond, 9AG,I+O and ,VB bound t$e"selves
jointly and severally to co"&ly %it$ t$e ter"s and conditions o# t$e advance line o# credit establis$ed by
t$e 9NB( 9NB $ad t$e rig$t under t$e Surety Bond to &roceed directly against , V B Surety(
In consideration o# ,VB SuretyAs issuance o# t$e surety bond, t%o inde"nity agree"ents %ere
entered into %it$ ,VB Surety< 4a6 one agree"ent e>ecuted by ++0 and by &etitioner +oc$ingya", t$e
55=
latter signed not only as 9resident o# ++0 but also in &ersonal and individual ca&acity8 and 4b6 anot$er
agree"ent e>ecuted by 9AG,I+O, 9A+O+O, -ose :illanueva and Liu Tua Be$8 :illanueva signed bot$ as
0anager o# 9AG,I+O and in $is &ersonal ca&acity, 0r Liu signed as 9resident o# 9A+O+O and in $is
&ersonal ca&acity( .nder bot$ inde"nity agree"ents, t$e inde"nitors bound t$e"selves jointly and
severally to &ay ,VB Surety an annual &re"iu" until t$e surety ond is disc$arged(
0ean%$ile, a Trust Agree"ent %as e>ecuted by +oc$ingyan, as Trustor, Baesa, a 9NB o##icial as
Trustee and 9NB as bene#iciary( T$e Trust Agree"ent &rovided, a"ong ot$ers, t$at t$e Trustor guaranteed
t$e bond issued by ,VB Surety a"ounting to 9CJJB at t$e instance o# 9AG,I+O, and t$e bond issued by
+ONSOLA+ION insurance in t$e a"ount o# 9IJJB at t$e instance o# 9A+O+O, all in #avor o# 9NB as t$e
bene#iciary(
Iss%e+ ?DN the Tr%st A#ree*ent had e6tin#%ished "y novation' the o"li#ation o) RQB S%rety to the
PNB %nder the S%rety Bond .hi&h' int%rn e6tin#%ished the o"li#ations o) the petitioners
Co&hin#ya* and <illan%eva %nder the Inde*nity A#ree*ent.
R%lin#+ No. It is at once evident t$at t$e Trust Agree"ent does not e>&ressly ter"inate t$e obligation o#
,VB Surety under t$e Surety Bond( On t$e contrary, t$e Trust Agree"ent e>&ressly &rovides #or t$e
continuing subsistence o# t$at obligation by sti&ulating t$e Trust Agree"nt s$all not in any "anner release
,VB Surety #ro" t$e obligation uinder t$e Surety Bond!(
W$at t$e trust agree"ent did %as, at "ost, "erely to bring in anot$er &erson or &ersonsEt$e
TrustorEto assu"e t$e sa"e obligation t$at ,VB Surety %as bound to &er#or" under t$e Surety Bond( It
is not unusual in business #or a stranger to a contract to assu"e obligations t$ereunder8 a contract o#
suretys$i& or guarantee is t$e classical e>a"&le( T$e &recise legal e##ect is t$e increase o# t$e nu"ber o#
&ersons liable to t$e obligee, and not t$e e>tinguis$"ent o# t$e liability o# t$e #irst debtor(
.nder t$e Trust Agree"ent, t$e Trustor also beca"e directly liable to 9NB( So #ar as t$e 9NB %as
concerned, t$e e##ect o# t$e Trust Agree"ent %as t$at %$ere t$ere $ad been only t%o, t$ere %ould no% be
t$ree obligors directly and solidarily bound in #avor o# t$e 9NB< 9AG,I+O, ,VB Surety and t$e Trustor(
P>OPL>KS BANG AND TREST CO. <. SF<>LKS INC. 1!4 SCRA 04(
@a&ts+ SyvelAs "ade a c$attel "ortgage in #avor o# 9eo&leAs Ban' and Trust +o"&any 49BT+6 #or a
credit line o# 9IJJB( T$is %as to e>&ire on 0ay ;J, 5IMM( One year earlier, t$e Syya&s "ade advances in
t$e #or" o# &ro"issory notes #ro" SyvelAs, %$ic$ %ere ta'en #ro" t$e 9IJJB credit line( At t$e sa"e ti"e,
t$e Syya&s signed a docu"ent t$at guaranteed t$at t$ey %ould &ay any indebtedness o# SyvelAs t$at %ould
result #ro" t$e 9IJJB credit line( A#ter%ards, SyvelAs %as not able to &ay 9BT+( So, 9BT+ started to
e>trajudicially #oreclose t$e c$attel "ortgage( But t$is #orclosure did not &us$ t$roug$ because t$e &arties
tried to $ave an a"icable settle"ent( Ho%ever, no &ay"ent %as "ade so 9BT+ #iled t$e casein t$e +3I o#
0anila(
9BT+ accused SyvelAs o# dis&osing o# its assets in #raud o# creditors( Because o# t$is, t$e court
issued a %rit o# &reli"inary attac$"ent and SyvelAs "ade a counterclai" #or da"ages( A#ter t$is, Antonio
Syya& initiated t$e second round o# tal's %it$ 9BT+( Here, $e o##ered to "ortgage $is o%n real estate in
Bacoor, +avite so t$at $e %ould "aintain $is good%ill %it$ SyvelAs( Because o# t$is "ortgage, 9BT+
"oved to $ave t$e case be dis"issed( SyvelAs %ould not agree to it since 9BT+As "oton to dis"iss "eant
t$at SyvelAs counterclai" %ould be dro&&ed( SyvelAs "ade its o%n "otion to dis"iss on t$e ground t$at t$e
real estate "ortgage o# Antonio Syya& novated t$e original +$attel 0ortgage( Ho%ever, t$is %as dis"issed
and so t$e trial continued(
SyvelAs and Syya&s a&&ealed to t$e S+( T$ey clai"ed t$at t$e +$attel 0ortgage %as novated by
t$e real estate "ortgage e>ecuted bet%een Antonio Syya& and 9BT+(
Iss%e+ ?DN the real estate *ort#a#e novated the &hattel *ort#a#e
R%lin#+ No. T$ere is no novation( Novation ta'es &lace %$en t$e object or &rinci&al condition o# an
obligation is c$anged or altered( It is ele"entary t$at novation is never &resu"ed( It "ust be e>&licitly
stated or t$ere "ust be a "ani#est inco"&atibility bet%een t$e old and t$e ne% obligation in every as&ect(
55C
T$e real estate "ortgage did not state anyt$ing t$at s$o%ed t$at t$e &arties intended to novate t$e
original c$attel "ortgage( T$ere %as no e>&licit novation( T$ere %as also no inco"&atibility on every &oint
bet%een t$e old and t$e ne%! agree"ents as t$e real estate "ortgage even stated t$at it %as only an
additional security to t$e c$attel "ortgage(
WHAT A,) TH) ,)?.ISIT)S O3 A :ALI* NO:ATION?
