CIVIL LAW REVIEW 2 Notes
[ATTY. CRISOSTOMO A. URIBE]
I. OBLIGATIONS
[June 18, 2008]
A. IN GENERAL:
1. DEFINITION:
Article 1156. an obligation is a juridical
necessity to give, to do or not
to do.
 Defines CIVIL Ø; “JURID. NECESSITY”
makes it enforceable by court action;
Balane: Book IV starts w/ an inaccuracy. It gives the
impression that obligations & contracts are of the same
status, w/c they are not. A contract is only one of the
sources of obligations. Book IV should have been
simply titled "Obligations."
Etymology – two Latin words, ligare, meaning "to
bind"
& ob w/c is a proposition used to
intensify a verb.
Literally obligare means "to bind
securely."
Tolentino: the juridical tie between two or more
persons, by virtue of which one of them, the creditor or
oblige, has the right to demand of the other, the debtor
or obligor, a definite prestation.
Manresa: legal relation established between one
party and another whereby the latter is bound to the
fulfillment of a prestation which the former may
demand of him.
Arias Ramos: [more complete definition, accdg to T,
whch gives the element of responsibility essential to an
Ø]
An Ø is a juridical relation whereby a person
(called the creditor) may demand from another
(called the debtor) the observance of a
determinate conduct, and in case of breach, may
obtain satisfaction from the assets of the latter.
 Where there is a right or power to demand,
there is a correlative Ø or an imposition
upon a person of a definite conduct.
Balane: A better definition would be,
An obligation is a juridical relation (bec.
there are 2 parties) whereby a person
should engage or refrain fr. engaging in a
certain activity for the satisfaction of the
private interests of another, who in case of
non-fulfillment of such duty may obtain fr.
the patrimony of the former through
proper judicial proceedings the very
prestation due or in default thereof, the
economic equivalent (damages) that it
represents. (Diaz Piero.)
Obligation (Ø) – is a juridical relation whereby a
person (called the creditor) may demand from another
(debtor) the observance of determinate conduct, and in
case of breach, may obtain satisfaction from the assets
of the latter.
Characteristics of an Obligation:
 It represents an exclusively private interest
 It creates ties that are by nature transitory
 It involves the power to make the juridical tie
effective in case of non-fulfillment through an
economic equivalent obtained fr. the debtor's
patrimony.
Essential Elements of an Obligation:
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(1) Active Subject – This refers to the creditor or the
obligee.
 A creditor generally used in an obligation to
give
 while obligee is used in an obligation to do
(2) Passive Subject – This refers to the debtor or the
obligor.
 debtor is used in an obligation to give
 while obligor is used in an obligation to do
The first two elements must be determinate or
determinable. The following are possible
combinations:
 Both parties are determined at the time of
the execution of the obligation.
 one party is determined at the constitution
of the obligation & the other to be
determined subsequently in accordance w/
a criteria that is previously established.
 the subject is determined in accordance w/
his relation to a thing & therefor it changes
where the thing passes fr. one person to
another. This is a property-linked
obligation.
(3) Object of the obligation - the conduct or activity
that must be observed by the debtor, this is always an
activity or conduct, the prestation.
Requisites of an object:
 It must be licit.
 It must be possible.
 It must be determinate or determinable.
 It must have pecuniary value so that if not
performed it is converted into damages.
(4) Vinculum juris - the legal tie, whereby upon
default or refusal of the debtor to perform, the creditor
can go to court.
 When a person says "I promise to pay
you when I like to," there is no
obligation here bec. there is no
vinculum juris.
 Juridical tie, the efficient cause
established by the various sources of
Ø’s
> by virtue of which the debtor is
bound in favor of the creditor to
perform the prestation.
Efficient cause / vinculum  may either be
relation established by:
1. Law (e.g. marital relation giving rise to
Ø for support;
2. Bilateral acts (e.g. contracts give rise
to the Øs stipulated therein)
3. Unilateral acts (e.g. crimes and quasi-
delicts)
** All the above 3/4 elements are agreed upon by
commentators as essential elements. The following two
are being debated.
(i) Causa debendi/ obligationes (Castan) –
This is what makes the obligation demandable.
This is the proximate why of an obligation.
(ii) Form - This is controversial. This is
acceptable only if form means some
manifestation of the intent of the parties.
[TOLENTINO:
Ø “to give”  prestation consists in the delivery of a
movable or an immovable thing in order to create a
real right, orfor the use of the recipient, or for
possession, or to return to its owner; e.g. Ø to deliver
the thing in a © of sale, deposit, lease, antichresis,
pledge and donation.
Ø “to do”  incl. all kinds of work or services. E.g.
© of employment or professional services.
Ø “not to do”  consists in abstaining from some
act, e.g. duty not to create a nuisance;
Requisites of a prestation: & effect
1. it must be possible, physically and juridically cannot be
2. it must be determinate, or atleast can be enforced
compelled by
determinable; and by court action
court action but
Enforceability or the coercive
3. it must have a positive equivalent in money. power of public
depends upon
(susceptible of pecuniary appreciation) good conscience
authority
of the debtor
Positive Law – valid legal laws enacted by the
legislative department; Illicit Ø’s  Ø’s which are contrary to morals and
good customs do not constitute natural Ø’s, whatver is
Natural Ø – not sanctioned by any action but paid under such Ø’s can be recovered, (apply Art.
have a relative juridical effect; 1414, 1411, 1412.)
 do not grant the right of action to
enforce their performance but after (b) CIVIL OBLIGATIONS:
voluntary fulfillment by their obligor,
they authorize the retention of what Article 1157. Obligations arise from:
has been delivered or rendered by (1) Law; (Ø’s ex lege)
reason thereof (Art. 1423); (2) Contracts;
(3) Quasi-contracts;
2. KINDS OF OBLIGATIONS AS TO BASIS & (4) Acts or omissions punished by
ENFORCEABILITY law; and
(5) Quasi-delicts.
(a) NATURAL OBLIGATIONS
SOURCES OF Ø’s:
Article 1423. Obligations are civil or natural. 1. LAW:
Civil obligations give a right of action to Article 1158. Obligations derived from law
compel their performance. are not presumed. Only those expressly
Natural obligations, not being based on determined in this Code or in special laws
positive law but on equity and natural law, do are demandable, and shall be regulated
not grant a right of action to enforce their by the precepts of the law which
performance, but after voluntary fulfillment by establishes them; and as to what has not
the obligor, they authorize the retention of been foreseen, by the provisions of this
what has been delivered or rendered by reason Book.
thereof. Some natural obligations are set forth
in the following articles. (Arts. 1423 – 1430   an agreement is not necessary in
not exclusive enumeration; some others…) order that a party may demand
from another the fulfillment of an
Requisites of Natural Ø: Ø arising from the application of a law
1. there is a juridical tie between two persons in the circumstances;
2. the tie is not given effect by law
 an Ø w/o a sanction, susceptible of Balane: Law as a source of obligation – It is my
voluntary performance, but not thru opinion that there is an overlap in the enumeration
compulsion by legal means. bec. all obligations arise fr. law. Law is the only source
of obligation, in the ultimate sense. But, as a
Voluntary fulfillment – may be understood as proximate source, there are five sources of obligations.
spontaneous, free from fraud or coercion or it may Law is both the ultimate & a proximate source of
be understood as meaning without knowledge or obligations.
free from error;
- w/knowledge that he cannot be compelled to Sources of Obligations according to Sanchez
Roman.-- Law & Acts. The latter are further classified,
pay Ø; as follows:
RATIO: “reputation” (clan) (1) licit acts created by concurrence of wills (contracts);
(2) licit acts either voluntary or involuntary w/o
Natural Ø vs. Moral Ø: concurrence of wills (quasi-contract);
Natural Ø Moral Ø (3) illicit acts of civil character w/c are not punishable,
voluntary or involuntary (torts & all damages arising fr.
Juridical tie Exists none delay);
Performance legal act of pure (4) illicit acts w/c are voluntary & are punishable by law
by debtor fulfillment of liberality which (crimes)
an Ø springs from
blood, affection Baviera: When the source of the obligation is Law, there
or benevolence is no need for an act or omission for the obligation to
Basis of Within the entirely domain arise.
existence of domain of law of morals CASE:
Ø
Enforceability True Ø but for moral duty is SAGRADA ORDEN VS. NACOCO [91 P 503]
certain causes inexistent in
cannot be the juridical Plaintiff owned disputed property in Pandacan, Mla whc
enforced by point of view was acquired during the Japanese occupation by Taiwan
law Tekkosho with TCT. When RP was ceded to USA, the
Examples of natural Ø’s: same was entrusted to Alien Property Custodian, APC by
 Support of a natural child the US govt. APC took possession, control and custody
under the Trading with the Enemy Act. APC allowed
 Indemnification of a woman seduced
Copra Export Management Co. to occupy the property
 Support of relatives, by consanguinity or for a fee. RP later made representation with APC to use
affinity the same property with warehouse. The warehouse was
repaired by NACOCO and was leased to Dioscoro Sarile.
CIVIL Ø’s NATURAL Ø’s The latter failed to pay rentals on the property.
Source of From positive from equity and In an action to recover possession of the property, the
binding force law natural justice court nullified the sale to T.Tekkosho and cancelled its

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TCT and ordered reversion of title to plaintiff, and right
of recovery from NACOCO of rentals to the property.
ISSUE: WON NACOCO is liable to pay back
rentals?
HELD: If def.-appellant (NaCoCo) is liable at all, its
obligations must arise fr. any of the 4 sources of
obligations, namely, law, contract or quasi
contract, crime, or negligence. (Art. 1089, OCC.)
As to crimes: Def.-appellant is not guilty of any offense
at all, bec. it entered into the premises & occupied it w/
the permission of the entity w/c had the legal control &
admin. thereof, the Alien Prop. Admin. (APA)
As to QD: Neither was there any negligence on its part.
As to Contract: There was also no privity (of contract
or obligation) bet. the APA & Taiwan Tekkosho, w/c had
secured the possession of the prop. fr. the pltff-appellee
by the use of duress, such that the Alien Prop. Custodian
or its permittee (def.-appellant) may be held responsible
for the supposed illegality of the occupation of the prop.
by said Tekkosho.
The APA had the control & admin. of the prop. not as
successor to the interests of the enemy holder of the
title, the T. Tekkosho, but by express provision of law.
Neither is it a trustee of the former owner, the pltff-
appellee herein, but a trustee of the US Govt., in its own
right, to the exclusion of, & against the claim or title of,
the enemy owner. From Aug. 1946, when def.-appellant
took possession, to the date of the judgment on 2/28/48,
the APA had the absolute control of the prop. as trustee
of the US Govt., w/ power to dispose of it by sale or
otherwise, as though it were the absolute owner.
Therefore, even if def. were liable to the APA for rentals,
these would not accrue to the benefit of the pltff., the
old owner, but the US Govt.
Balane: Is the enumeration in Art. 1157
exclusive or merely illustrative?
Doctrine: The sense that the case of Sagrada
Orden tells us is that the enumeration is
exclusive.
In resolving the issue of whether the def. should
be liable to pay rentals, the SC used the process of
exclusion. For there to be an obligation to pay rentals,
that obligation must arise fr. either of the five (5)
sources of obligations. If it does not, then there is no
obligation. The clear implication of this ruling is
that, these five (5) are the only sources of
obligations.
The problem w/ Art. 1157 is that it might not cover all
situations. For example: Carale uses Dove as his soap.
He then hears an advertisement fr. Proctor & Gamble
that it is offering a nice tumbler for those who can
collect 30 wrappers of Tide before Feb. 29, 1996. So,
Carale stopped using Dove & started using Tide. He was
able to consume all 30 wrappers on Feb. 29, 1996. He
then went to Proctor & Gamble (P & G) to exchange the
30 Tide wrappers for a tumbler. But P & G told Carale
that their tumblers run out of stock. Carale contracted a
skin allergy as a result of using Tide in taking a bath.
The question is: Does P & G have any obligation to
Carale. If we look at Art. 1157, this situation does not
fall in any of the five sources. So, we know have a
problem. The German Civil Code (BGB) covers this
situation. The BGB has a sixth source of obligation, the
Auslobung, w/c means a unilateral offer.
2. CONTRACTS: ©
Article 1159. Obligations arising from
contracts have the force of law between
the contracting parties and should be
complied with in good faith.
Article 1305. A contract is a meeting of
minds between two persons whereby one
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binds himself, with respect to the other,
to give something or to render some
service.
Negotiation of © is initiated by an OFFER;
Autonomy of Will  supposing the contract is valid
and enforceable, the terms of © not contrary to law,
morals, GC, PP or PO, the stipulations therewith shd be
given effect. (one of fundamental principles of ©’s)
Balane: There are two parts in Art. 1159.
 obligations derived fr. contract has the
force of law bet. the contracting parties
(jus civili )
 there must be compliance in good faith
(jus gentium.)
CASE:
PEOPLE'S CAR VS. COMMANDO SECURITY [51
SCRA 40]
Pltff. (People's Car) was in law liable to its customers for
the damages caused the customer's car, w/c had been
entrusted into its custody. Pltff. therefore was in law
justified in making good such damages & relying in turn
on def.(Commando Security) to honor its contract &
indemnify it for such undisputed damages, w/c had been
caused directly by the unlawful & wrongful acts of def.'s
security guard in breach of their contract.
WON commando security is liable to damages in
accordance w/ provisions of ©/ whc provision/
3. QUASI-CONTRACTS:
Article 1160. Obligations derived from
quasi-contracts shall be subject to the
provisions of Chapter 1, Title XVII, of this
Book.
QUASI-CONTRACT is a juridical relation which arises
from certain unlawful, voluntary and unilateral acts, to
the end that no one may be unjustly enriched or
benefited at the expense of another.
The act must be:
(1) Lawful – thus different from delict which is
unlawful;
(2) Voluntary – thus different from quasi-
delict which is based on fault or negligence
or lack of foresight;
(3) Unilateral – thus different from contract,
in which parties agree.
e.g. in negotiorum gestio:
 Benefits Conferred Voluntarily
 For preservation of Property or Business
EXTRA-CONTRACTUAL OBLIGATIONS
(Øs without an agreement / based in IMPLIED
CONSENT)
Q: HOW MANY?
A: In NCC, 2 nominate and “some” innominate
QC’s
a. Quasi-contracts
Article 2142. Certain lawful, voluntary and
unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the
expense of another.
Article 2143. The provisions for quasi-
contracts in this Chapter do not exclude other
quasi-contracts which may come within the
purview of the preceding article.
b. Negotiorum Gestio
Article 2144. Whoever voluntarily takes
charge of the agency or management of the
business or property of another, without any
power from the latter, is obliged to continue
the same until the termination of the affair and
its incidents, or to require the person
concerned to substitute him, if the owner is in
a position to do so.
This juridical relation does not arise in
either of these instances: ELEMENTS –
(1) When the property or business is not
neglected or abandoned;
(2) If in fact the manager has been tacitly
authorized by the owner.
In the first case, the provisions of articles 1317,
1403, No. 1, and 1404 regarding unauthorized
contracts shall govern.
In the second case, the rules on agency in Title
X of this Book shall be applicable.
 NEGOTIORUM GESTIO – juridical relation
which arises whenever a person voluntarily
takes charge of an agency or management of
the business or property of another without
any power or authority from the latter.
c. Solutio indebiti
Article 2154. If something is received
when there is no right to demand it, and
it was unduly delivered through mistake,
the obligation to return it arises.
 SOLUTIO INDEBITI – juridical relation which
arise whenever person unduly delivers a thing
through or by mistake of another who has no
right to demand it.
4. ACTS OR OMISSIONS PUNISHED BY LAW
(DELICT or CRIMES  but not Felony whc is ltd.
To those punished under RPC ):
Article 1167. If a person obliged to do
something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he
does it in contravention of the tenor of
the obligation. Furthermore, it may be
decreed that what has been poorly done
be undone.
Balane: Crime as a source of obligation – There are
many crimes fr. w/c, civil liability arises in their
commission, in addition to the criminal penalty attached
to them. This underlines the two aspects in a crime:
one, as an offense against the state, & two as an
offense against the victim. It is in the latter case
that civil liability is recoverable.
 As far as crime is concerned, civil law is
not concerned w/ the penal liability but
only w/ the civil liability.
Performance at debtor’s cost  non-compliance
with Ø to do, creditor may do it himself or get a 3 rd
person at the expense of the debtor;
 when Ø to do can only be performed by debtor
he cannot compelled to do so by force, the only
remedy is damages;
Article 2177. Responsibility for fault or
negligence under the preceding article is
entirely separate and distinct from the civil
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liability arising from negligence under the Penal
Code. But the plaintiff cannot recover damages
twice for the same act or omission of the
defendant.
TITLE V - Civil Liability, RPC: CHAPTER
ONE - Persons Civilly Liable for Felonies
Article 100. Civil liability of a person guilty of
felony. - Every person criminally liable for a
felony is also civilly liable.
[CHAPTER 2, RPC: What Civil Liability
Includes]
Article 104. What is included in civil
liability. – The civil liability established in
articles 100, 101, 102, and 103 of this Code
includes:
1. Restitution;
2. Reparation of the damage
caused;
3. Indemnification for
consequential damages.
Baviera: Requisites of enforcing the subsidiary
obligation of the employer under the RPC:
criminal case was filed against the EE
the act or negligence arose during or in connection w/
the performance of the latter’s employment
the EE is found guilty of criminal negligence
a writ of execution has been returned unsatisfied, i.e. EE
has been found to be insolvent.
There is no res judicata as regards the ER as there is a
difference in the COA. Quasi-delict (QD) differs fr. an
action based on delict on the following grounds:
QUASI DELICT DELICT
it is subsidiary (imputed) ER’s liability is primary in
RPC
Diligence of good father of In RPC, such defense of
the family may be set up GFF is not available
by the ER as a defense
A person while not criminally liable may still
be civilly liable  Failure of the plaintiff to reserve
in the criminal case his right to file a separate civil
action is not fatal to the civil action after the
acquittal of the accused.
 When the acquittal is based on ground that the
guilt of the accused has not been proved
beyond reasonable doubt, plaintiff has the right
to institute a civil action for damages (culpa
aquiliana).
Q: Is it possible that even if there is a contract
bet. the parties, a quasi-delict can still be
committed by one against the other regarding the
area covered by the contract?
A: Yes, according to the case of Araneta v. de Joya,
57 SCRA 59. The same act can give rise to obligations
arising fr. different sources.
For example, Alinea is the owner of a bus co., the Alinea
Bus Co., Molina is a driver of one of the buses of Alinea
Bus Co. Lagdameo rode the bus being driven by Molina.
As a result of the reckless driving of Molina, Lagdameo
suffered injuries. In this case, Lagdameo has a choice--
he can sue on either contract, quasi-delict or on crime.
If he decided to sue on the breach of the contract of
carriage, all he has to prove is the (existence of the
contract) & that it was not performed. In this case, he
can sue the common carrier but not the driver bec. he
has no contract w/ the driver. If he sues on quasi-delict,
he can sue both the common carrier & the driver. The
defense of the driver would be diligence in driving (or
fortuitous event.) The defense of the common carrier
would be diligence in the selection & supervision of
employees. If he sues under crime, he has to sue the
driver. In case the driver is convicted & has been
sentenced to pay civil liability, the employer (Alinea Bus
Co.) is subsidiarily liable. If Molina is insolvent, Alinea
Bus Co. will pay.
 Notice that the choice of cause of action will
determine three things: the theory of the
plaintiff, the defense of the def. & the question
of whom to sue.
 Again, remember that in this case, the victim
has a choice. Provided that he is consistent w/
his theory & provided, further, that he cannot
recover damages twice for the same
injury.
Baviera: The terms of the contract cannot be against
mandatory & prohibitive laws. And if the contract is
valid, it shall have the force of law between the
contracting parties.
5. QUASI-DELICTS: (culpa aquiliana
negligence / torts*)
[NCC, CHAPTER 2 - Quasi-delicts]
Article 2176. Whoever by act or omission
causes damage to another, there being
fault or negligence, is obliged to pay for
the damage done. Such fault or
negligence, if there is no pre-existing
contractual relation between the parties,
is called a quasi-delict and is governed by
the provisions of this Chapter.
(memorize!)
Article 1162. Obligations derived from
quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this
Book, and by special laws.
* Torts is seldom used by SC in juris., it is
broader term for actionable wrong whc may not
be negligence, may be malicious tortuous act
whc is not anymore QD.
 QUASI-DELICTS – the fault or negligence of a
person who, by his act or omission connected
or not with, but independent from any
contractual relation, causes damage to another
person;
 The omission to do something which ordinarily
reasonable men guided by those considerations
whch ordinarily regulate the conduct of human
affairs, would do; or doing something which
prudent and reasonable men would not do.
 Liability on QD is based on Equity, man is
responsible not only for acts conscious and
intentional acts but also for his lack of foresight,
care and diligence which may cause harm to
another.
 ELEMENTS:
(1) A duty on the part of the defendant
to protect the plaintiff from the
injury of which the latter
complains;
(2) A failure to perform that duty, and
(3) An injury to the plaintiff through
such failure.
 TEST OF NEGLIGENCE: Would a prudent man,
in the position of the person on who negligence
is attributed, foresee harm to the person injured
as a reasonable consequence of the course
about to be pursued?
 KINDS OF NEGLIGENCE:
(1) Culpa aquiliana, also known as culpa
extra-contractual, or negligence as a
source of Ø, QUASI-DELICT;
 Governed by Arts. 2176-2194
 NO contractual relation at all
(2) Culpa contractual, or negligence in
the performance of a contractual Ø.
 Governed by Art. 1179 (common
carrier), & all on contracts
 PERSONS LIABLE: (IMPUTED/vicarious
LIABILITY, 2180)
1. father / mother
2. guardians
3. owners/managers
4. employers
5. the State
6. teachers
 The responsibility shall cease if they can prove
/ that they have observed diligence of good
father of the family to prevent damage;
REQUISITES OF LIABILITY (IMPUTED):
1. the fault of negligence of the defendant
2. the damage suffered or incurred by the
plaintiff
3. the relation of the fault or negligence and
damage incurred by the plaintiff
Balane:
The Code Commission did not choose to use
tort. This is bec. tort does not exactly have the same
meaning as quasi-delict. Tort [BROADER] covers
intentional torts w/c in quasi-delict is considered as
civil liability arising fr. acts or omissions punishable by
law. There are some QD w/c are not covered by tort.
Dean Bocobo suggested the ancient term culpa
aquiliana. But this did not merit the approval of the
Code Commission.
A TORT is a civil wrong (an actionable
wrong) consisting of a violation of a right or a
breach of duty for which the law grants a
remedy in damages or other relief. The right is
created by law in favor of a person called a
creditor to compel another called a debtor to
observe duty or a prestation either to render
what is due him or to refrain from causing him
injury.
Classes of Torts According to Manner of
Commission
1. Intentional Torts
a. tortfeasor desires to cause the
consequences of his act, or
b. tortfeasor believes that the
consequences are substantially
certain to result from it
c. ex. Art. 26, 32 & 33 (CC)
2. Negligent Torts:
d. tortfeasor’s conduct merely creates
a forseeable risk of harm which
may or may not occur
e. Art. 2176 (CC)
3. Strict Liability Torts:
f. ex. Art. 2183 & 2187 (CC)
Q: If there is a contract bet. the parties, can
there be a quasi-delict committed by one against
the other regarding the area covered by the
contract?
A: If you look at Art. 2176, you get the impression that
if there is a contract bet. the parties, they cannot be
liable for quasi-delict on an area covered by the
contract. The case of Cangco has not really resolve this
controversy.
Case:
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CANGCO VS. MANILA RAILROAD CO. [38 P 768] -
Balane: There are two important principles that we
learn fr. this case:
The difference in concept bet. contract & quasi-delict
is that in a contract, there is a pre-existing
juridical tie bet. the parties. Violation of the
contract gives rise to liability but not to the
juridical tie. Juridical tie is not borne by a
violation. In quasi-delict, it is precisely the
wrongful act w/c gives rise to the juridical
tie. Liability & juridical tie are simultaneous.
Contracts & quasi-delicts create two concentric circles
w/ quasi-delict as the bigger circle.
[Note: There is a little mistake in Cangco. The SC said
that the driver can be sued under culpa contractual.
This is wrong. The driver cannot be sued as he has no
privity of contract w/ the passenger.]
FACTS: Cangco was an EE of MRR Co. He takes the
train going home from work. That day he alighted from
the train while it was still slightly in motion. He landed
on the elevated platform on top of some sacks of
watermelon which made him fall violently, rolled away
from the platform under the moving train where he
badly crashed and lacerated his right arm. It happened
at night bet 7-8pm and d station was poorly lit.
Cangco’s arm was amputated twice. The seriousness of
his injury made him file a case for damages vs MRR Co.
HELD:
It can not be doubted that the employees of the
railroad company were guilty of negligence in piling
these sacks on the platform in the manner above
stated; that their presence caused the plaintiff to fall as
he alighted from the train; and that they therefore
constituted an effective legal cause of the injuries
sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby
occasioned unless recovery is barred by the
plaintiff's own contributory negligence.
It is important to note that the foundation of the
legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the
damage which plaintiff has suffered arises, if at all,
from the breach of that contract by reason of the
failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and
immediate, differing essentially, in legal viewpoint
from that presumptive responsibility for the negligence
of its servants, [RESPONDEAT SUPERIOR], which can
be rebutted by proof of the exercise of due care in their
selection and supervision. (presumption juris tantum,
rebuttable). Imputed liability in NCC is not applicable
to obligations arising ex contractu, but only to
extra-contractual obligations, or to use the technical
form of expression, that article relates only to culpa
aquiliana and not to culpa contractual.
Every legal obligation must of necessity be
extra-contractual or contractual. Extra-contractual
obligation has its source in the breach or
omission of those mutual duties which civilized
society imposes upon it members, or which arise
from these relations, other than contractual, of certain
members of society to others, generally embraced in
the concept of status.
The fundamental distinction between obligations of this
character and those which arise from contract, rests
upon the fact that in cases of non-contractual
obligation it is the wrongful or negligent act or
omission itself which creates the vinculum juris,
whereas in contractual relations the vinculum exists
independently of the breach of the voluntary duty
assumed by the parties when entering into the
contractual relation.
6
The contract of defendant to transport plaintiff
carried with it, by implication, the duty to carry
him in safety and to provide safe means of
entering and leaving its trains (contract of
carriage). That duty, being contractual, was direct and
immediate, and its non-performance could not be
excused by proof that the fault was morally imputable
to defendant's servants.
The railroad company's defense involves the
assumption that even granting that the negligent
conduct of its servants in placing an obstruction upon
the platform was a breach of its contractual obligation
to maintain safe means of approaching and leaving its
trains, the direct and proximate cause of the
injury suffered by plaintiff was his own
contributory negligence in failing to wait until the
train had come to a complete stop before alighting
(Doctrine of comparative negligence, Rakes
doctrine). If the accident was caused by plaintiff's own
negligence, no liability is imposed upon defendant's
negligence and plaintiff's negligence merely
contributed to his injury, the damages should be
apportioned. It is, therefore, important to ascertain if
defendant was in fact guilty of negligence.
The test by which to determine
whether the passenger has been guilty of
negligence in attempting to alight from a
moving railway train, is that of ordinary
or reasonable care. It is to be considered
whether an ordinarily prudent person, of
the age, sex and condition of the
passenger, would have acted as the
passenger acted under the circumstances
disclosed by the evidence. This care has
been defined to be, not the care which may or
should be used by the prudent man generally,
but the care which a man of ordinary prudence
would use under similar circumstances, to
avoid injury." (Thompson, Commentaries on
Negligence, vol. 3, sec. 3010.)
RULING: …that the train was barely moving when
plaintiff alighted is shown conclusively by the fact that
it came to stop within six meters from the place where
he stepped from it. Thousands of person alight from
trains under these conditions every day of the year,
and sustain no injury where the company has kept its
platform free from dangerous obstructions. There is no
reason to believe that plaintiff would have suffered any
injury whatever in alighting as he did had it not been
for defendant's negligent failure to perform its duty to
provide a safe alighting place.
CASE: Where there could still be QD even when
there is contract of carriage –
GUTIERREZ VS. GUTIERREZ [56 P 177]
FACTS:
A truck and a car collided on a narrow bridge. A
passenger of the truck was injured and filed a case. The
owner of the truck was made defendant although his
driver was driving the truck at that time and he was not
a passenger of the truck. The owner of the car was also
made defendant although the driver of the car at the
time of the collision was his son, 18 yrs. of age, w/ other
members of the family accommodated therein, but not
the car owner.
HELD: The court found both drivers negligent. The
owner of the truck was made liable for culpa
contractual, under the contract of carriage. The owner
of the car was made liable under Art. 2180, imputed
liability for culpa aquiliana.
FRAUD NEGLIGENCE
dolo Culpa
Nature of Act involves mere want of
willfulness or care or
deliberate diligence, not
intent to cause voluntary act
 damage or or omission moment of his act or default that an injury to
injury to some person might probably result therefrom."
another
Gives rise to Ø the act itself the want or
care or C. COMPLIANCE WITH OBLIGATIONS:
diligence
 A single act may be a crime and a Article 19. Every person must, in the
QD at the same time; (Art. 100, exercise of his rights and in the performance
RPC) of his duties, act with justice, give
 Injured party cannot recover everyone his due, and observe honesty
damages twice for the same act or and good faith.
omission of defendant; (must
choose 1 Rem.) Article 1163. Every person obliged to give
something is also obliged to take care of it
QUASI-DELICT CRIME with the proper diligence of a good father
As to private right public right of a family, unless the law or the stipulation
nature of the parties requires another standard of
of care.
Right
violat Article 1164. The creditor has a right to
ed the fruits of the thing from the time the
Is a the individual the State obligation to deliver it arises. However, he
Wrong shall acquire no real right over it until the
agains same has been delivered to him.
t
Crimin not needed Necessary Article 1165. When what is to be delivered
al is a determinate thing, the creditor, in
Intent addition to the right granted him by article
Legal Broad penal law 1170, may compel the debtor to make the
Basis necessary delivery.
for
liabilit If the thing is indeterminate or generic, he
y may ask that the obligation be complied with
Liabili every QD gives rise to there are crimes at the expense of the debtor.
ty for liability for damages without civil
Dama liability If the obligor delays, or has promised to
ges deliver the same thing to two or more
Form reparation for injury punishment/fine/i persons who do not have the same interest,
of suffered/indemnificatio mprisonment he shall be responsible for any fortuitous
Redre n/compensation event until he has effected the delivery.
ss
Quant preponderance beyond reasonable Article 1166. The obligation to give a
um of doubt determinate thing includes that of delivering
Eviden all its accessions and accessories, even
ce though they may not have been mentioned.
Compr can be compromised criminal liability
omise can never be
Balane:
compromised
Three types of obligations.-- (1) obligation to give;
(2) obligation to do; & (3) obligation not to do.
REQUISITES FOR LIABILITY: (onus)
(1) Wrongful act or omission imputable to the I. Obligation to give
defendant by reason of his fault or A. Specific thing
negligence; B. Generic thing
(2) Damage or injury proven by the person II. To do
claiming recovery;
III. Not to do (this includes all negative
(3) A direct causal connection between the obligations like obligation not to give.)
negligent act and the injury.
Kinds of performance.--
1. specific performance - performance
DOCTRINE OF PROXIMATE CAUSE  is that which, by the debtor himself ( applies only to Ø
in natural and continuous sequence, unbroken by any to give )
efficient intervening cause, produces injury and without
which the result would not have occurred. 2. substitute performance -
performance at the expense of the
The exemplification by the Court in one case is debtor
simple and explicit; viz: "(T)he proximate
legal cause is that acting first and producing 3. equivalent performance - grant of
the injury, either immediately or by setting damages
other events in motion, all constituting a
Articles 1163 - 1166 cover obligation to give.
natural and continuous chain of events, each
having a close causal connection with its Three Accessory Obligations:
immediate predecessor, the final event in the 1. Art. 1163.-- To take care of the thing w/
chain immediately affecting the injury as a the diligence of a good father of a family
natural and probable result of the cause which until actual delivery.
first acted under such circumstances that the
2. Art. 1164.-- To deliver the fruits to the
person responsible for the first event should, as creditor (fruits produced after obligation
an ordinarily prudent and intelligent person, to deliver arises.)
have reasonable ground to expect at the