456 An old, &revious obligation %$ic$ "ust be valid, and not yet e>tinguis$ed(
I# you do not $ave a valid e>isting obligation, t$at is a :OI* obligation, t$ere %ould be
not$ing to novate in t$e #irst &lace( T$e creatgion o# t$e ne% obligation t$en is not novation
but si"&ly t$e constitution o# t$e ne% obligation(
3or e>a"&le, +y agreed to deliver to 3erdie a tin o# c$ong's( 4Legal talaga c$ong's, organic
na"an e$(6 Later on, t$e object %as c$anged to 9DJ,JJJ( T$e novation is void because t$e
original obligation is void(
I# t$e obligation is :OI*ABL), novation is still &ossible as long as t$e obligation $as not yet
been annulled( T$ere is no need to rati#y t$e old obligation, but de#enses %$ic$ "ay $ave
been raised under t$e old obligation "ay also be raised in t$e ne% obligation(
But i# t$e creditor is t$e one entitled to annul"ent o# t$e old obligation and all ot$er
re7uire"ents are &resent, t$e creditor can avail o# de#enses only i# at t$e ti"e second
obligation, it %ould a"ount to rati#ication o# t$e old obligation on $is &art so t$ere can be no
novation(
3or e>a"&le, +y %as induced t$roug$ #raud by Ivy to sign a contract %$ereby t$e #or"er %as
obliged to be $ers( 4valid na rin da&at to(6 Subse7uently, it %as agreed t$at +y %ould give $er
George instead o# $i"( T$e original obligation is voidable only( As it $as not yet been
annulled at t$e instance o# +y( T$e second contract is valid( On t$e ot$er $and, i# +y
con#ir"ed to deliver George in entirety, t$e rati#ication %ill cleanse t$e old contract #ro" all
t$e de#ects and "a'es it valid, "a'ing t$e novation, valid as %ell(
NOT)< T$ere is a di##erence %$en t$e annul"ent "ay be clai"ed by debtor or t$e creditor
because in every case o# novation, creditorAs consent is necessary, %$ereas t$e debtorAs
consent is not re7uired in e>&ro"ision(
3or e>a"&le, an agent %it$out aut$ority #ro" $is &rinci&al, boug$t "erc$andise #ro" a
co"&any( S$ortly a#ter $e $ad learned o# $is agentAs acts, t$e &rinci&al told t$e seller to
deliver anot$er 'ind o# "erc$andise, co"&letely di##erent #ro" t$e #irst( T$e seller agreed(
Alt$oug$ t$e #irst contact %as unaut$ori@ed, rati#ication by t$e &rinci&al $as cured t$e de#ects
and t$ere#ore, t$e second contract is valid(
I# t$e obligation $as 9,)S+,IB)*, t$ere "ay still be a :ALI* novation as t$ere is still a
valid obligation, a natural obligation( 3urt$er"ore, &rescri&tion is only a "atter de#ense,
t$ere#ore, it can be %aived(
4;6 T$e ne% obligation "ust be valid(
I# t$e ne% obligation is void, t$e old obligation subsists, )F+)9T i# t$e &arties agreed t$at
t$e old obligation is nonet$eless e>tinguis$ed(
I# t$e ne% obligation is subject to a sus&ensive condition, and t$e condition does not
"ateriali@e, suc$ ne% obligation never beca"e valid or e##ective, so no novation $as resulted(
)F+)9T, i# t$e &arties agree ot$er%ise(
INT>GRAT>D CONSTRECTION S>R<IC>S' INC.<. R>LO<A 14! SCRA 1!9
55D
@a&ts+ 9etitioner sued res&ondenrt 0WSS #or breac$ o# contract in +3I o# 0anila( 0ean%$ile, t$e
&arties sub"itted t$e case to arbitration( T$e Arbitration Board rendered a decision1a%ard %$ic$ %as
con#ir"ed by t$e -udge, and t$e sa"e $as long beco"e #inal and e>ecutory(
In a letter1agree"ent, &etitioner agreed to give 0WSS so"e discounts &rovided 0WSS %ould &ay
t$e judg"ent a%ard %it$in #i#teen 45D6 days or u& to October 5N, 5IN;( .&on t$e re7uest o# 0WSS,
&etitioner e>tended t$e &eriod to &ay t$e judg"ent a%ard u& to October =5, 5IN;( 0WSS, $o%ever, &aid
only on *ece"ber ;;, 5IN;, t$e a"ount stated in t$e decision but less t$e reductions &rovided #or in t$e
agree"ent(
Iss%e+ ?DN the $%d#*ent a.ard .as novated "y the letter3a#ree*ent
R%lin#+ No. W$ile t$e tenor o# t$e subse7uent letter1agree"ent in a sense novates t$e judg"ent a%ard
t$ere being a s$ortening o# t$e &eriod %it$in %$ic$ to &ay, t$e sus&ensive and conditional nature o# t$e said
agree"ent 4"a'ing t$e novation conditional6 is e>&ressly ac'no%ledged and sti&ulated in t$e 5C
t$
%$ereas
clause o# 0WSS ,esolution No( 5=;1N;(
0WSSA #ailure to &ay %it$in t$e sti&ulated &eriod re"oved t$e very cause and reason #or t$e
agree"ent, rendering so"e ine##ective( 9etitioners, t$ere#ore, %ere re"itted to t$eir original rig$ts under