7
 3. Art. 1166.-- To deliver accessions
accessories.
Balane:
 From the time the obligation arises, the
creditor has a personal right against the
debtor as to the fruits. But he has no real
right over them until actual delivery.
 Real right is a right w/c is
enforceable against the whole world.
He has only the personal right against the
debtor w/ regard to the undelivered fruits.
 This is bec. of the principle Non nudis
pactis, sed traditione, dominia rerum
transferentur (It is not by mere
agreement, but by delivery, is ownership
transferred.)
 Personal right arises fr. the time the
obligation to deliver arises whereas the real
right does not arise until actual delivery.
Articles 1165 - 1167.-- Remedies Available to the
Creditor (specific performance, substitute performance,
equivalent performance.)
A. In obligations to give
1. A determinate thing
a. Specific performance
b. Equivalent performance
2. A generic thing, all remedies are available
B. In an obligation to do, make a distinction:
In obligation to do, w/c is purely personal  only
equivalent performance is available
In an obligation to do w/c is not personal:
a. substitute performance
b. equivalent performance
Note: In obligations to do, specific performance is
not available.  The reason for this is that specific
performance will give rise to involuntary servitude.
C. Obligation not to do
1. substitute performance
2. equivalent performance.
 In all these cases, the creditor has the option of
resolution or rescission under Art. 1191. In
addition, he can also claim damages.
Article 1244. The debtor of a thing cannot
compel the creditor to receive a different one,
although the latter may be of the same value as,
or more valuable than that which is due.
In obligations to do or not to do, an act or
forbearance cannot be substituted by another
act or forbearance against the obligee's will.
Article 1245. Dation in payment, whereby
property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law of sales.
Article 1246. When the obligation consists in
the delivery of an indeterminate or generic
thing, whose quality and circumstances have not
been stated, the creditor cannot demand a thing
of superior quality. Neither can the debtor deliver
a thing of inferior quality. The purpose of the
obligation and other circumstances shall be
taken into consideration.
Article 1460. A thing is determinate when it is
particularly designated or physical segregated
from all others of the same class.
The requisite that a thing be determinate is
satisfied if at the time the contract is entered
& into, the thing is capable of being made
determinate without the necessity of a new or
further agreement between the parties
Article 442. Natural fruits are the
spontaneous products of the soil, and the young
and other products of animals.
Industrial fruits are those produced by lands of
any kind through cultivation or labor.
Civil fruits are the rents of buildings, the price
of leases of lands and other property and the
amount of perpetual or life annuities or other
similar income
NATURE AND EFFECTS OF Ø’s
OBJECT OF THE Ø:
1. to give  real Ø  determinate (specific)
or indeterminate (generic)
2. to do 
3. not to do  personal Ø  positive (to do)
or negative (not to
do)
REAL Ø:
a. DETERMINATE Ø – particularly designated from a
particular class;
PRINCIPAL Ø – to give (to deliver) a
determinate thing;
ACCESSORY Ø – exists even when not
expressly stipulated;
(1) Art. 1163 – to take care of the
thing with proper diligence of a good
father of the family;
(2) Art. 1164 – to deliver the fruits;
(441)  natural / industrial /
civil
 the Ø to deliver arises only if
the creditor is entitled;
(3) Art. 1166 – delivery of the
accessions and of the accessories (Art
440);
b. GENERIC THING  is one that is indicated only by
its kinds, without being distinguished from others of
the same kind. (indeterminate)
 In an Ø to deliver a generic thing, the object is
determinable; when delivered it becomes
determinate.
DELIMITED GENERIC  not totally generic nor
specific; oblig. To deliver one of SEVERAL things; does
not have designation nor physical segregation; Rule re
Fortuitous Events still apply.
DETERMINATION OF DILIGENCE REQUIRED:
(1) LAW  e.g. extra ordinary diligence required in
Common carriers
(2) Stipulation of Parties
(3) Presumed: diligence of a Good father of the
Family if none is specified/expressed by law or
agreement.
REAL RIGHT  is the power by a person over a
specific thing, susceptible of being exercised against
the whole world.
PERSONAL RIGHT  belongs to a person who may
demand from another, as a definite passive subject,
the fulfillment of a prestation.
 From the moment the Ø to deliver a
determinate thing arises, the creditors earns a
personal right over the thing and its fruits, but
only delivery or tradition transfers
ownership that is a real right over the thing
against the whole world.
8
  For failure to deliver, the creditor’s remedy is
not reivindicacion but specific performance.
[CHAPTER 2: Right of Accession –
GENERAL PROVISIONS]
Article 440. The ownership of property gives
the right by accession to everything which is
produced thereby, or which is incorporated or
attached thereto, either naturally or artificially.
Kinds of Fruits;
1) CIVIL – derived by virtue of juridical relation
2) Natural – spontaneous products of the soil and the
young and other products of animals;
3) Industrial – produced by lands of any kind through
cultivation or labor or by reason of human labor.
D. KINDS OF CIVIL OBLIGATIONS:
1. AS TO PERFECTION & EXTINGUISHMENT:
a. PURE –
(CHAPTER 3) Different Kinds of
Obligations
SECTION 1 - Pure and Conditional
Obligations
Article 1179. Every obligation whose
performance does not depend upon a future or
uncertain event, or upon a past event unknown
to the parties, is demandable at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of the
event.
Article 1197. If the obligation does not fix a
period, but from its nature and the
circumstances it can be inferred that a period
was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of
the period when it depends upon the will of the
debtor.
In every case, the courts shall determine such
period as may under the circumstances have
been probably contemplated by the parties.
Once fixed by the courts, the period cannot be
changed by them.
 A pure obligation is one w/c is not subject
to a condition or a term.
CASE: re Art. 1179, par. 2
PAY V. PALANCA [57 SCRA 618]
From the manner in w/c the P/N was executed, it would
appear that petitioner was hopeful that the satisfaction
of his credit could be realized either through the debtor
sued receiving cash payment fr. the estate of the late
Carlos Palanca presumptively as one of the heirs, or, as
expressed therein, "upon demand." (ALTERNATIVE
Ø)
There is nothing in the record that would indicate
whether or not the first alternative was fulfilled. What is
undeniable is that on 8/26/67, more than 15 yrs. after
the execution of the P/N on 1/30/52, this petition was
filed. The defense interposed was prescription. Its
merit is rather obvious. Art. 1179, par. 1 says so.
xxx
The obligation being due & demandable
(bec. Of the phrase “upon demand”), it would
appear that the filing of the suit after 15
yrs. was much too late.
9
PURE Ø  demandable at once  running of
Rx.pd. starts immediately upon creation of the
Ø;
Article 1179. Every obligation whose
performance does not depend upon a future or
uncertain event, or upon a past event unknown
to the parties, is demandable at once.
Q: Does the happening of a condition give rise to
the Ø?
A: Not necessarily, only if suspensive condi.; if
resolutory condi, the happening exctinguishes the Ø;
Q: In an Ø with a TERM will the answer above be the
same?
A:
b. CONDITIONAL
Article 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the happening of
the event which constitutes the condition.
Article 1182. When the fulfillment of the
condition depends upon the sole will of the
debtor, the conditional obligation shall be void.
If it depends upon chance or upon the will of a
third person, the obligation shall take effect in
conformity with the provisions of this Code.
Balane:  We are talking here of a suspensive
condition.
First sentence of Art. 1182.--
 The condition must be suspensive,
potestative & depends on the sole will of
the debtor.
EXAMPLE: "I promise to sell you my car for P1.00
whenever I like."
Q: Why does it make the obligation void?
A: Bec. such an obligation lacks one of the essential
elements of an obligation, the vinculum juris, the
binding force-- the means by w/c it is enforceable in
court. In this case, there is no binding force. There is no
obligation. It is a joke.
Potestative Condition  is one w/c depends solely on
the will of either one party.
EXAMPLE: " I will give you my plantation in
Davao provided you reside in Davao
permanently."
Casual Condition  is one where the condition is
made to depend upon a third person or upon chance.
EXAMPLE: "I will give you my land in
Floridablanca if Mt. Pinatubo erupts this year."
Mixed Condition  is one w/c depends partly upon the
will of one of the parties & partly on either chance or the
will of a third person.
Q: What if the condition is suspensive,
potestative & depends solely on the will of the
creditor, is the conditional obligation valid?
A: Yes. In fact, the obligation is not even a condition
obligation. It is a pure obligation, binding at once.
CASE: the term whc parties attempted to fix were so
uncertain it must be regarded as condition
SMITH BELL V. SOTELO MATTI [44 P 874]
 Where the fulfillment of the condition does
not depend on the will of the obligor, but
on that of a 3rd person who can, in no way
be compelled to carry it out, the obligor's
part of the contract is complied w/, if he
does all that is in his power, & it then
becomes incumbent upon the other
contracting party to comply w/ the terms
of the contract.
FACTS: Øs in ©s entered bet. Plaintiff Corp. as seller
and defendant as buyer:
© constituted on August 1918:
2 steel tanks 21K to be shipped fr NY delivered to
Mla
“w/in 3 or 4 mos.”
(Delivered; April 27, 1919)
Two expellers 25Kea to be shipped fr SF in Sept.1918
or ASAP (Delivered:Oct.
26. 1918)
2 electric motors 2K ea “Approx.delivery w/in
90days – This is not
guaranteed.” (Feb. 27, 1919)
 defendant refused to accept and pay deliveries b/c of
delay
HELD: At the constitution of the ©, the 1 W.War was
st
still ongoing and the US govt was rigid on exportation of
machinery such as the subjects of this ©; the term
whc parties attempted to fix were so uncertain it
must be regarded as condition, their fulfillment
depended not only upon the effort of plaintiff Co.
but upon that of the US govt, or 3rd person who
could in no way be compelled to issue certificate
of priority and permission. Thus the obligor will be
deemed to have sufficiently fulfilled his part of the Ø if
he has done all that is in his power even if condi.,in
reality was not fulfilled. And when time of delivery is not
fixed, stated in general terms or is indefinite, time is not
of the essence- delivery must be made w/in a
reasonable time.
Record shows that plaintiff did all w/in its power to have
machinery arrive in Mla. ASAP, and notified defendant of
such arrival STAT, court considered such as reasonable
time. Plaintiff was ordered to pay.
Article 1183. Impossible conditions, those
contrary to good customs or public policy and
those prohibited by law shall annul the
obligation which depends upon them. If the
obligation is divisible, that part thereof which is
not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing
shall be considered as not having been
agreed upon.
Balane:
This refers to a suspensive condition.
There are 2 classes of impossible conditions:
1. Impossible in fact
EXAMPLE: "I promise to sell my car to Mr. M for
P2 if he can swim across the Pacific Ocean for 2
hours."
2. Impossible in law  or one w/c attaches an
illegal condition
EXAMPLE: "I promise to sell my car to Mr. M for
P2 on condition that he burns the College of
Law."
Effect of Impossible Condition  It annuls the
obligation w/c depends upon them.
 The entire juridical tie is tainted by the
impossible condition. Correlate this w/ Articles
727 & 873.
Art. 727. Illegal or impossible conditions in
simple & remuneratory donations shall be
considered as not imposed.
Art. 873. Impossible conditions & those contrary
to law or good customs shall be considered as not
imposed & shall in no manner prejudice the heir,
even if the testator should otherwise provide.
10
Tolentino:
 In contracts, an impossible condition
annuls the contract.
 In gratuitous dispositions, the impossible
condition is simply disregarded.
Balane: The first statement is inaccurate bec. donation
is a contract & in a donation, the impossible condition
does not annul the contract. It is simply disregarded.
The proper way to say it is that:
 In an onerous transaction, an impossible
condition annuls the condition obligation.
 In a gratuitous disposition, as in a
donation or testamentary disposition, an
impossible condition attached to the
disposition is simply considered as not
imposed.
Q: Why is there a difference?
A: Bec. in a donation as well as in a testamentary
disposition, the causa or consideration is the liberality of
the donor or testator, as the case may be. Even if you
take away the impossible condition, there is still a
reason for the disposition to exist-- liberality. They
(donation & testamentary disposition) have both their
underpinnings, liberality.
But in an onerous transaction, since an onerous
prestation w/c is reciprocal requires concomitant
performances, that impossible condition becomes part
of the causa. Therefore, if the condition is impossible,
there is failure of causa. In no causa, there is also no
contract.
Paras:
 Positive suspensive condition to do an
impossible/ illegal thing  The obligation is
void (Art. 1183, par. 1.)
 A negative condition (not to do an
impossible thing)  Just disregard the
condition (Art. 1183, par. 2.)
 A condition not to do an illegal thing
(negative)  This is not expressly provided for
in the provision but is implied. The obligation is
valid.
EXAMPLE: "I will sell you a piece of land
provided you do not plant marijuana on it."
Article 1184. The condition that some
event happen at a determinate time shall
extinguish the obligation as soon as the
time expires or if it has become indubitable
that the event will not take place.
Balane: This article refers to suspensive conditions. If
the condition is resolutory, the effect is the opposite.
Article 1185. The condition that some event
will not happen at a determinate time shall
render the obligation effective from the moment
the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have
probably been contemplated, bearing in mind
the nature of the obligation.
Balane: This article refers to a suspensive condition.
Article 1186. The condition shall be
deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Balane: This article refers to a suspensive condition.
Doctrine of Constructive Compliance  There are
three requisites in order that this article may apply:
1. Intent on the part of the obligor to prevent
fulfillment of the condition. The intent
does not have to be malicious.
 2. Actual prevention of compliance (by the
obligor)
3. Constructive compliance can have
application only if the condition is
potestative. It can also apply to Mixed
condition as to that part w/c the obligor
should perform.
Kinds of Conditional Obligations:
a. Suspensive Condition (Condition
precedent)
Article 1187. The effects of a conditional
obligation to give, once the condition has been
fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal
prestations upon the parties, the fruits and
interests during the pendency of the condition
shall be deemed to have been mutually
compensated. If the obligation is unilateral,
the debtor shall appropriate the fruits and
interests received, unless from the nature and
circumstances of the obligation it should be
inferred that the intention of the person
constituting the same was different.
 In obligations to do and not to do, the
courts shall determine, in each case, the
retroactive effect of the condition that
has been complied with.
Balane:
This article refers to suspensive condition.
This article sets forth the rule of retroactivity in an
obligation to give. This rule is logical but impractical.
Many modern Civil Codes have discarded it.
No Retroactivity as to the Fruits  Notice
that there is no retroactivity w/ respect to the fruits. The
fruits are deemed to cancel out each other. If only one
of the thing produces fruits, there is no obligation to
deliver the fruits.
Article 1188. The creditor may, before the fulfillment
of the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he
has paid by mistake in case of a suspensive
condition.
Balane: This article refers to suspensive conditions.
Bring the appropriate actions  According
to JBL Reyes, the phrase "may xxx bring the
appropriate actions" is inaccurate. To bring action is
to file a suit. But the creditor is not restricted to
filing a suit.
The proper verb is not "bring" but "take." For
example, in a sale of land subject to suspensive
condition, the creditor should have the suspensive
condition annotated on the title of the land. This is not
bringing an appropriate action but taking an appropriate
action.
The principle in this article is: Vigilantibus et
non dormientibus jura subveniunt  w/c means
that the laws aid those who are vigilant, not those
who sleep upon their rights.
Q: Why does Art. 1188 give the creditor a
recourse although technically the creditor still
have no right?
A: Bec. as a matter of fact, although technically the
creditor still have no right, he is already expecting a
right. You cannot let the creditor sit & fold his arms &
wait for his right of expectancy to be rendered illusory.
Article 1189. When the conditions have been
imposed with the intention of suspending the
efficacy of an obligation to give, the following
rules shall be observed in case of the
11
improvement, loss or deterioration of the thing
during the pendency of the condition:
(1) If the thing is lost without the fault of
the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of
the debtor, he shall be obliged to pay
damages; it is understood that the thing
is lost when it perishes, or goes out of
commerce, or disappears in such a way
that its existence is unknown or it cannot
be recovered;
(3) When the thing deteriorates without
the fault of the debtor, the impairment is
to be borne by the creditor;
(4) If it deteriorates through the fault of
the debtor, the creditor may choose
between the rescission of the obligation
and its fulfillment, with indemnity for
damages in either case;
(5) If the thing is improved by its nature,
or by time, the improvement shall inure
to the benefit of the creditor;
(6) If it is improved at the expense of the
debtor, he shall have no other right than
that granted to the usufructuary. (1122)
(b) Resolutory Condition (Condition subsequent)
Balane: Art. 1190 refers to resolutory conditions. This
is just the opposite of Art. 1189.
Article 1190. When the conditions have for
their purpose the extinguishment of an
obligation to give, the parties, upon the
fulfillment of said conditions, shall return
to each other what they have received.
In case of the loss, deterioration or
improvement of the thing, the provisions
which, with respect to the debtor, are laid
down in the preceding article shall be
applied to the party who is bound to
return.
As for the obligations to do and not to do,
the provisions of the second paragraph of
article 1187 shall be observed as regards
the effect of the extinguishment of the
obligation.
Balane: A condition is a future & uncertain event
upon w/c an obligation or provision is made to depend.
Tolentino: xxx Futurity & uncertainty must
concur as characteristics of the event.
 A past thing can never be a condition. A
condition is always future & uncertain.
Past event unknown to the parties  It is really the
knowledge of the event w/c constitutes the future. It is
the knowledge w/c is future & uncertain.
EXAMPLE: " I will treat you for lunch if you get
the highest score in the Civil Law Final Exams
(on the assumption that Prof. Balane has already
finished checking the papers.)" Here, the event
(getting the highest score) is already a past
event, yet the knowledge is future & uncertain.
Condition compared to a term 
Condition Term
As to element of Same, may be Same, always
futurity past event future
unknown to
parties
in the aspect of uncertain certain
certainty
Conditions can either be:
1. Suspensive condition (condition
precedent) wherein the happening of the
event gives birth to an obligation

2. Resolutory condition (condition

subsequent) wherein the happening of the
event will extinguish the obligation.

12
c. WITH A TERM OR PERIOD: obligation obligation or existence of
extinguishes one obligations, but
Article 1180. When the debtor binds already existing only their
demandability or
himself to pay when his means permit performance
him to do so, the obligation shall be Effect May have NO retroactive
deemed to be one with a period, retroactive effect effect, except
subject to the provisions of article when there is a
1197. special
agreement
As to time may refer to a always refer to
Balane: A term is a future and certain event upon past event the future
w/c the demandability (or extinguishment) of an unknown to the
obligation depends. parties
As to will of a condition w/c a period left to
Tolentino: Period must be (1) future (2) certain and debtor depends the debtor's will
(3) possible. exclusively on merely
the will of the empowers the
A term can either be: debtor annuls court to fix such
1. suspensive term (ex die -- fr. the day) or the obligation period
one the arrival of w/c will make the obligation
demandable; Balane: In a (suspensive) term, the obligation has
already arisen except that it is not yet demandable.
2. resolutory term (in die -- into the day) or
one the arrival of w/c will extinguish the Article 1194. In case of loss, deterioration or
obligation. The period after which the
performance must terminate. improvement of the thing before the arrival of
the day certain, the rules in article 1189 shall be
Terms classified accdg to source; observed.
1. Legal, period fixed by law
2. voluntary, stipulated by parties Balane: There are three requisites in order for
3. judicial, fixed/allowed by courts Art. 1189 to apply--
1. There is loss, deterioration or delay
May also be, (a) express, specified
(b) tacit, e.g. stipulated to do some 2. There is an obligation to deliver a
work whc may only be done at a determinate thing (on the part of the
debtor)
particular season.
Or, 1. original period 3. There is loss, deterioration or
2. grace period, extension fixed by parties improvement before the happening of the
condition.
Or a. definite, fixed known date or time, 4. The condition happens.
b. indefinite, event will happen but not
Article 1195. Anything paid or delivered before
known when
the arrival of the period, the obligor being
unaware of the period or believing that the
Effect of Period: Ø with term are demandable only
obligation has become due and demandable,
when day fixed for performance arrive; Rt. Of Axn
may be recovered, with the fruits and interests.
arises only when date fixed arrives;

Article 1193. Obligations for whose  1195 applies only in Ø to give;

fulfillment a day certain has been
fixed, shall be demandable only
when that day comes.
Obligations with a resolutory
period take effect at once, but
terminate upon arrival of the day
certain.
A day certain is understood to be
that which must necessarily come,
although it may not be known
when.
Balane:
Mistaken Premature Delivery  This article assumes
2 things:
(1) the delivery was by mistake;
(2) the mistake was discovered bef. the term
arrives.
 Both the things & the fruits can be
recovered.
If the term has already arrived, the question is moot &
academic. But can he recover the fruits produced
during the meantime? It depends on what school of
thought you follow:

If the uncertainty consists in Tolentino : According to one school of thought, the

whether the day will come or not, debtor is entitled to the fruits produced in the
meantime.
the obligation is conditional, and it
shall be regulated by the rules of Caguioa : According to another school of thought, all
the preceding Section. the fruits received during the pendency of the term
belong to the creditor.
MANRESA: A term or period is an interval of time, w/c,
exerting an influence on an obligation as a consequence When fruits & interests cannot be recovered
of a juridical act, either suspends its demandability notw/standing premature delivery:
or produces its extinguishment.
1. When the obligation is reciprocal & there
Distinguished fr. Condition: has been premature performance (by both
CONDITION TERM / PERIOD parties);
As to uncertain event an event that 2. When the obligation is a loan in w/c the
fulfillment must necessarily debtor is bound to pay interest;
come, whether 3. When the period is for the creditor's
on a date known exclusive benefit;
before hand or at 4. When the debtor is aware of the period &
a time w/c pays anyway. (Knowledge, tacit waiver of
cannot be benefit of term)
predetermined
As to influence a condition has no effect 2. Presumed for whose benefit: BOTH
on the gives rise to an upon the
13

Article 1196. Whenever in an obligation a period
is designated, it is presumed to have been
established for the benefit of both the creditor
and the debtor, unless from the tenor of the
same or other circumstances it should appear
that the period has been established in favor of
one or of the other.
Balane:
General rule: If a period is attached in an obligation,
the presumption is that it is for the benefit of both
parties.
 The consequence is that the creditor cannot
compel the performance before the arrival of
the term; the debtor cannot compel acceptance
bef. the arrival of the term.
If the term is for the benefit of the creditor  The
creditor can demand performance anytime; but the
debtor cannot insist on payment bef. the period.
If the term is for the benefit of the debtor  The
creditor cannot demand performance anytime; but the
debtor can insist on performance anytime.
EXAMPLE: "I promise to pay w/in 60 days." This
is a term for the benefit of the debtor.
"I promise to pay Clara the sum of P100,000 on
or before Oct. 31, 1996." This is a term for the
benefit of the debtor.
In © of Loan, without interest, term is usually for benefit
of debtor, thus he may pay in advance;
If there is stipulation as to interest, period is generally
for both parties, debtor cannot pay in advance vs. will of
creditor; unless he also pays interest in full.
3. When NO period is fixed
Balane:
Cases where the Courts may fix a period 
1. Art. 1197, par. 1
Article 1197. If the obligation does not fix
a period, but from its nature and the
circumstances it can be inferred that a
period was intended, the courts may fix
the duration thereof.
The courts shall also fix the duration of
the period when it depends upon the will
of the debtor.
In every case, the courts shall determine
such period as may under the
circumstances have been probably
contemplated by the parties. Once fixed
by the courts, the period cannot be
changed by them.
Exceptions: (a) Art. 1682
Article 1682. The lease of a piece of rural land,
when its duration has not been fixed, is
understood to have been made for all the time
necessary for the gathering of the fruits w/c the
whole estate leased may yield in one year, or w/c
it may yield once, although two or more years
may have to elapse for the purpose.
Article 1687. If the period for the lease has not
been fixed, it is understood to be fr. year to year,
if the rent agreed upon is annual; fr. month to
month, if it is monthly; fr. week to week, if the
rent is weekly; & fr. day to day, if the rent is to be
paid daily. xxx
14
Art. 1606 in pacto de retro sale where the period
is not specified by the parties
Art. 1606. The right referred to in article 1601
(the right of conventional redemption on the part
of the vendor a retro), in the absence of an
express agreement, shall last four years fr. the
date of the contract. XXX
 contract of services for an indefinite term
(bec. fixing of a period by the courts may
amount to involuntary servitude)
Art. 1197. Xxx The courts shall also fix the
duration of the period when it depends upon the
will of the debtor.
Art. 1191. Xxx the court shall decree the
rescission claimed, unless there be just cause
authorizing the fixing of a period.
Art. 1687. xxx However, even though a monthly
rent is paid, & no period for the lease has been
set, the courts may fix a longer term for the lease
after the lessee has occupied the premises for
over one year. If the rent is weekly, the courts
may likewise determine a longer period after the
lessee has been in possession for over six
months. In case of daily rent, the courts may also
fix a longer period after the lessee has stayed in
the place for over one month.
Art. 1180. When the debtor binds himself to pay
when his means permit him to do so, the
obligation shall be deemed to be one w/ a period,
subject to the provisions of article 1197.
CASE: Where obligation does not fix a period;
When fixing a period is mere formality —
CHAVEZ V. GONZALES [32 SCRA 547] -
Def. virtually admitted non-performance by returning the
typewriter he was obliged to repair in a non-working
condition, w/ essential parts, missing. Plaintiff had the
thing fixed by another and later demanded fr. Def.
payment of actual, compensatory, temperate and moral
damages.
ISSUE: WON Def. may not be held liable b/c © did not
contain a period.
HELD:
He cannot invoke Art. 1197 of the NCC. The time for
compliance having evidently expired, & there being a
breach of contract by non-performance, it was academic
for the pltff. to have first petitioned the court to fix a
period for the performance of the contract before filing
his complaint in this case. The fixing of a period
would thus be a mere formality & would serve no
purpose than to delay.
ENCARNACION V. BALDOMAR [77 P 470] -
Plaintiff was owner of a house in Legarda, Manila leased
to defendant on month-to-month basis with rental of
P35. After the was plainitiff demanded def. to vacate b/c
he needed it d/t destruction of his office.
WON:def may continue to occupy indefinitely as long as
he pays rentals
HELD:
The continuance & fulfillment of the contract of
lease cannot be made to depend solely &
exclusively upon the free & uncontrolled choice of
the lessees bet. continuing paying the rentals or
not, completely depriving the owner of all say in
the matter.
For if this were allowed, so long as defs. elected to
continue the lease by continuing the payment of the
rentals the owner would never be able to discontinue it;
conversely, although the owner should desire the lease
to continue, the lessees could effectively thwart his
purpose if they should prefer to terminate the contract
by the simple expedient of stopping payment of the
rentals. This, of course, is prohibited by Art. 1256,
NCC.
ELEIZEUI V. LAWN TENNIS CLUB [2 P309] -

DOCTRINE: The term of a lease whose termination
is expressly left to the will of the lessee must be
fixed by the courts according to the character &
conditions of the mutual undertakings, in an
action brought for that purpose xxx.
The herein Contract of Lease was made to endure at the
will of the lessee who is expressedly authorized to make
improvements upon the subject land by erecting
buildings therein, perm or temp, making fills, lay pipes,
make such other improvements at his own convenience.
No period was fixed for the existence of the ©.
HELD: It is evident that the lessors did not intend to
reserve to themselves the right to rescind that which
they have expressly conferred to lessee whc is
exclusively in favor of the latter.
PHILBANKING V. LUI SHE [21 SCRA 53] -
DOCTRINE: A lease to an alien for a reasonable
period is valid.
on November 15, 1957, the parties entered
into the lease contract for 50 years: that
ten days after, that is on November 25, they
amended the contract so as to make it cover
the entire property of Justina Santos; that on
December 21, less than a month after, they
entered into another contract giving Wong
Heng the option to buy the leased
premises should his pending petition for
naturalization be granted; that on
November 18, 1958, after failing to secure
naturalization and after finding that adoption
does not confer the citizenship of the adopting
parent on the adopted, the parties entered into
two other contracts extending the lease to
99 years and fixing the period of the
option to buy at 50 years.
which indubitably demonstrate that each of the
contracts in question was designed to carry out Justina
Santos' expressed wish to give the land to Wong and
thereby in effect place its ownership in alien hands, 1
about which we shall have something more to say
toward the end of this resolution. We concluded that
"as the lease contract was part of a scheme to
violate the Constitution it suffers from the same
infirmity that renders the other contracts void
and can no more be saved from illegality than
the rest of the contracts."
LIM V. PEOPLE [133 SCRA 333] - It is clear in the
agreement that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the
same was sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of.
Hence, Art. 1197 of the NCC, w/c provides that the
courts may fix the duration of the obligation if it does
not fix a period, does not apply.
LIM proposed to sell Ayroso’s tobacco for her at a price,
in consideration that the markup would be hers. They
agreed that proceeds of the tobacco sale shd be turned
over as soon as sold, or demandable immediately after
all the tobacco was disposed of. For failure to remit all
the sales, lower court convicted Lim of estafa.
ISSUE: WON court may fix period of Ø under Art. 1197
HELD: 1197 does not apply in this case.
The agreement bet. Them was one of agency with the Ø
to return the unsold tobacco and the proceeds of the
sale demandable stat.
MILLARE V. HERNANDO [151 SCRA 484] -
FACTS: Pacifica Millare, lessor and spouses Co lessee in
a 5-yr © of lease of People’s Resto; at d last wk of d 5-yr
period, lessor offered to extend d lease if spouses Co will
agree to increase rental from P350 to P1200 a mo.;
spouses counter-offered p700; d discussion was set
aside; later a demand letter was issued by lessor to
vacate premises w/o renewal of expired ©; lessor
disagreed and filed an ejectment case; spouses Co filed
a separate case for the court to order renewal of © and
fix rental at p700 a mo. Spouses deposited monthly
15
rental in court; plaintiff filed M2D for lack of ju’s &no
COA; M2D denied;
ISSUE: WON spouses Co have valid COA in claiming
renewal of lease ©
HELD: YES. There was implied renewal of lease © but
only on a month-2-mo. Basis, not for another 5yrs; Par.
1 of Art. 1197 is clearly inapplicable, since the Contract
of Lease did in fact fix an original period of 5 yrs., w/c
had expired. It is also clear fr. par. 13 of the contract
that the parties reserved to themselves the faculty of
agreeing upon the period of the renewal contract. The
2nd par. of Art. 1197 is equally inapplicable since the
duration of the renewal period was not left to the will of
the lessee alone, but rather to the will of both the lessor
& the lessee. Most importantly, Art. 1197 applies only
where a contract of lease clearly exists. Here, the
contract was not renewed at all, there was in fact no
contract at all the period of w/c could have been fixed.
SC granted TRO and injunction.
Art. 1180. When the debtor binds himself to pay
when his means permit him to do so, the
obligation shall be deemed to be one w/ a period,
subject to the provisions of article 1197.
4. When debtor loses the benefit of period
Article 1198. The debtor shall lose every right to
make use of the period:
(1) When after the obligation has been
contracted, he becomes insolvent,
unless he gives a guaranty or security
for the debt;
(2) When he does not furnish to the
creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired
said guaranties or securities after
their establishment, and when
through a fortuitous event they
disappear, unless he immediately
gives new ones equally satisfactory;
(4) When the debtor violates any
undertaking, in consideration of which
the creditor agreed to the period;
(5) When the debtor attempts to abscond.
(6) Art. 2109 - If the creditor is deceived on the
substance or quality of the thing pledged, he may
either claim another thing in its stead, or demand
immediate payment of the principal obligation.
(The sixth ground was added by Prof. Balane.)
Effects of Loss of Term (1198):
 Ø becomes immediately due & demandb
even if period has not yet expired.
 Ø is converted to a pure Ø
 Insolvency of DEBTOR – need not be judicially
declared; state of financial difficulty is enough.
Balane: In number one, factual insolvency is enough.
A judicial declaration of insolvency is not required.
[THUS, AGAIN! ]
DIFFERENT KINDS OF Øs:
PURE AND CONDITIONAL Øs – when the Ø contains
no terms or conditions;
CONDITIONAL Øs – one which is subject to condition;
CONDITION – every future and uncertain
event upon which an Ø or provision is made to
depend;
FUTURE & UNCERTAIN EVENT – the acquisition or
resolution of the rights is made to depend by those
who execute the juridical act;
  Potestative suspensive is VOID.
CLASSIFICATION OF CONDITIONS: Ex. A will give 5% commission to B, but it depends
1. SUSPENSIVE – the happening of the former on the will of A, void;
gives rise to an Ø;  All other potestative conditions, valid.
2. RESOLUTORY – the happening of the latter
extinguishes rights already existing. Art. 1183 – impossible condition
PAST BUT UNKNOWN – a condition may refer to past 1. physical impossibility
event unknown to the parties; 2. legal impossibility
IMPOSSIBLE CONDITION: Art. 873 – impossible testamentary conditions
1. PHYSICALLY IMPOSSIBLE – when it is contrary to  disregard
law of nature; Ex. Art. 727 – donation
2. JUDICIALLY IMPOSSIBLE – when contrary to
law, morals, good customs and public safety CONDITION PERIOD / TERM
1. future&uncertain event 1. future&certain
PURE Øs  when it is not subject to a term, period 2. suspensive condition 2.suspensive
and no condition; period/“demandability”
- demandable at once 3. resolutory condition 3. resolutory period
- its immediate demandability, give time for debtor to
comply SUSPENSIVE PERIOD – prior to the period, there is
already an Ø, but it is suspensive by the period;
PERIOD = is an event that is future but certain (just a
matter of time); e.g. passing this class (oblicon) Art. 1164 - the Ø to deliver arises upon the perfection of
the contract if subject to suspensive period & not
PAST EVENT – cannot be future event, cannot be suspensive condi.
considered uncertain;
RESOLUTORY PERIOD – “terminated” but the effects that
SUSPENSIVE CONDITION: accrued in the past will remain;
* rights are acquired, upon the happening of a condi.
RESOLUTORY CONDITION – “extinguishes” as if nothing
Art. 1181 – Ø created upon the happening of a happens; retroactive effect of Ø;
condition
EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM:
RESOLUTORY - extinguished, or loss of existing rts, - the contract shall be deemed suspended but the F.E. shall
upon the happening of a condi. not stop the running of the term or period agreed upon;
* Thus a contract may be perfected but its Art. 1195 – advanced payment
demandability suspended. Art. 1196 –
Art. 1186 – deemed constructively fulfilled; applied Presumption – if the period is designated, the benefit is
only to suspensive not to resolutory condi. for both the creditor & debtor
Art. 1187 – effects of conditional Ø to give; Exception: the tenor of the same or other circumstances, it
Ex. A sold a house&lot to B, 1M should appear that the period has been established in
Condition: if B will pass the bar exam favor of one or the other;
Term: effect retroacts after the passing is announced
on April; Art. 1197 – 3 reasons why the court will fix the
period:
Jan.2004 Sept. 2004 Oct.04 Apr.05 1. if the Ø does not fix a period, but from its
perfection (w/o condi./ condi. nature & circumstances it can be inferred that
Pure) a period was intended by the parties;
2. in the duration of the time depends upon the
will of the debtor
[1544] Retroactive effect 3. if the debtor binds himself to pay when his
Art. 1188 – preserve his interest means permit him to do so
PROTECT HIS EXPECTANCY Art. 1198 – memorize!
1. Register with the Registry of Property
2. witness Article 1198. The debtor shall lose every right
3. possession in good faith to make use of the period WHEN:
4. Injunction  if the sell was not consummated (1) after the obligation has been
or not for sale contracted, he becomes insolvent,
unless he gives a guaranty or security
RESOLUTORY CONDITION for the debt;
Art. 1190 – no exception, walang matitira (2) he does not furnish to the creditor the
guaranties or securities which he has
SUSPENSIVE CONDI – upon the happening of the promised;
condi., the Ø exists (“existence of Ø is affected) (3) by his own acts he has impaired said
guaranties or securities after their
CLASSIFICATION OF CONDITION: establishment, and when through a
1. POTESTATIVE – when the fulfillment of the fortuitous event they disappear, unless
condi. depends upon the will of the party to the he immediately gives new ones equally
Ø; satisfactory;
2. CAUSAL – depends upon chance 2 nd or 3rd (4) the debtor violates any undertaking, in
person consideration of which the creditor
3. MIXED – depends partly upon the will of the agreed to the period;
party & partly upon chance or a 3rd person (5) the debtor attempts to abscond.

Art. 1182: Potestative – sole will of the debtor Q: How cud there be guaranty when debtor is insolvent?

16
A: 3rd person (surety)
Q: when is Ø due&demandb even if period has expired?
A: if debtor has lost rt. to make use of such period
(1198)
D.
(2) Obligations according to plurality of objects:
A. Simple
B. Multiple
C. Conjunctive  where the debtor must
perform more than one prestation
Q: A promised to deliver to B his carabao, dog &
goat. What kind of Ø is this? A: conjunctive
D. Alternative Obligations  where the debtor must
perform any of several
prestations
when several objects due, the fulfillment of one
is sufficient, generally the debtor chooses
which one.
E. Facultative  where only one thing is due but the
debtor has reserved the right to substitute it w/
another (Art. 1206)
 election here is never granted to creditor
Q: In conjunctive, right to choose is always with debtor?
A: NO. No right to choose b/c all must be performed.
Q: in Alternative, rt. To choose can be given to 3rd
person?
A: YES. (Art. 1000) as long as it is not contrary to law,
morals, PO, PP, etc.
Q: In an agreement where there is no stipulation as to
who has rt. to choose?
A: It depends. If Alternative, generally debtor chooses; if
facultative, only with debtor
Q: What if debtor has rt. to choose and he delays?
A: rt. is not lost by mere delay; (before creditor files his
action)
(b) Alternative Obligations
Art. 1199. A person alternatively bound by
different prestations shall completely perform
one of them.
The creditor cannot be compelled to receive part
of one & part of the other undertaking.
Tolentino: The characteristic of alternative obligations
is that, several objects being due, the fulfillment of one
is sufficient xxx.
Art. 1200. The right of choice belongs to the
debtor, unless it has been expressly granted to
the creditor.
The debtor shall have no right to choose those
prestations w/c are impossible, unlawful or w/c
could not have been the object of the obligation.
Balane:
Q: To whom does the right of choice belong?
A: General rule: To the debtor (Art. 1200.)
Exception: When expressly granted to the
creditor (cannot be implied)
* There is a third possibility where the choice
may be made by a third person upon agreement
of the parties. (expressed)
17
Q: What is the technical term of the act of
making a choice in alternative obligations?
A: Concentration.
 The right to choose is indivisible  debtor cant
choose part of one prestation and part of another;
 Here, plaintiff’s action must be in alternative form;
Art. 1201. The choice shall produce no effect
except fr. the time it has been communicated.
Balane:
Requirement of Communication of choice  If the
choice belongs to the creditor, of course, he has to
communicate his choice to the debtor. The debtor is not
a prophet.
No required form  may be ORAL, IN WRITING, TACITLY,
OR OTHER UNEQUIVOCAL MEANS.
Q: If the choice belongs to the debtor, why
require communication before performance if the
choice belongs to him anyway?
A: To give the creditor an opportunity to consent to the
choice or impugn it. (Ong v. Sempio-Dy, 46 P 592.)
BUT how can the creditor impugn it if the choice belongs
to the debtor. The better reason would be to give the
creditor a chance to prepare for the performance.
Not CONSENT: only declaration of choice made,
communicated to the other party, unilateral decal.of
will;
Articles 1202 to 1205 talk of the loss of some of the
prestations before performance.
1. If the choice is debtor's
a. When only one prestation is left (whether or not
the rest of the prestations have been lost through
fortuitous event or through the fault of the debtor), the
debtor may perform the one that is left.-- Art. 1202.
Art. 1202. The debtor shall lose the right of
choice when among the prestations whereby he is
alternatively bound, only one is practicable.
b. If the choice is limited through the creditor's
own acts, the debtor can ask for resolution plus
damages.--
Art. 1203. If through the creditor's acts the
debtor cannot make a choice according to the
terms of the obligation, the latter may rescind the
contract w/ damages.
c. If everything is lost through the debtor's fault,
the latter is liable to indemnify the creditor for
damages.--
Art. 1204. The creditor shall have a right to
indemnity for damages when, through the fault of
the debtor, all the things w/c are alternatively the
object of the obligation have been lost, or the
compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a basis the
value of the last thing w/c disappeared, or that of
the service w/c last became impossible.
Damages other than the value of the last thing or
service may also be awarded.
d. If some things are lost through the debtor's fault, the
debtor can still choose fr. those remaining.
e. If all are lost through fortuitous event, the obligation
is extinguished.
f. If all prestations but one are lost through fortuitous parts of the constitutes the
event, & the remaining prestation was lost through the obligation obligation, the
debtor's fault, the latter is liable to indemnify the accessory being
creditor for damages. only a means to
facilitate
g. If all but one are lost through the fault of the debtor payment.
& the last one was lost through fortuitous event, the As to nullity the nullity of one the nullity of the
obligation is extinguished. prestation does principal
not invalidate prestation
2. Choice is the creditor's the obligation, invalidates the
w/c is still in obligation & the
force w/ respect creditor cannot
Art. 1205. When the choice has been expressly to those w/c demand the
given to the creditor, the obligation shall cease to have no vice substitute even
be alternative fr. the day when the selection has when this is valid
been communicated to the debtor. As to choice the right to only the debtor
choose may be can choose the
Until then the responsibility of the debtor shall be given to the substitute
governed by the following rules: creditor prestation.
As to effect of only the the impossibility
loss impossibility of of the principal
(1) If one of the things is lost through a fortuitous all the prestation is
event, he shall perform the obligation by deliver- prestations due sufficient to
w/o fault of the extinguish the
ing that w/c the creditor should choose fr. among debtor obligation, even
the remainder, or that w/c remains if only one extinguishes the if the substitute
subsists; obligation is possible
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim any Balane:
of those subsisting, or the price of that w/c,
 Facultative obligations always involve
through the fault of the former, has disappeared,
choice by the debtor.
w/ a right to damages;
 In theory, it is easy to distinguish a
(3) If all the things are lost through the fault of facultative obligation fr. an alternative
one. But in practice, it is difficult to
the debtor, the choice by the creditor shall fall distinguish the two. You just have to
upon the price of any one of them, also w/ find out what the parties really
indemnity for damages. intended.
 Only One prestation is DUE and
enforceable by the creditor at the time
The same rules shall be applied to obligations to of choice; if the substitute becomes
do or not to do in case one, some or all of the impossible d/t fault of debtor the Ø is
prestations should become impossible. not affected, thus no damages;
 If after choosing the substitute and
a. If one or some are lost through fortuitous choice is communicated to creditor, the
event, the creditor may choose fr. those principal prestation becomes
remaining.-- Art. 1205 (1)
impossible, Ø is not extinguished but
b. If one or some are lost through the debtor's has become a simple Ø that must be
fault, the creditor has choice fr. the remainder or the performed; and he will be liable for
value of the things lost plus damages.-- Art. 1205 (2), damages in delay, neglect or bad faith.
supra.  If principal Ø becomes impossible by
fault or negligence of creditor, debtor
c. If all are lost through the debtor's fault, the choice of
the creditor shall fall upon the price of any of them, w/ cannot be compelled to perform the
indemnity for damages.-- Art. 1205 (3), supra. substitute (no more substitute, becomes
simple) – extinguished.
d. If some are lost through the creditor's fault, the
creditor may choose fr. the remainder.

e. If all are lost through fortuitous event, the

obligation is extinguished.

f. If all are lost through the creditor's fault, the

obligation is extinguished.

Distinguished fr. Facultative obligations:

Art. 1206. When only one prestation has been

agreed upon, but the obligor may render another
in substitution, the obligation is called
facultative.

The loss or deterioration of the thing intended as

a substitute, through the negligence of the
obligor, does not render him liable. But once the
substitution has been made, the obligor is liable
for the loss of the substitute on account of his
delay, negligence or fraud.

Tolentino: Facultative vs. Alternative -

Alternative Ø Facultative Ø
As to contents there are various only ONE
of the prestations all of principal
obligation w/c constitute prestation

18
[JULY 3, 2008 CLASS] generally be given the choice to whom shall he give
payment.
3. AS TO RIGHTS & Ø’s OF MULTIPLE PARTIES:
[Joint & Solidary Obligations, Arts. 1207-1222] Example: A binds himself to pay P100 either to
X or Y  A or B will pay 100 to X.
a. Joint Obligations
b. Indivisible Obligations
Balane: A joint obligation is one in w/c each of the
debtors is liable only for a proportionate part of the debt Art. 1209. If the division is impossible, the right
or each creditor is entitled only to a proportionate part
of the credit. of the creditors may be prejudiced only by their
collective acts, & the debt can be enforced only
In joint obligations, there are as many by proceeding against all the debtors. If one of
obligations as there are debtors multiplied by the the latter should be insolvent, the other shall not
number of creditors. be liable for his share.
There are three kinds of joint obligations:
1) Active joint  where the obligation is Art. 1210. The indivisibility of an obligation does
joint on the creditor's side; not necessarily give rise to solidarity. Nor does
2) Passive joint  where the obligation is solidarity of itself imply indivisibility.
joint on the debtor's side; &
3) Multiple Joint  where there are
multiple parties on each side of a joint  the Ø here is joint even if the performance is
obligation.
indivisible;
Tolentino:
The joint obligation has been variously termed Joint Indivisible Ø: there are several debtors or
mancomunada or mancomunada simple or pro creditors but the prestation is indivisible  Ex. Delivery
rata;
of a house or a determinate thing;
In P/N the phrase "We promise to pay," used by  fulfillment requires the concurrence of ALL debtors,
2 or more signers, creates a pro rata liability (JOINT); although they are each for his part; and on side of
creditors, collective action required for acts whc may be
While “I promise to pay” followed by signatures prejudicial;
of 2 or more persons – solidary; individually and
collectively; individually and jointly.  Consent required, must still communicate choice after
consensus
JOINT character is PRESUMED: WHEN no stipulation
as to liability of several debtors, presumption is joint, INDIVISIBILITY SOLIDARITY
and each is liable only for his proportionate part of the
Ø; Refers to the Refers to the
prestation, legal tie or
J/FO of court as to several defendants when solidarity whc is not vinculum
has not been specified, the liability of the defendants in capable of defining the
joint; court cannot amend.
partial extent of
Effects of Joint Liability: performance liability
1. The demand by one creditor upon one debtor, Each cannot Each may
produces the effects of default only w/ respect Effects to Joint
demand more demand the
to the creditor who demanded & the debtor on creditors
whom the demand was made, but not w/ than his share full prestation
respect to the others; Each has the
2. The interruption of prescription by the judicial Each is not
Effects to joint duty to comply
demand of one creditor upon a debtor, does not liable for more
benefit the other creditors nor interrupt the debtors with entire
than his share
prescription as to other debtors. On the same prestation
principle, a partial payment or
acknowledgement made by one of several joint
debtors does not stop the running of the statute Art. 1224. A joint indivisible obligation gives rise
of limitations as to the others; to indemnity for damages fr. the time anyone of
3. The vices of each obligation arising fr. the the debtors does not comply w/ his undertaking.
personal defect of a particular debtor or creditor
does not affect the obligation or rights of the The debtors who may have been ready to fulfill
others; their promises shall not contribute to the
4. The insolvency of a debtor does not increase the indemnity beyond the corresponding portion of
responsibility of his co-debtors, nor does it the price of the thing or of the value of the
authorize a creditor to demand anything fr. his service in w/c the obligation consists.
co-creditors;
5. In the joint divisible obligation, the defense of
res judicata is not extended fr. one debtor to If there is plurality of creditors to only one debtor,
another. (Manresa) (GR) the Ø can be performed by delivery of the object to
all the creditors jointly;
Art. 1208. If fr. the law, or the nature or the  Delivery to only one creditor makes the debtor
wording of the obligations to w/c the preceding liable for damages to the other debtors for non-
article refers the contrary does not appear, the performance, unless they have authorized this
credit or debt shall be presumed to be divided one creditor to collect in their behalf;
into as many equal shares as there are creditors  If only one or some, not all creditors demand
or debtors, the credits or debts being considered fulfillment the debtor may refuse to deliver and
distinct fr. one another, subject to the Rules of insist that all the creditors together receive the
Court governing the multiplicity of suits. thing, if not consignation to the court may be
had;
Disjunctive Ø: not covered by NCC; there are 2 or  In non-performance, debtor is liable for
more creditors and 2 or more debtors but they are damages  here w/respect to damages, the
named disjunctively as debtors and creditors in the prestation becomes divisible, each creditor may
alternative. recover proportionately.
* rules on solidary Øs must apply  b/c if rules on
alternative Øs will be applied then the debtor will Q: Is an Ø-not do divisible or not? No (Tolentino)

19
A: Ø-not do when there are several debtors, is a joint
indivisible Ø.
c. Solidary obligations
Balane:
A solidary obligation is one in w/c the debtor
is liable for the entire obligation or each creditor is
entitled to demand the whole obligation. If there is only
one obligation, it is a solidary obligation.
There are three kinds of solidarity:
(1) Active solidarity where there are
several creditors w/ one debtor in a
solidary obligation;
(2) Passive solidarity where there is one
creditor w/ several debtors solidary
bound;
(3) Mixed Solidarity where there are
several creditors & several debtors in a
solidary obligation.
Tolentino:
 Solidary obligations may also be referred to
as mancomunada solidaria or joint &
several or in solidum.
 It has also been held that the terms "juntos
o separadamente" in a promissory note
creates a solidary responsibility;
 Where there are no words used to indicate
the character of a liability, the phrase "I
promise to pay," followed by the signatures
of 2 or more persons, gives rise to an
individual or solidary responsibility.
 The words "individually & collectively"
also create a solidary liability. So does an
agreement to be "individually liable" or
"individually & jointly liable."
c.1. Active Solidarity
Art. 1211. Solidarity may exist although the
creditors & the debtors may not be bound in the
same manner & by the same periods &
conditions.
Art. 1207. The concurrence of two or more
creditors or of two or more debtors in one & the
same obligation does not imply that each one of
the former has a right to demand, or that each
one of the latter is bound to render, entire
compliance w/ the prestation. There is solidary
liability only when the obligation expressly so
states, or when the law or the nature of the
obligation requires solidarity.
Balane:
Q: When is an obligation w/ several parties on either
side Joint or
Solidary?
A: The presumption is that an obligation is joint bec. a
joint
obligation is less onerous that a solidary one.
There is solidary obligation in the ff.:
(1) when the obligation expressly so
states – stipulation by parties;
(2) when a will expressly makes charging
or a condition in solidum;
(3) when the law requires  crimes,
conspiracy, act or 1 is act of all; in torts
– joint tortfeasors
 The liability of joint
tortfeasors, w/c include all
persons who command,
instigate, promote,
encourage, advise,
countenance, cooperate in,
aid or abet the commission of
a tort, or who approve of it,
after it is done, if done for
their benefit. (Tolentino)
(4) nature of the obligation requires
solidarity – Art. 19-22, NCC;
20
 a moral wrong cannot be divided into
parts, thus must be solidary; akin to
QD/QC (2183 & 2187)
 Liability may arise fr. the provisions
of articles 19 to 22 of the NCC. If 2
or more persons acting jointly
become liable under these
provisions, their liability should be
solidary bec. of the nature of the
obligation. xxx The acts giving rise
to liability under these articles have
a common element-- they are
morally wrong.
 Art. 10, RPC; Art. 2194, & Art.
2157, NCC
(5) imposed by final judgment upon
several defendants – must be
expressed in the JFO, cannot be
amended after finality.
Characteristics of Active Solidarity (solidary
creditors): (Tolentino)
ESSENCE  mutual agency, or mutual representation,
whc consists in the authority of ea creditor to claim &
enforce the rts. Of all, w/d resulting Ø to pay ea one
what belongs to him.
1. Since it is a reciprocal agency, the death of a
solidary creditor does not transmit the solidarity
to each of his heirs but to all of them taken
together;
 (Similar to Art. 1005 where bros.&sisters
of decedent inherit in their own rt. per
capita while nephews & nieces, per
stirpes by rt. of representation.)
2. Each creditor represents others in the act of
requiring payment, & in all other acts w/c tend
to secure the credit or make it more
advantageous. Hence, if he receives only a
partial payment, he must divide it among the
other creditors. He can interrupt the period of
prescription or render the debtor in default, for
the benefit of all other creditors;
3. A credit once paid is shared equally among the
creditors unless a different intention appears;
4. Debtor may pay any of the creditors but if any
demand, judicial or extrajudicial is made on him,
he must pay only to the one demanding
payment (Art. 1214);
5. One creditor does not represent the others in
such acts as novation, compensation &
remission (even if the credit becomes more
advantageous). In these cases, even if the
debtor is released, the other creditors can still
enforce their rights against the creditor who
made the novation, compensation or remission;
6. Each creditor may renounce his right even
against the will of the debtor, & the latter need
not thereafter pay the obligation to the former.
Characteristics of Passive Solidarity (solidary
debtors):
ESSENCE  ea debtor can be made to answer for the
others, w/resulting right to the debtor-payor to recover fr
others their respective shares, akin to mutual
guaranty (Manresa):
1. Each debtor may be required to pay the entire
obligation but after payment, he can recover fr.
the co-debtors their respective shares (this is
something similar to subrogation);
2. Interruption of prescription as to one debtor
affects all the others; but the renunciation by
one debtor of prescription already had does not
prejudice the others, bec. the extinguishment
of the obligation by prescription
extinguishes also the mutual
representation among the solidary
debtors.
3. The debtor who is required to pay may set up
by way of compensation his own claim against
 the creditor, in this case, the effect is the same
as that of payment;
4. The total remission of the debt in favor of a
debtor releases all the debtors; but when this
remission affects only the share of one debtor,
the other debtors are still liable for the balance
of the obligation.
5. All the debtors are liable for the loss of the thing
due, even if such loss is caused by the fault of
only one of them, or by fortuitous event after
one of the debtors has incurred in delay;
6. The interests due by reason of the delay of one
of the debtors are borne by all of them.
Legal Bonds in solidarity may be uniform or varied:
Uniform  when debtors are bound by same
conditions and clauses;
Varied  where obligors, although liable for the
same prestation, are nevertheless not subject to
same terms and conditions; before fulfillment of
such condition or arrival of such term, an action
may be brought vs.such debtor or any other
solidary debtor for recovery of the entire Ø,
minus the portion corresponding to the debtor
affected by the varied condition or term; upon
happening however, this portion may be
claimed by creditor from any of the debtors.
 when one of solidary debtors is bound by varied
terms and conditions, for instance a suspensive
condition or a suspensive period, creditors may
still demand for fulfillment of the whole
prestation prior to the happening of the
condition or arrival of the term, minus the share
of this debtor bound by varied condition/term.
This latter portion may be demanded from
anyone of the debtors soon as the term
arrives or condition happens.
 EX. Is sureties who are solidarily liable w/other
debtors but binds themselves to varied
conditions distinct fr the principal debtors; BUT,
the Ø of surety may not be greater than that of
ea principal debtor, nor more burdensome.
 An Ø to pay sum of money is not novated in a
new instrument wherein the old is ratified, by
changing only the terms of payment and adding
other Øs not incompatible w/the old one.
[Inchausti & Co. v. Yulo, 34 Phil 978, 1908]
CASE: An agreement to be “individually liable” or
“individually and jointly” liable denotes a solidary
obligation, not a joint liability.
RONQUILLO V. CA [132 S 274, Sept. 28, 1983]
FACTS:
1 creditor (Antonio So) and 4 debtors (Ronquillo, et.al.)
Collection for sum of money
In an compromise agreement approved by the court,
the defendants obligated themselves to pay
"individually & jointly."
Ronquillo and Tan were already trying to pay their share
of the Ø, in accord w/d compromise agreement, but the
creditor refused, asking for full payment;
HELD: Clearly then, by the express term of the
compromise agreement & the decision based upon it,
the defs. obligated themselves to pay their obligation
"individually & jointly."
The term "individually" has the same meaning as
"collectively," "separately," "distinctively,"
"respectively" or "severally."
An agreement to be "individually liable" undoubtedly
creates a several obligation, & a "several obligation" is
one by w/c one individual binds himself to perform the
whole obligation.
xxx [T]he phrase juntos or separadamente used
in the P/N is an express statement making each of
the persons who signed it individually liable for
the payment of the full amount of the obligation
contained therein. xxx In the absence of a finding
of facts that the defendants made themselves
21
individually liable for the debts incurred, they are each
liable only for 1/2 of said amount.
The obligation in the case at bar being described
as "individually & jointly," the same is therefore
enforceable against one of the numerous
obligors.
CASE DOCTRINE: The direct liability of the insurer
under indemnity contracts against TPL does not
mean that the insurer can be held solidarily liable
w/ the insured &/ or the other parties found at
fault.
MALAYAN INSURANCE V. CA [165 S 536] -
FACTS:
Collision of a Jeep and a Pantranco Passenger BUS
JEEP: driver – Campollo is an EE of San Leon Rice Mill,
Inc.
Owner of jeep is Sio Choy
Insurer of jeep (TPL) is Malayan
BUS: passenger VALLEJOS was injured and sues for
damages
HELD: While it is true that where the insurance contract
provide for indemnity against liability to 3rd persons,
such 3rd persons can directly sue the insurer, however,
the direct liability of the insurer under the
indemnity contracts against TPL does not mean
that the insurer can be held solidarily liable w/
the insured &/ or the other parties found at fault. The
liability of the insurer is based on contract; that of the
insured is based on tort.
Liability of Malayan – culpa contractual (liability is direct
but not solidary)
Liability of Jeep Driver  QD; and his ER,
vicarious
(2 principal tortfeasors)
For if petitioner-insurer were solidarily liable w/ said 2
respondents by reason of the indemnity contract,
against 3rd party liability-- under w/c an insurer can be
directly sued by a 3rd party-- this will result in a violation
of the principles underlying solidary obligations &
insurance contracts.
Art. 1212. Each one of the solidary creditors may
do whatever may be useful to the others, but not
anything w/c may be prejudicial to the latter.
Acts beneficial: each solidary debtor may,
interrupt prescription,
constitute a debtor in default,
bring suit so that Ø may produce interest
Acts prejudicial: solidary creditor cannot do anything
prejudicial to the others, like remission, novation,
compensation, merger or confusion  but such
provision in 1212 conflicts w/ 1215;
Tolentino: Harmonize 1212 & 1215 by  such acts of
extinguishment, whc is prejudicial to co-creditors, will be
valid so as to extinguish the claim vs. debtors, but not
w/respect to the rts.of co-creditors whc subsists and
may be enforced vs such creditor who performed the act
alone.
Balane:
There is an apparent conflict bet. Art. 1212 &
1215. Art. 1212 states that the agency extends
only to things w/c will benefit all co-creditors.
But not anything w/c is prejudicial to the latter.
In Art. 1215, he can do an acts prejudicial to the
other creditors, like remission for instance.
Art. 1213. A solidary creditor cannot assign his
rights w/o the consent of the others.
Art. 1214. The debtor may pay any one of the
solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them,
payment should be made to him.
Tolentino: Mutual agency whc is the essence of
active solidarity, implies mutual confidence, thus one
creditor cannot assign/transfer his rts to another w/o
consent of the others.
Effects of Unauthorized Transfer: no effect, no rts.
transferred; assignee does not become solidary creditor,
co-creditors and debtor/s not bound by such transfer;
 payment made by this assignee will not
extinguish Ø; suit filed by him may not interrupt
Rx.
 EXCEPT, if the assignee is also one of the co-
creditors, b/c mutual confidence is incumbent.
Justice JBL REYES: Art. 1213 places unjustifiable and
unnecessary burden on the rts of solidary creditors upon
his own share. The article shd have read as:
 A solidary creditor who assigns his rts w/o the
consent of his co-creditors shall answer
subsidiarily for any prejudice caused by the
assignee in connection w/ d credit assigned.
 Liability was compared to agent&principal;
Balane:
General Rule  A debtor may pay any of the solidary
creditors.
Exception  If demand is made by one creditor upon
the debtor, in w/c case the latter must pay the
demanding creditor only.
Tolentino:
Judicial Demand  when such is made by one of
solidary creditors, tacit mutual representation is
deemed revoked.
 Defendant-debtor shd pay to d plaintiff-creditor
to effect extinguishment; payment to any of
other creditors who did not sue would be
deemed payment to a 3rd person.
 plaintiff-creditor merely consolidates in himself
the representation of all the others, but the
essence of solidarity of creditors shd not be
nullified;
Extra-judicial Demand  same as above; demand by
several creditors separately, debtor shd pay the one
who notified him 1st ; if they demand at d same time, or
collectively, debtor may choose to whom to pay.
Other Instances:
Debtor upon whom demand was made pays to a
creditor other than the one who made the
demand in violation of Art. 1214  This is
considered payment to a third person (Art. 1241,
par. 2) & the debtor can still be made to pay the
debt. The only concession given to the debtor is
that he is allowed to deduct the share of the
receiving creditor fr. the total amount due even if he
paid the entire amount due to that creditor.
Creditor A makes demand on debtor Y  Does it
mean that he cannot pay the share pertaining to
creditor B?
A: According to commentators he can. But this is
dangerous bec. there may already be an agreement
on the part of the creditors.
Tolentino warns that to make the debtors pay for the
whole amount to the demanding creditor even if
partial payment has already been made to another
creditor might amount to unjust enrichment. This
rule/restriction has already been scrapped in some
modern civil codes allowing freedom of choice to the
debtor even after demand.
Q: There are three creditors A, B & C & there are
three debtors X, Y & Z. A makes a demand on Y. X
pays B.
A: This is not covered by Art. 1214.
Art. 1215. Novation, compensation, confusion or
remission of the debt, made by any of the
solidary creditors or w/ any of the solidary
22
debtors, shall extinguish the obligation, w/o
prejudice to the provisions of article 1219.
The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation
corresponding to them.
Art. 1219. The remission made by the creditor of
the share w/c affects one of the solidary debtors
does not release the latter fr. his responsibility
towards the co-debtors, in case the debt had
been totally paid by anyone of them before the
remission was effected.
Art. 1915. If two or more persons have appointed
an agent for a common transaction or
undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency.
Tolentino:
Novation  A solidary debtor binds himself alone,
assumes the debt, releases the other debtors. But this
debtor cannot bind himself to a new debt w/o the
consent of others.
If creditor makes the novation w/one debtor and does
not secure consent of other debtors, the latter is
released. The new contract binds only the debtor who
secured the novation.
Mere extension of time given by creditor to a solidary
debtor does not release others from the Ø  no
novation here.
Dation in payment by one debtor extinguishes as in
payment if made immediately, otherwise if promised
only, this is a novation.
When merger & compensation is total there is
extinguishment of the Øs; only reimbursements remain;
if partial tho, applic. Of payments shd govern;
A surety who is bound in solidum will be released by
any material alteration in the principal contract made
w/o knowledge & consent of surety, e.g. extension of
time, unless surety’s liability is varied, as in installment
payments.
When 1 creditor makes a remission, the extent of that
particular Ø is extinguish, this creditor is liable to co-
creditors for their shares.
When remission favors only one debtor, in full share, this
debtor is released fr solidary Ø, if partial, he retains the
solidary Ø & becomes a surety of the whole Ø;
Factors to consider in Effects of Acts under 1215:
1. the relation bet. Creditors and that of debtors;
2. the relation among co-debtors themselves.
Baviera:
 Principals are always liable solidarily;
 Agents are not liable solidarily unless
expressly stipulated (res inter alios acta)
b. Passive Solidarity
Art. 1216. The creditor may proceed against any
one of the solidary debtors or some or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those w/c may
subsequently be directed against the others, so
long as the debt has not been fully collected.
Q: If a judgment made in an action brought by a
solidary cretditor vs a solidary debtor will it be
res judicata vs the co-debtors?
A: A favorable judgment that inures to the benefit of the
co-creditors will be res judicata as to the latter;
An adverse judgment would have the same effect if the
action of the plaintiff-creditor is not founded on a cause
personal to him, but actually consolidates in him all the
rts.as well of his co-creditors. (Tolentino)  similarly
translated as to co-debtors;
 Since in solidarity, there is unity of legal tie,
notwithstanding plurality of subjects;
 A judgment that declares the Ø does not exist
extinguished the Ø the defendant-debtor, and
such decision inures to the benefit of co-
debtors, unless the cause is personal to the def-
debtor.
PASSIVE SURETY
SOLIDARITY
Solidary debtors solidary
guaranty
Extent of whole Ø only to
Liability extent
contract
stipulations/as
expressed
Liability Primary Subsidiary
Effects of solidary Ø releases
Extension of remains surety
time granted by
creditor
CASE: If one of the alleged solidary debtor dies
during the pendency of the collection case, the
court where said case is pending retains
jurisdiction to continue hearing the charge as
against the surviving defendants. (1216)
PNB V. INDEPENDENT PLANTERS [122 SCRA 113] -
FACTS:
PNB’s complaint vs.several solidary debtors for
collection of sum of money; one of defendants (Ceferino
Valencia) died during the pendency of the caase after
plaintiff had presented its evidence;
Defs. Move to dismiss the money claim in accord w/ Rule
86 ROC, sec.6 Solidary Ø of decedent – where directs
that the claim shd be filed vs the estate of the decedent-
debtor w/o prejudice to rt. of d estate to go vs the other
debtors for reimbursement.
ISSUE: WON death of one solidary debtor-defendant
deprives the court of ju’s to proceed w/d case vs. d
surviving defs., being a money-claim based on ©?
Held: It is crystal clear that Art. 1216 is the applicable
provision in this matter. Said provision gives the creditor
the SUBSTANTIVE right to proceed against anyone of the
solidary debtors or some or all of them simultaneously.
The choice is undoubtedly left to the solidary
creditor to determine against whom he will
enforce collection. In case of the death of the solidary
debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors w/o necessity of
filing a claim in the estate of the deceased debtors. It
is not mandatory for him to have the case
dismissed against the surviving debtors & file its
claim in the estate of the deceased solidary
debtor.
Rules of Procedure cannot prevail over
substantive law.-- If Sec. 6, Rule 86, ROC were
applied literally, Art. 1216 would, in effect, be repealed
since under the ROC, petitioner has no choice but to
proceed against the estate of Manuel Barredo only.
Obviously, this provision diminishes the Bank's right
under the NCC to proceed against any one, some or all
of the solidary debtors. Such a construction is not
sanctioned by the principle xxx that a substantive law
cannot be amended by a procedural law. Otherwise
stated, Sec. 6 of Rule 86 cannot be made to prevail over
Art. 1216, the former being merely procedural, while the
latter, substantive.
Tolentino: Passive Solidarity vs. Suretyship –
Similarity: (1) both stands for some other person;
(2) both may require reimbursement
 If surety binds itself in solidum, creditor may go
vs. anyone of them.
Distinctions Passive Suretyship
Solidarity
Solidary debtor liable only as to
is liable for his his own Ø
own Ø & that of
his co-debtors’
Primary liability Subsidiary
liability
Extension of does not release releases a
Time given by a solidary debtor solidary
creditor (novation) guarantor or
surety
(extinguishment)
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor
the
may choose w/c offer to accept.
of
He who made the payment may claim fr. his co-
debtors only the share w/c corresponds to each,
w/ the interest for the payment already made. If
the the payment is made before the debt is due, no
interest for the intervening period may be
demanded.
When one of the solidary debtors cannot, bec. of
his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne
by all his co-debtors, in proportion to the debt of
each.
Art. 1218. Payment by a solidary debtor shall not
entitle him to reimbursement fr. his co-debtors if
such payment is made after the obligation has
prescribed or become illegal.
Art. 1219. The remission made by the creditor of
the share w/c affects one of the solidary debtors
does not release the latter fr. his responsibility
towards the co-debtors, in case the debt has been
totally paid by anyone of them before the
remission was effected.
Tolentino: Payment by one solidary debtor in whole –
extinguishes the Ø and releases the credit  gives rise
to a new Ø for reimbursement by the other debtors to
this one debtor who paid (JOINT Ø); plaintiff creditor may
be properly substituted by the debtor who paid;
EXCEPT: If payment was made after the Ø prescribed or
become illegal (mistake or not). (1218)
 After the Ø has prescribed or becomes illegal, it
is no longer due & demandable. None of the
solidary debtors can be compelled by the
creditors to pay.
 Thus, if one debtor pays, he cannot reimburse fr
his co-debtors b/c his action will not revive the
inexistent Ø;
 Generally, neither could he recover fr the
creditor to whom he paid (Art. 1424); except
perhaps under solutio indebiti.
Balane:
Effect of Remission.-- Problem: Solidary debtors W,
X, Y & Z are indebted to A for P12,000. A remits the
share of Y (P3,000)
Q: Can Y be sued?
A: Yes, for the P9,000 (P12,000 less P3,000 share of Y)
his share was remitted but not the solidary Ø
Q: Supposing X is insolvent?
A: Y can still be made to contribute. Remission will
benefit Y only in so far as his share is concerned. His
liability in case of insolvency of one co-creditor is not
affected.
Q: Can A demand the P9,000 fr. Y?
23
A: Yes. But he can recover the same fr. W, X & Z.
Q: If W paid the whole debt before A remits Y’s
share, may W still demand reimbursement of Y’s
share?
A: Yes, Art. 1219, Y will not be released from his
solidary Ø. Upon W’s full payment the entire Ø was
extinguished, there’s nothing more to remit in Y’s favor.
Q: After A remits share of Y, W pays in full the
remaining 12,000. X then becomes insolvent.
May Y be compelled to contribute to the share of
X?
A: Yes (Manresa and Tolentino), gratuitous acts
shd be construed restrictively as to permit the
least transmission of rts (Art.1378). Thus, if W
paid 9,000 and X and Z were suppose to
reimburse him 3000 ea, Y could be compelled to
contribute 1000 as to the insolvency of X.
Art. 1220. The remission of the whole obligation,
obtained by one of the solidary debtors, does not
entitle him to reimbursement fr. his co-debtors.
Art. 1221. If the thing has been lost or if the
prestation has become impossible w/o the fault of
the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them,
all shall be responsible to the creditor, for the
price & the payment of damages & interest, w/o
prejudice to their action against the guilty or
negligent debtor.
If through a fortuitous event, the thing is lost or
the performance has become impossible after one
of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand upon
him by the creditor, the provisions of the
preceding paragraph shall apply.
Art. 1895. If solidarity has been agreed upon,
each of the agents is responsible for the non-
fulfillment of the agency, & for the fault or
negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond
the scope of their authority.
Art. 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses w/c
are derived fr. the nature of the obligation & of
those w/c are personal to him, or pertain to his
own share. With respect to those w/c personally
belong to the others, he may avail himself thereof
only as regards that part of the debt for w/c the
latter are responsible.
Effects of 1221 limited to non-performance b/c of loss of
d thing or impossibility of prestation that’s due  if such
is d/t FE, w/o fault or delay on any debtor, then Ø is
extinguished; no debtor is liable.
 If debtor is at fault on the loss/impossibility; Or if
in delay even b4 d loss/impossibility  the Ø is
converted to indemnification (of the price,
damages & interests).
 If guilty debtor is made to pay by demand of
creditor, he cannot recover fr his co-debtors (if
there was loss/imp), he will shoulder the whole
amount of the loss thing + indemnity;
 If another co-debtor pays the whole amount he
could recover fr his co-debtors;
24
 In case of non-performance without loss of
the thing/has not become impossible: but
there is delay, fraud, fault or negligence, or
some other breach of Ø, creditor may also
recover damages; here, if guilty debtor pays, he
will not shoulder the whole amount, his co-
debtors will pay him their equivalent share in
the original Ø. Guilty debtor shoulders the
amount of damages though.
Balane:
Three Defenses of Solidary Debtor:
1. Those derived fr. the nature of the
obligation is a total defense;
e.g., prescription, illegality of obligation (illicit
object); vitiated consent; unenforceability under
the Statute of Frauds; non-happening of
condition; arrival of resolutory period;
extinguished Ø d/t payment, remission;
2. Those defenses personal to the debtor-
defendant;
e.g., insanity  If it involves vitiation of consent,
total defense. If it involves a special term or a
condition, a partial defense.
3. Those defenses personal to other co-
debtors;
e.g., defense as to the share corresponding to
other debtors is a partial defense, i.e.
suspensive condition or period as to the Ø of
one co-debtor.
4. AS TO PERFORMANCE OF PRESTATION
a. Divisible Obligations
Art. 1223. The divisibility or indivisibility of the
things that are the object of obligations in w/c
there is only one debtor & only one creditor does
not alter or modify the provisions of Chapter 2 of
this Title (Nature & Effect of Obligations).
Balane:
 This kind of obligations has something to do w/
the performance of the prestation, & not to the
thing.
 The thing may be divisible but the Ø may still be
indivisible, e.g. Ø to deliver 100 sacks of jasmine
rice found in Warehouse of specific address on a
fixed date (determinate Ø);
 Or thing is indivisible but performance is
divisible, i.e. stage-by-stage construction of a
public road where obligor may deliver every
15% of work done and collect its proportionate
cost from govt agency concerned, performance
bonds here may also be termed as such.
Divisible obligation is one susceptible of partial
performance.
An indivisible obligation is one that must be
performed in one
act.
Test of Divisibility: WON it is susceptible of partial
performance.
General rule: Obligation is indivisible w/c means
that it has to be performed in one act singly.
Why? Bec. the law provides so: Unless there is an
express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in w/c the
obligation consists. Neither may the debtor be required
to make partial payments. xxx (Art. 1248, par. 1.)
Tolentino:
 When division would diminish the value of
the whole
 QUALITATIVE, when the thing is not really
homogeneous, i.e. inheritance;
 QUANTITATIVE, when the thing divided is
homogeneous and may be separated into parts
if movable, or limits may be set if immovable;
 IDEAL, when parts are not separated materially,
but assigned to several persons, as in pro-
indiviso co-owners;
Three Exceptions to the Rule on Indivisibility: they remain to be bound to
1. When the parties so provide. (Art. 1248, perform the same
par. 1.) prestation
2. When the nature of the obligation
necessarily entails performance in parts. Factors to Determine Whether Ø is Divisible or
not:
3. Where the law provides otherwise.
1. will or intention of the parties, whc may be
Divisibility of Obligation distinguished fr. expressed or presumed;
divisibility of object: 2. objective or purpose of stipulated prestation;
 Divisibility of obligation or prestation does 3. nature of the thing;
not necessarily mean a divisible obligation.
4. provisions of law affecting the prestation
 Divisibility of object is not the same as  In Øs to give, indivisibility is presumed;
divisibility of obligation. except:
1. when work is agreed to be by
 But the reverse is not the same. units of time or measure;
Indivisibility of object means an indivisible 2. or otherwise susceptible of
obligation. partial performance =
divisible
Art. 1224. A joint indivisible obligation gives rise
to indemnity for damages fr. the time anyone of  In indivisible Ø, partial performance is equal to
the debtors does not comply w/ his undertaking. non-performance. Thus, partial payment based on
The debtors who may have been ready to fulfill quantum meruit is not availed. (Arts. 1233 and
their promises shall not contribute to the 1248 forbids partial fulfillment)
indemnity beyond the corresponding portion of “Work half done is worst than work undone!”
the piece of the thing or of the value of the Exceptions:
service in w/c the obligation consists. (1) Ø has been substantially performed in good
faith  debtor may recover as if there had
Art. 1225. For the purposes of the preceding been complete performance, minus the
articles, obligations to give definite things & damages suffered by creditor;
those w/c are not susceptible of partial (2) Creditor accepts, despite partial
performance shall be deemed to be indivisible. performance, with knowledge of
incompleteness, without protest  Ø is deemed
fully performed.
When the obligation has for its object the
execution of a certain number of days of work, ENTIRE © SEVERABLE ©
the accomplishment of work by metrical units, or
Consideration single apportioned
analogous things w/c by their nature are
(expressly/implie
susceptible of partial performance, it shall be
d)
divisible.
Prestation/s several, distinct,
separate items
However, even though the object or service may When a part is whole © partly
be physically divisible, an obligation is indivisible illegal unenforceable enforceable
if so provided by law or intended by the parties. One void void © if not illegal, then
undertaking valid covenants
may be enforced
In obligations not to do, divisibility or
Viz. Statute of must be in if separate
indivisibility shall be determined by the character
Frauds writing chattels may be
of the prestation in each particular case.
sold below limits
set by Statute of
TOLENTINO: To enforce a Joint Indivisible Ø, Art. Frauds, even
1209 has established the necessity of COLLECTIVE when the
FULFILLMENT and the action must be against all the sumtotal
debtors. exceeds, © not
affected
 in case of non-performance by any of the
debtors, the Ø is converted into liability for b. Indivisible Obligations
losses & damages = DIVISIBLE.
 THUS, if one debtor is insolvent, or fails to Art. 1209. If the division is impossible, the right
pay his share, the other debtors will no longer of the creditors may be prejudiced only by their
be liable for his share. The entire liability for all collective acts, & the debt can be enforced only
damages is shouldered by the defaulting debtor. by proceeding against all the debtors. If one of
Solidarity vs. Indivisibility: the latter should be insolvent, the others shall
not be liable for his share.
Solidarity Indivisibility
Refers to vinculum, and refers to the prestation or
principally to the subjects the object of the Ø Art. 1210. The indivisibility of an obligation does
of Ø not necessarily give rise to solidarity. Nor does
Requires plurality of plurality not req’d solidarity of itself imply indivisibility.
subjects
Solidarity remains even in when Ø is converted to Examples of Indivisible Obligations:
case of breach of one, they liability for damages, the
all remain liable for indivisibility ceases to (1) By virtue of its object
indemnity exist, each debtor
becomes liable for his part Art. 618. Easements are indivisible. If the
of indemnity servient estate is divided between two or more
Death of debtor terminates indivisibility affects the persons, the easement is not modified, & each of
solidarity heirs of a decedent debtor,
25
them must bear it on the part w/c corresponds to
him.
If it is the dominant estate that is divided
between two or more persons, each of them may
use the easement in its entirety, w/o changing the
place of its use, or making it more burdensome in
any other way.
(2) Express provision of law
Art. 2089. A pledge or mortgage is indivisible,
even though the debt may be divided among the
successors in interest of the debtor or of the
creditor.
Therefore, the debtor's heir who has paid a part
of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.
Neither can the creditor's heir who received his
share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who
have not been paid.
From these provisions, it is expected the case in
w/c, there being several things given in mortgage
or pledge, each one of them guarantees only a
determinate portion of the credit.
The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as the
portion of the debt for w/c each thing is specially
answerable is satisfied.
Art. 2090. The indivisibility of a pledge or
mortgage is not affected by the fact that the
debtors are not solidarily liable.
Art. 1612. If several persons, jointly & in the
same contract, should sell an undivided
immovable w/ a right of repurchase, none of them
may exercise this right for more than his
respective share.
The same rule shall apply if the person who sold
an immovable alone has left several heirs, in w/c
case each of the latter may only redeem the part
w/c he may have acquired.
Art. 1613. In the case of the preceding article,
the vendee may demand of all the vendors or co-
heirs that they come to an agreement upon the
repurchase of the whole thing sold; and should
they fail to do so, the vendee cannot be
compelled to consent to a partial redemption.
Art. 1248. Unless there is an express stipulation
to that effect, the creditor cannot be compelled
partially to receive the prestations in w/c the
obligation consists. Neither may the debtor be
required to make partial payments.
However, when the debt is in part liquidated & in
part unliquidated, the creditor may demand & the
debtor may effect the payment of the former w/o
waiting for the liquidation of the latter.
Art. 1583. Unless otherwise agreed, the buyer of
goods is not bound to accept delivery thereof by
installments.
26
Where there is a contract of sale of goods to be
delivered by stated installments, w/c are to be
separately paid for, & the seller makes defective
deliveries in respect of one or more installments,
or the buyer neglects or refuses w/o just cause to
take delivery of or pay for one or more
installments, it depends in each case on the
terms of the contract & the circumstances of the
case, whether the breach of contract is so
material as to justify the injured party in refusing
to proceed further & suing for damages for
breach of the entire contract, or whether the
breach is severable, giving rise to a claim for
compensation but not to a right to treat the
whole contract as broken.
(3) Express agreement
Art. 1714. If the contractor agrees to produce the
work fr. material furnished by him, he shall
deliver the thing produced to the employer &
transfer dominion over the thing. This contract
shall be governed by the following articles as well
as by the pertinent provisions on warranty of title
& against hidden defects & the payment of price
in a contract of sale.
5. AS TO THE PRESENCE OF AN ACCESSORY
UNDERTAKING IN CASE OF BREACH:
a. Obligations w/ a Penal Clause
Art. 1226. In obligations w/ a penal clause, the
penalty shall substitute the indemnity for
damages & the payment of interests in case of
non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance w/ the provisions of
this Code.
Balane: Articles 1226 to 1230 on obligation w/ a penal
clause is the same as liquidated damages found in
Articles 2226 to 2228 by authority of Lambert v. Fox,
26 Phil. 588.
(Tolentino) Penal Clause.-- A penal clause is an
accessory undertaking to assume greater liability in
case of breach. The purpose is to strengthen the
coercive force of the obligation. When a penal clause is
present, damages do not have to be proved.
Thus, DUAL FUNCTION OF PENAL CLAUSE:
(1) To provide for liquidated damages
(2) To strengthen the coercive force of the Ø by
threat of greater resp.in case of breach.
Characteristics of Penal Clause:
1. Subsidiary (also called alternative)  upon non-
performance, only the penalty may be demanded.
Exception: Where penalty is joint
(cumulative) - where both the principal
undertaking & penalty may be demanded --
Art. 1227, second sentence: "xxx unless this
right has been clearly granted him."
Notice the word clearly (not explicitly) w/c
means that the right can be clearly granted by
implication.
2. Exclusive  penal clause is for reparation.
takes the place of damages.
Exception: When it is for punishment  in w/c
case both penalty & damages may be demanded,
namely--
 If there is a stipulation that both penalty &
damages are recoverable in case of breach
 If the obligor refuses to pay the penalty
 If the obligor is guilty of fraud in the fulfillment
of his obligation.
Balane: The SC considered the 4% interest as not a
penal clause bec. it does not strengthen the coercive
force of the obligation.
ROBES-FRANCISCO V. CFI [86 S 59]
FACTS: In May 1962, Petitioner Realty Corp. sold to
Lolita Millan a parcel of land in Camarin, Caloocan on
installment basis. Millan complied w/her side of the Ø
and finished paying in full on Dec. 1971, incl. interests
and expenses for registration of title. Thus, Millan
demanded from the Corp. execution of final deed of sale
and issuance of her TCT. Deed of sale was executed in
Mar. 1973, wherein VENDOR warrants that it shall issue
TCT w/in 6 mos.,, should the vendor fail to issue the
TCT w/in 6 mos. fr. the date of full payment, it
shall refund to the vendee the total amount paid
for w/ interest at the rate of 4% p.a.
Failing to do so, Millan filed a case of specific
performance and damages vs. Robes in CFI. On trial it
was found that Corp. failed to deliver the TCT b/c such
was mortgaged w/GSIS. Corp. was found guilty of delay
amounting to non-performance of Ø, thus Art.
1170 was applied.
Petitioner here invokes Art. 1226, that in lieu of the
contract Millan shd be allowed to recover damages more
than what was agreed upon.
ISSUE: WON award by CFI of nominal damages of P20K
improper.
HELD: The foregoing argument of petitioner is totally
devoid of merit. We would agree w/ petitioner if the
clause in question were to be considered as a penal
clause. Nevertheless, for very obvious reasons, said
clause does not convey any penalty, for even w/o it,
pursuant to Art. 2209 of the NCC, the vendee would be
entitled to recover the amount paid by her w/ legal rate
of interest w/c is even more than the 4% provided for in
the clause.
Vendee failing to present evidence of actual
damages, she is atleast entitled to nominal damages,
whc is not indemnification but recognition of a right
violated (Art. 2221/2222)
CASE DOCTRINES: The theory that penal and
liquidated damages are the same cannot be sustained
where obligor is guilty of fraud in fulfillment of Ø;
 The penalty clause does not partake of the
nature of liquidated damages.
 Party to a contract whc was breached by the
other, may be given the rt. to recover actual
damages instead of stipulated liquidated
damages.
 A creditor, in case of fraud by the obligor is
entitled to stipulated penalty plus the difference
bet.the proven damages & such stipulated
penalty.
PAMINTUAN V. CA [94 S 556] -
FACTS:
RE: Recovery of compensatory damages for breach of ©
of sale in addition to liquidated damages.
In 1960, MARIANO C. PAMINTUAN, w/his barter license,
was authorized to export to Japan 1000 m.Tons of white
flint corn valued @USD 47K, in exchange for collateral
importation of plastic sheetings of equal value. As such
he entered into © w/ TOKYO MENKA KAISHA, LTD. Of
OSAKA, JAPAN. He also ©’s TO SELL the plastic
sheetings to YU PING KUN, CO., INC. for Php 265K, thus
the latter undertook to open an irrevocable domestic
letter of credit in favor of Pamintuan.
Further agreed that Pamintuan would deliver the PS to
bodegas of Yu Ping in Manila and suburbs “within
1month upon arrival of carrying vessels”; &that upon
breach, aggrieved party may collect liquidated damages
of php 10K.
It
Pamintuan made incomplete deliveries, asked the
president of the Co. for cash payment and adjustments
in price, which the co.agreed to. When Pamintuan
refused to complete his deliveries, he invoked that the
© was novated and Co. failed to comply thereto.
Co. filed for damages vs. Pamintuan. Lower court
awarded actual damages, liquidated damages as
stipulated, and moral damages.
Pamintuan appealed. CA found Pamintuan guilty of
fraud, and sustained the LC.
ISSUE:WON the Co. is entitled only to liquidated
damages as appearing in the contract of sale?
We hold that appellant's contention cannot be sustained
bec. the second sentence of Art. 1226 itself provides
that "nevertheless, damages shall be paid if the
obligor xxx is guilty of fraud in the fulfillment of
the obligation." xxx The trial court & the CA found
that Pamintuan was guilty of fraud bec. he did not make
a complete delivery of the plastic sheeting & he
overpriced the same. xxx
Penalty & Liquidated damages:
 There is no justification for the NCC to make an
apparent distinction bet. penalty & liquidated
damages bec. the settled rule is that there is no
difference bet. penalty & liquidated damages
insofar as legal results are concerned & either
may be recovered w/o the necessity of proving
actual damages & both may be reduced when
proper. Xxx
 We further hold that justice would be adequately
done in this case by allowing Yu Ping Kun Co.,
Inc. to recover only the actual damages proven,
& not to award to it the stipulated liquidated
damages of P10,000 for any breach of the
contract. The proven damages supersede the
stipulated liquidated damages.
 This view finds support in the opinion of
Manresa that in cases of fraud the difference
bet. the proven damages & the stipulated
penalty may be recovered.
Legality of Penal clause: not contrary lo law, morals,
public order
(e.g. usurious, immoral, unjust, merciless)
How construed: strictly construed, in accord
w/stipulation, (effecting minimal rts)
When there could be damages aside from
Penalty:
(1) Express provision: ex. “legal interest of 12% p.a.
aside fr penalty may be had, plus attorney’s
fees of 20%”
(2) Debtor refused to pay penalty
(3) There’s fraud in debtor’s non-performance
 Non-performance gives rise to
presumption of fault, debtor has
burden of proof: defenses may be force
majeure, or act of creditor himself;
CASE:
BACHRACH V. ESPIRITU [52 P 346]
RE: Chattel Mortgage with PENAL CLAUSE
FACTS:
Faustino Espiritu purchased from Bachrach Motor in
JULY,1925, a 2-ton white-truck on installment basis. This
truck was mortgaged, incl. two other white trucks owned
by defendant whc are fully paid for, to secure the loan.
In FEB. 1925 def. also purchased another 1-ton white
truck fr same plaintiff corp. w/downpd, balance on
installment basis also, placing this truck on mortgage for
security and incl the 2 above mortgaged trucks also.
Again, def. failed to pay this debt.
In both sales, a 12% p/a/ interest was agreed upon the
unpaid portion of the ©s, and upon maturity, when due,
non-payment of total remaining debt would give rise to
25% penalty; aside fr mortgage deed, there was a PN,
co-signed by def.brother solidarily. Thus, Rosario
appeared as intervenor in the collection suits alleging to
be the sole owner of the two other trucks mortgaged.
He alleged that he did not sign the mortgage and did
not consent to the inclusion of his two trucks therein.
27

While the cases were pending in lower court, the trucks
were sold by virtue of the mortgage and brought in a net
sum not enough to settle the debts due; Lower court
directed payments of all the sums due and in both two
cases ordered the payment of 12% interest p.a. until
fully paid and a penalty of 25% in addition as appearing
in the contracts. To these matters the defs. Alleged that
these amounts to usury.
ISSUE: WON the 12% interest p.a. plus additional
penalty of 25% makes the contract usurious?
HELD:
Art. 1152 of the OCC permits the agreement upon a
penalty apart fr. the interest. Should there be such an
agreement, the penalty xxx does not include the
interest, & as such the two are different & distinct things
w/c may be demanded separately. The penalty is not to
be added to the interest for the determination of
whether the interest exceeds the rate fixed by law, since
said rate was fixed only for the interest.
BUT, considering partial performance, SC reduced
penalty to 10% in accord with Art. 1154. (Art.
1229, NCC)
Art. 1227. The debtor cannot exempt himself fr.
the performance of the obligation by paying the
penalty, save in the case where this right has
been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
& the satisfaction of the penalty at the same
time, unless this right has been clearly granted
him. However, if after the creditor has decided to
require the fulfillment of the obligation, the
performance thereof should become impossible
w/o his fault, the penalty may be enforced.
 GR: Debtor cannot avoid performance by
paying the penalty; except when expressly
granted to debtor.
 GR as to creditor: may not demand both
fulfillment and payment of penalty at the same
time; except if such rt. is granted clearly.
 as to the last sentence, when it becomes
impossible w/o creditor’s fault  will happen only
if thru debtor’s fault or delay, for penalty to
become enforceable; b/c if thru FE w/o credotor’s
nor debtor’s fault, principal Ø would be
extinguished and so will the penal clause.
Art. 1228. Proof of actual damages suffered by
the creditor is not necessary in order that the
penalty may be demanded.
Baviera: Courts enforce contracts according to their
terms
Art. 1229. The judge shall equitably reduce the
penalty when the principal obligation has been
partly or irregularly complied w/ by the debtor.
Even if there has been no performance, the
penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Art. 1230. The nullity of the penal clause does
not carry w/ it that of the principal obligation.
The nullity of the principal obligation
carries w/ it that of the penal clause.
Partial Performance  refers to extent or quantity of
fulfillment
Irregular Performance  refers to the form
 Doctrine of Strict Construction will apply as
against the enforcement of the penalty in its
entirety, when the clause is clearly punitive, not
when it is impliedly intended as liquidated
damages;
28
 Thus penalty is mitigated in:
1. partial or irregular performance
2. iniquitous or unconscionable penalty
1. Distinguished fr. Ø with suspensive condition:
 Happening of the condition gives rise to the Ø;
in penal there is already a principal Ø
 The principal Ø itself is dependent upon a future
and uncertain event; in penal, only the
accessory Ø (the penalty) depends upon non-
performance or breach.
2. Distinguished fr. alternative obligations
Art. 1227. The debtor cannot exempt himself fr.
the performance of the obligation by paying the
penalty, save in the case where his right has been
expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
& the satisfaction of the penalty at the same
time, unless this right has been clearly granted
him. However, if after the creditor has decided to
require the fulfillment of the obligation, the
performance thereof should become impossible
w/o his fault, the penalty may be enforced.
Art. 1200. The right of choice belongs to the
debtor, unless it has been expressly granted to
the creditor.
The debtor shall have no right to choose those
prestations w/c are impossible, unlawful or w/c
could not have been the object of the obligation.
ALTERNATIVE Ø Ø W/PENAL CLAUSE
2 or more Øs are due but there’s only 1 principal Ø,
performance of 1 is only in case of non-
enough performance shall the
penal clause be
enforceable
Impossibility of one of Øs, impossibility of principal Ø,
the other/s subsists penal clause extinguished
Debtor can choose whc debtor cannot choose to
prestation to fulfill pay penalty to avoid
performance, unless
expressed
X obliged to deliver a X obliged to deliver a
horse to Y or pay him P500 horse to Y. if he fails he will
pay him P500
2. Distinguished fr. Facultative obligations
Art. 1206. When only one prestation has been
agreed upon, but the obligor may render another
in substitution, the obligation is called
facultative.
The loss or deterioration of the thing
intended as a substitute, through the negligence
of the obligor does not render him liable. But
once the substitution has been made, the obligor
is liable for the loss of the substitute on account
of his delay, negligence or fraud.
Art. 1227. The debtor cannot exempt himself fr.
the performance of the obligation by paying the
penalty, save in the case where this right has
been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
& the satisfaction of the penalty at the same
time, unless this right has been clearly granted
him. However, if after the creditor has decided to
require the fulfillment of the obligation, the
performance thereof should become impossible
w/o his fault, the penalty may be enforced.
FACULTATIVE Ø
Debtor has power to make
substitution
Creditor cannot demand
both prestations
Ø w/ PENAL CLAUSE
GR, none; except when
expressed
such right to demand both
may be given

GUARANTY Ø w/ PENAL CLAUSE

Is a © by whc virtue, a 3rd Ø to pay penalty is
person (guarantor) obliged different fr the principal Ø,
himself to fulfill prestation but also paid in lieu of
in lieu of debtor’s non- debtor’s non-performance
performance
Intended to insure Intended to insure
performance of principal Ø performance of principal Ø
Accessory & subsidiary Ø Accessory & subsidiary Ø
Principal debtor cannot be both Øs can be assumed
guarantor by one person
Subsists even when penalty is extinguished in
principal Ø is voidable or such case, unless assumed
unenforceable by 3rd person

Q: When does delay set in?