t$e judg"ent a%ard(
4=6 Intention o# t$e &arties to abandon t$e obligation((
T$is intention "ay be e>&ressed or i"&lied( )>&ressly stated, t$e &arties e>&ressly agree and
state clearly t$eir intention( I"&liedly stated, %$en t$e t%o obligation are &atently
inconsistent(
GONI < CA 144 SCRA 000
@a&ts+ In 5ICI, 9ra>edes :illanueva negotiated %it$ TABA+AL),A to buy = $aciendas( Since $e %as
not ric$ enoug$ to &ay #or t$e" all, $e o##ered to sell Hacienda Sarria to Santiago :illegas %it$ Gas&ar
:icente as t$e guarantor #or :illegas 4t$e guantee %as &ut in %riting as )scritura de Tras&aso de +uenta!6(
A#ter%ards, :illanueva &ro"ised to sell to :icente #ields nos( =, C and 5= o# Hacienda *ulce No"bre de
0aria #or t$e su" o# 95=,HJN 4eit$er because :illanueva still neede "ore cas$ or as a t$an' you to :illegas
#or being a nice guarantor6( T$is %as &ut into %riting and %as signed by Goni as attorney1in1#act o#
:illanueva(
:icente t$en told TABA+AL),A to debit #ro" $is account t$e a"ount o# 95=,HJN as &ay"ent #or
t$e balance o# t$e &urc$ase &rice( Ho%ever, only 95;,CMJ(;C %as debited since t$e di##erence %as
su&&osedly already &aid by :icente to :illanueva 4alt$oug$ t$ere %as no recei&t and so Goni, et al di&ute
t$is6
Goni, et al( clai" t$at :illanueva %as, t$erea#ter, able to sell $is &ro&erty in Negros Oriental and
so $e %ent to :icente to rescind t$e contract to sell( Ho%ever, because o# t$e &revious debit arrange"ent, it
%as agreed t$at ; out o# t$e = sti&ulated lots 4#ield nos( C and 5= o# t$e Haciend *ulce No"bre de 0ariaJ
%ould "erely be leased to :icente #or D years starting %it$ cro& year 5IDJ1D5 at a yearly rental o# 5DL o#
t$e gross inco"e( T$e rent %ould be deducted #ro" t$e "oney advanced by :icente and any balance still
o%ed to :illanueva %ould be &aid along %it$ t$e delivery o# t$e lots at t$e end o# t$e lease &eriod(
On 5J *ece"ber 5ICI, TABA+AL),A e>ecuted a #or"al deed o# sale covering t$e = $aciendas
in #avor o# :illanueva( T$e leased #ields %ere also registered in t$e na"e o# :illanueva( T$e #ields %ere
"ortgaged by :illanueva to re$abilitation 3inance cor&oration 4,3+6, %$ic$ %ere later trans#erred to 9NB
on 5M *ece"ber 5IDD, #or a total indebtedness o# 9==C,CJJ(
On 5N -une 5IDJ, :illanueva e>ecuted an absolute deed o# sale to -oa7uin :illegas, covering lot
no( =5C o# Hacienda Sarria along %it$ its sugar 7uota(
:illanueva died on 5; Nove"ber 5ID5, causing intestate &roceedings to start on ;C Nove"ber
5ID5( On te day be#ore t$e closure o# t$e &roceedings, :icente #iled an action #or recovery o# &ro&erty and
da"ages based on t$e contract to sell( Goni, et al #iled a counterclai" and t$ey called #or t$e surrender o#
t$e leased #ields(A#ter a sti&ulation o# #acts and GoniAs testi"ony regarding t$e verbal lease agree"ent
agreed to by bot$ &arties, :icente %on in t$e trial court and %as a%arded da"ages as %ell as t$e delivery o#
#ield no( =(
55M
Bot$e a&&ealed to t$e +ourt o# A&&eals( :icente %on again as t$e +A "odi#ied da"ages to
a"ount to t$e total net inco"e o# 3ield no( = #ro" t$e cro& year 5IDJ1D5 until #ully &aid( A#ter t$ey %ere
denied in a "otion #or reconsideration, Goni et al #iled a &etition #or certiorari %it$ t$e S+(
Iss%e+ ?DN a .ritten pro*ise to sell *ay "e novated "y the ver"al a#ree*ent o) lease
R%lin#+ Fes. T$e verbal agree"ent novated t$e t$e %ritten &ro"ise to sell(
T$e novattion o# t$e %ritten contractG&ro"ise to sell into a verbal agree"ent o# lease %as clearly
and convincingly &roven not only by t$e testi"ony o# &etitioner Goni, but li'e%ise by t$e acts and conduct
o# t$e &arties subse7uent to t$e e>ecution o# t$e contractG&ro"ise to sell( A#ter t$e "illing season o# cro&
year 5ICI1DJ, only #ields nos( C and 5= %ere delivered to &rivate res&ondent :icente( T$e #ields subject o#
t$e original &ro"ise to sell 4nos( =, C and 5=6 %ere registered in :illanuevaAs na"e and "ortgaged %it$
,3+( :illanueva also e>ecuted a deed o# sale covering $acienda Sarria in #avor o# -oa7uin :illegas( :icente
'ne% all t$is but did not ta'e a&&ro&riate ste&s to assert or &rotect $is clai" over t$e #ields( He s$ould $ave
de"anded t$eir delivery during t$e li#eti"e o# :illanueva and e>ecution o# a si"ilar docu"ent in $is #avor,
or at least "aing $is adverse clai" annotated on t$eir T+T( I# $e did "a'e de"ands on :illanueva #or t$e
surrender o# #ield no( = and t$e e>ecution o# a deed o# sale, $e s$ould $ave u&on :illanuevaAs re#usal,
i""ediately or %it$in a reasonable ti"e, instituted an action #or recovery, or caused $is adverse clai" to be
annotated on t$e T+T( 3ield no( = is t$e biggest a"ong t$e t$ree lots( An ordinary &rudent "an %ould $ave
ta'e" t$ese ste&s i# $e $onestly believed $e $ad any rig$t t$ereto( :icenteAs inaction even &ersisted during
t$e &endency o# t$e intestate &roceedings %$erein $e could $ave readily intervened to see' t$e e>clusion o#
t$e #ields #ro" t$e estate(
:icente reasoned t$at #ield no( = %as not initially delivered because TABA+AL),A still $ad
sugarcane gro%ing on it( But t$e S+ said it could not e>&lain %$y it too' $i" #our years be#ore instituting
an action in court, and very conveniently, only a#ter :illanueva $ad died and at te ti"e %$en t$e verbal
contract o# lease %as about to e>&ire(
Bot$ t$e trial and a&&ellate courts c$ose to believe in t$e contractG&ro"ise to sell rat$er t$an t$e
lease agree"ent, si"&ly because t$e #or"er $ad been reduced to %riting, %$ile t$e latter %as "erely
verbal( It "ust be observed, t$oug$, t$at t$e contractG&ro"ise to sell %as signed by &etitioner Goni as
attorney1in1#atc o# t$e late :illanueva, an indication, to our "ind, t$at t$e #inal arrange"ents %ere "ade by
&etitioner Goni in t$e absence o# :illanueva( It %as t$ere#ore natural #or &rivate res&ondent :icente to $ave
de"anded t$at t$e agree"ent be in %riting to erase any doubt o# its binding e##ect u&on :illanueva( On t$e
ot$er $and, t$e verbal lease agree"ent %as negotiated by and bet%een :illanueva and &rivate res&ondent
:icente t$e"selves( Being close #riends and relatives, it can be sa#ely assu"ed t$at t$ey did not #ind it
necessary to reduce t$e sa"e into %riting( T$us, t$e S+ ordered :icente to co"&ly %it$ t$e verbal lease
agree"ent(
T$ere is no novation i# t$e re7uire"ents o# e>&ress and i"&lied novation are not &resent( T$e
second obligation is a "ere i"&le"entation o# t$e #irst or old obligation(
4C6 +a&acity and consent o# all t$e &arties( )F+)9T in case o# e>&ro"ision, %$ere t$e old debtor
does not &artici&ate(
WH)N IS TH),) ,)AL NO:ATION?
T$ere is real novation %$en t$ere is a c$ange in t$e object o# t$e obligation( T$is is al%ays an
e>tinctive obligation( I# t$e c$ange is in t$e condition o# t$e contract, it "ay be e>tinctive or "odi#icatory(
T$e test to deter"ine %$et$er it is e>tinctive or "odi#icatory is %$et$er t$e condition altered is a
&rinci&al or essential condition or a "ere incidental condition(
3or e>a"&le, a c$ange in t$e ter"Ei# s$ortened e>tinctive8 i# e>tended "odi#icatory( A c$ange in
t$e rate o# interest is "odi#icatory, %$ile a c$ange in its a"ount is e>tinctive( T$is $as been discussed
above, but it $el&s to go t$roug$ it again(
WH)N IS TH),) 9),SONAL NO:ATION?
55N
T$ere is &ersonal novation %$en t$ere is a c$ange in t$e &arties, eit$er t$e debtor 4&assive6 or t$e
creditor 4active6( T$e #or"er is re#erred to as substitution %$ile t$e latter is re#erred to as subrogation( T$is
is al%ays e>tinctive(
WHAT A,) TWO INSTAN+)S ,)GA,*ING TH) +HANG) O3 TH) *)BTO,?
T$ese are )F9,O0ISION and *)L)GA+ION(
Art. 1081. Novation .hi&h &onsists in s%"stit%tin# a ne. de"tor in the pla&e o) the ori#inal
one' *ay "e *ade even .itho%t the 7no.led#e or a#ainst the .ill o) the latter' "%t not
.itho%t the &onsent o) the &reditor. Pay*ent "y the ne. de"tor #ives hi* the ri#hts
*entioned in Art. 101! and 101(.
Art. 1084. I) the s%"stit%tion is .itho%t the 7no.led#e or a#ainst the .ill o) the de"tor' the
ne. de"torKs insolven&y or non3)%l)ill*ent o) the o"li#ation shall not #ive rise to any
lia"ility on the part o) the ori#inal de"tor.
Art. 108. The insolven&y o) the ne. de"tor' .ho has "een proposed "y the ori#inal de"tor
and a&&epted "y the &reditor' shall not revive the a&tion o) the latter a#ainst the ori#inal
o"li#or' e6&ept .hen said insolven&y .as already e6istin# and o) p%"li& 7no.led#e' or
7no.n to the de"tor' .hen he dele#ated his de"t.