A: Delay sets-in in the following manner:

1. For Reciprocal simultaneous obligations

 by the readiness of one of the parties to perform &
his letting the other party know; & the other party is not
ready to comply in a proper manner w/ what is
incumbent upon him.

2. For Reciprocal obligations w/c are not

simultaneous
 Gen. Rule: Demand is necessary (Art. 1169, par.
(1) This is called mora solvendi ex persona.
Exception: When demand is not necessary (the
exceptions are found in Art. 11 69, par. 2.) This
is called mora solvendi ex re

Q: What kind of demand is necessary?

A: Judicial or extra-judicial
Exceptions:
When the obligation or the law expressly so
declare.-- when the contract says that w/o the
necessity of demand, default sets in upon the failure
of the obligor to perform on due date. There must
be something in the contract w/c explicitly states
that the demand is not necessary in order that delay
may set in.

When fr. the nature & the circumstances of the

obligation it appears that the designation of
the time when the thing is to be delivered or
the service is to be rendered was a controlling
motive for the establishment of the contract.

Illustration: Bong Baylon is getting married in

Valentines '96. Inno Sotto was supposed to make
Ella's (the bride) wedding gown. Feb. 14 comes , no
gown was delivered. Ella gets married in blue jeans
& T-shirt. Finally, on Feb. 15, Inno delivers the gown.
xxx Ella sues Inno for breach. Inno says there was
no demand. In this case, demand is not necessary
in order that delay may exist.

When demand would be useless, as when the

obligor has rendered it beyond his power to
perform.-- Example is the case of Chavez v.
Gonzales, infra.

29
July 9, 2008
E. BREACH OF OBLIGATIONS (ART. 1170)
Art. 1170. Those who in the performance of their
obligation are guilty of fraud, negligence or delay,
& those who in any manner contravene the tenor
thereof, are liable for damages.
Irregularity of Performance [Articles 1169 - 1174]
Art. 1169. Those obliged to deliver or to do
something incur in delay fr. the time the obligee
judicially or extrajudicially demands fr. them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
When the obligation or the law expressly so
declare;
When fr. the nature & the circumstances of the
obligation it appears that the designation of the
time when the thing is to be delivered or the
service is to be rendered was a controlling motive
for the establishment of the contract;
When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready
to comply in a proper manner w/ what is
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other
begins.
Balane: Two Classes of Irregularity
Performance:
1. Attributable to the debtor
A. Fraud
B. Negligence
C. Delay
2. Not attributable to the debtor
A. Fortuitous event.
(1) Fraud
Art. 1171. Responsibility arising fr. fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void.
Article 1338. There is fraud when, through
insidious words or machinations of one of the
contracting parties, the other is induced to
enter into a contract which, without them, he
would not have agreed to.
Article 1344. In order that fraud may make a
contract voidable, it should be serious and
should not have been employed by both
contracting parties.
Incidental fraud only obliges the person
employing it to pay damages.
Balane: Is it correct to say that fraud in Art. 1170
means deceit or insidious machinations? No.
LEGASPI OIL VS. CA [224 S 213] - Definition of
Fraud.--
 In general, fraud may be defined as the
voluntary execution of a wrongful act, or
willful omission, knowing & intending the
effects w/c naturally & necessarily arise fr.
such act or omission;
 The fraud referred to in Art. 1170 is the
deliberate & intentional evasion of the
normal fulfillment of obligation;
 It is distinguished fr. negligence by the presence
of deliberate intent, w/c is lacking in the latter.
Fraud as used in Art. 1170 is different fr. fraud as a
cause for vitiation of consent in contracts (more properly
called deceit w/c prevents the contract fr. arising; this is
found in Art. 1380, et seq.)
 fraud as referred here is the deliberate and
intentional evasion of normal fulfillment of Øs; thus, as
ground for damages fr this article, implies some kind of
malice or dishonesty, whc does not cover mistake,
erros of judgment made in GF.
 Evasion of a legit.Ø for benefits admittedly received
constitutes unjust enrichment.
Q: What is a synonym for fraud as used in Art.
1170?
A: Malice.
Effects of Fraud:
1. Creditor may insist on performance, specific
or substitute (Art. 1233.)
2. Creditor may resolve/ rescind (Art. 1191.)
3. Damages in either case (Art. 1170.)
(2) Negligence
Art. 1171. Responsibility arising fr. fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void.
Art. 1172. Responsibility arising fr. negligence in
the performance of every kind of obligation is
also demandable, but such liability shall may be
regulated by the courts, according to the
circumstances.
of Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence w/c is
required by the nature of the obligation &
corresponds w/ the circumstances of the persons,
of the time & of the place. When negligence
shows bad faith, the provisions of articles 1171 &
2201, paragraph 2, shall apply.
 Negligence is the absence of something that
should be there  due diligence.
Measure of Due Diligence.-- There are two guides:
1. Diligence demanded by circumstances of
person, place & time
2. Care required of a good father of a family
(fictional bonus pater familias who was the
embodiment of care, caution & protection in
Roman law.)
In common law, the degree of care required is the
diligence of a prudent businessman. This is
actually the same as the diligence of a good father of a
family.
Effects of Negligence:
1. Creditor may insist on performance, specific or
substitute (Art. 1233.)
2. Creditor may resolve/ rescind (Art. 1191.)
3. Damages in either case (Art. 1170.)
 From 1173 = culpa contractual
 from 2176 = culpa aquiliana or extra-contractual
** In both cases, for liability to attach, such negligence
must be the proximate cause of the injury to plaintiff.
(3) Delay
 See Art. 1169.
= default / mora, in the fulfillment of Øs;
REQUISITES to be In Default:
Ø is demandable and liquidated
debtor delays performance
30
creditor requires performance, jud or extrajud
demand
Art. 1165. xxx. If the obligor delays, or has
promised to deliver the same thing to two or
more persons who do not have the same interest,
he shall be responsible for any fortuitous event
until he has effected the delivery.
Article 1786. Every partner is a debtor of the
partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case of
eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same
cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also
be liable for the fruits thereof from the time
they should have been delivered, without the
need of any demand.
Article 1788. A partner who has undertaken
to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation.
The same rule applies to any amount he may
have taken from the partnership coffers, and
his liability shall begin from the time he
converted the amount to his own use.
Article 1896. The agent owes interest on the
sums he has applied to his own use from the day
on which he did so, and on those which he still
owes after the extinguishment of the agency.
Article 1942. The bailee is liable for the loss
of the thing, even if it should be through a
fortuitous event:
(1) If he devotes the thing to any purpose
different from that for which it has been
loaned;
(2) If he keeps it longer than the period
stipulated, or after the accomplishment of the
use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a
stipulation exempting the bailee from
responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third
person, who is not a member of his household;
(5) If, being able to save either the thing
borrowed or his own thing, he chose to save the
latter. (OBLIGATIONS OF THE BAILEE)
Delay is the non-fulfillment of the obligation w/ respect
to time.
Kinds of Delay:
1. Mora Solvendi -- delay in the performance
(on the part of the debtor);
2. Mora Accipiendi -- delay in the acceptance
(on the part of the creditor);
3. Compensation Morae -- mutual delay
Art. 2201. xxx
(2) In contracts & quasi-contracts, the damages
for w/c the obligor who acted in good faith is
liable shall be those that are the natural &
probable consequences of the breach of the
obligation, & w/c the parties have foreseen or
could have reasonably foreseen at the time the
obligation was constituted.
31
In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for all
damages w/c may be reasonably attributed to the
non-performance of the obligation.
(4) ANY OTHER MANNER OF CONTRAVENTION:
 includes any illicit acts which impair the strict and
faithful fulfillment of Ø, or every kind of defective
performance;
CASE: “in any manner contravene the tenor of
contract”
AGCAOILI VS. GSIS [165 S 1]
FACTS:
GSIS approved applic. Of Artemio Agcaoili for purchase
of H&L in Marikina, subjc.to condition that latter shd
forthwith occupy the house:
“If you fail to occupy the same w/in 3 days fr receipt of
this notice, ur applic. Will be considered automatically
disapprovd & said H&L will be awarded to another.”
There was then a perfected contract of sale bet. the
parties; there had been a meeting of the minds upon the
purchase by Agcaoili of a determinate house & lot in the
GSIS Housing Project at Nangka, Marikina, Rizal, at a
definite price payable in amortizations at P31.56 per
mo., & fr. the moment the parties acquired the right to
reciprocally demand performance. It was, to be sure,
the duty of the GSIS, as seller, to deliver the thing sold
in a condition suitable for its enjoyment by the buyer for
the purpose contemplated, in other words, to deliver the
house subject of the contract in a reasonably livable
state. This it failed to do.
Agcaoili could not stay in the haus whc was only a shell,
It did not have a ceiling, stairs, double walling, lights,
water, CR, drainage. He asked a homeless friend
instead to stay and watch over the property. After
paying 1 installment &other fees, refused to make
st
further payments until GSIS wud make d haus habitable.
Instead, GSIS cancelled the © and demanded Agcaoili to
vacate.
Agcaoili filed w/CFI case for specific performance and
won. Thus GSIS’ appeal must fail.
xxx
Since GSIS did not fulfill that obligation, & was
not willing to put the house in habitable state, it cannot
invoke Agcaoili's suspension of payment of amortization
as cause to cancel the contract bet. them. It is
axiomatic that "(i)n reciprocal obligations, neither
party incurs in delay if the other does not comply
or is not ready to comply in a proper manner w/
what is incumbent upon him.
WON Agcaoili breached the © by failing to
occupy the house w/in 3 days as stipulated? NO,
argument of GSIS devoid of merit.
There being a perfected © of sale, it was
the duty of GSIS as seller to deliver the thing sold
in a condition suitable for enjoyment by the buyer
for the purpose contemplated.
CASE DOCTRINE:
One who assumes a contractual obligation & fails
to perform the same on account of his inability to
meet certain bank requirements w/c inability he
knew & was aware of when he entered into the
contract, should be held liable in damages for
breach of contract.
ARRIETA VS. NARIC [10 S 79]
FACTS: (Paz Arrieta vs. National Rice & Corn Corp.)
On May 1952, Arrieta took part in public bidding by
NARIC to supply 20K m.Tons of Burmese rice, being the
lowest bidder she was awarded the contract. In the ©
of sale, Arrieta’s Ø was to deliver the rice at d price of
her bid, while NARIC’s Ø was to pay her in LOC,
irrevocable, confirmed and assignable, in USD in favor of
Arrieta or supplier in Burma, “immediately.”
NARIC knew that it did not have enough deposit in PNB
to cover the Ø, thus it wrote a letter of request to
accom. the applic for LOC despite such fact in lieu of this
© w/Arrieta. This applic. Was made by PNB on July 30,
1952, a month after it entered in the © w/Arrieta and
promised to open the LOC “immediately.” By this time
Arrieta has made a 5% tender to her supplier in Burma,
whc will be confiscated if the required LOC will not be
received before August 4, 1952. Such fact was apprised
by Arrieta to NARIC in a letter thru counsel.
PNB required NARIC to make a marginal deposit of 50%
of the amount of LOC before such will be released in
favor of Arrieta’s supplier in Burma. Such condition
NARIC is not in any financial position to meet. PNB
conseq. Approved &released the LOC 2-mos. In delay.
The Burmese supplier has cancelled the order on Aug.
20, 1952, and forfeited the 5% tender of Arrieta
amounting to P200K. NARIC and PNB did not even make
the 15-day grace period given by the supplier. Arrieta
endeavored to restore to no avail. It offered to
substitute w/Thailand rice, NARIC rejected.
Thus, Arrieta demanded for payment of damages of USD
286K representing unrealized profits. Again rejected.
Thus, this case.
WON NARIC was in breach of contract?
YES> NARIC’s culpability arises from its willful and
deliberate assumption of ©’al Øs even as it was
well aware of its own financial incapacity to
undertake the prestation.
Under Art. 1170, not only debtors guilty of fraud,
negligence or default but also every debtor, in
general, who fails the performance of his
obligation is bound to indemnify for the losses &
damages caused thereby.
Meaning of phrase "in any manner contravene the
tenor" of the obligation in Art. 1170  The phrase
includes any illicit task w/c impairs the strict & faithful
fulfillment of the obligation, or every kind of defective
performance.
Balane: This phrase is a catch-all provision. At
worst, it is a superfluity. At best, there is a safety net
just in case there is a culpable irregularity of
performance w/c is not covered by fraud, negligence or
delay. In this case, the SC was apparently not sure as to
what category the breach fell. This phrase is not really
an independent ground.
“ TIME IS OF THE ESSENCE”
TELEFAST VS. CASTRO [158 s 445] -
FACTS: Sofia’s mother died while they were here in RP
visiting..her father siblings were all abroad. Thus, that
same day she sent a telegram to her father in the USA
via TELEFAST. Her mother was interred w/o her father
nor siblings in attendance. When Sofia went back to the
USA she learned that her telegram never reached her
father.
HELD: Petitioner & private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner
undertook to send said private respondent's message
overseas by telegram. This, petitioner did not do,
despite performance by said pvt. resp. of her obligation
by paying the required charges. Petitioner was therefore
guilty of contravening its obligation to said private
respondent & is thus liable for damages.
ISSUE;WON there was here breach of contract, and WON
only actual damages are due?
YES, Art. 1170, ALSO Art. 2176 applied.
This liability is not limited to actual or quantified
damages. To sustain petitioner’s contention and
award actual damages only would be iniquitous
such that he would be liable only for the cost of
that telegram paid for 30 yrs ago.
EXCUSE FOR NON-PERFORMANCE:
1. Loss due to Fortuitous Events
Art. 1174. Except in cases expressly specified by
law, or when it otherwise declared by stipulation,
or when the nature of the obligation requires the
assumption of risk, no person shall be responsible
for those events w/c could not be foreseen, or w/c
,though foreseen, were inevitable.
32
To constitute a caso fortuito that will exempt a
person fr. responsibility, it is necessary that: [Austria vs.
Abad,June 10, 1971]
1. the event must be independent of human will;
2. the occurrence must render it impossible for the
debtor to fulfill the obligation in a normal
manner;
3. that the obligor must be free of participation in,
or aggravation of, the injury to the creditor.
Balane:
General Rule: The happening of a fortuitous
event exonerates the debtor fr. liability.
EXEMPTIONS FROM APPLICATION OF G.R. ON F.E.:
1. When the law so specifies.-- e.g., if the debtor is
already in delay (Art. 1165, par. 3.)
2. When the parties so agree
3. When the nature of the obligation requires the
assumption of risk, e.g., an insurance contract.
EXAMPLES OF BY Express Provision of Law:
 IN Depositary
Art. 1979. The depositary is liable for the loss of
the thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing w/o the depositor's
permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he
himself may have been authorized to use the
same.
Q: What if a depositor was in the premises of the
bank & was robbed of his money w/c he was
about to deposit?
A: Bank cannot be held liable for fortuitous
event (robbery) esp in CAB where the money
has not yet been actually deposited.
Art. 1979 provides for instances wherein depositary is
still liable even in cases of fortuitous event.
Q: What kind of diligence is required of a
depositary?
A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a SDB was
stolen, rules on deposit will not apply bec. the contract
governing the transaction is LEASE of safety deposit
box.
Bailee in Commodatum
Art. 1942. The bailee is liable for the loss of the
thing, even if it should be through a fortuitous
event:
(1) If he devotes the thing to any purpose
different fr. that for w/c it has been loaned;
(2) If he keeps it longer than the period
stipulated, or after the accomplishment of the use
for w/c the commodatum has been constituted;
If the thing loaned has been delivered w/
appraisal of its value, unless there is a stipulation
exempting the bailee fr. responsibility in case of a
fortuitous event;
If he lends or leases the thing to a third person,
who is not a member of his household;
(5) If, being able to save either the thing
borrowed or his own thing, he chooses to save
the latter.
In Negotiorum Gestio
Art. 2147. The officious manager shall be liable
for any fortuitous event:
(1) If he undertakes risky operations w/c the
owner was not accustomed to embark upon;
(2) If he has preferred his own interest to that of
the owner;
(3) If he fails to return the property or business
after demand by the owner;
(4) If he assumed the management in bad faith.
Art. 2148. Except when the management was
assumed to save the property or business fr.
imminent danger, the officious manager shall be
liable for fortuitous events:
(1) If he is manifestly unfit to carry on the
management;
(2) If by his intervention he prevented a more
competent person fr. taking up the management.
Payee in Solutio Indebiti
Art. 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits
received or w/c should have been received if the
thing produces fruits.
He shall furthermore be answerable for any loss
or impairment of the thing fr. any cause, & for
damages to the person who delivered the thing,
until it is recovered.
Lessee
Art. 1648. Every lease of real estate may be
recorded in the Registry of Property. Unless a
lease is recorded, it shall not be binding upon
third persons.
Art. 1671. If the lessee continues enjoying the
thing after the expiration of the contract, over
the lessor's objection, the former shall be subject
to the responsibilities of a possessor in bad faith.
Art. 552. xxx.
A possessor in bad faith shall be liable for
deterioration or loss in every case, even if caused
by a fortuitous event.
Independent Contractor
Art. 1727. The contractor is responsible for the
work done by persons employed by him.
Art. 1728. The contractor is liable for all the
claims of laborers & others employed by him, & of
third persons for death or physical injuries during
the construction.
Common Carrier
Art. 1763. A common carrier is responsible for
injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or
of strangers, if the common carrier's employees
through the exercise of the diligence of a good
father of a family could have prevented or
stopped the act or omission.
(2) “when it is otherwise declared by stipulation”
(1174)
Express agreement
Art. 1306. The contracting parties may
establish such stipulations, clauses, terms &
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
33
(3) “when the nature of the Ø requires the
assumption of risks”
Aleatory Contract
Art. 2010. By an aleatory contract, one of the
parties or both reciprocally bind themselves to
give or to do something in consideration of what
the other shall give or do upon the happening of
an event w/c is uncertain, or w/c is to occur at an
indeterminate time.
Art. 1175. Usurious transactions shall be
governed by special laws.
Tolentino:
Usury.-- Usury is the contracting for or receiving
something in excess of the amount allowed by law for
the loan or forbearance or money, goods or chattels.
Special law on usury.-- The Usury Law was Act No.
2655. This law was repealed during the period of
martial law, leaving parties free to stipulate higher rates.
_________________________________________________________
CASES:
Balane: Some of the elements were present in this
case. What was absent was the last element.
NPC VS. CA [161 S 334] - NPC cannot escape
liability bec. its negligence was the proximate
cause of the loss & damage even though the
typhoon was an act of God.
FACTS:
Typhoon “Welming”
Plaintiff ECI (Engr.Constrx,Inc) entered © w/NAWASA on
Aug.1964, to construct ipo-Bicti Tunnel in Norza.,Bul.
w/in 800 days; It has finished 1 st stage of the excavation
works and was already on the Ipo site phase when
typhoon “Welming” came in Sept. 1967. it was
predicted that Welming wud pass through NPC’s Angat
Hydroelectric Project and Dam at Ipo. Consequent to
the heavy downpour, the dam reached danger height of
212 m. above sea level causing the NPC to decide to
open spillway gates at that point. Thus, the
extraordinary large volume of water rushed out of the
gates and hit the installations and constx worx of ECI at
Ipo Site w/terrific impact washing away and/or
destroying supplies and equipment of ECI.
It is clear fr. the appellate court's decision that based on
its findings of fact & that of the trial court's, petitioner
NPC was undoubtedly negligent bec. it opened the
spillway gates of the Angat Dam only at the height of
typhoon "Welming" when it knew very well that it was
safer to have opened the same gradually & earlier, as it
was also undeniable that NPC knew of the coming of the
typhoon at least 4 days bef. it actually struck. And even
though the typhoon was an act of God or what we may
call force majeure, NPC cannot escape liability bec. its
negligence was the proximate cause of the loss &
damage. As we have said in Juan Nakpil & Sons vs. CA,
144 SCRA 596,
Thus, if upon the happening of a fortuitous event or an
act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in
any manner of the tenor of the obligation as
provided for in Art. 1170, w/c results in a loss or
damage, the obligor cannot escape liability. The
principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned
exclusively by the violence of nature & human
agencies are to be excluded fr. creating or
entering into the cause of the mischief. When the
effect, the cause of w/c is to be considered, is found to
be in part the result of the participation of man, whether
it be fr. active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it was, &
removed fr. the rules applicable to the acts of God.
Thus, it has been held that when the negligence of a
person concurs w/ an act of God in producing a loss,
such person is not exempt fr. liability by showing that
the immediate cause of the damage was the act of God.
To be exempt fr. liability for loss bec. of an act of
God, he must be free fr. any previous negligence
or misconduct by w/c the loss or damage may
have been occasioned.
(2) ACT OF CREDITOR
CASE: City of Mla. failed to exercise the diligence of a
good father of a family w/c is a defense in quasi-delict.
JIMENEZ vs. CITY OF MANILA [150 S 510]
FACTS: Bernardino Jimenez went to Sta. Ana Public
market to buy “bagoong” when his left foot fell in an
open hole that was hidden by muddy rainwater in the
flooded market. His left leg was stuck by a rusty 4-in
nail. His leg later on swelled and he was brought for
treatment to Veteran’s MH. He walked around
w/crutches for 15 days, unable to work, forced to hire a
temp.driver for his sch.bus biz.. Thus, he sued the City
of Mla. For damages, and the Asiatic Integ. Corp. (AIC)
who had the managing and operating © to that market.
Lower court dismissed his complaint for insuff. Of evid.
The appellate court found in his favor and placed sole
liability on AIC.
ISSUE: WON the City of Manila shd be held solidarily
liable w/ Asiatic integ. Corp. for injuries suffered by
petitioner?
HELD:
As a defense against liability on the basis of quasi-delict,
one must have exercised the diligence of a good father
of a family. (Art. 1173, NCC)
There is no argument that it is the duty of the City of
Mla. to exercise reasonable care to keep the public
market reasonably safe for people frequenting the place
for their marketing needs. While it may be conceded
that the fulfillment of such duties is extremely difficult
during storms & floods, it must, however, be admitted
that ordinary precautions could have been taken during
good weather to minimize the dangers to life & limb
under those difficult circumstances. For instance, the
drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is
the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates
that long before petitioner fell into the opening, it was
already uncovered, & 5 mos. after the incident
happened, the opening was still uncovered. Moreover,
while there are findings that during floods the vendors
remove the iron grills to hasten the flow of water, there
is no showing that such practice has ever been
prohibited, much less penalized by the City of Mla.
Neither was it shown that any sign had been placed
thereabouts to warn passers-by of the impending
danger.
For liability under Art. 2189 NCC to attach, it is not
necessary that the defective public works belong to the
LGU concerned. What is req’d is “control or
supervision.”
CASE: Requisites for exemption fr. liability due to
an "act of God."
Juan F. NAKPIL & SONS vs. CA [144 S 596]
October 3, 1986
To exempt the obligor fr. liability under Art. 1174,
for a breach of an obligation due to an "act of
God," the following must concur:
1. the cause of the breach of the obligation
must be independent of the will of the
debtor;
2. the event must be either unforeseeable or
unavoidable; (c) the event must be such
as to render it impossible for the debtor to
fulfill his obligation in a normal manner; &
3. the debtor must be fee fr. any
participation in, or aggravation of the
injury to the creditor.
FACTS:
Construction of the office building of Plaintiff Phil. Bar
Assoc. (PBA) in Intramuros was undertaken by United
Constrx. Inc. on an “administration” basis on suggestion
of United Pres. Juan Carlos. Such was approved by PBA
Board, & Pres. Roman Ozaeta. Plans and specs were
done by Juan f. Nakpil & Sons. Bldg. was completed June
1966.
August 1968 an unusually strong earthquake hit Manila.
The PBA bldg.sustained major damage, tenants had to
vacate. Temp. rem. Worx done by United cost P13K+
Nov. 1968 PBA filed action to recover damages vs.
United, &Juan Carlos, as def, alleging that the damage
to the bldg. was due to breach by def. of the terms of ©
and failure to follow the plan&specs. Def. filed 3rd party
complaint vs.the architects, petitioner herein. JFN&sons
stipulated in writing that it not be impleaded by
amendment of complaint. That in case court finds it
liable, it would be as if it was duly impleaded therein.
April 30, 1979, bldg. disputed was authorized to be
demolished at expense of plaintiff, after further
earthquakes caused further damage to the bldg;
ISSUE: WON AN ACT OF GOD WHC CAUSED DAMAGE TO
THIS BLDG, EXEMPTS FR LIABILITY, PARTIES WHO ARE
OTHERWISE LIABLE B/C OF NEGLIGENCE? ART. 1723
To exempt obligor fr liability under Art. 1174, FE;
or for a breach of Ø d/t an act of God, the ff. must
concur:
1. cause of the breach of Ø must be independent
of the will of the debtor;
2. the event must be either unforeseeable or
unavoidable
3. the event must be such as to render it
impossible for debtor to fulfill Ø in normal
manner;
4. debtor must be free from any participation in, or
aggravation of the injury to the creditor.
Thus, if upon the happening of a FE or an AOG, there
concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of
the Ø as provided in Art. 1170, whc results in loss or
damage, the obligor cannot escape liability.
To be an AOG, the event must be occasioned exclusively
by violence of nature and all human agencies are
excluded from creating or entering into the cause of
mischief. With participation of man, whether active or
neglect or failure to act, the occurrence is humanized,
and removed from the doctrine’s application.
Findings of lower court and IAC were both beyond
dispute that United and JFNakpil &Sons were both liable.
The defects in the plans&specs were proximate cause,
the deviations of United fr the specs and failure to
observe required workmanship & degree of supervision
on both makes them liable.
CASE DOCTRINE: "One who negligently creates a
dangerous condition cannot escape liability for
the natural & probable consequences thereof,
although the act of a third person, or an act of
God for w/c he is not responsible, intervenes to
precipitate the loss." (citing Tucker v. Milan, 49
OG 4379, 4380.)
- NAKPIL & SONS VS. CA [160 S 334] - APRIL 15,
1988
FACTS:
M.R. on the above decision
ISSUES RAISED ON THIS MR:
(1) That the building did not collapse on d earthquake of
4/2/68, thus the premise of the LC findings is
negated, Art. 1173 cannot apply  HELD: it is
not the fact of collapse that was the premise on
applying Art. 1173 but on who shd be
responsible for the extreme damage to the bldg.
whc inevitably led to its collapse, or demolition.
Trial court correctly found defs. Liable;
(2) That court failed to impute liability on PBA or on
Ozaeta for failure to provide legal duty to
supervise, as owner  HELD: no legal nor
contractual basis. PBA sought technical
expertise of both United & JFN&sons for such
costs on this purpose. It was even JFN who
suggested administration basis.
(3) That findings of bad faith had no factual anchor 
HELD: Wanton negligence of both United &
JFN&sons in effecting plans, specs, & constrx
designs is equivalent to BF in performance of
their resp. duties;
(4) Award of 5M had no basis, Commissioner’s report
est.only 1.1M  such initial report was based on
the partial collapse only, after d 4/2/68 EQ, for
repairs; but after total collapse almost 20 yrs
later, unrealized rentals and major reconstrx
makes even 5M a very conservative est.
(5) As to award of attys fees & damages  was court
discretion
(6) 12% interest p.a. accdg to CB Circular 416 (PD 116)
applies only to (1) loans; (2) forbearance of
34
 money, goods or credit; (3) rate allowed in
JFO’s involving 1 & 2.  HELD: True, but,
12% is imposable only when there is delay in
payment of judgment after its finality. (penalty,
not really interest)
NPC VS. CA [222 S 415]  Petitioners cannot be
heard to invoke the act of God or force majeure to
escape liability for the loss or damage sustained by the
pvt. respondents since they, the petitioners, were guilty
of negligence. The event then was not occasioned
exclusively by an act of God or force majeure; a human
factor-- negligence or imprudence-- had intervened.
The effect then of the force majeure in question may be
deemed to have, even if only partly, resulted fr. the
participation of man. Thus, the whole occurrence was
thereby humanized, as it were, & removed fr. the rules
applicable to acts of God.
NPC VS. CA [223 S 649]  Petitioners have raised
the same issues & defenses as in the 2 other decided
cases therein mentioned. Predictably therefore, this
petition must perforce be dismissed bec. the losses &
damages sustained by the private resp.'s had been
proximately caused by the negligence of the petitioners,
although the typhoon w/c preceded the flooding could
be considered as a force majeure.
F. REMEDIES FOR BREECH OF OBLIGATIONS:
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the
right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask
that the obligation be complied with at the expense
of the debtor.
If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Article 1166. The obligation to give a determinate
thing includes that of delivering all its accessions
and accessories, even though they may not have
been mentioned.
Article 1167. If a person obliged to do something
fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone.
Article 1168. When the obligation consists in not
doing, and the obligor does what has been
forbidden him, it shall also be undone at his
expense.
Article 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.
Article 1177. The creditors, after having pursued
the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save
those which are inherent in his person; they may
also impugn the acts which the debtor may have
done to defraud them.
35
Article 1178. Subject to the laws, all rights
acquired in virtue of an obligation are transmissible,
if there has been no stipulation to the contrary.
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the
Mortgage Law.
Article 1192. In case both parties have committed
a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
Article 2236. The debtor is liable with all his
property, present and future, for the fulfillment of
his obligations, subject to the exemptions provided
by law. (Concurrence & Preference of Credits)
Article 302. Neither the right to receive legal
support nor any money or property obtained as
such support or any pension or gratuity from the
government is subject to attachment or execution.
(Support)
Article 1708. The laborer's wages shall not be
subject to execution or attachment, except for
debts incurred for food, shelter, clothing and
medical attendance. (Contract Labor)
FAMILY CODE:
Art. 153. The family home is deemed constituted
on a house and lot from the time it is occupied as a
family residence. From the time of its constitution
and so long as any of its beneficiaries actually
resides therein, the family home continues to be
such and is exempt from execution, forced sale or
attachment except as hereinafter provided and to
the extent of the value allowed by law.
Art. 155. The family home shall be exempt from
execution, forced sale or attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the
constitution of the family
home;
(3) For debts secured by
mortgages on the premises
before or after such
constitution; and
(4)
For debts due to laborers,
mechanics, architects, builders,
materialmen and others who
have rendered service or
furnished material for the
construction of the building.
R.O.C. RULE 39, SEC. 13:
Section 13. Property exempt from execution. �
Except as otherwise expressly provided by law, the
following property, and no other, shall be exempt
from execution:
  The judgment obligor's family home as
provided by law, or the homestead in which he
resides, and land necessarily used in
connection therewith;
 Ordinary tools and implements personally used
by him in his trade, employment, or livelihood;
 Three horses, or three cows, or three carabaos,
or other beasts of burden, such as the
judgment obligor may select necessarily used
by him in his ordinary occupation;
 His necessary clothing and articles for ordinary
personal use, excluding jewelry;
 Household furniture and utensils necessary for
housekeeping, and used for that purpose by
the judgment obligor and his family, such as
the judgment obligor may select, of a value not
exceeding one hundred thousand pesos;
 Provisions for individual or family use sufficient
for four months;
 The professional libraries and equipment of
judges, lawyers, physicians, pharmacists,
dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not
exceeding three hundred thousand pesos in
value;
 One fishing boat and accessories not exceeding
the total value of one hundred thousand pesos
owned by a fisherman and by the lawful use of
which he earns his livelihood;
 So much of the salaries, wages, or earnings of
the judgment obligor for his personal services
within the four months preceding the levy as
are necessary for the support of his family;
 Lettered gravestones;
 Monies, benefits, privileges, or annuities
accruing or in any manner growing out of any
life insurance;
 The right to receive legal support, or money or
property obtained as such support, or any
pension or gratuity from the Government;
 Properties specially exempted by law.
But no article or species of property mentioned in
this section shall be exempt from execution issued
upon a judgment recovered for its price or upon a
judgment of foreclosure of a mortgage thereon.
Tolentino:
RE 1165  REMEDIES OF CREDITOR: For failure of
debtor to comply,
1. SPECIFIC PERFORMANCE, to obtain
compliance of the prestations, whether
determinate or generic; this action implies a
contractual relation;
2. TO RESCIND OR RESOLVE THE Ø
3. AN ACTION FOR DAMAGES exclusively or
in addition to 1 & 2.
 Constitutional prohibition vs. imprisonment for debt
applies, except in subsidiary imprisonment when civil
liability arising from crime is not paid; or in contempt;
 Exception to exception on the GR re FE: Debtor in
default may still prove that he is not liable for FE bcoz
even if he had not performed, the loss wud still have
occurred in the same manner.
RE 1167  Performance of Ø by another at
creditor’s choice a& at debtor’s cost – court may
not by discretion merely award damages to Cr. When
the Ø may be done in spite of debtor’s refusal to do so;
But, law may not compel or force debtor to
comply w/ Ø, if to do, would amount to invol. Serv., if
36
debt, no imprisonment. If Ø can only be done by
debtor, then only rem is damages.
RE 1168 Ø NOT TO DO was done  may compel
debtor to UNDO; but if impossible to undo, rem is
damages.
RE 1170  RECOVERABLE DAMAGES = when the Ø is
to do something other than the payment of money;
If Ø is payment of money, 2209 is the rule re damages
 when debtors incurs in delay, is payment of interest
if w/o stipulation to the contrary, as agreed upon, if if
no agreement, the legal interest.
RE 1177  RIGHTS OF CREDITORS:
1. To levy by attachment & execution upon all
the property of debtor except if exempt by law;
2. to exercise all the rights and actions of the
debtor, except those inherently personal to
him; accion subrogatoria; prior court
approval is not required.
This shd concur w/d ff. requisites:
a. Cr. Has interest in the rt. or axn. Not
only bcoz of his credit but d/t
insolvency of debtor;
b. Malicious or negligent inaction of
debtor at level whc endanger claim of
Cr;
c. Debtor’s rt. vs. 3rd person must be
patrimonial, or susceptible of being
transformed to patrim.value.
3. ask for rescission of ©s made by debtor in
fraud of Cr.’s rts.
Balane:
Q: Against what can the obligee demand
performance?
A: Against non-exempt properties of the debtor.-- The
debtor is liable w/ all his property, present & future,
for the fulfillment of his obligations, subject to the
exemptions provided by law. (Art. 2236.)
If number one is not enough, the creditor goes to any
claims w/c the debtor may have against third
persons. This is called accion subrogatoria,
wherein the creditor is subrogated in the rights of
the debtor.
Personal rts. Of debtor:
1. Rt. to subsistence, support he receives
exempt
2. Public rts;
3. Rts. Pertaining to honor
4. Rt. to use remaining powers available to
him, e.g. SPA of agency or deposit;
administrator; to accept a ©
5. Non-patrimonial rts – estab. Status, legit or
illegit child; annulment of marriage, legal
sep., those arising fr, PFR;
6. Personal rts. Arising fr. Patrimonial source,
e.g. to revoke a donation d/t ingratitude, to
demand exclusion of an unworthy heir;
Accion pauliana (Articles 1380-89).-- This is the right
of creditors to set aside fraudulent transfers w/c the
debtor made so much of it as is necessary to pay
the debts.
 pertains to acts whc debtor may have done in fraud
of Cr. E.g. alienation of property, renunciation of
inheritance or rt. of usufruct, assgnmnt of credit,
remission of debts.
(1) EXTRAJUDICIAL REMEDIES:
(a) EXPRESSLY GRANTED BY LAW
(b) STIPULATED BY THE PARTIES
(a) EXPRESSLY GRANTED BY LAW, extrajudicial
rem.
 (In Obligations of the Partners)
Article 1786. Every partner is a debtor of the
partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of
eviction with regard to specific and determinate
things which he may have contributed to the
partnership, in the same cases and in the same
manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof
from the time they should have been delivered,
without the need of any demand.
Article 1788. A partner who has undertaken to
contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation.
The same rule applies to any amount he may have
taken from the partnership coffers, and his liability
shall begin from the time he converted the amount
to his own use.
(In Delivery of the Thing Sold)
Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller of
goods, as such, has:
(1) A lien on the goods or right to retain them
for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a
right of stopping the goods in transitu after he
has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise
limited by this Title.
Where the ownership in the goods has not passed
to the buyer, the unpaid seller has, in addition to his
other remedies a right of withholding delivery
similar to and coextensive with his rights of lien and
stoppage in transitu where the ownership has
passed to the buyer.
(2) JUDICIAL REMEDIES:
(a) PRINCIPAL REMEDY  1191 / 1170
(b) SUBSIDIARY REM  1380 /1177
(c) ANCILLARY REM  The Rules of Court
(a) PRINCIPAL REMEDY  1191 / 1170
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the
Mortgage Law.
Notes on 1191:
Two remedies are alternative & not cumulative, subject
to the exception in par. 2 where he may also seek
rescission even after he has chosen fulfillment if the
latter should become impossible
37
Art. 1170. Those who in the performance of their
obligation are guilty of fraud, negligence or delay,
& those who in any manner contravene the tenor
thereof, are liable for damages.
(b) SUBSIDIARY REM  1380 /1177
Article 1380. Contracts validly agreed upon may
be rescinded in the cases established by law.
(Rescissible Contracts)
Article 1177. The creditors, after having pursued
the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save
those which are inherent in his person; they may
also impugn the acts which the debtor may have
done to defraud them.
---
Rescission in reciprocal Ø in Art. 1191 is not identical to
Rescission of ©s in Art. 1380+.
Requisites of Rsn of a K (1380):
a rescissible K, ex. under Art. 1381 & 1382
no other legal means to obtain reparation for damages
(Art. 1383)
person demanding Rsn must be able to return whatever
he may be obliged to restore if Rsn granted (Art. 1385)
objects of K must not have passed legally to poss’n of 3rd
p. in GF (Art. 1385)
Axn for Rsn brought w/in 4 years (Art. 1389)
 Rescindable Ks are valid until voided & can’t be
attacked collaterally as in a land registration
proceeding. Direct proceeding necessary.
 Rsn only for legal cause, as those in Art. 1381 & 1382
“Lesion” under Art. 1381 par. 1 & 2, to give rise to Rsn,
must be known or could have been known at the time of
making the K, & not due to circs subseq thereto or
unknown to the parties.
Accion Pauliana: Axn to set aside Ks in fraud of Crs. (Art.
1381 par. 3)
Requisites for Accion Pauliana:
1. Pff. Asking for Rsn has a credit prior to
alienation, though demandable later
2. Dbt has made a subsequent K conveying a
patrimonial benefit to 3rd p.
3. Cr-Pff has no other legal remedy to satisfy his
claim
4. Act being impugned is fraudulent
5. 3rd p. who received prop., if by onerous title, is
accomplice in the fraud
Rsn. is a subsidiary axn, w/c presupposes that the
Cr has exhausted the prop. of the Db. Fraudulent
conveyance must be shown.
Test: WON conveyance by dbtor a bona fide
transxn
Badges/ Signs of Fraud:
1. consideration of conveyance is inadequate
2. transfer made by Db after suit has begun &
while pending v. him
3. a sale upon credit by insolvent Db
4. evidence of large indebtedness or complete
insolvency
5. transfer of all or nearly all of prop of Db who is
insolvent or greatly embarrassed financially
6. transfer is made between father & son
7. failure of vendee to take exclusive poss’n of
prop
8. If alienation is gratuitous, GF of transferee does
NOT protect him O.W. Unjust enrichment
9. If alienation is by onerous title, transferee must
be a party to the fraud, to have Rsn
As a rule, Rsn benefits only Cr who obtained Rsn. And
the extent of revocation is only to the amount of
prejudice suffered by Cr. As to the excess, the
alienation is maintained
Axn for Rsn may be brought by:
(1) the person injured by the Rescue K,
(2) heirs of this person, &
(3) their Crs by virtue of rt granted under Art. 1177.
Rt. of transferee to retain prop. depends upon the
nature of the transfer & upon the complicity of the
former in the fraud.
When K can’t be rescinded bec. 3rd p. is in GF, the party
who caused the loss is liable for the damages
Badges of fraud, & Art. 1387: Presumptions. May be
rebutted by satisfactory & convincing evidence.
Art. 1388: Cr. With axn only v. subsequence transferees
only when an axn lies v. 1 st transferee. If 1st Tfee in GF,
no liability. If 1st Tfee in BF, the rescissible char. Of 2 nd
alienation depends upon how 2nd Tfee acquired the
thing.
Art. 1191. The power to rescind obs. Is implied in
reciprocal ones, in case on of the obligors should
not comply w/ what is incumbent upon him.
The injured party may choose between the
fulfillment & the rescission of the ds., w/ the
payment of damages in either case. He may also
seek rescission, even after he has chosen
fulfillment, if the latter should become
impossible.
The ct. shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a
period.
This is understood to be w/o prejudice to the rts
of third persons who have acquired the thing, in
accordance w/ Arts. 1385 & 1388 & the Mortgage
Law.
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the 1st
infractor shall be equally tempered bye the cts. If
it cannot be det. Which of the parties 1st violated
the ©, the same shall be deemed extinguished, &
each shall bear his own damages.
Tolentino:
Similarities between Rsn under Art. 1191 & Art.
1380+:
(1) both presuppose ©s validly entered into & existing,
& CASES:
(2) both require mutual restitution when declared
proper.
Differences:
(1) Rsn under 1191 may be demanded only by party to
the ©, under 1380+ by 3rd p. prejudiced by the ©;
(2) Rsn under 1191 may be denied when there is
sufficient reason to justify extension of time to perform,
under 1380+ such reason does NOT affect rt. to ask for
Rsn;
(3) Non-perf. is the only grd. for Rsn under 1191, while
there are various reasons of equity as grds. under 1191
applies only to recip. ds. where one party has not
performed, while under 1380(+) Ø may be unilateral or
reciprocal & even when © has been fulfilled.
CENTRAL BANK VS. CA (1985)
Facts: Islands Savings Bank approved the loan
application of Tolentino for P80,000. To secure the loan,
Tolentino executed a real estate mortgage on his 100-
hectare land. Only P17,000 was released by the Bank,
for w/c Tolentino executed a promissory note payable
w/in 3 years. The balance was not released. In 1965, the
Monetary Board of the Central Bank issued Resolution
No. 1049 prohibiting the Bank fr. doing business in the
Philippines. The Bank filed an application for
extrajudicial foreclosure of the real estate mortgage of
Tolentino for non-payment of the promissory note for
P17,000. In turn, Tolentino filed an action for injunction,
specific performance or rescission, alleging that the
Bank failed to fulfill its obligation to lend the balance of
P63,000.
Issues:
38
W/N Tolentino can compel specific performance.
W/N Tolentino’s liability to pay the P17,000 covered by
the promissory note subsists.
Held: NO. The agreement is a loan agreement, w/c is a
reciprocal obligation. In reciprocal obligations, the
obligation or promise of each party is the consideration
for that of the other; & when one party has performed or
is ready & willing to perform his part of the contract, the
other party who has not performed or is not ready &
willing to perform incurs in delay. The promise of
Tolentino to pay was the consideration for the obligation
of the Bank to furnish the P80,000. When Tolentino
executed a real estate mortgage, he signified his
willingness to pay the loan. From such date, the
obligation of the Bank to furnish the P80,000 accrued.
The Bank’s delay started in 1965, lasted for 3 years or
when the Monetary Board issued Resolution No. 967 in
1968, w/c prohibited the Bank fr. doing further business.
Resolution No. 1049 cannot interrupt the default of the
Bank in releasing the P63,000 bec. said resolution
merely prohibited the Bank fr. making new loans. Since
the Bank was in default in fulfilling its reciprocal
obligation under the loan agreement, Tolentino may
choose between specific performance or rescission w/
damages in either case. But since the Bank is now
prohibited fr. doing further business, the Court cannot
grant specific performance. Rescission is the only
alternative remedy left. However, rescission is only for
the P63,000 balance, bec. the bank is in default only
insofar as such amount is concerned.
The promissory note gave rise to Tolentino’s
reciprocal obligation to pay the P17,000 loan when it
falls due. Art. 1192 provides that in case both parties
have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equitably
tempered by the Court. The liability of the Bank for
damages in not furnishing the entire loan is offset by the
liability of Tolentino for damages, in the form of
penalties & surcharges for not paying his overdue
P17,000 debt.
---
UNIVERSAL FOOD CORP. vs. CA: (1970)
FACTS: Magdalo V. Francisco, Sr. PATENTEE or
owner and author of the formula for MAFRAN SAUCE,
manufactured and distributed by UFC, filed with the
CFI-Manila, an action for rescission of a contract
entitled "Bill of Assignment." The plaintiffs prayed
the court to adjudge the defendant as without any right
to the use of the Mafran trademark and formula, and
order the latter to restore to them the said right of
user; to order UFC to pay Magdalo his unpaid salary
from December 1, 1960, as well as damages in the
sum of P40,000, and to pay the costs of suit.
Petitioner UFC contends that the CA erred in granting
above prayers of plaintiff, holding that right to specific
performance is not conjunctive with the right to rescind
a reciprocal contract; that a plaintiff cannot ask for
both remedies; that the appellate court awarded the
respondents both remedies as it held that the
respondents are entitled to rescind the Bill of
Assignment and also that the respondent patentee is
entitled to his salary aforesaid; that this is a gross error
of law.
Certain provisions of the Bill of Assignment would seem
to support the petitioner's position that the respondent
patentee ceded and transferred to the petitioner the
formula for Mafran sauce.
However, a perceptive analysis of the entire instrument
and the language employed therein would lead one to
the conclusion that what was actually ceded and
transferred was only the use of the Mafran sauce
formula. This was the precise intention of the parties:
(1) 2% ROYALTY; provisions to preserve utmost secrecy
and monopoly of the formula by the patentee; etc..
ISSUE: WON the rescission of the Bill of Assignment by
the CA is proper?
In this connection, we quote for ready reference the
following articles of the new Civil Code governing
rescission of contracts:
ART. 1191. The power to rescind
obligations is implied in reciprocal ones,
in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of damages
in either case. He may also seek
rescission even after he has chosen
fulfillment, if the latter should become
impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice
to the rights of third persons who have
acquired the thing, in accordance with
articles 1385 and 1388 of the Mortgage
Law.
ART. 1383. The action for rescission is
subsidiary; it cannot be instituted except
when the party suffering damage has no
other legal means to obtain reparation for
the same.
ART. 1384. Rescission shall be only to the
extent necessary to cover the damages
caused.
HELD: The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
The injured party may choose between
fulfillment and rescission of the obligation, with
payment of damages in either case.
In this case before us, there is no controversy that the
provisions of the Bill of Assignment are reciprocal in
nature. The petitioner corporation violated the Bill of
Assignment, specifically paragraph 5-(a) and (b), by
terminating the services of the respondent patentee
Magdalo V. Francisco, Sr., without lawful and justifiable
cause.
The general rule is that rescission of a contract
will not be permitted for a slight or casual
breach, but only for such substantial and
fundamental breach as would defeat the very
object of the parties in making the agreement.
The question of whether a breach of a contract is
substantial depends upon the attendant
circumstances. The petitioner contends that rescission
of the Bill of Assignment should be denied, because
under article 1383, rescission is a subsidiary remedy
39
which cannot be instituted except when the party
suffering damage has no other legal means to obtain
reparation for the same.
However, in this case the dismissal of the respondent
patentee Magdalo V. Francisco, Sr. as the permanent
chief chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment. He was
dismissed without any fault or negligence on his part.
Thus, apart from the legal principle that the option to
demand performance or ask for rescission of a
contract belongs to the injured party, the fact
remains that the respondents-appellees had no
alternative but to file the present action for rescission
and damages. It is to be emphasized that the
respondent patentee would not have agreed to the
other terms of the Bill of Assignment were it not for the
basic commitment of the petitioner corporation to
appoint him as its Second Vice-President and Chief
Chemist on a permanent basis; that in the manufacture
of Mafran sauce and other food products he would
have "absolute control and supervision over the
laboratory assistants and personnel and in the
purchase and safeguarding of said products;" and that
only by all these measures could the respondent
patentee preserve effectively the secrecy of the
formula, prevent its proliferation, enjoy its monopoly,
and, in the process afford and secure for himself a
lifetime job and steady income. The salient provisions
of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the
appointment of the respondent patentee as Second
Vice-President and chief chemist on a permanent
status; the obligation of the said respondent patentee
to continue research on the patent to improve the
quality of the products of the corporation; the need of
absolute control and supervision over the laboratory
assistants and personnel and in the purchase and
safekeeping of the chemicals and other mixtures used
in the preparation of said product  all these
provisions of the Bill of Assignment are so
interdependent that violation of one would result in
virtual nullification of the rest.
Separate Opinion: REYES, J.B.L., J., concurring:
I concur with the opinion penned by Mr. Justice Fred
Ruiz Castro, but I would like to add that the argument
of petitioner, that the rescission demanded by the
respondent-appellee, Magdalo Francisco, should
be denied because under Article 1383, NCC
rescission can not be demanded except when the party
suffering damage has no other legal means to obtain
reparation, is predicated on a failure to distinguish
between a rescission for breach of contract under
Article 1191 of the Civil Code and a rescission by
reason of lesion or economic prejudice, under Article
1381, et seq.
(rescission for breach of contract under Article
1191 )  The rescission on account of breach of
stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith
by the defendant, that violates the reciprocity between
the parties. It is not a subsidiary action, and Article
1191 may be scanned without disclosing anywhere
that the action for rescission thereunder is
subordinated to anything other than the culpable
breach of his obligations by the defendant. This
rescission is in principal action retaliatory in
character, it being unjust that a party be held
bound to fulfill his promises when the other
violates his. As expressed in the old Latin aphorism:
"Non servanti fidem, non est fides servanda." Hence,
the reparation of damages for the breach is purely
secondary.
(Rescission by reason of lesion or economic
prejudice, under Article 1381, et seq. )  On the
contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d'etre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesion
enumerated in Article 1381 of the Civil Code of the
Philippines, and does not, apply to cases under Article
1191.
It is probable that the petitioner's confusion arose from
the defective technique of the new Code that terms
both instances as rescission without distinctions
between them; unlike the previous Spanish Civil Code
of 1889, that differentiated "resolution" for breach of
stipulations from "rescission" by reason of lesion or
damage. 1 But the terminological vagueness does not
justify confusing one case with the other, considering
the patent difference in causes and results of either
action.
MAGDALENA ESTATES VS. LOUIS MYRICK (1941)
FACTS: Magdalena Estate, Inc., sold to Louis J. Myrick
Parcel of lots in San Juan Subdivision, San Juan Rizal,
with contract of sale providing for the price which shall
be payable in 120 equal monthly installments of each
on the 2nd day of ea.mo. fr. the date of execution of the
agreement. Simultaneously, the vendee executed and
delivered to the vendor a PN for the whole purchase
price. Myrick made several installment payments the
last being Oct. 1930, but was in default as to May
payment.
Thus, vendor notified the vendee that, in view of his
inability to comply with the terms of their contract, said
agreement had been cancelled as of that date, thereby
relieving him of any further obligation thereunder, and
that all amounts paid by him had been forfeited in
favor of the vendor, who assumes the absolute right
over the lots in question. To this communication, the
vendee did not reply, and it appears likewise that the
vendor thereafter did not require him to make any
further disbursements on account of the purchase
price.
Myrick, respondent herein, commenced the present
action in CFI-Albay, against MEI for the sum of
P2,596.08 with legal interest thereon from the filing of
the complaint until its payment, and for costs of the
suit. Lower court granted, CA affirmed w/modif. That
legal interest shd be computed fr d date of the
cancellation of the ©. Thus this petition.
ISSUE: WON petitioner’s contention is correct, that a
bilateral contract may be resolved or cancelled only by
the prior mutual agreement of the parties, which is
approved by the judgment of the proper court; and
that the letter of MEI was not assented to by the
respondent, and therefore, cannot be deemed to have
produced a cancellation, even if it ever was intended.
HELD: Where the terms of a writing are clear, positive
and unambiguous, the intention of the parties should
be gleaned from the language therein employed, which
is conclusive in the absence of mistake. The letter said
“cancelled” and it was unequivocal.
The fact that the contracting parties herein did not
provide for resolution is now of no moment, for the
reason that the obligations arising from the contract of
40
sale being reciprocal, such obligations are governed by
article 1124 of the Civil Code which declares that the
power to resolve, in the event that one of the obligors
should not perform his part, is implied.
Upon the other hand, where, as in this case, the
petitioner cancelled the contract, advised the
respondent that he has been relieved of his obligations
thereunder, and led said respondent to believe it so
and act upon such belief, the petitioner may not be
allowed, in the language of section 333 of the Code of
Civil Procedure (now section 68 (a) of Rule 123 of the
New Rules of Court), in any litigation the course of
litigation or in dealings in nais, be permitted to
repudiate his representations, or occupy inconsistent
positions, or, in the letter of the Scotch law, to
"approbate and reprobate."
U.P. VS. DELOS ANGELES (1970)
In the provincesof Laguna & Quezon, Land Grants were
segregated from the public domain and given as an
endowment to UP, to be operated and developed for
the purpose of raising additional income for its support,
pursuant to Act 3608;
In 1960, UP and ALUMCO (Assoc. Lumber Manuf. Co)
entered into a logging agreement under which the
latter was granted exclusive authority, for a period
starting from the date of the agreement to 31
December 1965, extendible for a further period of five
(5) years by mutual agreement, to cut, collect and
remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.; ALUMCO
cut and removed timber therefrom but, as of 8
December 1964, it had incurred an unpaid account of
P219,362.94, which, despite repeated demands, it had
failed to pay. After it had received notice that UP would
rescind or terminate the logging agreement, ALUMCO
executed an instrument, entitled "Acknowledgment of
Debt and Proposed Manner of Payments," dated 9
December 1964, which was approved by the president
of UP, and which stipulated the following:
3. In the event that the payments called for in
Nos. 1 and 2 of this paragraph are not
sufficient to liquidate the foregoing
indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the
said payments have been applied shall be paid
by the DEBTOR in full no later than June 30,
1965;
5. In the event that the DEBTOR fails to comply
with any of its promises or undertakings in this
document, the DEBTOR agrees without
reservation that the CREDITOR shall have
the right and the power to consider the
Logging Agreement dated December 2,
1960 as rescinded without the necessity
of any judicial suit, and the CREDITOR
shall be entitled as a matter of right to
Fifty Thousand Pesos (P50,000.00) by way
of and for liquidated damages;
ALUMCO continued its logging operations, but again
incurred an unpaid account, for the period from 9
December 1964 to 15 July 1965, in the amount of
P61,133.74, in addition to the indebtedness that it had
previously acknowledged.
Thus, UP informed ALUMCO that it had, as of that date,
considered as rescinded and of no further legal effect
the logging agreement that they had entered in 1960;
and UP filed a complaint vs. ALUMCO, at CFI-Rizal, for
the collection or payment of sums of money w/
prayer for injunction. But before pre.injunction may be
issued, UP had taken steps to have another
concessionaire take over the logging operation, by
advertising an invitation to bid; that bidding was
conducted, and the concession was awarded to Sta.
Clara Lumber Company, Inc.; the logging contract
was signed on 16 February 1966. ALUMCO had filed
several motions to discharge the writs of attachment
and preliminary injunction but were denied by the
court. Thus, ALUMCO filed a petition to enjoin
petitioner University from conducting the bidding & for
preliminary injunction. Respondent judge issued the
first of the questioned orders, enjoining UP from
awarding logging rights over the concession to
any other party.
UP received the TRO after it had concluded its contract
with Sta. Clara, and said company had started logging
operations. On motion, ALUMCO and one Jose Rico,
the court, declared petitioner UP in contempt of
court and Sta. Clara Lumber to refrain from exercising
logging rights or conducting logging operations in the
concession.
UP’s MR was denied.
ISSUE: whether petitioner U.P. can treat its contract
with ALUMCO rescinded, and may disregard the same
before any judicial pronouncement to that effect.
In the first place, UP and ALUMCO had expressly
stipulated that, upon default by the debtor ALUMCO,
the creditor (UP) has "the right and the power to
consider, the Logging Agreement as rescinded without
the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the
Civil Code, this Court stated in Froilan vs. Pan Oriental
Shipping Co., et al., L-11897, 31 October 1964, 12
SCRA 276:
there is nothing in the law that prohibits the
parties from entering into agreement that
violation of the terms of the contract would
cause cancellation thereof, even without court
intervention. In other words, it is not always
necessary for the injured party to resort
to court for rescission of the contract.
Of course, it must be understood that the act of party
in treating a contract as cancelled or resolved on
account of infractions by the other contracting party
must be made known to the other and is always
provisional, being ever subject to scrutiny and review
by the proper court. If the other party denies that
rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was
not warranted, the responsible party will be
sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.
In other words, the party who deems the contract
violated may consider it resolved or rescinded,
and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will
conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely
does not require that the contracting party who
believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's
breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the
41
final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to
minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent
declaring that judicial action is necessary for the
resolution of a reciprocal obligation, 1 since in every
case where the extrajudicial resolution is contested
only the final award of the court of competent
jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that
judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and
subject to judicial invalidation, unless attack thereon
should become barred by acquiescence, estoppel
or prescription.
ZULUETA VS. MARIANO
FACTS: Petitioner Jose C. Zulueta is the registered
owner of a residential house and lot situated within the
Antonio Subdivision, Pasig, Rizal. On November 6,
1964, petitioner Zulueta and private respondent
Lamberto Avellana, a movie director, entered into a
"Contract to Sell" the aforementioned property for
P75,000.00 payable in twenty years with respondent
buyer assuming to pay a down payment of P5,000.00
and a monthly installment of P630.00 payable in
advance before the 5th day of the corresponding
month, starting with December, 1964 – WITH FURTHER
SPECIFIC STIPULATIONS IN CASE OF BREACH OF SUCH
©.
Avellana occupied the property but title remained with
petitioner Zulueta. Upon the allegation that
respondent had failed to comply with the monthly
amortizations stipulated in the contract, despite
demands to pay and to vacate the premises, and that
thereby the contract was converted into one of
lease, petitioner, commenced an Ejectment suit
against respondent before the MTC-Pasig. Respondent
controverted by contending that the Municipal Court
had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the
contract; and made some affirmative defenses and
counterclaim. Lower court found in favor of plaintiff,
asked def. to vacate & pay back rentals,etc. CA
reversed & ruled vs. ju’s of muni.court finding the case
as one of interpretation & rescission of © b/c d © to
sell was converted to © of lease. MR denied.
ISSUE: WON the original © to sell was rescinded d/t
the automatic resc.clause in the ©, thus the case was
unlawful detainer cognizable by the MTC or one of
judicial rescission of © cognizable by then CFI?
HELD: Thus, the basic issue is not possession but one
of rescission or annulment of a contract, which is
beyond the jurisdiction of the Municipal Court to hear
and determine.
A violation by a party of any of the stipulations
of a contract on agreement to sell real property
would entitle the other party to resolved or
rescind it. An allegation of such violation in a
detainer suit may be proved by competent
evidence. And if proved a justice of the peace
court might make a finding to that effect, but it
certainly cannot declare and hold that the
contract is resolved or rescinded. It is beyond
its power so to do. And as the illegality of the
possession of realty by a party to a contract to
sell is premised upon the resolution of the
contract, it follows that an allegation and proof
of such violation, a condition precedent to such
 resolution or rescission, to render unlawful the
possession of the land or building erected
thereon by the party who has violated the
contract, cannot be taken cognizance of by a
justice of the peace court. ...
True, the contract between the parties provided for
extrajudicial rescission. This has legal effect, however,
where the other party does not oppose it. Where it is
objected to, a judicial determination of the issue is still
necessary.
A stipulation entitling one party to take
possession of the land and building if the other
party violates the contract does not ex proprio
vigore confer upon the former the right to take
possession thereof if objected to without
judicial intervention and' determination.
But while respondent Judge correctly ruled that the
Municipal Court had no jurisdiction over the case and
correctly dismissed the appeal, he erred in assuming
original jurisdiction, in the face of the objection
interposed by petitioner. Section 11, Rule 40, leaves no
room for doubt on this point:
Section 11. Lack of jurisdiction �A case tried
by an inferior court without jurisdiction over
the subject matter shall be dismiss on appeal
by the Court of First Instance. But instead of
dismissing the case, the Court of First Instance
may try the case on the merits, if the parties
therein file their pleadings and go to trial
without any objection to such jurisdiction.
There was no other recourse left for respondent Judge,
therefore, except to dismiss the appeal.
If an inferior court tries a case without
jurisdiction over the subject-matter on appeal,
the only authority of the CFI is to declare the
inferior court to have acted without jurisdiction
and dismiss the case, unless the parties agree
to the exercise by the CFI of its original
jurisdiction to try the case on the merits. 4
The foregoing premises considered, petitioner's prayer
for a Writ of Execution of the judgment of the Municipal
Court of Pasig must perforce be denied.
PALAY, INC. vs. CLAVE (1983)
FACTS: Petitioner Palay, Inc., through its President,
Albert Onstott executed in favor of private respondent,
Nazario Dumpit, a Contract to Sell a parcel of Land of
the Crestview Heights Subd. in Antipolo, Rizal, owned
by said corporation. The sale price was P23,300.00
with 9% interest p.a., payable with a downpayment of
P4,660.00 and monthly installments of P246.42 until
fully paid. Contract provided for automatic
extrajudicial rescission upon default in payment of
any monthly installment after the lapse of 90 days
from the expiration of the grace period of one month,
without need of notice and with forfeiture of all
installments paid. Respondent Dumpit paid the
downpayment and several installments amounting to
P13,722.50. The last payment was made on December
5, 1967 for installments up to September 1967. Almost
six (6) years later, private respondent wrote petitioner
offering to update all his overdue accounts with
interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon.
Replying petitioners informed respondent that his
Contract to Sell had long been rescinded and the lot
had already been resold.
42
Questioning the validity of the rescission of the
contract, respondent filed a letter complaint with the
National Housing Authority (NHA) for reconveyance
with an altenative prayer for refund. NHA, finding the
rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto
Onstott, jointly and severally, to refund immediately to
Dumpit the amount of P13,722.50 with 12% interest
from the filing of the complaint. Petitioners' MR was
denied. Appeal to the OP was also denied.
HELD: Well settled is the rule, as held in previous
jurisprudence, that judicial action for the rescission
of a contract is not necessary where the contract
provides that it may be revoked and cancelled
for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a
written notice sent to the defaulter informing him of
the rescission. As stressed in University of the
Philippines vs. Walfrido de los Angeles the act of a
party in treating a contract as cancelled should
be made known to the other.
ANGELES VS CALASANZ
FACTS: Ursula Torres Calasanz and Tomas Calasanz
and plaintiffs-appellees Buenaventura Angeles and
Teofila Juani entered into a contract to sell a piece of
land located in Cainta, Rizal for the amount of
P3,920.00 plus 7% interest per annum.
The plaintiffs-appellees made a downpayment of
P392.00 upon the execution of the contract. They
promised to pay the balance in monthly installments of
P 41.20 until fully paid, the installments being due and
payable on the 19th day of each month. The plaintiffs-
appellees paid the monthly installments until July 1966,
when their aggregate payment already amounted to
P4,533.38. On numerous occasions, the defendants-
appellants accepted and received delayed installment
payments from the plaintiffs-appellees. On December
7, 1966, the defendants-appellants wrote the plaintiffs-
appellees a letter requesting the remittance of past
due accounts. On January 28, 1967, the defendants-
appellants cancelled the said contract because the
plaintiffs-appellees failed to meet subsequent
payments. The plaintiffs' letter with their plea for
reconsideration of the said cancellation was denied by
the defendants-appellants.
The plaintiffs-appellees filed with CFI-Rizal to compel
the defendants-appellants to execute in their favor the
final deed of sale alleging inter alia that after
computing all subsequent payments for the land in
question, they found out that they have already paid
the total amount of P4,533.38 including interests,
realty taxes and incidental expenses for the
registration and transfer of the land.
The defendants-appellants alleged in their answer that
the complaint states no cause of action and that the
plaintiffs-appellees violated paragraph six (6) of the
contract to sell when they failed and refused to pay
and/or offer to pay the monthly installments
corresponding to the month of August, 1966 for more
than five (5) months, thereby constraining the
defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the
plaintiffs-appellees. MR denied.
ISSUE: WON the contract to sell has been
automatically and validly cancelled by the defendants-
appellants
HELD: The right to rescind the contract for non-
performance of one of its stipulations, therefore, is not
absolute. In Universal Food Corp. v. Court of Appeals
(33 SCRA 1) the Court stated that�
The general rule is that rescission of a contract
will not be permitted for a slight or casual
breach, but only for such substantial and
fundamental breach as would defeat the very
object of the parties in making the agreement.
(Song Fo & Co. v. Hawaiian-Philippine Co., 47
Phil. 821, 827) The question of whether a
breach of a contract is substantial depends
upon the attendant circumstances.
The breach of the contract adverted to by the
defendants-appellants is so slight and casual
when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had
already paid the monthly installments for a period of
almost nine (9) years. In other words, in only a short
time, the entire obligation would have been paid.
Article 1234  If the obligation has been
substantially performed in good faith, the obligor may
recover as though there had been a strict and
complete fulfillment, less damages suffered by the
obligee.
We agree with the observation of the lower court to the
effect that:
Although the primary object of selling
subdivided lots is business, yet, it cannot be
denied that this subdivision is likewise
purposely done to afford those landless, low
income group people of realizing their dream of
a little parcel of land which they can really call
their own.
The contract to sell entered into by the parties has
some characteristics of a contract of adhesion. The
defendants-appellants drafted and prepared the
contract. The plaintiffs-appellees, eager to acquire a lot
upon which they could build a home, affixed their
signatures and assented to the terms and conditions of
the contract. They had no opportunity to question nor
change any of the terms of the agreement. It was
offered to them on a "take it or leave it" basis.
The contract to sell, being a contract of adhesion, must
be construed against the party causing it. We agree
with the observation of the plaintiffs-appellees to the
effect that "the terms of a contract must be interpreted
against the party who drafted the same, especially
where such interpretation will help effect justice to
buyers who, after having invested a big amount of
money, are now sought to be deprived of the same
thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and
injurious in its effect which, in essence, and in its
entirety is most unfair to the buyers."
BOYSAW VS INTERPHIL
FACTS: Solomon Boysaw and his then Manager, Willie
Ketchum, signed with Interphil Promotions, Inc.
represented by Lope Sarreal, Sr., a contract to engage
Gabriel "Flash" Elorde in a boxing contest for the
junior lightweight championship of the world. It was
stipulated that the bout would be held at the Rizal
Memorial Stadium in Manila on September 30, 1961 or
not later than thirty [30] days thereafter should a
postponement be mutually agreed upon, and that
Boysaw would not, prior to the date of the boxing
contest, engage in any other such contest without the
written consent of Interphil Promotions, Inc.
43
Ketchum on his own behalf assigned to J.
Amado Araneta the managerial rights over Solomon
Boysaw, presumably in preparation for his engagement
with Elorde. Then, Araneta assigned to Alfredo J. Yulo,
Jr. the managerial rights over Boysaw. The next day,
Boysaw wrote Lope Sarreal, Sr. informing him of his
arrival and presence in the Philippines.
Yulo, Jr. wrote to Sarreal informing him of his
acquisition of the managerial rights over Boysaw and
indicating his and Boysaw's readiness to comply with
the boxing contract of May 1, 1961. On the same date,
on behalf of Interphil, Sarreal wrote a letter to the
Games and Amusement Board [GAB] expressing
concern over reports that there had been a switch of
managers in the case of Boysaw, of which he had not
been formally notified, and requesting that Boysaw be
called to an inquiry to clarify the situation.
The GAB called a series of conferences &
changed the schedule the Elorde-Boysaw fight. The
USA National Boxing Association which has supervisory
control of all world title fights approved the date set by
the GAB. Yulo, Jr. refused to accept the change in the
fight date.
The fight never materialized. Thus, Boysaw
and Yulo, Jr. sued Interphil, Sarreal, & Nieto in CFI-Rizal
for damages.
The power to rescind obligations is
implied, in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him. [Part 1, Art. 1191, Civil
Code].
There is no doubt that the contract in question
gave rise to reciprocal obligations. "Reciprocal
obligations are those which arise from the same
cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of
one is dependent upon the obligation of the
other. They are to be performed simultaneously,
so that the performance of one is conditioned
upon the simultaneous fulfillment of the other"
[Tolentino]
The power to rescind is given to the
injured party. "Where the plaintiff is the party who
did not perform the undertaking which he was bound
by the terms of the agreement to perform 4 he is not
entitled to insist upon the performance of the contract
by the defendant, or recover damages by reason of his
own breach " [Seva vs. Alfredo Berwin 48 Phil. 581].
Another violation of the contract in question
was the assignment and transfer, first to J. Amado
Araneta, and subsequently, to appellant Yulo, Jr., of the
managerial rights over Boysaw without the knowledge
or consent of Interphil. The assignments, from
Ketchum to Araneta, and from Araneta to Yulo, were in
fact novations of the original contract which, to be
valid, should have been consented to by Interphil.
Novation which consists in substituting a
new debtor in the place of the original
one, may be made even without the
knowledge or against the will of the
latter, but not without the consent of the
creditor. [Art. 1293]
Creditor not bound to deal w/unilaterally
substituted debtor - Under the law when a contract
is unlawfully novated by an applicable and unilateral
substitution of the obligor by another, the aggrieved
creditor is not bound to deal with the substitute.
The consent of the creditor to the change of
debtors, whether in expromision or delegacion is an,
indispensable requirement . . . Substitution of one
debtor for another may delay or prevent the fulfillment
of the obligation by reason of the inability or insolvency
of the new debtor, hence, the creditor should agree to
accept the substitution in order that it may be binding
on him.
 Thus, in a contract where x is the creditor and
y is the debtor, if y enters into a contract with z, under
which he transfers to z all his rights under the first
contract, together with the obligations thereunder, but
such transfer is not consented to or approved by x,
there is no novation. X can still bring his action against
y for performance of their contract or damages in case
of breach. [Tolentino]
From the evidence, it is clear that the
appellees, instead of availing themselves of the options
given to them by law of rescission or refusal to
recognize the substitute obligor Yulo, really wanted to
postpone the fight date owing to an injury that Elorde
sustained in a recent bout. That the appellees had the
justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts
aforestated. Under the circumstances, the appellees'
desire to postpone the fight date could neither be
unlawful nor unreasonable.
We uphold the appellees' contention that since
all the rights on the matter rested with the appellees,
and appellants' claims, if any, to the enforcement of
the contract hung entirely upon the former's pleasure
and sufferance, the GAB did not act arbitrarily in
acceding to the appellee's request to reset the fight
date to November 4, 1961. It must be noted that
appellant Yulo had earlier agreed to abide by the GAB
ruling.
PILIPINAS BANK VS. I.A.C.
FACTS: Hacienda Benito, Inc. (petitioner's predecessor-
in-interest) as vendor, and private respondents, Jose W.
Diokno and Carmen I. Diokno, as vendees executed a
Contract to Sell over a parcel of land in Victoria Valley
Subdivision in Antipolo, Rizal, subject to terms and
conditions as stipulated. At vendees’ failure to pay,
vendor sent several demands for the former to settle
arrearages, requests for extensions were give, further
demand was again given several times, until a Notice
of rescission was given to Carmen Diokno after she
informed the Corp that she wanted an audience with
the Pres. b/c she had a prospective buyer of the
property.
Thus, private respondents filed Complaint for Specific
Performance with Damages to compel petitioner to
execute a deed of sale in their favor, and to deliver to
them the title of the lot in question. Petitioner filed an
Answer with counterclaim for damages in the form of
attorney's fees, claiming that Contract to Sell has been
automatically rescinded or cancelled by virtue of
private respondents' failure to pay the installments due
in the contract under the automatic rescission clause.
After trial, the lower court rendered a decision in
private respondents' favor, holding that petitioner
could not rescind the contract to sell, because: (a)
petitioner waived the automatic rescission clause by
accepting payment on September 1967, and by
sending letters advising private respondents of the
balances due, thus, looking forward to receiving
payments thereon; (b) in any event, until May 18, 1977
(when petitioner made arrangements for the
acquisition of additional 870 square meters) petitioner
could not have delivered the entire area contracted for,
so, neither could private respondents be liable in
default, citing Art. 1189, NCC. CA affirmed.
ISSUE: WON the Contract to Sell was rescinded or
cancelled, under the automatic rescission clause
contained therein.
HELD: We find the petition meritless. While it is true
that a contractual provision allowing "automatic
rescission" (without prior need of judicial
rescission, resolution or cancellation) is VALID,
the remedy of one who feels aggrieved being to
go to Court for the cancellation of the rescission
itself, in case the rescission is found unjustified
44
under the circumstances, still in the instant case
there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the
many extensions granted private respondents by
the petitioner. In all these extensions, the petitioner
never called attention to the proviso on "automatic
rescission."
CENTRAL BANK VS. CA (1985)
Facts: Islands Savings Bank approved the loan
application of Tolentino for P80,000. To secure the loan,
Tolentino executed a REM on his 100-hectare land. Only
P17,000 was released by the Bank, for w/c Tolentino
executed a PN payable w/in 3 years. The balance was
not released. In 1965, the Monetary Board of the Central
Bank issued Reso.No. 1049 prohibiting the Bank fr. doing
business in RP. The Bank filed an application for
extrajudicial FREM vs. Tolentino for non-payment of the
PN. In turn, Tolentino filed an action for injunction,
specific performance or rescission, alleging that the
Bank failed to fulfill its obligation to lend the balance of
P63,000.
Issues: W/N Tolentino can compel specific performance.
WON Tolentino is entitled to rescission.
Held: NO. The agreement is a loan agreement, w/c is a
reciprocal obligation. In reciprocal obligations, the
obligation or promise of each party is the consideration
for that of the other; & when one party has performed or
is ready & willing to perform his part of the contract, the
other party who has not performed or is not ready &
willing to perform incurs in delay. The promise of
Tolentino to pay was the consideration for the obligation
of the Bank to furnish the P80,000. When Tolentino
executed a real estate mortgage, he signified his
willingness to pay the loan. From such date, the
obligation of the Bank to furnish the P80,000 accrued.
The Bank’s delay started in 1965, lasted for 3 years or
when the Monetary Board issued Resolution No. 967 in
1968, w/c prohibited the Bank fr. doing further business.
Resolution No. 1049 cannot interrupt the default of the
Bank in releasing the P63,000 bec. said resolution
merely prohibited the Bank fr. making new loans. Since
the Bank was in default in fulfilling its reciprocal
obligation under the loan agreement, Tolentino may
choose between specific performance or rescission w/
damages in either case. But since the Bank is now
prohibited fr. doing further business, the Court cannot
grant specific performance. Rescission is the only
alternative remedy left. However, rescission is only for
the P63,000 balance, bec. the bank is in default only
insofar as such amount is concerned.
The promissory note gave rise to Tolentino’s
reciprocal obligation to pay the P17,000 loan when it
falls due. Art. 1192 provides that in case both parties
have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equitably
tempered by the Court. The liability of the Bank for
damages in not furnishing the entire loan is offset by the
liability of Tolentino for damages, in the form of
penalties & surcharges for not paying his overdue
P17,000 debt.
FOR JULY 16, 2008:
G. MODES OF EXTINGUISHMENT OF OBLIGATIONS
Art. 1231. Obligations are extinguished
BY:
(1) Payment or Performance;
(2) Loss of the thing due;
(3) Condonation or Remission of the debt;
(4) Confusion or Merger of the rights of
creditor & debtor;
(5) Compensation;
(6) Novation.
Other causes of extinguishment of obligations,
such as annulment, rescission, fulfillment of a
resolutory condition, & prescription are governed
elsewhere in this Code.
Balane:
Art. 1231 gives us ten modes of extinguishing
an obligation. One of the modes mentioned is
rescission.
But it does not tell us whether this is rescission
under Art. 1191 (resolution) or rescission under
Art. 1380, et. seq.
If it means both, then we have eleven modes of
extinguishing an obligation under Art. 1231. (Similar to
Tolentino’s)
 This enumeration is not exclusive.
Other modes of extinguishing an obligation are
the following:
1. Death  particularly where the obligation is
purely personal, e.g., death of one partner
dissolves the partnership/agency;
2. Renunciation by the creditor
3. Compromise
4. Arrival of Resolutory Term / fulfillment
reso.condi.
5. Mutual Desistance or mutuo disenso (Saura v.
DBP)
6. In some cases, Unilateral Withdrawal, e.g., in
partnership, any partner can w/draw any time fr.
the partnership.
7. In some cases, change of civil status, e.g., if
marriage is annulled, it extinguishes obligations
like the obligation to give support, among
others.
8. Unforeseen Events  (rebus sic stantibus)
(Art. 1267.)
9. Want of Interest  GR: No, but there are
certain cases:
 if it is equitable to deem the Ø extinguished d/t
want of interest of Cr in the fulfillment of such Ø.
10. Abandonment of the thing  as in Art. 662,
partywall;
Or aband.of a vessel under Code of Comm.
11. Insolvency of debtor judicially declared &
discharged.
Illustration: Carale owns a restaurant. He hires Molina
as a chef. In the contract of employment, there was a
stipulation that if Molina resigns fr. Carale's restaurant,
he cannot seek employment fr. another restaurant for a
period of five years. Subsequently, Molina resigns fr.
Carale's restaurant & wants to apply to Mildo's House of
Chicken. In this case, Molina cannot work w/ Mildo's
bec. of the stipulation in the contract he signed w/
Carale. Suppose, however, Carale, closes down his
restaurant & engages in a totally different business, a
construction business, for example, Molina can apply for
work at Mildo's even before the lapse of the five year
prohibitive period.
In this case, Molina can make out a case of
extinguishment of obligation on the ground of want of
interest. The obvious purpose of the stipulation is to
prevent unfair competition.
CASE:
SAURA IMPORT & EXPORT BANK VS. DBP [44 S
445]
FACTS: Plaintiff Saura, Inc. applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into
DBP, for an industrial loan of P500,000.00, to be used
as follows: P250,000.00 for the construction of a
factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and
P9,100.00 as additional working capital. The jute mill
machinery had already been purchased by Saura on
the strength of a LOC by PBTC. RFC approved the loan
secured by a first mortgage on the factory building to
be constructed, the land site thereof, and the
machinery and equipment to be installed, and the loan
to be released at the discretion of RFC, subject to
availability of funds, &as the construction of the factory
buildings progresses, to be certified to by an appraiser
of RFC. China Engineers, Ltd. had again agreed to act
as co-signer for the loan. When the RFC Board later
decided to decrease the loan fr. 500K to 300K, China
Eng signified to withdraw as co-maker. Thus, when
Saura requested for the release of the 500K loan, RFC
signified that the Loan Agreement has been cancelled.
Saura, Inc. does not deny that the factory he was
of building in Davao was for the manufacture of bags
from local raw materials, a Kenaf mill plant, to
manufacture copra and corn bags, runners, floor
mattings, carpets, draperies; out of 100% local raw
materials. When negotiations came to a standstill.
Saura, Inc. did not pursue the matter further. Instead, it
requested RFC to cancel the mortgage which RFC did.
It appears that the cancellation was requested to make
way for the registration of a mortgage contract,
executed over the same property in favor of PBTC,
under which contract Saura, Inc. had up to December
31 of the same year within which to pay its obligation
on the trust receipt heretofore mentioned. It appears
further that for failure to pay the said obligation PBTC
sued Saura.
NINE YRS LATER, Saura commenced the present suit
for damages, alleging failure of RFC /DBP to comply
with its obligation to release the proceeds of the loan
applied for and approved, thereby preventing the
plaintiff from completing or paying contractual
commitments it had entered into, in connection with its
jute mill project. The trial court rendered judgment for
the plaintiff.
ISSUE: WON the Ø of RFC to Saura in the perfected
loan © subsists
When RFC turned down the request of Saura, the
negotiations which had been going on for the
implementation of the loan agreement reached an
impasse. Saura, Inc. obviously was in no position to
comply with RFC's conditions. So instead of doing so
and insisting that the loan be released as agreed upon,
Saura, Inc. asked that the mortgage be cancelled,
which was done by RFC. The action thus taken by both
parties was in the nature of mutual desistance - what
45
Manresa terms as "mutuo disenso" - which is a mode
of extinguishing obligations. It is a concept that derives
from the principle that since mutual agreement
can create a contract, mutual disagreement by
the parties can cause its extinguishment.
Extinguishment of Øs by mutual desistance 
Where after approval of his loan, the borrower, instead
of insisting for its release, asked that the mortgage
given as security be cancelled & the creditor acceded
thereto, the action taken by both parties was in the
nature of mutual desistance - what Manresa terms
"mutuo disenso" - w/c is a mode of extinguishing
obligations. It is a concept that derives fr. the principle
that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its
extinguishment.
A. Payment or Performance
PERTINENT PROVISIONS/ reading matters:
Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
Art. 1233. A debt shall not be understood to have been paid unless the
thing or service in w/c the obligation consists has been completely delivered
or rendered, as the case may be.
Art. 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict & complete
fulfillment, less damages suffered by the obligee.
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, & w/o expressing any protest or objection,
the obligation is deemed fully complied w/.
Art. 1236. The creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand fr. the debtor what he has
paid, except that if he paid w/o the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the
debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or
against the will of the latter, cannot compel the creditor to subrogate him in
his rights, such as those arising fr. a mortgage, guaranty, or penalty.
Art. 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, w/c requires the
debtor's consent. But the payment is in any case valid as to the creditor who
has accepted it.
Art. 1239. In obligations to give, payment made by one who does not have
the free disposal of the thing due & capacity to alienate it shall not be valid,
w/o prejudice to the provisions of article 1427 under the Title on "Natural
Obligations."
Art. 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it.
Art. 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as the
payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor need not
be proved in the following cases:
(1) If after the payment, the third persons acquires the
creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the
payment.
Art. 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor.
Art. 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
46
Art. 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more
valuable than that w/c is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
Art. 1246. When the obligation consists in the delivery of an indeterminate
or generic thing, whose quality & circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation & other
circumstances shall be taken into consideration.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern.
Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in w/c the obligation
consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated & in part unliquidated,
the creditor may demand & the debtor may effect the payment of the former
w/o waiting for the liquidation of the latter.
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, & if it is not possible to deliver such currency, then in the
currency w/c is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived fr. the original obligation shall be
held in abeyance.
Art. 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.
Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation & if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be
at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the
debtor.
If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him.
These provisions are w/o prejudice to venue under the Rules of
Court.
Article 1302. It is presumed that there is legal subrogation:
1) When a creditor pays another creditor who
is preferred, even without the debtor's
knowledge;
2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
3) When, even without the knowledge of the
debtor, a person interested in the fulfillment
of the obligation pays, without prejudice to
the effects of confusion as to the latter's
share
Republic Act No. 529, as amended by R.A. No. 4100, provides:
SECTION 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to require payment
in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void, and of no
effect, and no such provision shall be contained in, or made with respect
to, any obligation hereafter incurred.
The above prohibition shall not apply to
(a) transactions where the funds involved are the proceeds of loans
or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies
and instrumentalities, and international financial banking
institutions so long as the funds are identifiable, as having
emanated from the sources enumerated above;
(b) transactions affecting high-priority economic projects for
agricultural, industrial and power development as may be
determined by the National Economic Council which are financed
by or through foreign funds;
(c) forward exchange transactions entered into between banks or
between banks and individuals or juridical persons;
(d) import-export and other international banking, financial
investment and industrial transactions.
 Payment  in obligations to give,
With the exception of the cases enumerated in items (a), (b), (c) Performance  in obligations to do.
and (d) in the foregoing provision, in which cases the terms of the parties’
agreement shall apply, every other domestic obligation heretofore or Payment/ performance is the paradigmatic mode of
hereafter incurred, whether or not any such provision as to payment is extinguishment of an obligation.
contained therein or made with respect thereto, shall be discharged upon  It is the only normal way of extinguishing an
payment in any coin or currency which at the time of payment is legal obligation.
tender for public and private debts.