WHAT IS )F9,O0ISION?
)>&ro"ision ta'es &lace %$en a t$ird &erson o# $is o%n initiative and WITHO.T 'no%ledge or
AGAINST TH) WILL o# t$e original debtor assu"es t$e latterAs obligation WITH TH) +ONS)NT O3
TH) +,)*ITO,( It logically re7uires t$e consent o# t$e t$ird &erson and t$e creditor( It is essential t$at
t$e old debtor be released #ro" obligation, ot$er%ise t$ere is no e>&ro"ision( 4Art( 5;I=6
WHAT A,) TH) ,)?.ISIT)S 3O, )F9,O0ISION TO TAB) 9LA+)?
456 T$e initiative to 4assu"e t$e obligation6 co"es #ro" a t$ird &erson(
4;6 T$e ne% debtor 4t$ird &erson6 and t$e creditor "ust consent(
4=6 T$e old debtor "ust be e>cused or released #ro" $is obligation(
WHAT IS TH) )33)+T O3 INSOL:)N+/ O, NON13.L3ILL0)NT B/ TH) N)W *)BTO, IN
)F9,O0ISION?
T$e old debtor cannot be $eld res&onsible #or t$e ne% debtorAs insolvency or non1#ul#ill"ent T$e
e>&ro"ision %as "ade %it$out $is consent or %orst, against $is %ill, so $o% can $e be liable(
WHAT A,) ,IGHTS O3 TH) N)W *)BTO, IN )F9,O0ISION?
In e>&ro"ision, t$e ne% debtor is entitled only to bene#icial rei"burse"ent, t$at is rei"burse"ent
#or t$e re"aining balance un&aid by t$e old debtor %$ic$ t$e ne% $as s$ouldered(
3or e>a"&le, i# +y o%ed 3erdie 95JJ, and 9aul %it$out t$e consent o# +y &ays to 3erdie 95JJ,
%$en all along +y $as already &aid &artially in t$e a"ount o# 9HD, 9aul can only as' rei"burse"ent #ro"
+y #or only t$e 95D un&aid balance(
WHAT IS TH) *I33),)N+) B)TW))N )F9,O0ISION AN* 9A/0)NT B/ A THI,* 9),SON?
In &ay"ent by a t$ird &erson, t$e original &arties to t$e contract, &articularly t$e debtor is not
substituted at all( T$e t$ird &erson does not beco"e t$e ne% debtor( In e>&ro"ision, t$e old debtor is
substituted by a ne% debtor and old debtor is released #ro" t$e obligation(
SI0ILA,IT/< Bot$ cases &rovide #ro a rig$t o# rei"burse"ent( )>&ro"ision entitles t$e ne%
debtor to bene#icial rei"burse"ent %$ic$ is also true #or &ay"ent by a t$ird &erson(
WHAT IS *)L)GA+ION?
55H
*elegacion ta'es &lace by t$e re&lace"ent o# t$e old debtor %it$ a ne% debtor, %$o $as &ro&osed
to t$e creditor, and %$ic$ re&lace"ent $as been agreed to by said creditor and by said ne% debtor 4Art(
5;I=6(
WHAT A,) TH) ,)?.ISIT)S O3 *)L)GA+ION TO TAB) 9LA+)?
456 T$e initiative to substitute co"es #ro" t$e old debtor(
4;6 All t$e &arties concerned "ust consent or agree(
4=6 T$e old debtor "ust be released #ro" t$e obligation(
WHAT IS TH) ,IGHT O3 TH) N)W *)BTO, IN *)L)GA+ION?
T$e ne% debtor is entitled to #ull rei"burse"ent and subrogation(
WHAT IS TH) )33)+T O3 TH) N)W *)BTO,AS INSOL:)N+/ IN *)L)GA+ION?
Generally, t$e old debtor is not liable #or insolvency o# t$e ne% debtor( Ta'e note t$at non1
#ul#ill"ent due to ot$er causes is not "entioned in Art( 5;ID(
T$e e>ce&tions to t$is rule are, i# 4a6 t$e insolvency %as already e>isting and &ublicly 'no%n8 and
i# 4b6 t$e insolvency %as already e>isting and 'no%n to t$e old debtor( T$ese e>ce&tions are intended to
&revent #raud on t$e &art o# t$e old debtor(
WHAT A,) TH) *I33),)N+)S B)TW))N *)L)GA+ION AN* )F9,O0ISION?
>6pro*ision Dele#a&ion
+$ange o# t$e debtor $as no consent or against t$e
%ill o# t$e latter(
+$ange o# debtor at t$e latterAs initiative
Ne% debtor entitled only to bene#icial
rei"burse"ent
Ne% debtor entitled to #ull bene#icial rei"burse"ent
Old debtor not liable #or ne% debtorAs insolvency Old debtor liable #or ne% debtorAs insolvency i#
suc$ #ace %as e>isting at t$e ti"e o# t$e substitution
or o# &ublic'no%ledge(
S>R<IC>?ID> SP>CIALISTS <. IAC 1(4 SCRA 59
@a&ts+ Siton boug$t a car #ro" +ar Traders 9$ili&&ines #or 9;DB do%n &ay"ent and t$e balance o#
9MH,CJJ,in M "ont$ly install"ents o# 95,IJJ( He issued a &ro"issory note t$at stated t$at de"and is no
longer needed in recogni@ing t$e loan and t$e 5CL interest in t$e obligation( As #urt$er security, a c$attel
"ortgage o# t$e car %as e>ecuted in #avor o# +ar Traders 9$ili&&ines( T$e c$attel "ortgage trans#erred
#ro" +ar Trader to anot$er until it landed %it$ Service%ide S&ecialist Inc(
Siton sold t$e car to -udge *u"o and t$e latter used $is &ersonal s$ec's to &ay SitonAs loan( -udge
*u"o de#aulted on t$e &ay"ent, &etitioners #iled a case against Siton and *u"o( Siton sets u& t$e de#ense
t$at t$ere %as novation(
Iss%e+ ?DN there .as novation
R%lin#+ None. T$e &urc$ase o# t$e car by res&ondent de *u"o #ro" res&ondent Siton does not necessarily
i"&ly t$e e>tinguis$"ent o# t$e liability o# t$e latter( Since it %as neit$er establis$ed nor s$o%n t$at Siton
%as released #ro" res&onsibility under t$e &ro"issory note, t$e sa"e does not constitute novation(
Li'e%ise, t$e #act t$at &etitioner co"&any acce&ts &ay"ents #ro" a t$ird &erson li'e res&ondent de *u"o&,
%$o $as assu"ed t$e obligation, %ill result "erely to t$e addition o# debtors and not novation( Hence, t$e
creditor "ay t$ere#ore en#orce t$e obligation against bot$ debtors(
AJA; BARG>TING <. CA 045 SCRA 000
@a&ts+ /lang1ylang 0erc$andising +o"&any, a &artners$i& bet%een rodrigue@ and Tan obtained a loan o#
9;DJB #ro" 0etroban' and Trust +o"&any by underta'ing a real estate "ortgage over t$eir &ro&erty in
9aco 0anila( A#etr so"e ti"e, t$e &artners$i& beca"e Aja> 0ar'eting +o"&any %it$ t$e sa"e o%ners(
55I
T$is ti"e t$ey borro%ed 95DJB secured by t$e sa"e real estate "ortgage( Still #urt$er, t$e co"&any %as
turned into Aja> 0ar'eting and *evelo&"ent +or&oration %it$ t$e sa"e &artners &lus t$ree 4=6 ot$er
"e"bers( Again t$e co"&any obtained a loan #or 9MJJB %it$ t$e use o# t$e sa"e real estate "ortgage(
S$ortly a#ter t$e t$ird loan, t$e t$ree loans %ere consolidated into one loan a"ounting to 950(
T$e ban'As &resident and t$e co"&anyAs treasurer signed t$e ne% &ro"issory note( T$e co"&any
subse7uently could n&t &ay t$e loan and t$e ban' "oved to #oreclose t$e land( T$e co"&any raised t$e
de#ense o# novation since t$e consolidation %as to t$eir "ind, a novation o# t$e real estate "ortgage, t$us
t$e land could not be #oreclosed(
Iss%e+ ?DN the &onsolidated pro*issory note &onstit%tes novation
R%lin#+ No. T$e rule is t$at in novation it is i"&erative t$at t$e ne% obligation e>&ressly declares t$at t$e
old obligation is e>tinguis$ed, or t$at t$e ne% obligation is inco"&atible %it$ t$e old one( No%$ere in t$e
consolidated loan did it state t$at t$e real estate "ortgage %as novated( In #act t$e consolidated contract
re#er to t$e &arties as "ortgagor and "ortgagee( Nor can it be said t$at t$e contract is inco"&atible %it$ t$e
old one because t$e object, creditor and debtors are still t$e sa"e( T$us, t$ere %as no novation(
Art. 108!. ?hen the prin&ipal o"li#ation is e6tin#%ished in &onse:%en&e o) a novation'
a&&essory o"li#ations *ay s%"sist only inso)ar as they *ay "ene)it third persons .ho did not
#ive their &onsent.
Art. 108(. I) the ne. o"li#ation is void' the ori#inal one shall s%"sist' %nless the parties
intended that the )or*er relations sho%ld "e e6tin#%ished in any event.
Art. 1085. The novation is void i) the ori#inal o"li#ation .as void' e6&ept .hen ann%l*ent
*ay "e &lai*ed only "y the de"tor' or .hen rati)i&ation validates a&ts .hi&h are voida"le.
Art. 1088. I) the ori#inal o"li#ation .as s%"$e&t to a s%spensive or resol%tory &ondition' the
ne. o"li#ation shall "e %nder the sa*e &ondition' %nless other.ise stip%lated.
Art. 1199. S%"ro#ation o) a third person in the ri#hts o) the &reditor is either le#al or
&onventional. The )or*er is not pres%*ed' e6&ept in &ases e6pressly *entioned in this Code/
the latter *%st "e &learly esta"lished in order that it *ay ta7e e))e&t.
WHAT IS S.B,OGATION?
Subrogation is e##ected by c$anging t$e &erson o# t$e creditor( It is t$e trans#er to a t$ird &erson o#
all rig$ts a&&ertaining to t$e creditor, including t$e rig$t to &roceed against guarantors, or &ossessors o#
"ortgages, subject to any legal &rovision or any "odi#ication t$at "ay be agreed u&on(
WHAT A,) TH) BIN*S O3 S.B,OGATION A++O,*ING TO +A.S) O, O,IGIN?
456 +ON:)NTIONAL or :OL.NTA,/( T$is is "ade %it$ t$e consent o# all t$e &arties(
4;6 L)GAL( T$is ta'es &lace by o&eration o# la%(
WHAT A,) TH) BIN*S O3 S.B,OGATION A++O,*ING TO ITS )FT)NT?
456 Total
4;6 9artial subrogation
Art. 1191. Conventional s%"ro#ation o) a third person re:%ires the &onsent o) the ori#inal
parties and o) the third person.
WHAT IS +ON:)NTIONAL S.B,OGATION?
+onventional subrogation o# t$ird &erson re7uires t$e consent o# t$e original &arties and o# t$e
t$ird &erson( 4Art(5=J56
5;J
WH/ IS TH) +ONS)NT O3 ALL TH) 9A,TI)S N)+)SSA,/?
T$e debtorAs consent is necessary because $e beco"es liable under a ne% obligation %$ile t$e old
obligation ends(
T$e old creditorAs consent is necessary because $is credit is a##ected( T$e ne% creditor no%
beco"es a &arty to t$e obligation(
WHAT A,) TH) *I33),)N+)S B)TW))N +ON:)NTIONAL S.B,OGATION AN*
ASSIGN0)NT O3 +,)*IT?
ASSIGNB>NT O@ CR>DIT CON<>NTIONAL SEBROGATION
T$ere is "ere trans#er o# t$e sa"e rig$t or credit8
only one continuing obligation
)>tinguis$ed t$e old obligation and creates a ne%
one
T$is does not re7uire t$e debtorAs consent8 "ere
noti#ication to $i"
,e7uires t$e debtorAs consent
T$e de#ect in t$e credit or rig$ts is not si"&ly by
assigning t$e sa"e8 debtor $as still t$e rig$t to
&resent against t$e ne% creditor any de#ense
available against t$e old debtor as t$ere is still one
and t$e sa"e obligation
T$e de#ect in t$e old obligation "ay be cured in
suc$ a %ay t$at t$e ne% obligation beco"es entirely
valid8 de#enses available in t$e #irst obligation is not
available at t$e ti"e t$e second is entered into
LICAROS <. GATBAITAN GR NO.140515
@a&ts+ Licaros, a business"an, invested in an o##1s$ore ban'ing institution, Anglo1Asean Ban' around
t$e 5IHJAs( 0uc$ to $is dis"ay, $e $ad a $ard ti"e "eeting t$e interest "uc$ "ore $is initial invest"ent(
He oug$t t$e $el& o# Gat"aitan to recover $is invest"ent in Anglo1Asean( Gat"aitan agreed to $el& and
t$ey entered into a "e"orandu" o# agree"ent( .nder t$e said agree"ent, Gat"aitan gave a surety t$at in
case $e could not &ay t$e 9=(D0, %$ic$ re&resented t$e &rinci&al o# LicarosA account( T$e latter is entitled
to t$e dividends o# $is stoc's in a certain li#e insurance &olicy( In return, Gat"aitan is entitled to 'ee& all
#unds t$at $e could recover in t$e said doo"ed invest"ent o# Licaros in t$e said ban'(
As it turns out, Gat"aitan could not also recover t$e "oney invested in t$e said ban' because o#
%$ic$ $e did not &ay Licaros t$e 9=(D0( Not $aving &aid by Gat"aitan, Licaros "oved to en#orce t$e
dividends agree"ent( Gat"aitan re#used to $ave $is dividends ta'en because $e believed t$at $e s$ould not
&ay Licaros since $e did not recover anyt$ing in t$e said ban'( Licaros %ent to court contending t$at t$e
agree"ent entered into is an assign"ent o# credit( Gat"aitan &osited t$at it %as a conventional subrogation(
Iss%e+ Is the a#ree*ent an Assi#ne*ent o) Credit or a Conventional S%"ro#ation
R%lin#+ It is a &onventional s%"ro#ation. T$e contract entered into $ad a %$ereas! clause t$at s$o%ed it
%as in a #or" o# a conventional subrogation, &lus t$e #act t$at at t$e botto" o# t$e contract t$e na"e o# t$e
ban' is one o# t$e con#or"e( Since no signature %as a##i>ed over t$e na"eo# t$e ban' as a re&resentative
t$ere#ore, t$e onsent o# t$e ban' %as not obtained and t$ereo#re t$e contract is ine##ective %it$out t$e
signature( Since t$e contract is one o# subrogation and t$e consent o# t$e debtor %as not ta'en, t$e said
contract is inco"&lete and unen#orceable(
Note< In assign"ent o# credit, t$e consent o# all &arties concerned need vot be obtained %$ile ia a
conventional subrogation t$e consent is essential to t$e e##ectivity o# t$e agree"ent(
WHAT I3 IT +ANNOT B) *)T),0IN)* I3 IT IS S.B,OGATION O, ASSIGN0)NT?
Assign"ent o# credit s$ould be &re#erred #or it $as advantages %it$out t$e corres&onding
disadvantages o# conventional subrogation( ,e"e"ber, novation is never &resu"ed(
Art. 1190. It is pres%*ed that there is le#al s%"ro#ation+
,1- ?hen a &reditor pays another &reditor .ho is pre)erred' even .itho%t the de"torKs
7no.led#e.
5;5
,0- ?hen a third person' not interested in the o"li#ation' pays .ith the e6press or ta&it
approval o) the de"tor.
,1- ?hen' even .itho%t the 7no.led#e o) the de"tor' a person interested in the
)%l)ill*ent o) the o"li#ations pays' .itho%t pre$%di&e to the e))e&ts o) &on)%sion as to
the latterKs share.
WH)N IS TH),) L)GAL S.B,OGATION?
Legal subrogation ta'es &lace by o&eration o# la%( It is &resu"ed t$at t$ere is legal subrogation<
5( W$en a creditor &ays anot$er creditor %$o is &re#erred, even %it$out t$e debtorAs 'no%ledge(
;( W$en a t$ird &erson, not interested in t$e obligation, &ays %it$ t$e e>&ress or tacit a&&roval o# t$e
debtor(
=( W$en, even %it$out t$e 'no%ledge o# t$e debtor, a &erson interested in t$e #ul#ill"ent o# t$e
obligations &ays, %it$out &rejudice to t$e e##ects o# con#usion as to t$e latterAs s$are(
WHAT +O.L* B) AN INSTAN+) WH)N A +,)*ITO, HAS 9AI* ANOTH), +,)*ITO, WHO IS
9,)3),,)*?
In subrogation, t$e conce&t is t$e ac7uisition o# credit and co"es %$atever t$e credit is and not
$o% "uc$ t$e ne% creditor &ays(
)>a"&le< 0aro $as ; creditors, +$arles, %$o is a "ortgage creditor only #or 95=,JJJ, and :al, %$o is an
ordinary creditor o# 9M,JJJ( :al, %it$out 0aroAs 'no%ledge &aid 0aroAs debt o# 95D,JJJ to +$arles( :al is
t$us subrogated in t$e rig$ts o# +$arles %$ic$ "eans :al %ill $i"sel# no% be a "ortgage creditor #or
95D,JJJ and an ordinary creditor #or 9M,JJJ( :al can $ave t$e "ortgage #oreclosed in t$e event 0aro #ails
to &ay(
Su&&ose in t$e sa"e e>a"&le, :al &aid +$arles only 95=,JJJ #or 0aroAs total indebtedness, and +$arles
agreed because o# #riends$i&, :al "ay success#ully recover t$e %$ole a"ount o# 95D,JJJ #ro" 0aro
because $e ste&s co"&letely into +$arles stin'ing s$oes(
Ho%ever, i#, at t$e ti"e :al &aid t$e 95=,JJJ t$oug$ 0aroAs debt $as been reduced to 9=,JJJ na lang
because o# &rior &artial &ay"ents, only 9=,JJJ "ay be recovered by :al #ro" 0aro as it %as $is #ault t$at
$e did not #irst in#or" 0aro o# $er intention to &ay( His re"edy is to recover #ro" +$arles(
WHAT +O.L* B) AN INSTAN+) WH)N A THI,* 9),SON, NOT INT),)ST)* IN TH)
OBLIGATION, 9A/S WITH TH) )F9,)SS O, TA+IT A99,O:AL O3 TH) *)BTO,?
Here, %$atever is &aid is recovered( T$ere is, t$ere#ore, rei"burse"ent and subrogation(
)>a"&le< B- o%es Nina 95JJJJ secured by a "ortgage( +y, %it$ t$e a&&roval o# B-, &aid Nina t$e
95JJJJ( +y is subrogated in NinaAs &lace as &aid o## %it$ t$e a&&roval o# t$e debtor(
I# +y, %$o is NinaAs #riend, &aid only 9NJJJ #or t$e e>tiguis$"ent o# B-As obligation, but t$e
&ay"ent %as %it$out t$e e>&ress or tacit a&&roval o# B-, no legal subrogation ta'es &lace( All t$e +y can
recover is t$e a"ount %it$ %$ic$ s$e is to be rei"bursed( I# B- does not &ay, +y cannot $ave t$e "ortgage
#oreclosed #or no subrogation is e##ected(
WHAT +O.L* B) AN INSTAN+) WH)N ):)N WITHO.T TH) BNOWL)*G) O3 TH) *)BTO,,
A 9),SON INT),)ST)* IN TH) 3.L3ILL0)NT O3 TH) OBLIGATION 9A/S, WITHO.T
9,)-.*I+) TO TH) )33)+TS O3 +ON3.SION AS TO TH) LATT),AS SHA,)?
Here, t$e &erson &aying beco"es t$e ne% creditor(
)>a"&le< 9aul o%es -ay 95JB secured by a "ortgage and by t$e guarantee o# Angelo( I# Angelo,
%it$out 9aulAs 'no%ledge, &ays -ay 95J,JJJ, Angelo %ill be subrogated in -ayAs &lace( T$e guarantee is
e>tinguised #or t$e states8 Wit$out &rejudice to t$e e##ects o# con#usion as to t$e latterAs s$are in t$e
obligation!(
Art. 1191. S%"ro#ation trans)ers to the person s%"ro#ated the &redit .ith all the ri#hts
thereto appertainin#' either a#ainst the de"tor or a#ainst third persons' "e they #%arantors
or possessors o) *ort#a#es' s%"$e&t to stip%lation in a &onventional s%"ro#ation.
5;;
Art. 1194. A &reditor' to .ho* partial pay*ent has "een *ade' *ay e6er&ise his ri#ht )or
the re*ainder' and he shall "e pre)erred to the person .ho has "een s%"ro#ated in his pla&e
in virt%e o) the partial pay*ent o) the sa*e &redit.
WHAT IS TH) ,.L) ,)GA,*ING 9A,TIAL 9A/0)NT?
A creditor to %$o" &artial &ay"ent $as been "ade, "ay e>ercise $is rig$t #or t$e re"ainder, and
$e s$all be &re#erred to t$e &erson %$o $as been subrogated in $is &lace in virtue o# t$e &artial &ay"ent o#
t$e sa"e credit( 4Art 5=JC6
T$ere are t%o 4;6 creditors in t$is case<
5( T$e old creditor, %$o still re"ains a creditor as to t$e balance 4because only &artial &ay"ents $as been
"ade to $i"6(
;( T$e ne% creditor %$o is a creditor to t$e e>tent o# %$at $e $ad &aid t$e creditor(
)>a"&le< Angel o%es 0ar' 9DJJJ( Wit$ t$e consent o# bot$, :al &ays 0ar' 9;,DJJ( 0ar' and :al are
no% creditors o# Angel to t$e a"ount o# 9;,DJJ( In case Angel $as only 9;,DJJ, 0ar', t$e original
creditor, %ould be &re#erred in as "uc$ as $e is granted by t$e la% &re#erential rig$ts to recover t$e
re"ainder, over t$e &erson subrogated in $er &lace by virtue o# t$e &artial &ay"ent o# t$e sa"e credit(
5;=

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OBLIGATIONS AND CONTRACTS Atty. Joseph San Pedro

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