Art. 1233. A debt shall not be understood to have

Provided, That if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind of coin or
been paid unless the thing or service in w/c the
currency other than Philippine currency, it shall be discharged in obligation consists has been completely delivered
Philippine currency, measured at the prevailing rates of exchange at the or rendered, as the case may be.
time the obligation was incurred, except in case of a loan made in a
foreign currency stipulated to be payable in the same currency in which
case the rate of exchange prevailing at the time of the stipulated date of Tolentino: This art. States Two requisites for Payment:
payment shall prevail. All coin and currency, including Central Bank (1) Identity, of the prestation, &  the very thing or
notes, heretofore or hereafter issued and declared by the Government of
service due must be delivered or released;
the Philippines shall be legal tender for all debts, public and private.
Pertinent portion of Republic Act No. 8183 states: (2) its integrity  prestation must be fulfilled completely
SECTION 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties For BALANE: Art. 1233 states these requisites of
may agree that the obligation or transaction shall be settled in any other payment –
currency at the time of payment. I. Re: The prestation
1. Identity
SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the
2. Integrity
Uniform Value of Philippine Coin and Currency" is hereby repealed.
(Approved on June 11, 1996)
3. Indivisibility

II. Re: The parties

 The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of
removing the prohibition on the stipulation of currency other 1. Payor/ obligor/ debtor
than Philippine currency, such that obligations or transactions 2. Payee/ obligee/ creditor
may now be paid in the currency agreed upon by the parties.
III. Re: Time & place

 Just like R.A. No. 529, however, the new law does not provide for
the applicable rate of exchange for the conversion of foreign
currency  incurred obligations in their peso equivalent.
 It follows, therefore, that the jurisprudence established in R.A. No.
529 regarding the rate of conversion remains applicable. Thus, in
Asia World Recruitment, Inc. v. National Labor Relations
Commission,13 the Court, applying R.A. No. 8183, sustained the
ruling of the NLRC that obligations in foreign currency may be
discharged in Philippine currency based on the prevailing rate
at the time of payment.
Discussion:
I. With respect to prestation:
1. Identity
 If specific prestation, this requisite means that
the very thing or service must be delivered.
(Art. 1244.)
 If generic, the requisite requires the delivery of
something of neither inferior or superior quality
(Art. 1246). It must be something in the middle.
In case of money, there are special rules:

Governing rule: RA 529 as amended by RA 4100

CONCEPT OF PAYMENT
 In case of money debts, you will have to
Art. 1232. Payment means not only the delivery pay in legal tender in the Philippines. This
of money but also the performance, in any other law supersedes Art. 1249.
manner, of an obligation.
 If the parties stipulate that payment will
be made in foreign currency, the
 it is the fulfillment of the prestation due whc obligation to pay is valid but the
extinguishes the Ø by the realization of the purposes obligation to pay in foreign currency is
for whc it was constituted. void. Payment will be made in Phil.
currency.
 it is a juridical act whc is voluntary, licit and
made with the intent to exting. d Ø; LEGAL TENDER – means such currency whc in a given
ju’s can be used for payment of debts public & priv,
 it is made not only by 1 who owes money but also &whc cannot be refused by Cr.
by 1 bound to do something or to refrain fr doing
In the RP the ff are legal tender: (sec. 54, RA 265)
 Thus, Payment is identical w/ Fulfillment. 1. RP silver peso & half peso for debts of any
amount, RP subsidiary silver coins 20 ¢& 10 ¢ for up
Requisites of Payment or Performance: to P20 debts, and RP minor nickel &copper coins for
[TOLENTINO] up to P2.00 debts;
1. the person who pays  must have requisite 2. RP Treasury certs., new Victory series (EO 25, s.
capacity 1944, already w/drawn fr circ)
2. the person to whom payment is made  “ 3. All notes and coins issued by CB.
3. the thing to be paid  in accordance w/ the Ø
Q: How do you convert?
4. the manner, time and place of payment, etc. A: In case of an obligation w/c is not a loan in foreign
currency, if incurred bef. RA 529, conversion must be as
 payment shd be made by the debtor to the creditor at of the time the obligation was incurred.
the right time and place.
If incurred after RA 529 became effective, the
KINDS: conversion must be as of the time the obligation was
1. NORMAL  when Db voluntarily performs incurred (Kalalo v. Luz)
2. ABNORMAL  when Db is forced by judicial
proceeding If the loan is in foreign currency, the conversion is as of
the time of payment. (RA 529.)
Balane:
Payment or Performance are used interchangeably. But Payment in negotiable paper  This may be refused
technically, by the creditor. Payment in manager's check or
certified check is not payment in legal tender. The
47
 ruling in Seneris has been reversed in the case of
Bishop of Malolos. The Malolos ruling is better.
I found it hard to accept that manager's check or
certified check is good as legal tender. There are
always risks to w/c cashier's checks are subject.
What if after having issued a cashier's check, the
drawee-bank closes, what happens to your cashier's
check?
 In any event, payment by check can be refused by
the creditor. And even if payment by check is accepted
by the creditor, the acceptance is only a provisional
payment until the check is
(a) encashed or
(b) when through the fault of the creditor
they have been impaired.
The case of Namarco v. Federation, 49 SCRA 238,
interprets the phrase "when through the fault of the
creditor, they have been impaired" as to apply only
to a check used in payment if issued by a person other
than the debtor.
Why? Bec. if the check was issued by the debtor
himself, all that the debtor have to do is to issue another
check.
Revaluation in case of extraordinary inflation or
deflation (Art. 1250)
 This rule has never been used. It was only during the
Japanese occupation that there was a recognition of
extraordinary inflation in this country.
Exceptions to the requirement of identity
(i) Dacion en pago (Art. 1245.)
(ii) Novation
In both cases, there is a voluntary change in the object.
2. Integrity  There must be delivery of the entire
prestation due. (Art. 1233) or completely fulfilled;
The exceptions to the requirement of integrity
are:
1. In case of substantial performance in good faith
(Art. 1234.) This is an equity rule.
2. In case of waiver of obligee/ creditor (Art. 1235.)
3. In case of application of payments if several
debts are equally onerous (Art. 1254, par. 2.)
3. Indivisibility  This means that the obligor must
perform the prestation in one act & not in parts. (Art.
1248.)
There are several exceptions to this
requirement:
1. In case or express stipulation. (Art. 1248.)
2. In case of prestations w/c necessarily entail
partial performance. (Art. 1225, par. 2)
3. If the debt is liquidated in part & unliquidated in
part. (Art. 1248.)
4. In case of joint divisible obligations (Art. 1208.)
5. In solidary obligations when the debtors are
bound under different terms & conditions. (Art.
1211.)
6. In compensation when a balance is left. (Art.
1290.)
7. If the work is to be delivered partially, the price
or compensation for each part having been
fixed. (Art. 1720.)
8. In case of several guarantors who demand the
right of division. (Art. 2065.)
9. In case of impossibility or extreme difficulty of
single performance.
II. With respect to the parties
There are two parties involved:
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
Requirements:
1. Art. 1226 - 1238. Who should the payor be:
a. Without need of the creditor's consent
1. The debtor himself
2. His heirs or assigns
3. His agent
48
4. Anyone interested in the fulfillment of
the obligation, e.g., a guarantor
b. With the creditor's consent -- Anyone.
 This is a departure fr. the rule in the Old Civil
Code w/c did not require consent on the part
of the creditor.
c. Effect of payment by a third person:
1. If the payment was w/ the debtor's consent,
he becomes the agent of the debtor. The
effect is subrogation (Articles 1236-1237.)
Exception: If the person paying intended it
to be a donation. (Art. 1238.)
2. If payment was w/o the debtor's consent,
the third person may demand repayment to
the extent that the debtor has been
benefited. (Art. 1236, par. 2.)
2. Who may be the payee?
1. The obligee proper (Articles 1240, 1626.)
2. His successor or transferee (Art. 1240.)
3. His agent (ibid.)
4. Any third person subject to the following
qualifications:
a. provided it redounded to the obligee's
benefit & only to the extent of such
benefit. (Art. 1241, par. 2.)
b. If it falls under Art. 1241, par. 2 nos. 1, 2
& 3, benefit is deemed to be total.
5. Anyone in possession of the credit. (Art.
1242.)
 In all these five (5) cases, it is required that the debt
should not have been garnished. (Art. 1243.)
III. With respect to the time & place of payment:
1. When payment to be made: When due
2. Place (Art. 1251.)
Primary rule: As stipulated
Secondary rule: Place where the thing was at the time
the obligation was constituted if the obligation is to
deliver a determinate thing.
Tertiary rule: At the debtor's domicile
Balane:
** Payment or Performance are used
interchangeably.
 But technically, payment is used in obligations to give
whereas performance is used in obligations to do.
Payment/ performance is the paradigmatic mode of
extinguishment of an obligation. It is the only normal
way of extinguishing an obligation.
Art. 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict & complete
fulfillment, less damages suffered by the obligee.
Substantial Performance:
1. an attempt in GF to perform, w/o any willful or
intentional departure fr it
2. deviation fr perf. of Ø must be slight, & omission
or defect must be so technical & unimpt, & must
not pervade the whole, must not be so material
to the achievement of the very purpose of the
parties;
3. party claiming substantial perf. must show
attempt in GF
CASES on Payment:
J.M. TUASON V. JAVIER [31 S 829] - In the interest
of justice & equity, court may grant the vendee a
new term where he substantially performed in
good faith according to Art. 1234, regardless of
Art. 1592 of the same Code.
FACTS:
 Contract to Sell bet. Plaintiff JM Tuazon and def.
Ligaya Javier on a parcel of land in Sta. Msa Hts. Subd.
On installment w/ down & interest of 10% p.a. Def. took
poss’n of prop. After payment of 1 st installment on
execution of © in Sept. 1954 & pd. Mo.installmts until
Jan. 1962. After subseq. Default by def. of monthly inst.
Plaintf informed her that © has been rescinded. But def.
refused to vacate. Thus, pltff filed case w/CFI-Rizal for
judicial rescission of © and payment of arrears.
Based on Art. 1592, CFI found in favor of def.
but made the latter pay arrears w/in 60 days, plus
interests, attys fees, and that title shd be transferred
after such payment w/costs at the expense of def.
Article 1592. In the sale of immovable
property, even though it may have been
stipulated that upon failure to pay the price at
the time agreed upon the rescission of the
contract shall of right take place, the vendee
may pay, even after the expiration of the period,
as long as no demand for rescission of the
contract has been made upon him either
judicially or by a notarial act. After the demand,
the court may not grant him a new term.
Thus pltff appealed for erroneous applic of 1592
b/c this is a © TO Sell not OF Sale.
ISSUE: WON CFI erred in NOT declaring herewith ©
rescinded.
HELD: NO. What applies here is Art. 1234:
Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover
as though there had been a strict & complete
fulfillment, less damages suffered by the obligee.
LEGARDA HERMANOS V. SALDANA [55 S 324] -
The Court's doctrine in J.M. Tuason v. Javier is fully
applicable to the present case, RE Substantial
performance of © Ø in GF, Art. 1234.
FACTS: Contract to Sell bet. Plaintiff vendee, Felipe
Saldana and Def.vendor, Legarda Hermanos,
subdivision-owner, on 2 written ©’s, payable for 10yrs,
120 equal monthly installments w/ 10% interst p.a., fr.
May 1948
 resp. Saldana faithfully pd. For 8-yrs about 95-
mos.instalmnts out of 120; he stopped paying fr. Filing of
this case w/CFI-Manila in 1961; after his 1st 5yrs of
paying, resp. called attention of vendors that he wanted
to build a house on his lot but they have to start
improvements on d subd, e.g. roads. Instead, he was
informed of cancellation of © for failure to pay as
stipulated, the 120installments and his payments were
to be treated as rents.
> LC dismissed resp.’s complaint, upheld the
cancellation of the ©. Appellate court reversed, and
ordered the conveyance of one of the 2 lots to defs. At
the latter’s choice. It was found that the lots cud not be
delivered bcoz they were still submerged in water and
there were no roads in the subdv. (for equity and justice)
ISSUE: WON cancellation here was proper?
HELD: NO. Applying Doctrine in JM Tuazon v. Javier
AZCONA V. JAMANDRE [151 S 317] -
FACTS: GUILLERMO AZCONA leased 80 Ha. Out of his
150 Ha pro-indiviso share in hacienda Sta. fe in
Escalante, Negros Occ. To CIRILO JAMANDRE, decedent
rep.by Administrator to his Estate;
> Yearly rental agreed: P7,200 for 3-agri.years fr. 1960,
extendible to 1965 at lessee’s option. 1st annual rental
due on Mar. 1960; but resp. did not pay for failure of
Pet. To deliver possn of the prop. To him until he pd in
Oct. 1960 of P7000;
> In April 1961, Pet. Notified Resp. that © is deemed
cancelled for failure to comply w/conditions therein;
> resp. filed complaint, def. filed counterclaim; both
were dismissed by TC for pari de licto;
ISSUE: WON the payment of P7000, lacking of 200 fr the
agreed annual rental of 7200, amounts to delay and
ground for rescission
HELD: No. the receipt showed full payment as per
contract; no mention of the short of 200; whc means
that rental was reduced, perhaps b/c of the reduction of
the 80Ha. By 16Ha. Used by Pet. As grazing land. But
the rest of the © subsists.
49
xxx If the petitioner is fussy enough to invoke it now, it
stands to reason that he would have fussed it too in the
receipt he willingly signed after accepting, w/o
reservation & apparently w/o protest only P7,000. Art.
1235 is applicable.
Petitioner says that he could not demand payment of
the balance of P200 on 10/26/60, date of receipt bec.
the rental for the crop year 1961-1962 was due on or
before 1/30/61. But this would not have prevented him
fr. reserving in the receipt his right to collect the balance
when it fell due. Moreover, there is evidence in the
record that when the due date arrived, he made any
demand, written or verbal, for the payment of that
amount.
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, & w/o expressing any protest or
objection, the obligation is deemed fully complied
w/.
1. To whom payment should be made
Art. 1240. Payment shall be made to the person
in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it.
ARAÑAS V. TUTAAN [127 S 828]
Payment by judgment debtor to the wrong party
does not extinguish judgment debt.
FACTS: CFI-Rizal,Quezon declared petitioner-plaintiff sps.
Arañas as owner of 400 shares of stocks in Universal
Textile Mills, Inc. UTEX, whc the Corp-defendant issued
to co-def. Gene Manuel and BR Castaneda, incl. stock
dividends whc accrued to said shares. This court a quo
rendered decision in August 1971. UTEX made a motion
for clarification and such was answered in 1972 clearly
directing UTEX to pay sps.petitioners as rightful owners
of all accruing dividends from their stocks fr after the
judgment by the court, and for the transfer of the
disputed shares of stocks to the names of petitioner-sps.
In lieu of the appeal filed by Manuel and Castaneda,
UTEX failed to transfer the names of the shares and pay
the dividends to petitioners. Thus, sps-pet asked for a
writ of execution fr court a quo for payment of cash
dividends fr 1972-1979 w/interest and to effect the
transfer of the shares to them. Lower court granted
such order but absolved UTEX of payment of cash
dividends whc they have already paid to Manuel and
Castaneda on the ground of equity.
ISSUE: WON UTEX shd be made to pay sps.Arañas the
cash dividends fr 1972-1979 w/interests, after it has
already paid the same to Manuel and Castañeda,
despite knowledge of the court’s decision otherwise.
HELD:
The burden of recovering the supposed
payments of the cash dividends made by UTEX to the
wrong parties Castaneda & Manuel squarely falls upon
itself by its own action & cannot be passed by it to
petitioners as innocent parties.
*** It is elementary that payment made by a
judgment debtor to a wrong party cannot
extinguish the judgment obligation of such debtor
to its creditor. xxx
 A payment in order to be effective to
discharge an obligation must be made to
the proper parties.--
In general, a payment, in order to be effective to
discharge an obligation, must be made to the proper
person. Thus, payment must be made to the obligee
himself or to an agent having authority, express or
implied, to receive the particular payment.
Payment made to one having apparent authority
to receive the money will, as a rule, be treated as
though actual authority had been given for its
receipt.
Likewise, if payment is made to one who by law is
authorized to act for the creditor, it will work a
discharge. The receipt of money due on a judgment by
an officer authorized by law to accept it will, therefore
satisfy the debt.
xxx The theory is where a payment is
made to a person authorized & recognized
by the creditor, the payment to such a
person so authorized is deemed payment
to the creditor. xxx
 Unless authorized by law or by consent of
the obligee, a public officer has no
authority to accept anything other than
money in payment of an obligation under
a judgment being executed.
In the absence of an agreement, either express or
implied, payment means the discharge of a debt or
obligation in money & unless the parties so agree, a
debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of
payment of his debt. Consequently, Unless authorized
by law or by consent of the obligee, a public officer has
no authority to accept anything other than money in
payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the
sheriff of the petitioner's checks, in the case at bar, does
not, per se, operate as a discharge of the judgment
debt. [PAL V. CA (181 S 557)]
Tolentino:
Authority to receive: LEGAL or CONVENTIONAL
Legal: conferred by law, such as authority of guardian
to inc. creditor (Cr), or the adm’r of estate
Conventional: autho. Fr. Cr himself, as when agent is
appted. To collect fr. Debtor (Dr)
 Payment to wrong party does NOT
extinguish oblig to Cr, if there is no
fault or negligence w/c can be imputed
to the latter, even when Db acted in
utmost GF & by mistake as to the
person of his Cr, or thru error induced
by fraud of 3P, EXCEPT AS PROV. IN ART.
1241
 Deposit by Db in bank, in the name
of & to the credit of Cr, w/o latter’s
autho. Does NOT constitute
payment; but when the Cr cannot be
found in the place of payment, such
deposit may be a valid excuse for not
holding the Db in default
GR: Consignation in ct. of thing or amt. due, when
properly made will ext. oblig.
Art. 1241. Payment to a person who is
incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar
as the payment has been beneficial to him.
Payment made to a third person shall also
be valid insofar as it has redounded to the benefit
of the creditor. Such benefit to the creditor need
not be proved in the following cases:
(1) If after the payment, the third
persons acquires the creditor's
rights;
(2) If the creditor ratifies the payment
to the third person;
(3) If by the creditor's conduct, the
debtor has been led to believe that
the third person had authority to
receive the payment.
Baviera: Number three is Estoppel in Pais
Tolentino:
1. When Cr is incapacitated, payment must be
made to his legal rep. or deliver the thing to
ct. for consignation ff. Art. 1256
50
2. Paymt. to Incap. Cr shall be valid only
insofar as it accrued to his benefit. Absence
of benefit, Db may be made to pay again by
Cr when he attains capacity, or his legal rep
during the inc.
3. Same principles are applicable to paymt
made to 3P, but person who paid has right
to recover fr. 3P
4. In ff. Cases, paymt. To 3P releases Db:
(a) when w/o notice to assngmt. of credit, he
pays to original Cr [Art. 1626] &
(b) when in GF he pays to one in poss’n of
credit [Art. 1242]
5. If mistake of Db due to fault of Cr, then Cr
cannot demand anew
Art. 1242. Payment made in good faith to any person
in possession of the credit shall release the debtor.
(Assignment of Credits & Other Incorporeal
Rights)
Art. 1626. The debtor who, before having knowledge
of the assignment, pays his creditor shall be released fr.
the obligation.
2. Who shall make payment
Art. 1236. The creditor is not bound to accept
payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o
the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been
beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor
w/o the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his
rights, such as those arising fr. a mortgage, guaranty,
or penalty.
Art. 1238. Payment made by a third person who
does not intend to be reimbursed by the debtor is
deemed to be a donation, w/c requires the debtor's
consent. But the payment is in any case valid as to
the creditor who has accepted it.
Art. 2173. When a third person, w/o the knowledge
of the debtor, pays the debt, the rights of the former
are governed by articles 1236 & 1237. (Other Quasi-
Contracts)
Art. 1239. In obligations to give, payment made by
one who does not have the free disposal of the thing
due & capacity to alienate it shall not be valid, w/o
prejudice to the provisions of article 1427 under the
Title on "Natural Obligations."
Art. 1427. When a minor between eighteen &
twenty-one years of age, who has entered into a
contract w/o the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a
fungible thing in fulfillment of the obligation, there
shall be no right to recover the same fr. the obligee
who has spent or consumed it in good faith.
 NOTE: age of majority is now 18.
Tolentino:
 Where the person paying has no capacity to
make the pymt, the Cr cannot be compelled to
accept it. Consign’n will not be proper.
 In case Cr accepts, the pymt will not be valid,
except in the case provided in A 1427.
Art. 1243. Payment made to the creditor by the debtor
after the latter has been judicially ordered to retain the
debt shall not be valid.
Tolentino:
 Pmt to Cr after the credit has been attached or
garnished is void as to the party who
obtained the attachmt or garnishmt, to the
extent of the amt of jdgmt in his favor;
 Db can therefor be made to pay again to the
party who secured the attachtmt or garnishmt,
but he can recover the same to the extent of
what he has pd to his Cr
Art. 1244. The debtor of a thing cannot compel the
creditor to receive a different one, although the latter
may be of the same value as, or more valuable than
that w/c is due.
In obligations to do or not to do, an act or
forbearance cannot be substituted by another act or
forbearance against the obligee's will.
Tolentino:
 Defects of the thing delivered may be waived by
the Cr, if he expressly so declares, or if, w/
knowledge thereof, he accepts the thing w/o
protest or disposes of it or consumes it
Art. 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
Art. 1246. When the obligation consists in the delivery
of an indeterminate or generic thing, whose quality &
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of
the obligation & other circumstances shall be taken into
consideration.
Tolentino:
 Cr or Db may waive the benefit of this Art.
 Cr may require a thing of inferior qlty & Db may
deliver a thing of superior qlty, unless the price
to be pd in the latter case is dependent upon
the qlty
Art. 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment shall be
for the account of the debtor. With regard to judicial
costs, the Rules of Court shall govern.
Art. 1248. Unless there is an express stipulation to
that effect, the creditor cannot be compelled partially to
receive the prestations in w/c the obligation consists.
Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated &
in part unliquidated, the creditor may demand & the
debtor may effect the payment of the former w/o
waiting for the liquidation of the latter.
BALANE CASE:
Art. 1249. The payment of debts in money shall be
made in the currency stipulated, & if it is not possible to
deliver such currency, then in the currency w/c is legal
tender in the Philippines.
The delivery of promissory notes payable to
order, or bills of exchange or other mercantile
documents shall produce the effect of payment only
when they have been cashed, or when through the fault
of the creditor they have been impaired.
In the meantime, the action derived fr. the
original obligation shall be held in abeyance.
51
TIBAJIA V. CA (1993)
Facts: In a suit for collection of a sum of money, Eden Tan
obtained judgment against Petitioners, spouses Norberto
Tibajia, Jr. and Carmen Tibajia. The decision having become
final, Eden Tan filed motion for execution and the garnished
funds which by then were on deposit with the cashier of the
RTC-Pasig were levied upon.
Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima
the total money judgment in Cashier's Check P262,750.00,
and in Cash 135,733.70 = Total P398,483.70. Tan, refused to
accept such payment and instead insisted that the garnished
funds deposited with RTC-Pasig be withdrawn to satisfy the
judgment obligation. Defendant spouses (petitioners) filed a
motion to lift the writ of execution on the ground that the
judgment debt had already been paid. Trial court denied on
the ground that payment in cashier's check is not payment in
legal tender and that payment was made by a third party
other than the defendant. MR was denied. CA affirmed,
holding that payment by cashier's check is not payment in
legal tender as required by RA No. 529. MR denied again.
ISSUE: whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as
required by the Civil Code, Republic Act No. 529, and the
Central Bank Act.
The provisions of law applicable to the case at bar are the
following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended,
which provides:
Sec. 1. Every provision contained in, or made with respect to,
any obligation which purports to give the obligee the right to
require payment in gold or in any particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no
effect, and no such provision shall be contained in, or made
with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not
any such provision as to payment is contained therein or
made with respect thereto, shall be discharged upon payment
in any coin or currency which at the time of payment is legal
tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended
(Central Bank Act) which provides:
Sec. 63. Legal character � Checks representing deposit
money do not have legal tender power and their acceptance
in the payment of debts, both public and private, is at the
option of the creditor: Provided, however, that a check which
has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this
petition must fail.
A check, whether a manager's check or
ordinary check, is not legal tender, and an offer
of a check in payment of a debt is not a valid
 tender of payment and may be refused receipt
by the obligee or creditor.
KALALO V. LUZ [34 S 337] - Under RA 529, if the
obligation was incurred prior to the enactment in a
particular kind of coin or currency other than the Phil.
currency the same shall be discharged in Phil. currency
measured at the prevailing rate of exchange at the time
the obligation was incurred. RA 529 does not provide for
the rate of exchange for the payment of the obligation
incurred after the enactment of said Act. The logical
conclusion is that the rate of exchange should be that
prevailing at the time of payment for such contracts.
FACTS:
Octavio KALALO, a licensed civil engineer doing business
under the firm name of O. A. Kalalo and Associates, entered
into an agreement with Alfredo LUZ, a licensed architect,
doing business under firm name of A. J. Luz and Associates,
whereby the former was to render engineering design services
to the latter for fees, as stipulated in the agreement. The
services included design computation and sketches, contract
drawing and technical specifications of all engineering phases
of the project designed by O. A. Kalalo and Associates bill of
quantities and cost estimate, and consultation and advice
during construction relative to the work. The fees agreed upon
were percentages of the architect's fee.
Kalalo in his complaint against Luz alleged that for services
rendered in connection with the different projects there was
due him fees in US$, excluding interests, of which some were
paid, thus leaving unpaid the balance plus prayer for
consequential and moral damages, as well as moral damages,
attorney's fees and expenses of litigation; and actual
damages.
Luz admitted that appellee rendered engineering services, as
alleged, but averred that some were not in accordance with
the agreement and such claims were not justified by the
services actually rendered, and that the aggregate amount
actually due was only P80,336.29, of which P69,475.21
had already been paid, thus leaving a balance of only
P10,861.08. Luz denied liability for any damage claimed by
appellee to have suffered, as alleged in the second, third and
fourth causes of action. Appellant also set up affirmative and
special defenses, alleging that appellee had no cause of
action, that appellee was in estoppel because of certain acts,
representations, admissions and/or silence, which led
appellant to believe certain facts to exist and to act upon said
facts, that appellee's claim regarding the Menzi project was
premature because appellant had not yet been paid for said
project, and that appellee's services were not complete or
were performed in violation of the agreement and/or
otherwise unsatisfactory. Appellant also set up a counterclaim
for actual and moral damages for such amount as the court
may deem fair to assess, and for attorney's fees.
TC authorized the case to be heard before a Commissioner.
The Commissioner rendered a report which, in resume, states
that the amount due to appellee was US$28K as his fee in the
IRRI Project, and P51,539.91 for the other projects, less the
sum of P69,475.46 which was already paid by the appellant.
The Commissioner also recommended the payment to
appellee of the sum of P5,000.00 as attorney's fees. Both had
no objection to the findings of fact of the Commissioner
contained in the Report
ISSUE: WON the recommendation in the Report that the
payment of the amount due to the plaintiff in dollars was
legally permissible, and if not, at what rate of exchange it
should be paid in pesos.
HELD: Under the agreement, Exhibit A, appellee was entitled
to 20% of $140,000.00, or the amount of $28,000.00.
Appellee, however, cannot oblige the appellant to pay him in
dollars, even if appellant himself had received his fee for the
IRRI project in dollars. This payment in dollars is prohibited by
Republic Act 529 which was enacted on June 16, 1950.
Said act provides as follows:
SECTION 1. Every provision contained in, or made with respect
to, any obligation which provision purports to give the obligee the
right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money
of the Philippines measured thereby, be as it is hereby declared
against public policy, and null, void and of no effect, and no such
provision shall be contained in, or made with respect to, any
obligation hereafter incurred. Every obligation heretofore or here
after incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be
discharged upon payment in any coin or currency which at the
time of payment is legal tender for public and private debts:
52
Provided, That, ( a) if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind
of coin or currency other than Philippine currency, it shall be
discharged in Philippine currency measured at the prevailing rate
of exchange at the time the obligation was incurred, (b) except in
case of a loan made in a foreign currency stipulated to be
payable in the same currency in which case the rate of exchange
prevailing at the time of the stipulated date of payment shall
prevail. All coin and currency, including Central Bank notes,
heretofore or hereafter issued and declared by the Government of
the Philippines shall be legal tender for all debts, public and
private.
Under the above-quoted provision of Republic Act 529,
if the obligation was incurred prior to the enactment of
the Act and require payment in a particular kind of coin
or currency other than the Philippine currency the
same shall be discharged in Philippine currency
measured at the prevailing rate of exchange at the
time the obligation was incurred.
As we have adverted to, Republic Act 529 was enacted
on June 16, 1950. In the case now before us the obligation
of appellant to pay appellee the 20% of $140,000.00, or the
sum of $28,000.00, accrued on August 25, 1961, or after the
enactment of Republic Act 529. It follows that the provision of
Republic Act 529 which requires payment at the prevailing
rate of exchange when the obligation was incurred cannot be
applied.
Republic Act 529 does not provide for the rate of exchange for
the payment of obligation incurred after the enactment of said
Act. The logical conclusion, therefore, is that the rate of
exchange should be that prevailing at the time of
payment.
This view finds support in the ruling of this Court in the case
of Engel vs. Velasco & Co. where this Court held that even if
the obligation assumed by the defendant was to pay the
plaintiff a sum of money expressed in American currency, the
indemnity to be allowed should be expressed in Philippine
currency at the rate of exchange at the time of judgment
rather than at the rate of exchange prevailing on the date of
defendant's breach. This is also the ruling of American court
as follows:
The value in domestic money of a payment
made in foreign money is fixed with respect to
the rate of exchange at the time of payment.
PONCE V. CA [90 S 533] - It is to be noted that while
an agreement to pay in dollars is declared as null & void
& of no effect, what the law specifically prohibits is
payment in currency other than legal tender. It does not
defeat a creditor's claim for payment, as it specifically
provides that "every other domestic obligation xxx
whether or not any such provision as to payment is
contained therein or made w/ respect thereto, shall be
discharged upon payment in any coin or currency w/c at
the time of payment is legal tender for public & pvt.
use." A contrary rule would allow a person to profit or
enrich himself inequitably at another's expense.
FACTS:
On June 3, 1969, private respondent Jesusa B. Afable, together
with Felisa L. Mendoza and Ma. Aurora C. Diño executed a
promissory note in favor of petitioner Nelia G. Ponce in the
sum of P814,868.42, Philippine Currency, payable, without
interest, on or before July 31, 1969. It was further provided
therein that should the indebtedness be not paid at maturity,
it shall draw interest at 12% per annum, without demand; that
should it be necessary to bring suit to enforce pay ment of the
note, the debtors shall pay a sum equivalent to 10% of the
total amount due for attorney's fees; and, in the event of
failure to pay the indebtedness plus interest in accordance
with its terms, the debtors shall execute a first mortgage in
favor of the creditor over their properties or of the Carmen
Planas Memorial, Inc.
For failure to comply w/Ø, a Complaint was filed by PONCE at
CFI-Manila for the recovery of the principal sum of
P814,868.42, plus interest and damages.
Trial Court rendered judgment ordering respondent Afable and
her co-debtors, Felisa L. Mendoza and Ma. Aurora C. Diño , to
pay petitioners, jointly and severally, the sum of P814,868.42,
plus 12% interest per annum from July 31, 1969 until full
payment, and a sum equivalent to 10% of the total amount
due as attorney's fees and costs.
From said Decision, by respondent Afable appealed to the
Court of Appeals. She argued that the contract under
consideration involved the payment of US dollars and was,
therefore, illegal; and that under the in pari delicto rule, since
both parties are guilty of violating the law, neither one can
recover. It is to be noted that said defense was not raised in
her Answer.
CA affirmed TC. MR denied. CA’s holding: the agreement is
null and void and of no effect under Republic Act No. 529.
Under the doctrine of pari delicto, no recovery can be made in
favor of the plaintiffs for being themselves guilty of violating
the law.
ISSUE: WON the subject matter is illegal and against public
policy, thus, doctrine of pari delicto applies.
HELD: WE DISAGREE. It is to be noted that while an
agreement to pay in dollars is declared as null and void and of
no effect, what the law specifically prohibits is payment
in currency other than legal tender. It does not defeat a
creditor's claim for payment, as it specifically provides that
"every other domestic obligation ... whether or not any such
provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin
or currency which at the time of payment is legal tender for
public and private debts." A contrary rule would allow a
person to profit or enrich himself inequitably at another's
expense.
Section 1 of Republic Act No. 529, which was enacted
on June 16, 1950:
Section 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to
require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null and void and of no
effect and no such provision shall be contained in, or made
with respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions were the funds involved
are the proceeds of loans or investments made directly or indirectly,
through bona fide intermediaries or agents, by foreign governments,
their agencies and instrumentalities, and international financial and
banking institutions so long as the funds are Identifiable, as having
emanated from the sources enumerated above; (b) transactions
affecting high priority economic projects for agricultural industrial and
power development as may be determined by the National Economic
Council which are financed by or through foreign funds; (c) forward
exchange transactions entered into between banks or between banks
and individuals or juridical persons; (d) import-export and other
international banking financial investment and industrial transactions.
With the exception of the cases enumerated in items (a) (b), (c) and (d)
in the foregoing provision, in, which cases the terms of the parties'
agreement shall apply, every other domestic obligation
heretofore or hereafter incurred whether or not any such
provision as to payment is contained therein or made with-
respect thereto, shall be discharged upon payment in any coin
or currency which at the time of payment is legal tender for
public and private debts: Provided, That if the obligation was
incurred prior to the enactment of this Act and required
payment in a particular kind of coin or currency other than
Philippine currency, it shall be discharge in Philippine currency
measured at the prevailing rates of exchange at the time the
obligation was incurred, except in case of a loan made in
foreign currency stipulated to be payable in the currency in
which case the rate of exchange prevailing at the time of the
stipulated date of payment shall prevail All coin and currency,
including Central Bank notes, heretofore and hereafter issued
and d by the Government of the Philippines shall be legal
tender for all debts, public and private. (As amended by RA
4100, Section 1, approved June 19, 1964)
NEW PACIFIC TIMBER V. SENERIS [101 S 686] -
FACTS:
Upon a compromise judgment against petitioner, and for
the latter’s failure to comply, CFI-Zambo issued a writ of
exec. Sheriff levied on personal properties or pet. And
set such for auction sale. Prior to whc date of auction,
pet. Deposited w/clerk of court, ex-officio sheriff, the
payment of the judgment Ø consisting of cash and
checks. Priv. resp., Ricardo TONG refused to accept and
requested the auction to proceed. Tong was the highest
bidder in the auction, for total amount short of the
judg.debt.
ISSUE: WON judge erred in not issuing a cert. of
satisfaction of judgment after priv.resp. refused to
accept payment in checks and cash.
53
HELD: It is to be emphasized that the check deposited
by the petitioner in the amount of P50,000 is not an
ordinary check but a Cashier's check of the Equitable
Banking Corp., a bank of good standing & reputation. It
was even a certified crossed check. It is well known &
accepted practice in the business sector that a Cashier's
check is deemed as cash.
Moreover, since the said check has been certified by the
drawee bank, by the certification, the funds represented
by the check are transferred fr. the credit of the maker
to that of the payee or holder, & for all intents &
purposes, the latter becomes the depositor of the
drawee bank, w/ rights & duties of one in such situation.
Where a check is certified by the bank on w/c it is
drawn, the certification is equivalent to
acceptance. Said certification "implies that the
check is drawn upon sufficient funds in the hands
of the drawee, that they have been set apart fort
its satisfaction, & that they shall be so applied
whenever the check is presented for payment. It
is an understanding that the check is good then, & shall
continue to be good, & this agreement is as binding on
the bank as its notes in circulation, a certificate of
deposit payable to the order of the depositor, or any
other obligation it can assume. The object of certifying
a check, as regards both parties, is to enable the holder
to use it as money." When the holder procures the
check to be certified, "the check operates as an
assignment of a part of the funds to the creditors."
Hence, the exception to the rule enunciated under Sec.
63 of the CB Act shall apply in this case:
Sec. 63. Legal Character – Checks
representing deposit do not have legal tender
power and their acceptance in payment of
debts, both pub & priv, is at the option of the Cr.
Provided, however that a check w/c has
been cleared & credited to the account of
the creditor shall be equivalent to a
delivery to the creditor in cash in an
amount equal to the amount credited to
his account.
BISHOP OF MALOLOS V. IAC [191 S 411]
FACTS:
Petitioner is vendor of parcels of land in Bulacan to
vendee Robes-Francisco Realty Corp. w/ downpym of
20K+ and bal of 100K payable w/in 4yrs w/12% int. p.a.
fr exec. Of © on July 7, 1975, w/forfeiture clause in case
vendee fails to pay in 4yrs.
On July 17, 1975, vendee wrote a letter requesting for
extension and allowance to pay in installment w/in 6mos
w/interests. Petitioner denied, granted only 5 days grace
period. Request for 30-days grace on the 4 th day was
also denied by pet. Priv. resp. later purports tender of
payment (in check) on 5th day was refused by pet. TC
favored pet. IAC reversed after finding that resp. had
sufficient funds at the time of tender of check payment
to pet. On the 5th day of the grace period, and concluded
that there was valid tender of paymnt.
ISSUE: WON offer of check is vaid tender of pymnt of Ø
under a © whc stipulates that consid. Of sale is in Phil.
Currency?
HELD:
Finding of suff.avail.funds by CA does not constitute
proof of tender of pymnt. (non sequitur)
Tender of Payment involves a positive & uncondi. Act
by the obligor of offering legal tender currency as
payment to oblige for the Ø & demanding that the latter
accept the same.
Since a negotiable instrument is only a substitute for
money & not money, the delivery of such an instrument
does not, by itself, operate as payment. A check,
whether a manager's check or ordinary check, is not
legal tender, & an offer of a check in payment of a debt
is not a valid tender of payment & may be refused
receipt by the obligee or creditor.
Tolentino:
 Legal tender: such currency w/c in a given
jurisdiction can be used for the pmts of debts,
public & private, & w/c cannot be refused by the
Cr
  Since pmt must be in money that is legal
tender, pmt in check even when good may be
validly refused by Cr
 Pymt by Check: WON MgrC or ordinary is NOT a
valid tender of pmt
Art. 1250. In case an extraordinary inflation or
deflation of the currency stipulated should supervene,
the value of the currency at the time of the
establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
Baviera:
This article applies to contracts only. EXTRAORDINARY
means unusual or beyond the common fluctuation, not
foreseen
Tolentino: Does NOT apply where oblig to pay arises fr
law, independent of Ks, like the taking of private prop by
the govt in the exercise of its pwr of emt domain
FIL. PIPE & FOUNDRY CORP. V. NAWASA
Facts: In ’61 NWS entered © w/FPFC for d supply of
cast iron pressure pipes for the constrxn of the
Waterworx Msbate & Samar. NWS paid in installments.
Leaving a bal. + unpd.interests. thus, fpfc filed a collexn
case vs NWS in CFI-Mla
In ’67, CFI ordered NAWASA to pay FPFC the balance IN
NWS negotiable bonds,redeemable in 10yrs w/6%p.a.
int..NWS failed to pay, neither delivered bonds. In ’71,
FPFC filed another complaint seeking an adjustment of
the unpaid balance d/t change in value of judgment in
peso in ’67 to ‘71. TC dismissed the complaint holding
that the inflation was a worldwide occurrence & that
there was no proof of extraord inflation in the sense
contemplated by Art. 1250.
Issue: WON there was extraord inflation to apply Art
1250
Held: None. Extraord. inflation exists when there is a
decrease or increase in the purchasing pwr of the Phil
currency w/c is unusual or beyond the common
fluctuation value of the said currency, & such dec or inc
cud not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at
the time of the estab of the obligation. The decline of
the purchasing pwr of the currency cannot be
considered extraord. It was due to oil embargo crisis the
effect of w/c was worldwide.
VELASCO V. MERALCO [42 S 556]
FACTS:
Velasco’s MR; SC decision incorrectly reduced amt of
damages due him based only his BIR assessed income
not consid his undeclared source of income whc he did
not disclose. He now urges that damages awarded him
was inadeq consid present hi cost of living, applying Art
1250.
HELD: From the employment of the words
"extraordinary inflation or deflation of the currency
stipulated" in Art. 1250, it can be seen that the same
envisages contractual obligations where a specific
currency is selected by the parties as the medium of
payment; hence it is inapplicable to obligations
arising fr. tort & not fr. contract. Besides, there is
no showing that the factual assumption of said article
has come into existence.
COMMISSIONER OF PUBLIC HIGHWAYS V. BURGOS
[96 S 831] -
FACTS:
Victoria Amigable is the owner of parcel of land in Cebu whc
the Government took for road-right-of-way purpose in 1924.
The land had since become streets known as Mango Avenue
and Gorordo Avenue. In 1959, Amigable filed in CFI-Cebu a
complaint, to recover ownership and possession of the land,
and for damages in the sum of P50,000.00 for the alleged
illegal occupation of the land by the Government, moral
54
damages in the sum of P25,000.00, and attorney's fees in the
sum of P5,000.00, plus costs of suit.
In its answer, the Republic alleged, among others, that the
land was either donated or sold by its owners to the province
of Cebu to enhance its value, and that in any case, the right of
the owner, if any, to recover the value of said property was
already barred by estoppel and the statute of limitations,
defendants also invoking the non-suability of the Government.
Plaintiff's complaint was dismissed on the grounds relied upon
by the defendants therein. SC reversed, and the case was
remanded to the court of origin for the determination of the
compensation to be paid the plaintiff-appellant as owner of
the land, including attorney's fees, also directed the
determination of just compensation on the basis of the price
or value thereof at the time of the taking.
ISSUE: WON Article 1250 applicable in determining JUST
compensation payable to Amigable fr taking in 1924.
Art. 1250 does applies only to cases where a contract or
agreement is involved. It does not apply where the
obligation to pay arises fr. law, independent of contracts.
The taking of private property by the govt in the
exercise of its power of eminent domain does not give
rise to a contractual obligation.
DEL ROSARIO V. SHELL [164 S 556]
FACTS: DR leased to Shell his land in Ligao, Albay at
250/mo. w/stipulation on currency adjustment accdg to
inflation. An EO was promulgated by Pres D. Macapagal
prompting DR to demand for increase in rental fr Shell
whc the latter refused to pay. Thus DR filed w/CFI-Mla
whc was dismissed.
ISSUE: WON the effect of EO 195 is official devaluation
of peso as contemplated in the Lease Contract
HELD: In the case at bar, while no express reference
has been made to metallic content, there nonetheless is
a reduction in par value or in the purchasing power of
Phil. currency. Even assuming there has been no official
devaluation as the term is technically understood, the
fact is that there has been a diminution or lessening in
the purchasing power of the peso, thus there has been a
"depreciation" (opposite of "appreciation.") Moreover,
when laymen unskilled in the semantics of economics
use the terms "devaluation" or "depreciation" they
certainly mean them in their ordinary signification--
decrease in value. Hence, as contemplated by the
parties herein in their lease agreement, the term
"devaluation" may be regarded as synonymous w/
"depreciation," for certainly both refer to a decrease in
the value of the currency. The rentals should therefore,
by their agreement, be proportionately increased.
Art. 1251. Payment shall be made in the place
designated in the obligation.
There being no express stipulation & if the
undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be at
the moment the obligation was constituted.
In any other case the place of payment shall be
the domicile of the debtor.
If the debtor changes his domicile in bad faith or
after he has incurred in delay, the additional expenses
shall be borne by him.
These provisions are w/o prejudice to venue
under the Rules of Court.
Four Special Kinds of Payments:
1. Dacion en pago (Art. 1245.)
2. Application of payments (Subsection
1.)
3. Payment by cession (Subsection 2.)
4. Consignation (Subsection 3.)
Art. 1245. Dation in payment, whereby property
is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of
sales.
[Tolentino]
Dation in payment is the delivery &
transmission of ownership of a thing by the Db to the
Cr as an accepted equivalent of perf. of Ø;
 It may be a thing or a real rt (i.e. usufruct), or of a
credit vs a 3P;
EX: assgmnt by an heir-Db of his interests in Sx to the
Cr, made after d death of decedent, extinguishes d Ø.
Effect on Ø  extinguished to the extent of the value
of thng delivered
 Db does not have to be insolvent, agreement
only betw d parties makes dation possible.
When personal prop is delivered it is PLEDGE, not
dation, unless parties clearly stipulate, but in doubt, the
presumption is pledge, w/lesser transmission of rts.
Warranties of Db  Dation is an onerous transmission
or © of alienation, provision in Sales Re warranty vs
eviction & vs hidden defects of d thing applies, Db is
vendor, Cr is vendee;
 If Cr is evcted, original Ø is not revived, but Cr is
entitled to recover fr breach of warranty in Art.
1555.
[Balane]
 Dacion en pago, in Roman law, called "datio
in solutum", in French, "dation en
paiement," in Spanish, "dacion en pago.")
 Dation in payment is possible only if there is
a debt in money. Instead of money, a
thing is delivered in satisfaction of the
debt in money. (Dation en pago is explained
in the case of Filinvest v. Phil Acetylene).
There are two ways at looking at dacion en pago:
1. Classical way  where dacion en pago is
treated as a sale.
2. Modern concept  w/c treats dacion en pago
as a novation.
Castan has another view  Both are wrong.
* A dacion en pago is not a sale bec. there is no
intention to enter into a contract of sale.
* It is not also a novation bec. in novation, the old
obligation is extinguished & a new obligation takes
its place.
** But here, the old obligation is extinguished.
What takes its place? Nothing. So what is it? It is
a special form of payment w/c resembles a
sale.
There are two more things to remember in the
cases of Filinvest v. Phil. Acetylene, supra. &
Lopez v. CA, 114 SCRA 671:
 Dacion en pago can take place only if both
parties consent.
Q: To what extent is the obligation extinguished?
Answer: Up to the value of the thing given (the thing
must be appraised) unless the parties agree on a
total extinguishment. (Lopez. v. CA, supra.)
FILINVEST V. PHIL. ACETYLENE [111 S 421]
FACTS:
Phil. Acetylene Co. purchased fr Alexander LIM w/Deed
of Sale, a Chevrolet 1969 model w/downpd, and balance
payable for 34 mos. w/12% int.p.a. reflected in a PN,
w/chattel mortgage as security in Lim’s favor. Lim
assigned to Filinvest Finance Corp. his interests in the PN
55
and Chattel m. After defaulting in 9 installments,
Filinvest sent demand letter to PAC, to pay or return the
vehicle. PAC returned the car but Filinvest cannot sell
the car d/t unpaid taxes thereon incurred by PAC. Fil
offered to deliver back the car to Pac, the latter refused.
Fil thus filed a complaint for collection of money
w/damages in CFI-Mla. PAC averred that Fil has no COA
vs PAC b/c when the car was returned after the demand
letter, the Ø was extinguished.
ISSUE: WON the return of mortgaged vehicle to
appellee by voluntary surrender by appellant
totally extinguished the Ø, as in dacion en pago?
HELD: We find appellant's contention devoid of
persuasive force. The mere return of the mortgaged
motor vehicle by the mortgagor, the herein appellant, to
the mortgagee, the herein appellee, does not constitute
dation in payment in the absence, express or implied of
the true intention of the parties. The demand for return
merely showed appellee’s interest to secure the value of
the vehicle and prevent loss, damage, destruction or
fraudulent transfer to 3P, as shown in the doc, “Vol. Surr.
w/SPA To Sell” whc never said that such return is in full
satisfaction of the mortgaged debt. The conveyance
was as to rts only, ownership never left the mortgagor,
as such burdens on the property shd still be shouldered
by him.
Dacion en pago, according to Manresa, is the
transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent
of the performance of an obligation.
 In dacion en pago, as a special mode of
payment, the debtor offers another thing to the
creditor who accepts it as equivalent of
payment of an outstanding debt.
Dacion en pago in the nature of sale.-- The
undertaking really partakes in one sense of the nature of
sale, that is, the creditor is really buying the thing or
property of the debtor, payment for w/c is to be charged
against the debtor's debt.
 As such, the essential elements of a contract of
sale, namely, consent, object certain, & cause or
consideration must be present.
Dacion en pago in its modern concept.-- In its
modern concept, what actually takes place in dacion en
pago is an objective novation of the obligation
where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object
of the contract of sale, while the debt is considered as
the purchase price. In any case, common consent is an
essential prerequisite, be it sale or novation, to have the
effect of totally extinguishing the debt or obligation.
CITIZENS SURETY V. CA [162 S 738]
RATIO: There is no dation in payment when there
is no obligation to be extinguished
FACTS:
Pet. Issued 2 surety bonds to Pascual Perez to guarantee
his compliance in a Contract of Sale of Goods he entered
w/Singer Sawing Machine Co. Perez in turn executed a
deed of assignment of its stock of lumber to pet. And a
2nd REM to guaranty reimbursement of whatever liability
it will be made to pay in the future on Perez’s liabilities.
Perez failed to comply. Singer made pet. Pay Perez’s Øs.
Pascual failed to reimburse pet. Thus pet. Filed a claim
vs the estate of Nicasia Sarmiento whc was being
administered by Perez. Perez averred that his liability to
the surety has been extinguished by the deed of
assgnmnt of the lumber.
TC held Perez and the estate of Sarmiento solidarily
liable to Citizens Surety. CA reversed and dismissed
Citizens’ claim vs the estate of Sarmiento.
ISSUE: WON CA erred in concluding there was
dation in payment by the execution of the Deed of
Assgment?
HELD: The transaction could not be dation in payment.
xxx [W]hen the deed of assignment was executed on
12/4/59, the obligation of the assignor to refund the
assignee had not yet arisen. In other words, there was
no obligation yet on the part of the petitioner, Citizens'
to pay Singer Sewing Machine Co. There was nothing to
be extinguished on that date, hence, there could not
have been a dation in payment.
2ND SPECIAL KIND OF PAYMENT: Application of
Payment
[Balane]
Application of payment (Imputacion in
Spanish) is the designation of a debt w/c is being paid
by the debtor who has several obligations of the same
kind in favor of the creditor to whom the payment is
made.
Rules where the amount sent by the debtor to the
creditor is less than all that is due:
No.1: Apply in accordance w/ the agreement.
No.2: Debtor may apply the amount (an obvious
limitation bec. of the principles of indivisibility &
integrity) where there would be partial payment.
No.3: Creditor can make the application.
No.4: Apply to the most onerous debt. (Art. 1252, par.
1.)
Q; What are the rules to determine w/c is the
most onerous debt?
A: (1252)
1. If one is interest paying & the other is not, the
debt w/c is interest paying is more onerous.
2. If one is a secured debt & the other is not, the
secured debt is more onerous
3. If both are interest free, one is older than the
first, the newer one is more onerous bec.
prescription will take longer w/ respect to the
newer debt.
5th Rule: Proportional application if the debts are
equally onerous.
Art. 1252. He who has various debts of the same kind
in favor of one & the same creditor, may declare at the
time of making the payment, to w/c of them the same
must be applied. Unless the parties so stipulate, or when
the application of payment is made by the party for
whose benefit the term has been constituted, applica-
tion shall not be made as to debts w/c are not yet due.
If the debtor accepts fr. the creditor a receipt in
w/c an application of the payment is made, the former
cannot complain of the same, unless there is a cause for
invalidating the contract.
[Tolentino]
 Necessary that Øs must all be due
 Only in case of mutual agreement, or upon
consent of the party in whose favor the term
was estab, that pmts may be applied to Øs w/c
have not yet matured
Art. 1253. If the debt produces interest, payment of
the principal shall not be deemed to have been made
until the interests have been covered.
Art. 1254. When the payment cannot be applied in
accordance w/ the preceding rules, or if application can
not be inferred fr. other circumstances, the debt w/c is
most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
If the debts due are of the same nature &
burden, the payment shall be applied to all of them
proportionately.
[Baviera]
The ff. Are the rules for applic’n of pmts:
1 - The first choice belongs to the Db
2 - If the Db did not choose, the Cr may choose, w/c he
will manifest in a receipt.
3 - If neither specified the applic’n, pmt shall be made to
the most onerous debt.
3rd SPECIAL FORM OF Payment – by Cession
[Balane]
 Property is turned over by the debtor to the
creditor who acquires the right to sell it & divide
the net proceeds among themselves.
56
Q: Why is payment by cession a special form of
payment?--
A: Bec. there is no completeness of performance (re:
integrity.)
In most cases, there will be a balance due.
Q: Difference between dacion en pago &
payment by cession:
In dacion en pago, there is a transfer of ownership fr. the
debtor to the creditor.
In payment by cession, there is no transfer of
ownership. The creditors simply acquire the right to sell
the properties of the debtor & apply the proceeds of the
sale to the satisfaction of their credit.
Q: Does payment by cession terminate all debts
due?-
A: Generally, NO, only to the extent of the net proceeds.
The extinguishment of the obligation is pro tanto.
 Exc. In Legal cession where the
extinguishment of the obligation is total. Legal
cession is governed by the Insolvency Law.
Art. 1255. The debtor may cede or assign his property
to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only
release the debtor fr. responsibility for the net proceeds
of the thing assigned. The agreements w/c, on the
effect of the cession, are made between the debtor &
his creditors shall be governed by special laws.
4th SPECIAL FORM OF PAYMENT:
Tender of Payment & Consignation
Art. 1256. If the creditor to whom tender of payment
has been made refuses w/o just cause to accept it, the
debtor shall be released fr. responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect
in the following cases:
1. When the creditor is absent or unknown, or does
not appear at the place of payment;
2. When he is incapacitated to receive the
payment at the time it is due;
3. When, w/o just cause, he refuses to give a
receipt;
4. When two or more persons claim the same right
to collect;
5. When the title of the obligation has been lost.
[Balane]
“Subsection 3.-- Tender of Payment &
Consignation”
The title of the subsection is wrong. It should have
been Consignation only bec. that is the special mode
of payment & not the tender of payment.
 It is a special mode of payment bec. payment is
made not to the creditor but to the court.
 Consignation is an option on the part of
the debtor bec. consignation assumes that the
creditor was in mora accipiendi (when the
creditor w/o just cause, refuses to accept
payment.)
Consequence when the creditor w/o just cause,
refuses to accept payment  The debtor may just
delay payment. But something still hangs above his
head. He is therefore, given the option to consign.
Distinguish this fr. BGB (German Civil Code) w/c states
that mora accipiendi extinguishes the obligation.
[Tolentino]
 Tender of pmt b4 consig’n is required by the
present Art only in case where the Cr refuses to
accept it w/o just cause
Effect on INTEREST: When tender is made in a form
that Cr cld have immdtly realized pymt (cash),
followed by a prompt attempt of the Db to make
consign’n., the accrual of interest will be suspended
fr. the date of such tender.
But when tender is not accompanied by means of pmt,
& the Db did not take any immdte step to consign,
then interest is not suspended fr. the time of such
tender.
CASES:
SOCO V. MILITANTE [123 S 160] - Requiremts of
consign’n
FACTS: Disputed here is decision of lower court in an
UD case filed by lessor SOLEDAD SOCO vs. private resp.
REGINO FRANCISCO JR. lessee of a building owned by
Soco, whose payments of rentals were considered valid
and effective, dismissed the UD case and made lessor
pay moral & exemp. Damages, attys fees, holding there
was substantial compliance in the w/d requisites of
consignation.
Francisco and Soco entered into a Contract of Lease for a
monthly rental of P 800.00 for a period of 10 years renewable
for another 10 years at the option of the lessee. Francisco
subleased the bldg for a rental of 3,000/month. Knowing this,
Soco apparently stopped accepting rental payments of
Francisco and later demanded him to vacate the bldg. and
filed for rescission/annulment of Lease Contract w/CFI-Cebu.
ISSUE: WON the provisions in Arts. 1256-1261,
NCC re rquisites of Consignation must be
complied w/fully & strictly, mandatorily / did the
lower ct. err in ruling substantial compliance thereto?
HELD: We do not agree with the questioned decision. We hold
that the essential requisites of a valid consignation must be
complied with fully and strictly in accordance with the
law, Articles 1256 to 1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly
evident and plain from the very language of the codal
provisions themselves which require absolute compliance with
the essential requisites therein provided. Substantial
compliance is not enough for that would render only a
directory construction to the law. The use of the words "shall"
and "must" which are imperative, operating to impose a duty
which may be enforced, positively indicate that all the
essential requisites of a valid consignation must be complied
with. The Civil Code Articles expressly and explicitly direct
what must be essentially done in order that consignation shall
be valid and effectual.
Consignation Defined:
 Consignation is the act of depositing the
thing due w/ the court or judicial
authorities whenever the creditor (1)
cannot accept or (2) refuses to accept
payment, & it generally requires a prior
tender of payment.
Requisites of Valid Consignation:
In order that consignation may be effective, the debtor must
first comply with certain requirements prescribed by law. The
debtor must show
1. that there was a debt due;
2. that the consignation of the obligation had
been made because the creditor to whom
tender of payment was made refused to accept
it, or because he was absent or incapacitated,
or because several persons claimed to be
entitled to receive the amount due (Art.
1176,NCC);
3. that previous notice of the consignation had
been given to the person interested in the
performance of the obligation (Art. 1177,NCC);
4. that the amount due was placed at the disposal
of the court (Art. 1178,NCC); and
5. that after the consignation had been made the
person interested was notified thereof (Art.
1178,NCC).
 Failure in any of these requirements is enough
ground to render a consignation ineffective. (Jose
Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil.
311).
 Without prior notice, a consignation is void as
payment. (Limkako vs. Teodoro, 74 Phil 313)
57
 In order to be valid, the tender of payment must be made
in lawful currency. While payment in check by the debtor
may be acceptable as valid, if no prompt objection to said
payment is made (Desbarats vs. Vda. de Mortera, L-4915,
May 25, 1956)
 The fact that in previous years payment in check was
accepted does not place its creditor in estoppel from
requiring the debtor to pay his obligation in cash (Sy vs.
Eufemio, L-10572, Sept. 30, 1958).
 Thus, the tender of a check to pay for an obligation is
not a valid tender of payment thereof (Desbarats vs. Vda.
de Mortera, supra).
 Tender of payment must be distinguished from
consignation –
Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which
the debtor desires or seeks to obtain.
 Tender of payment is extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt
to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).
Art. 1257. In order that the consignation of the thing
due may release the obligor, it must first be announced
to the persons interested in the fulfillment of the
obligation.
The consignation shall be ineffectual if it is not
made strictly in consonance w/ the provisions w/c
regulate payment.
Art. 1258. Consignation shall be made by depositing
the things due at the disposal of judicial authority,
before whom the tender of payment shall be proved, in
a proper case, & the announcement of the consignation
in other cases.
The consignation having been made, the
interested parties shall also be notified thereof.
[Tolentino]
 Notice: The reqmt is fulfilled by the service of
summons upon the Def together w/ copy of
complaint
Art. 1259. The expenses of consignation, when
properly made, shall be charged against the creditor.
[
Tolentino] Proper when 
1. Cr accepts consign’n after deposit w/o
protest though Db failed to comply w/ reqs.
Or
2. Ct. declares consig’n as validly made
Art. 1260. Once the consignation has been duly made,
the debtor may ask the judge to order the cancella-
tion of the obligation.
Before the creditor has accepted the
consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may
w/draw the thing or the sum deposited, allowing the
obligation to remain in force.
[Tolentino]
Effects of Consignation:
1. Db is released in the same manner as if he had
performed the oblig
2. Accrual of INTEREST is suspended
3. Deterioration or loss of thing or amt consigned
w/o fault of Db must be borne by Cr
4. Any increment or increase in value of thing
inures to the benefit of Cr
SC:
 When money is deposited in ct under the provs
of the law on consig’n, it is in custodia legis &
therefore exempt fr. Attachmt & execution
(Manejero v. Lampa)
Art. 1261. If, the consignation having been made, the
creditor should authorize the debtor to w/draw the
same, he shall lose every preference w/c he may have
over the thing. The co-debtors, guarantors & sureties
shall be released.
[Baviera]
Q: When is there a need to tender pmt?
A: (a) upon demand & (b) when debt is due
Q: There are 2 or more claims. What will Db do
after consignation?
A: File INTERPLEADER.
Q: Why tender first?
A: ‘Coz no need to consign if Cr accept pymt. We can
only know this through tender. (EXHAUSTION OF
EXTRAJUDICIAL MEANS)
Q: B4 & after consign’n, there is a need to notify
the Cr. Why is this?
A: So that the Cr can get the money fr. the Clerk of ct &
avoid costs of litigation.
Q: Db consigns. Hearing…B4 the ct cld approve,
the City Hall burned + money. Shld Db pay again?
A: No. When money is consigned, it is no longer generic.
It becomes specific. Cr bears the loss bec. although it
was due to a fortuitous event, there was delay on his
part when he refused to accept pymt.
Q: K of Sale w/ pacto de retro. The vendor
tendered pmt w/in the 3-yr pd but vendee refused
to accept. Axn for spec perf by Vr. Accdg to Ve,
since money was not consigned, Vr cannot claim
rt of repurchase. Tenable argument?
A: No. As long as there was tender, no need to consign.
But in one case of a co-owner wanting to redeem at
reasonable price (was exorbitant), the court held that
reasonable price is det accdg to the circums. So if you
want to redeem, consign the full amt in ct & ask it to fix
the reasonable compensation.
IMMACULATA V. NAVARRO [160 S 211] - We hereby grant
said alternative cause of action or prayer. While the sale was
originally executed in Dec. 1969, it was only on Feb. 3, 1974
when, as prayed for by prvt. res, & as ordered by the court a
quo, a deed of conveyance was formally executed. Since the
offer to redeem was made on 3/24/75, this was clearly w/in the
5-yr. period of legal redemption allowed by the Public
Land Act.
FACTS: A previous complaint, for annulment of judgment and
deed of sale with reconveyance of real property alleged that
Juanito Victoria, with the cooperation of defendant Juanita
Naval and others succeeded in causing plaintiff Lauro
Immaculata, petitioner herein, to execute a Deed of Absolute
Sale in favor of Juanito Victoria, by unduly taking advantage of
the mental illness and/or weakness of petitioner and thru
deceit and fraudulent means, purportedly disposed of by way
of absolute sale, a 5,000-sq.m.parcel of land w/TCT, for P
58K, which petitioner supposedly received, but in truth and in
fact did not; Jus of the court over the person of the defendant
was also questioned but such was upheld thru valid service of
summons to the guardian ad litem and also later thru
voluntary appearance in lieu of pleadings asking for exercise
of jus by the same court. Accordingly, respondent Court
directed the respondent Sheriff to execute the deed of
conveyance prayed for by Juanito Victoria, by reason of which,
without the knowledge and consent of petitioner, a new TCT
was issued in favor of Juanito Victoria; that the said TCT is null
and void having been based on void proceedings;
*** that, in the alternative, petitioner prays that he be
allowed to repurchase the property within five (5) years
from the time judgment is rendered by the respondent
court upholding the validity of the proceedings and the sale
since the land in question was originally covered by a Free
Patent title;
Respondent Court dismissed the complaint on the ground of
res judicata. In this present MR, the pet. Merely asks of this
Court to consider a point inadvertently missed – the matter of
LEGAL REDEMPTION, whc has remained unresolved. The
bar of res jud is as to questions on the validity of the sale.
An offer to redeem was made clearly within the 5-yr-period
allowed by law, Public Land Act. (Sec. 119, CA No. 141)
58
ISSUE: WON offer to redeem was insincere in the absence of
consignation of such amount in Court?
HELD: NO. The right to redeem is a RIGHT NOT AN Ø,
thus no consignation is required.
 To preserve the right to redeem, consignation
is not required. But to actually redeem, there
must of course be payment or consignation
(deposit) itself.
(2nd MODE OF EXTINGUISHEMENT)
LOSS OF THE THING DUE OR IMPOSSIBILITY OF
PERFORMANCE
Art. 1262. An obligation w/c consists in the delivery of
a determinate thing shall be extinguished if it should be
lost or destroyed w/o the fault of the debtor, & before he
has incurred in delay.
When by law or stipulation, the obligor is liable
even for fortuitous events, the loss of the thing
does not extinguish the obligation, & he shall be
responsible for damages. The same rule applies
when the nature of the obligation requires the
assumption of risk.
Balane:
Art. 1262 is the same as fortuitous event in Art.
1174. The effect is the same:
 The Ø is extinguished if the Ø is to deliver a
determinate thing. If the Ø is to deliver a generic thing,
the Ø is not extinguished.
[GR] Genus nunquam perit ("Genus never perishes." )
But what is not covered by this rule is an Ø to deliver a
limited generic – something in bet. specific & generic
thing,
e.g., "For P3,000, I promise to deliver to you one of my
watches." This Ø does not really fall under either Art.
1262 or Art. 1263. But this Ø really falls under Art.
1262. In this case, the Ø may be extinguished by the
loss of all the thing through FE.
Art. 1263. In an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind
does not extinguish the obligation.
Art. 1264. The courts shall determine, whether, under
the circumstances, the partial loss of the object of the
obligation is so important as to extinguish the obligation.
Art. 1265. Whenever the thing is lost in the possession
of the debtor, it shall be presumed that the loss was due
to his fault, unless there is proof to the contrary, & w/o
prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake,
flood, storm, or other natural calamity.
Art. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may
ask that the obligation be complied w/ at the expense of
the debtor.
If the obligor delays, or has promised to deliver
the same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, &
those who in any manner contravene the tenor thereof
are liable for damages.
Art. 1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or
physically impossible w/o the fault of the obligor.
[Balane]
Objective & Subjective Impossibility:
 In objective impossibility, the act cannot be done
by anyone. The effect of objective impossibility is to
extinguish the Ø.
 In subjective impossibility, the Ø becomes
impossible only w/ respect to the obligor.
There are 3 views as to the effect of a subjective
impossibility:
1. One view holds that the Ø is not extinguished.
The obligor should ask another to do the Ø.
2. Another view holds that the Ø is extinguished.
3. A third view distinguishes one prestation w/c is
very personal & one w/c are not personal such
that subjective impossibility is a cause for
extinguishes a very personal Ø, but not an Ø w/c
is not very personal.
CASES:
PEOPLE V. FRANKLIN [39 S 363] -
FACTS:
Appellant, ASIAN SURETY & INS.CO.INC. contends that
the CFI-PAMPANGA erred in forfeiting its bail bond for the
provisional release of NATIVIDAD FRANKLIN, it contends
that lower court should have released it fr. all liability
under the bail bond bec. its failure to produce &
surrender the accused was due to the negligence of the
Phil. Govt itself in issuing a passport to said accused,
thereby enabling her to leave the country. In support of
this contention, the provisions of Art. 1266 are invoked.
ISSUE: WON Surety shd be held liable?
HELD: Art. 1266, NCC does not apply to a surety upon
a bail bond
Art. 1266 does not apply to a surety upon a bail bond, as
said Art. speaks of a relation bet. a debtor & creditor,
w/c does not exist in the case of a surety upon a bail
bond, on one hand, & the State, on the other. For while
sureties upon a bail bond (or recognizance) can
discharge themselves fr. liability by surrendering their
principal, sureties on ordinary bonds or commercial
contracts, as a general rule, can only be released by
payment of the debt or performance of the act
stipulated.
It is clear, therefore, that in the eyes of the law a surety becomes the
legal custodian and jailer of the accused, thereby assuming the
obligation to keep the latter at all times under his surveillance, and to
produce and surrender him to the court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport
which enabled her to go to the United States was, in fact, due to the
surety company's fault because it was its duty to do everything and
take all steps necessary to prevent that departure. This could have
been accomplished by seasonably informing the Department of
Foreign Affairs and other agencies of the government of the fact that
the accused for whose provisional liberty it had posted a bail bond was
facing a criminal charge in a particular court of the country. Had the
surety company done this, there can be no doubt that no Philippine
passport would have been issued to Natividad Franklin.
NOTES:
 Liability of Sureties on a bail bond is conditioned
upon appearance of accused t time set for
arraignment or trial or any other time as fixed
by court, the bondsman being the jailer of the
accused and absolutey responsible for his
custody, w/duty at all times to keep him under
surveillance.
 Surety will be exonerated where the perf. of
condi. Of bail bond is rendered impossible by
act of God (e.g. death of accused), of the
obligee (arrested by govt), or the law (law
punishing him is repealed). Or also under
Rule 114, sec. 16.
Art. 1267. When the service has become so difficult as
to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefr., in
whole or in part.
[Baviera] Ordinarily, on a K for a piece of work, an
increase in prices will not relieve the K’or bec. such
59
circum. was already considered by the parties when
they entered into the K.
BAR Q: What if the prices rose so high as to be beyond
the contemplation of the parties due to the oil crisis?
Answer: Released.
Balane:
Rebus sic stantibus.-- Literally means "things as they
stand."
It is short for clausula rebus sic stantibus ("agreement of
things as they stand.")
This is a principle of international law w/c holds that
when 2 countries enter into a treaty, they enter taking
into account the circumstances at the time it was
entered into & should the circumstances change as to
make the fulfillment of the treaty very difficult, one may
ask for a termination of the treaty. This principle of
international law has spilled over into Civil law.
This doctrine is also called the doctrine of
extreme difficulty & frustration of commercial
object.
It has four (4) requisites:
1. The event or change could not have been
foreseen at the time of the execution of the
contract;
2. The event or change makes the performance
extremely difficult but not impossible;
3. The event must not be due to an act of either
party;
4. The contract is for a future prestation. If the
contract is of immediate fulfillment, the gross
inequality of the reciprocal prestation may
involve lesion or want of cause.
In the case of Naga, the court did not consider the 4th
element as an element.
 The attitude of the courts on this doctrine is
very strict. This principle has always been
strictly applied. To give it a liberal application is
to undermine the binding force of an obligation.
Every obligation is difficult. The performance
must be extremely difficult in order for rebus sic
stantibus to apply.
CASES:
LAGUNA V. MANABAT [59 S 650]
FACTS:
LEASE © was executed betw. BTC and LTB, w/monthly
rental of Php 2500 of CPC,(cert. of public conv.)
provisionally approved by the PSC, public service comm.
Later, BTC was declared insolvent and FRANCISCO
MANABAT was appointed as assignee. Rentals were still
paid, until strikes by EEs of BTC caused them some
further losses. Thus they asked for permission of PSC to
suspend operation of the CPC also in lieu of low
passenger trafc on these lines and high cost of
operation. Manabat opposed the ju’s of PSC to suspend
the lease © being an impairment of Ø. PSC contended
that it had the power to suspend, as it did so, as a
consequence of its power to issue the same CPC, and
not as an interpretation of the prov. Of the Lease ©,whc
is a fxn of reg.courts.
ISSUE: WON petitioners may ask PSC for reduction of
rentals in lieu of such suspension and decl. of insolvency
of the corp. citing Art. 1680.
HELD: Art. 1680, it will be observed is a special
provision for leases of rural lands. No other legal
provision makes it applicable to ordinary leases. xxx
Even if the cited article were a general rule on lease, its
provisions nevertheless do not extend to petitioners.
One of the requisites is that the cause of the loss
of the fruits of the leased prop. must be an
"extraordinary & unforeseen fortuitous event."
The circumstances of the case fail to satisfy such
requisite. xxx [T]he alleged causes for the suspension
of operations on the lines leased, namely, the high
prices of spare parts & gasoline & the reduction of the
dollar allocations (by the CB Monetary B), "already
existed when the contract of lease was executed." The
cause of petitioners' inability to operate on the lines
cannot, therefore, be ascribed to FE or circumstances
beyond their control, but to their own voluntary
desistance.
*** Performance is not excused by subsequent
inability to perform, by unforeseen difficulties, by
unusual or unexpected expenses, by danger, by
inevitable accident, by the breaking of machinery,
by strikes, by sickness, by failure of a party to
avail himself of the benefits to be had under the
contract, by weather conditions, by financial
stringency, or by stagnation of business. Neither
is performance excused by the fact that the
contract turns out to be hard & improvident,
unprofitable or impracticable, ill-advised or even
foolish, or less profitable, or unexpectedly
burdensome.
OCCENA V. JABSON [73 S 637]
FACTS:
Tropical HOMES INC, filed complaint for modification of
Terms & Condi of subdv. © w/pet. Occena, landowners of
disputed lands in Davao, citing Art. 1267, and the
worldwide increases in prices.
The NCC authorizes the release of an
obligor when the service has become so difficult
as to be manifestly beyond the contemplation of
the parties.
ISSUE: WON the above art. Gives the court the authority
to consequently modify the contents of the contract
HELD: Respondent's complaint seeks not release fr. the
subdivision contract but that the court "render judgment
modifying the terms & conditions of the contract... by
fixing the proper shares that should pertain to the herein
parties out of the gross proceeds fr. the sales of
subdivided lots of subject subdivision."
 Art. 1267 does not grant the courts this
authority to remake, modify, or revise the
contract or to fix the division of shares bet. the
parties as contractually stipulated w/ the force of law
bet. the parties, so as to substitute its own terms for
those covenanted by the parties themselves.
Balane: In this case the interpretation of the court is
too literal. According to the court, it can release a
debtor fr. the obligation but it cannot make the
obligation lighter. But if you look at Art. 1267, partial
release is permitted.
NAGA TELEPHONE V. CA [230 S 351] - The term
"service" should be understood as referring to the
"performance" of the obligation.-- Art. 1267 speaks of
"service" w/c has become so difficult. Taking into
consideration the rationale behind this provision, the
term "service" should be understood as referring to the
"performance" of the obligation. In the present case,
the obligation of prvt. resp. consists in allowing
petitioners to use its posts in Naga City, w/c is the
service contemplated in said article. Furthermore, a
bare reading of this article reveals that it is not a
requirement thereunder that the contract be for future
service w/ future unusual change. Accdg. to Tolentino,
Art. 1267 states in our law the doctrine of unforeseen
events. This is said to be based on the discredited
theory of rebus sic stantibus in public international law;
under this theory, the parties stipulate in the light of
certain prevailing conditions, & once these conditions
cease to exist the contract also ceases to exist.
Considering practical needs & the demands of equity &
good faith, the disappearance of the basis of a contract
gives rise to a right to relief in favor of the party
prejudiced.
Balane: The Court went too far in this case. It even
went to the extent of stipulating for the parties in the
name of equity.
Art. 1268. When the debt of a thing certain &
determinate proceeds fr. a criminal offense, the debtor
shall not be exempted fr. the payment of its price,
whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused w/o justification to accept it.
Art. 1269. The obligation having been extinguished by
the loss of the thing, the creditor shall have all the rights
of action w/c the debtor may have against third persons
by reason of the loss.
60
[Tolentino]
When Db tenders pmt & Cr refuses to accept w/o just
cause, Db has 2 alternatives: (1) to consign or
(2) to just keep the thing in his poss’n, w/ the oblig
to use due diligence, subj to the gen rules of Øs, but no
longer to the spec liab under Article 1268.
ART. 1189, 1174, 1165, 1268, 1942, 1979, 2159:
Art. 1189. When the conditions have been imposed w/
the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing
during the pendency of the condition.
1. If the thing is lost w/o the fault of the debtor, the
obligation shall be extinguished;
2. If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates w/o the fault of the
debtor, the impairment is to be borne by the
creditor;
4. If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission
of the obligation & its fulfillment, w/ indemnity
for damages in either case:
5. If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of
the creditor;
6. If it is improved at the expense of the debtor, he
shall have no other right than that granted to
the usufructuary.
[Balane]
There are three requisites in order for Art. 1189
to apply--
1. There is loss, deterioration or improvement
before the happening of the condition.
2. There is an obligation to deliver a determinate
thing (on the part of the debtor)
3. The condition happens.
Art. 1174. Except in cases expressly specified by law,
or when it otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events w/c
could not be foreseen, or w/c ,though foreseen, were
inevitable.
Art. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may
ask that the obligation be complied w/ at the expense of
the debtor.
If the obligor delays, or has promised to deliver
the same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Art. 1268. When the debt of a thing certain &
determinate proceeds fr. a criminal offense, the debtor
shall not be exempted fr. the payment of its price,
whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused w/o justification to accept it.
Art. 1942. The bailee is liable for the loss of the thing,
even if it should be through a fortuitous event:
1. If he devotes the thing to any purpose different
fr. that for w/c it has been loaned;
2. If he keeps it longer than the period stipulated,
or after the accomplishment of the use for w/c
the commodatum has been constituted;
 3. If the thing loaned has been delivered w/
appraisal of its value, unless there is a
stipulation exempting the bailee fr. responsibility
in case of a fortuitous event;
4. If he lends or leases the thing to a third person,
who is not a member of his household;
5. If, being able to save either the thing borrowed
or his own thing, he chooses to save the latter.
Art. 1979. The depositary is liable for the loss of the
thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing w/o the depositor's
permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he
himself may have been authorized to use the
same.
Q: What if a depositor was in the premises of the
bank & was robbed of his money w/c he was
about to deposit?
A: Bank cannot be held liable for fortuitous event
(robbery) esp in CAB where the money has not yet been
actually deposited.
 Art. 1979 provides for instances wherein
depositary is still liable even in cases of
fortuitous event.
Q: What kind of diligence is required of a
depositary?
A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a SDB was
stolen, rules on deposit will not apply bec. the contract
governing the transaction is LEASE of safety deposit
box.
In Negotiorum Gestio
Art. 2147. The officious manager shall be liable for any
fortuitous event:
(1) If he undertakes risky operations w/c the owner was
not accustomed to embark upon;
(2) If he has preferred his own interest to that of the
owner;
(3) If he fails to return the property or business after
demand by the owner;
(4) If he assumed the management in bad faith.
Payee in Solutio Indebiti
Art. 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
involved, or shall be liable for fruits received or w/c
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss
or impairment of the thing fr. any cause, & for damages
to the person who delivered the thing, until it is
recovered.
3rd MODE OF EXTINGUISHMENT OF Ø:
CONDONATION OF REMISSION OF THE DEBT
[Balane]
 Condonation or remission is an act of
liberality by virtue of w/c, w/o receiving any
equivalent, the creditor renounces enforcement
of an obligation w/c is extinguished in whole or
in part.
This has four (4) requisites:
1. Debt that is existing. You can remit a debt
even before it is due.
2. Renunciation must be gratuitous. If
renunciation is for a consideration, the
mode of extinguishment may be something
else. It may be novation, compromise of
dacion en pago.
3. Acceptance by the debtor
61
4. Capacity of the parties.
The form of donation must be observed. If the
condonation involves movables, apply Art. 748. If it
involves immovables, apply Art. 749.
But note that the creditor may just refuse to collect (w/o
observing any form.) In this case, the Ø will be
extinguished not by virtue of condonation but by waiver
under Art. 6.
Art. 1270. Condonation or remission is essentially
gratuitous, & requires the acceptance by the obligor. It
may be made expressly or impliedly.
One & the other kind shall be subject to the
rules w/c govern inofficious donations. Express condona-
tion shall, furthermore, comply w/ the forms of donation.
FORMS of Condonation:
a. By a Will
Art. 935. The legacy of a credit against a third person
or of the remission or release of a debt of the legatee
shall be effective only as regards that part of the credit
or debt existing at the time of the death of the testator.
In the first case, the estate shall comply w/ the
legacy by assigning to the legatee all rights of action it
may have against the debtor. In the second case, by
giving the legatee an acquittance, should he request
one.
In both cases, the legacy shall comprise all
interests on the credit or debt w/c may be due the testa-
tor at the time of his death.
Art. 936. The legacy referred to in the preceding
article shall lapse if the testator, after having made it,
should bring an action against the debtor for payment of
his debt, even if such payment should not have been
effected at the time of his death.
The legacy to the debtor of the thing pledged by
him is understood to discharge only the right of pledge.
b. By Agreement
Art. 1270. Condonation or remission is essentially
gratuitous, & requires the acceptance by the obligor. It
may be made expressly or impliedly.
One & the other kind shall be subject to the
rules w/c govern inofficious donations. Express condona-
tion shall, furthermore, comply w/ the forms of donation.
Art. 746. Acceptance must be made during the
lifetime of the donor & of the donee.
Art. 752. The provision of article 750 notw/standing,
no person may give or receive, by way of donation,
more than he may give or receive by will.
The donation shall be inofficious in all that it may
exceed this limitation.
Art. 750. The donation may comprehend all the
present property of the donor, or part thereof, provided
he reserves, in full ownership or in usufruct, sufficient
means for the support of himself, & of all relatives who,
at the time of the acceptance of the donation are by law
entitled to be supported by the donor. Without such
reservation, the donation shall be reduced on petition of
any person affected.
Art. 748. The donation of a movable may be made
orally or in writing.
An oral donation requires the simultaneous
delivery of the thing or of the document representing
the right donated.
 If the value of the personal property donated
exceeds five thousand pesos, the donation & the accept-
ance shall be made in writing. Otherwise, the donation
shall be void.
Art. 749. In order that the donation of an immovable
may be valid, it must be made in a public document,
specifying therein the property donated & the value of
the charges w/c the donee must satisfy.
The acceptance may be made in the same deed
of donation or in a separate public document, but it shall
not take effect unless it is done during the lifetime of the
donor.
If the acceptance is made in a separate
instrument, the donor shall be notified thereof in an
authentic form, & this step shall be noted in both
instruments.
Presumption IN Condonation:
Art. 1271. The delivery of a private document,
evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action w/c the
former had against the latter.
If in order to nullify this waiver it should be
claimed to be inofficious, the debtor & his heirs may
uphold it by providing that the delivery of the document
was made in virtue of payment of the debt.
[Balane:] Articles 1271 & 1272 refer to a kind of implied
renunciation when the creditor divests himself of the proof
credit. According to De Diego, this provision is absurd &
immoral in that it authorizes the debtor & his heirs to prove that
they paid the debt, when the provision itself assumes that
there has been a remission, w/c is gratuitous.
[Tolentino]
This is Limited to Private Document  Art. 1271 has no
application to public documents bec. there is always a copy in the
archives w/c can be used to prove the credit.
 Private document refers to the original in order for Art. 1271
to apply. (Trans-Pacific. v. CA, supra.)
CASE:
TRANS-PACIFIC V. CA [234 S 494]
HELD: It may not be amiss to add that Art. 1271 raises
a presumption, not of payment, but of the renunciation
of the credit where more convincing evidence would be
required than what normally would be called for to prove
payment.
The rationale for allowing the presumption of
renunciation in the delivery of a private
instrument is that, unlike that of a public
instrument, there could be just one copy of the
evidence of credit.
Where several originals are made out of a private
document, the intendment of the law would thus be to
refer to the delivery only of the original rather than to
the original duplicate of w/c the debtor would normally
retain a copy. It would thus be absurd if Art. 1271 were
to be applied differently.
Art. 1272. Whenever the private document in w/c the
debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved.
Rule 131, Sec. 5 (b), (j), (k), Rules of Court,
Disputable presumptions.-- The following
presumptions are satisfactory if uncontradicted, but may
be contradicted & overcome by other evidence:
xxx
(b) That an unlawful act was done w/ an
unlawful intent;
xxx
(j) That a person found in possession of a thing
taken in the doing of a wrongful act is the taker
62
& doer of the whole act; otherwise, that things
w/c a person possesses, or exercises acts of
ownership over, are owned by him;
(k) That a person in possession of an order
on himself for the payment of money, or
the delivery of anything, has paid the
money or delivered the thing accordingly;
xxx
Under the 1985 Rules of Court, as amended: Rule
131, Sec. 3. Disputable presumptions.-- The
following presumptions are satisfactory if
uncontradicted, but may be contradicted & overcome by
other evidence:
xxx
(c) That a person intends the ordinary
consequences of his voluntary act;
xxx
(f) That money paid by one to another was due
to the latter;
(g) That a thing delivered by one to another
belonged to the latter;
(h) That an obligation delivered up to the
debtor has been paid;
(i) That prior rents or installments had been paid
when a receipt for the later ones is produced;
(k) That a person in possession of an order on
himself for the payment of they money, or the
delivery of anything, has paid the money or
delivered the thing accordingly;
xxx
VELASCO V. MASA
Facts: Velasco filed a complaint for the recovery of a
sum of money he gave to Masa as a loan, as contained
in a private doc. V claims that while he was imprisoned
during the Jap occupation, M coerced & tricked V’s wife
into surrendering the doc to M. V filed a crim case b4 v.
M w/c was dismissed for lack of juris. M contends that
doc was voluntarily delivered to him through Osmena.
TC dismissed the axn.
Issue: WON there was condonation
Held: Yes. No satisfactory proof as to allegation of
coercion & trickery on V’s wife. It is an unquestionable
fact that the instru proving the debt now claimed passed
to the possession of the Dr. For this reason, unless the
contrary is proven, it must be presumed that in
accdance w/ the provisions of the law, that delivery was
voluntarily made. This fact implies a renunciation of the
axn w/c Cr had for the recovery of his credit. It shld be
noted that the doc is of a private nature, the only case
subj to the provs of Articles 1187 to 1189 OCC, so that
a tacit renunciation of the debt may be presumed, in
the absence of proof that the doc was delivered for
some other reason than the gratuitous waiver of the
debt & the complete extinction of the oblig to pay.
Effect of Partial Remission:
Art. 1273. The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of
the latter shall leave the former in force.
Art. 2076. The obligation of the guarantor is
extinguished at the same time as that of the debtor, &
for the same causes as all other obligations.
Art. 2080. The guarantors, even though they be
solidary, are released fr. their obligation whenever by
some act of the creditor they cannot be subrogated to
the rights, mortgages, & preferences of the latter.
(Provisions Common to Pledge & Mortgage)
Art. 2085. The following requisites are essential to the
contracts of pledge & mortgage:
(1) That they be constituted to secure the
fulfillment of a principal obligation;
xxx
Art. 1274. It is presumed that the accessory obligation
of pledge has been remitted when the thing pledged,
after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns
the thing.
[Balane]
The accesory obligation of pledge is extinguished bec. pledge is a
possessory lien.
 The presumption in this case is that the pledgee has
surrendered the thing pledged to the pledgor. This is
not a conclusive presumption according to Art. 2110,
par. 2.
Art. 2093. In addition to the requisites prescribed in
article 2085, it is necessary, in order to constitute the
contract of pledge, that the thing pledged be placed in
the possession of the creditor, or of a third person by
common agreement.
Art. 2105. The debtor cannot ask for the return of the
thing pledged against the will of the creditor, unless &
until he has paid the debt & its interest, w/ expenses in
a proper case.
4TH MODE OF EXTINGUISHMENT:
Confusion or Merger of Rights
Art. 1275. The obligation is extinguished fr. the time
the characters of creditor & debtor are merged in the
same person.
[Balane]
 Confusion is the meeting in one person of the
qualities of the creditor & debtor w/ respect to
the same obligation.
There are two (2) requisites:
1. It must take place between the creditor
& the principle debtor (Art. 1276.)
2. The very same obligation must be
involved.
Rationale  You become your own creditor or you
become your own debtor. So how can you sue yourself.
What may cause a merger or confusion?
(1) Succession, whether compulsory, testamentary or
intestate;
(2) Donation;
(3) Negotiation of a negotiable instrument.
 Because of its nature, confusion/ merger may
overlap w/ other causes of extinguishment.
For example, I owe Ms. Olores P100,000. She bequeath
to me that credit. And then she died. In this case, there
is extinguishment both by merger. But in this case,
merger could overlap w/ payment.
Art. 1276 ( below) is perfectly in consonance w/ Art.
1275.
63
a. Principal Parties
Art. 1276. Merger w/c takes place in the person of the
principal debtor or creditor benefits the guarantors.
Confusion w/c takes place in the person of any of the
latter does not extinguish the obligation.
[Tolentino]
 Extinguishment of the principal oblig through
confusion releases the guarantors, whose oblig
is merely accessory
 When merger takes place in the person of the
guarantor, oblig is NOT extinguished.
b. Among guarantors
(Effects of Guaranty as Between Co-Guarantors)
Art. 2073. When there are two or more guarantors of
the same debtor & for the same debt, the one among
them who has paid may demand of each of the others
the share w/c is proportionally owing fr. him.
If any of the guarantors should be insolvent, his
share shall be borne by the others, including the payer,
in the same proportion.
The provisions of this article shall not be
applicable, unless the payment has been made in virtue
of a judicial demand or unless the principal debtor is
insolvent.
c. Joint Obligations
Art. 1277. Confusion does not extinguish a joint
obligation except as regards the share corresponding to
the creditor or debtor in whom the two characters
concur.
d. Solidary Obligations
Art. 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary credi-
tors or w/ any of the solidary debtors, shall extinguish
the obligation, w/o prejudice to the provisions of article
1219.
The creditor who may have executed any of
these acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation
corresponding to them.
Article 1219. The remission made by the creditor of
the share w/c affects one of the solidary debtors does
not release the latter fr. his responsibility towards the
co-debtors, in case the debt had been totally paid by
anyone of them before the remission was effected.
Art. 1216. The creditor may proceed against any of
one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them
shall not be an obstacle to those w/c may subsequently
be directed against the others, so long as the debt has
not been fully collected.
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more soli-
dary debtors offer to pay, the creditor may choose w/c
offer to accept.
He who made the payment may claim fr. his co-
debtors only the share w/c corresponds to each, w/ the
interest for the payment already made. If the payment is
made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, bec. of
his insolvency, reimburse his share to the debtor paying
the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each.
e. Indivisible Obligations
Art. 1209. If the division is impossible, the right of the
creditors may be prejudiced only by their collective acts,
& the debt can be enforced only by proceeding against
all the debtors. If one of the latter should be insolvent,
the others shall not be liable for his share.
Art. 1224. A joint indivisible gives rise to indemnity for
damages fr. the time anyone of the debtors does no
comply w/ his undertaking. The debtors who may have
been ready to fulfill their promises shall not contribute to
the indemnity beyond the corresponding portion of the
price of the thing or of the value of the service in w/c the
obligation consists.
5TH MODE OF EXTINGUISHMENT:
Compensation
Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors & debtors of
each other.
[Balane]
 Compensation is a mode of extinguishing, to the
concurrent amount, the obligations of those
persons who in their own right are reciprocally
debtors & creditors of each other. [Castan]
 Perhaps, next to payment, compensation is the
most common mode of extinguishing an
obligation.
Distinguished fr. Confusion  In compensation,
there are 2 parties & 2 debts, whereas in confusion,
there are 2 debts & only 1 party.
CASES:
GAN TION vs. CA [28 S 235, 1969] – Award of atty’s
fees is proper subject of legal compensation.
FACTS:
Ong Wan Sieng was a tenant in certain premises
owned by Gan Tion. Gan filed ejectment case vs. Ong in
1961 for non-payment of rents for 2 mos. Total of P360.
Ong denied and said that agreed rental was not 180 but
160 whc he offered but was refused by Gan. Trial court
favored plaintiff. Appellate ct reversed & ordered
plaintiff to pay Atty’s fees of P500. This became final.
When Ong obtained writ of exec, Gan Tion went
to the appellate ct. and pleaded legal compensation
averring that Ong owed him more than P4K in rentals fr
Aug ’61 to Oct. ’63. Appel. Ct said that atty’s fees may
not be legally compensated b/c such constitute trust
fund for benefit of lawyer. And the requisites of Art.
1278 not complied with.
ISSUE: WON there was legal compensation bet. Pet Gan
Tion and resp. Ong Wan Sieng.
HELD: Yes. The award of atty’s fees is in favor of litigant
not of his counsel, thus litigant is judgment Cr who may
enforce judgment by execution. Such is credit therefore
whc can be proper subject of legal compensation.
PNB V. ONG ACERO [148 S 166, 1987]
RATIO: There is no compensation where the
parties are not creditors & debtors of each other.
FACTS:
Savings account of ISABELA Constrx & Devt Corp with
the PNB of P2M is subject of 2 conflicting claims – that of
the Aceros, judgment Cr of ISABELA and of PNB as Cr of
the depositor d/t a loan or credit agreement by ISABELA
w/PNB the deposit being the collateral. IAC decided vs
PNB.
ISSUE: WON by operation of Art. 1278, where PNB and
ISABELA has become here debtors and creditors of each
other
HELD: The insuperable obstacle to the success of PNB's
cause is the factual finding of the IAC that it has not
proven by competent evidence that it is a creditor of
ISABELA. The only evidence presented by PNB towards
this end consists of 2 documents marked in its behalf.
But as the IAC has cogently observed, these documents
do not prove any indebtedness of ISABELA to PNB. All
64
they do prove is that a letter of credit might have been
opened for ISABELA by PNB, but not that the credit was
ever availed of [by ISABELA's foreign correspondent
(MAN)], or that the goods thereby covered were in fact
shipped, & received by ISABELA.
FRANCIA V. IAC [162 S 753]
RATIO: [T]here can be no off-setting of taxes
against the claims that the taxpayer may have
against the govt.
FACTS:
ENGRACIO FRANCIA is regd owner of lot & 2storey house
in Pasay City, a portion of whc lot was subject of exprop
by RP, w/ just comp computed at assessed value. Fr
1963, to 1977 Francia has not paid RETs on the prop.
Thus, such was sold on public auction by the City Treas
of Pasay City pursuant to sec. 73 PD 464 Real Prop.Tax
Code to satisfy his delinquency. Ho Fernandez was the
highest bidder. In ’79 Francia received notice that Ho
wants TCT transferred to him after a Final Bill of Sale
was issued to him. Francia filed a complaint to annul the
auction sale. He was in Iligan at that time, but such was
dismissed & court ordered RD to effect the transfer of
title, and for him to pay Ho atty’s fees. IAC affirmed.
ISSUE: WON Francia’s tax delinquency of 2400 has been
set-off by the govt’s indebtedness to him of 4116 after
apportion of his lot was expropriated.
HELD: NO. Circumstances do not satisfy requirements
of Art. 1279.
A person cannot refuse to pay a tax on the
ground that the govt owes him an amount equal to or
greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the
govt.
A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off xxx
The general rule based on grounds of public
policy is well-settled that no set-off admissible
against demands for taxes levied for general or
local governmental purposes.  The reason on w/c
the gen. rule is based, is that taxes are not in the
nature of contracts bet. the party & party but
grow out of duty to, & are the positive acts of the
govt to the making & enforcing of w/c, the
personal consent of individual taxpayers is not
required. xxx (Republic v. Mambulao Lumber.)
In Cordero v. Gonda, we held that: "xxx internal
revenue taxes can not be the subject of
compensation: Reason: govt & taxpayer 'are not
mutually creditors & debtors of each other under
Art. 1278 & a "claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be
set-off.
Art. 1286. Compensation takes place by operation of
law, even though the debts may be payable at different
places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment.
A. Different Kinds of Compensation:
Legal Compensation (Articles 1279, 1290) w/c takes
place automatically by operation of law once all the
requisites are present.
Art. 1279. In order that compensation may be proper,
it is necessary:
(1) That each one of the obligors be bound
principally, & that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money,
or if the things due are consumable, they be of
the same kind, & also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated & demandable;
(5) That over neither of them there by any
retention or controversy, commenced by third
persons & communicated in due time to the
debtor.
[Balane]
Requisites under Art. 1279:

1. Mutual Debtors & Creditors  The parties
must be mutually debtors & creditors (1) in
their own right, & (2) as principals. There can
be no compensation if 1 party occupies only a
representative capacity. Likewise, there can be
no compensation if in one obligation, a party is a
principal obligor & in another obligation, he is a
guarantor.
2. Fungible Things Due  The word consumable
is wrong. Under Art. 418, consumable things
are those w/c cannot be used in a manner
appropriate to their nature w/o their being
consumed. In a reciprocal obligation to deliver
horses, the things due are not consumable; yet
there can be compensation. (Tolentino.) The
proper terminology is "fungible" w/c refers to
things of the same kind w/c in payment can be
substituted for another.
3. Maturity of Debts  Both debts must be due
to permit compensation.
4. Demandable & Liquidated Debts 
Tolentino: Demandable means that the debts
are enforceable in court, there being no
apparent defenses inherent in them. The
obligations must be civil obligations, excluding
those that are purely natural. xxx Before a
judicial decree of rescission or annulment, a
rescissible or voidable debt is valid &
demandable; hence, it can be compensated.
A debt is liquidated when its existence &
amount are determined. xxx And a debt is
considered liquidated, not only when it is expressed
already in definite figures w/c do not require
verification, but also when the determination of the
exact amount depends only on a simple arithmetical
operation. xxx
 The debt must not have been garnished.
(additional requirement)
Compensation is not prohibited by any provision
of law like Articles 1287, 1288 & 1794.
Art. 1287. Compensation shall not be proper when one
of the debts arises fr. a depositum or fr. the obligations
of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a
creditor who has a claim for support due by gratuitous
title, w/o prejudice to the provisions of paragraph 2 of
article 301.
Art. 1288. Neither shall there be compensation if one
of the debts consists in civil liability arising fr. a penal
offense.
Art. 1794. Every partner is responsible to the
partnership for damages suffered by it through his fault,
& he cannot compensate them w/ the profits & benefits
w/c he may have earned for the partnership by his
industry. However, the courts may equitably lessen this
responsibility if through the partner's extraordinary
efforts in other activities of the partnership, unusual
profits have been realized.
CASES:
REPUBLIC V. DE LOS ANGELES [98 S 103]
RATIO: Compensation of debts arising even w/o
proof of liquidation of claim is allowable where
the claim is undisputed.
FACTS:
Sps FARIN got a loan fr MARCELO STEEL CORP of p600k
& did a REM of their lot in QC as security in favor of
MARCELO STEEL. A yr later MARCELO STEEL asked
sheriff assist in extrajud FREM of such lot. Sps Farin filed
for injunction and succeeded. Thus, MARCELO STEEL
invoked par. 5 in the mortgage © and asked the court
instead to compel the lessees of “Dona Petra Bldg”
situated on the mortgaged lot, incl the Rice & Corn
Admin (RCA), to direct their rental payments to
MARCELO STEEL. Such an order was issued by the
court. RCA filed an MR praying to be excluded fr such
order b/c sps Farin has a standing Ø w/RCA whc shd be
setoff w/ their rental Øs, thus rents of RCA has been
previously assigned by sps Farin to Vidal Tan. Sps Farin
65
also filed MR asking court to exclude lessees of the bldg
fr such order as they are not parties to the case. TC
denied both MRs. TC granted motion of sps. Farin for
RCA to release rentals incurred for repair of the bldg. TC
ratiocinated that RCA never presented any proof of
Farin’s indebtedness whc it wants to offset w/its rentals.
ISSUE: WON resp. Judge erred in denying claim of RCA
that compensation of debts has taken place b/c records
showed no proof of plaintiffs’ indebtedness to RCA.
HELD: YES. Proof of the liquidation of a claim, in order
that there be compensation of debts, is proper if such
claim is disputed. But, if the claim is undisputed, as in
the case at bar, the statement is sufficient & no other
proof may be required. xxx
SOLINAP V. DEL ROSARIO [123 S 640]
RATIO: Compensation cannot take place where
one's claim against the other is still the subject of
court litigation. It is a requirement, for
compensation to take place, that the amount
involved be certain & liquidated.
FACTS: SPS TIBURCIO LUTERO & ASUNCION MAGALONA,
owners of Hacienda Tambal, leased such to LOTERO
SOLINAP for 10yrs w/ rental of P50K/yr, further agreed
that half of annual rental would be paid by Solinap to
PNB as amort.on indebtedness of sps.Lutero. When
Tiburcio died, testate est. proceedings was instituted at
CFI-Iloilo whc authorized the administrator of est., Judge
Nicolas Lutero, grandson of decedent, to take fr the
heirs and pay rising Øs of the est.w/PNB w/ rts of
subrogation. After compliance, the heirs who paid
subjugated to the PNBs claim vs lessee Solinap for
payment of rentals. Solinap instituted separate action
vs. sps. Lutero, the administrator, who allegedly owed
Solinap P71K w/REM as security. In this case sps Lutero
setup a counterclaim of P125K in unpaid rentals of
pet.on Hacienda Tambal.
ISSUE: WON TC erred in not holding that legal
compensation has taken place in these cases by
operation of Art. 1278.
HELD: Petitioner contends that respondent judge
gravely abused her discretion in not declaring the
mutual obligations of the parties extinguished to the
extent of their respective amounts. He relies on Art.
1278 to the effect that compensation shall take place
when 2 persons, in their own right, are creditors &
debtors of each other. The argument fails to
consider Art. 1279 w/c provides that
compensation can take place only if both
obligations are liquidated.
In the case at bar, the petitioner's claim against the
resp. Luteros is still pending determination by the court.
While it is not for Us to pass upon the merits of the
pltff's cause of action in that case, it appears that the
claim asserted therein is disputed by the Luteros on
both factual & legal grounds. More, the counterclaim
interposed by them, if ultimately found to be
meritorious, can defeat petitioner's demand. Upon this
premise, his claim in that case cannot be categorized as
liquidated credit w/c may properly be set-off against his
obligation. Compensation cannot take place where
one's claim against the other is still the subject of
court litigation. It is a requirement, for
compensation to take place, that the amount
involved be certain & liquidated.
SYCIP V . CA [134 S 317]
RATIO: Compensation cannot take place where, w/
respect to the money involved in the estafa case,
the complainant was merely acting as agent of
another. In set-off the two persons must in their
own right be creditor & debtor of each other
FACTS:
JOSE LAPUZ received fr ALBERT SMITH 2000 shares of
stock of REPUBLIC FLOUR MILLS in the name of Dwight
Dill who left for Honolulu. Jose was suppose to sell his
shares at market value fr whc he wud get commission.
Accdg to Jose, Sycip approached him and volunteered to
sell the shares. SPA was granted by Dill to Lapuz, the
latter transacted w/Sycip. Series of their transactions
were duly paid for and transferred. But the later
payments were pocketed by Sycip.
ISSUE: WON CA erred in not applying Art. 1278-79
despite evidence showing Lapuz’ indebtedness to pet.
Sycip.

HELD: Petitioner contends that resp. CA erred in not
applying the provisions on compensation or setting-off
debts under Art. 1278 & 1279, despite evidence
showing that Jose Lapuz still owed him an amount of
more than P5,000 & in not dismissing the appeal
considering that the latter is not legally the aggrieved
party.
This contention is untenable. Compensation cannot
take place in this case since the evidence shows that
Jose Lapuz is only an agent of Albert Smith &/ or
Dr. Dwight Dill. Compensation takes place only when
two persons in their own right are creditors & debtors of
each other, & that each one of the obligors is bound
principally & is at the same time a principal creditor of
the other. Moreover, xxx Lapuz did not consent to
the off-setting of his obligation w/ petitioner's
obligation to pay for the 500 shares.
COMPANIA MARITIMA v. CA [135 S 593]
RATIO: Compensation cannot take place where
one of the debts is not liquidated as when there
is a running interest still to be paid thereon.
FACTS:
FERNANDO FROILAN purchased fr SHIPPING ADMIN a
boat for 200K, pd down of 50K, constituted a mortgage
on the vessel for the unpaid balance. RP Pres. Approved
the contract. Froilan defaulted in payment of the
balance and interests as well as insurance premiums on
the vessel whc was paid for by the SH.ADMIN.
Thus, Sh.AD. took imme.possn of the vessel as well as
its cargoes, w/claim that the vessel is not repossessed
but its ownership is retransferred to the Sh.Ad./govt.
PAN ORIENTAL offered to charter the same vessel
w/monthly rental of 3K, govt agreed w/further stipulation
that charterer will pay cost of labor, drydocking and
repairs, incl spareparts needed. Froilan protested to the
Pres this charter agreement.
Before formal bareboat charter was to be approved by
GM of Sh.Ad. a Cabinet resolution was issued revoking
the cancellation of the © of Sale to Froilan, restored him
to all his rts., on condition he will pay at least 10K to
settle partially his outstanding accounts, reimburse Pan
Oriental of its expenses incurred, and file a bond to
cover the rest of his undertaking w/govt. After posting
his bond, court ordered to restore Froilan’s poss’n of the
vessel. Pan Oriental resisted. COMPANIA MARITIMA as
purchaser of the vessel fr Froilan was allowed to be
intervenor.
ISSUE: WON the Court erred in holding that Froilan,
Compania and rp shd pay pan oriental reimbursements
of its legitimate expenses w/legal int. from the time of
disbursement, instead of fr. The date of
dispossession, failing to consider legal compensation
betwn. RP and Pan O.
HELD: More, the legal interest payable fr. 2/3/51 on the
sum of P40,797.54, representing useful expenses
incurred by PAN-ORIENTAL, is also still unliquidated since
interest does not stop accruing "until the expenses are
fully paid." Thus, we find w/o basis REPUBLIC's
allegation that PAN-ORIENTAL'S claim in the amount of
P40,797.54 was extinguished by compensation since the
rentals payable by PAN-ORIENTAL amount to P59,500
while the expenses reach only P40,797.54. Deducting
the latter amount fr. the former, REPUBLIC claims that
P18,702.46 would still be owing by PAN-ORIENTAL to
REPUBLIC. That argument loses sight of the fact that to
the sum of P40,797.54 will still have to be added the
legal rate of interest "fr. Feb. 3, 1951 until fully paid."
INTERNATIONAL CORPORATE BANK V. IAC [163 S
296] -
Requisite of legal compensation under Art.
1279.--
FACTS:
NATIVIDAD PAJARDO secured from Investment
Underwiriting and ATRIUM Capital, predecessors of ICB,
a loan of P50M, whc she secured w/REM of her
properties in Quiapo & Bulacan w/total market value of
110M. Only 20M of the loan was approved for release.
Whc same amount went to pay her standing Øs w/d
same bank, thus she did not receive the same amt. She
also made a money-market placement w/ATRIUM of
more than P1M @17% int.p.a. for 32 days. At maturity,
proceeds of such was not released to her but instead
allegedly applied to her mortgaged indebtedness whc
she failed to pay. Her properties were auctioned and
66
Atrium being the sole bidder, acquired them only at 20M
in all. At the end she is still indebted in the amt of
P6.81M.
She thus filed a complaint w/TC for annulment of the
sheriff’s sale of her mortgaged properties the debt not
yet being due & demandable, the release of the balance
of her loan of P30M, and recovery of the proceeds of her
money-market investments.
The IAC ordered ICB to pay plaintiff Pajardo the proceeds
of her money-market investments. CA affirmed. On
execution, ICB’s 20 motor vehicles were levied upon,
and upon motion by plaintiff, its branches were ordered
to pay.
Petitioner contends that after foreclosing the mortgage,
there is still due fr. prvt. resps as deficiency the amount
of P6.81 million against w/c it has the right to apply or
set off prvt. respondent's money market claim of
P1,062,063.83.
ISSUE: WON there was legal compensation in this case,
that after Pet. Foreclosed the mortgage, upon the
deficiency amount, it has the right to setoff plaintiff’s
money-market investments proceeds.
HELD: The argument is w/o merit. Compensation shall
take place when two persons, in their own right are
creditors & debtors of each other. When all the
requisites mentioned in Art. 1279 are present,
compensation takes effect by operation of law, even w/o
the consent or knowledge of the debtors. (Art. 1290.)
Art. 1279 requires among others, that in order that
legal compensation shall take place, 'the two
debts be due' & 'they be liquidated &
demandable.' Compensation is not proper where the
claim of the person asserting the set-off against the
other is not clear nor liquidated; compensation cannot
extend to unliquidated, disputed claim arising fr. breach
of contract.
There can be no doubt that petitioner is indebted to prvt
resp. in the amount of P1,062,063.83 representing the
proceeds of her money market investment. This is
admitted. But whether prvt. resp is indebted to
petitioner in the amount of P6.81 million representing
the deficiency balance after the foreclosure of the
mortgage executed to secure the loan extended to her,
is vigorously disputed. This circumstance prevents legal
compensation fr. taking place.
Art. 1280. Notw/standing the provisions of the
preceding article, the guarantor may set up
compensation as regards what the creditor may owe the
principal debtor.
Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other,
the former may set it off by proving his right to said
damages & the amount thereof.
Effect of Legal Compensation:
Art. 1289. If a person should have against him several
debts w/c are susceptible of compensation, the rules on
the application of payments shall apply to the order of
the compensation.
Art. 1290. When all the requisites mentioned in article
1279 are present, compensation takes effect by
operation of law, & extinguishes both debts to the
concurrent amount, even though the creditors & debtors
are not aware of the compensation.
Art. 1279. In order that compensation may be proper,
it is necessary:
(1) That each one of the obligors be bound
principally, & that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money,
or if the things due are consumable, they be of
the same kind, & also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated & demandable;
 (5) That over neither of them there by any
retention or controversy, commenced by third
persons & communicated in due time to the
debtor.
MINDANAO PORTLAND CEMENT V. CA [120 S 930]
FACTS:
Atty. Laquihon, in behalf of 3P def. Pacweld Steel Corp
filed a Motion to direct payment of atty’s fees to
counsel” invoking the fact that Pet.MPCC was adjudged
to pay Pacweld 10K in atty’s fees. MPCC opposed this
motion stating that such amt is compensated w/ an
equal amt it is entitled fr Pacweld after the latter is also
adjudged by same CFI-Mla in another case to pay to
MPCC. Court issued the motion of Atty. Laquihon.
Denied MR of MPCC.
ISSUE: WON TC erred in not holding the 2 judgment
debts of the 2 corps. vs ea other mutually compensated
HELD: It is clear fr. the record that both corporations,
petitioner Mindanao Portland Cement Corp. (appellant)
& resp. Pacweld Steel Corp. (appellee), were creditors &
debtors of each other, their debts to each other
consisting in final & executory judgements of the CFI in
2 separate cases, ordering the payment to each other of
the sum of P10T by way of attorney's fees. The 2
obligations, therefore, respectively offset each other,
compensation having taken effect by operation of law &
extinguished both debts to the concurrent amount of
P10T, pursuant to the provisions of Art. 1278, 1279 &
1290, since all the requisites provided in Art. 1279 for
automatic compensation "even though the
creditors & debtors are not aware of the
compensation" were duly present.
Automatic compensation, requisites of, present 
Extinguishment of two debts arising fr. final & executory
judgments due to compensation by operation of law.
Facultative Compensation w/c takes place when
compensation is claimable by only one of the
parties but not of the other, e.g., Articles 1287,
1288.
Art. 1287. Compensation shall not be proper when one
of the debts arises fr. a depositum or fr. the obligations
of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a
creditor who has a claim for support due by gratuitous
title, w/o prejudice to the provisions of paragraph 2 of
article 301.
Art. 301. The right to receive support cannot be
renounced; nor can it be transmitted to a third person.
Neither can it be compensated w/ what the recipient
owes the obligor.
However, support in arrears may be
compensated & renounced, & the right to demand the
same may be transmitted by onerous or gratuitous title.
[Baviera] Note that Art. 301 of the NCC is not found in
FC.
 Future support cannot be compensated.
Thus, a father who paid damages for son’s q-delict
cannot claim comp by not giving support to his son.
However under 301, support IN ARREARS may be
compensated & renounced & the rt to demand the same
may be transmitted by onerous or gratuitous title.
[Balane]
 The depositary cannot set up compensation w/
respect to the things deposited to him.
 But the depositor can set up the compensation.
Art. 1288. Neither shall there be compensation if one
of the debts consists in civil liability arising fr. a penal
offense.
[Baviera]
 The oblig of the depositary to return a spec thing
cannot be compensated or substituted by delivery of a
thing of the same kind.
67
Q: If there is an oblig of the depositary to the depositor
for damages(already liquidated & demandable) in case
of negligence & if the depositor owes the depositary a
sum of money, can there be set-off?
A: No since it arose out of a deposit. Not allowed by law. Cld be a
way of Cr to collect a bad debt.
Art. 1794. Every partner is responsible to the
partnership for damaged suffered by it through his fault,
& he cannot compensate them w/ the profits & benefits
w/c he may have earned for the partnership by his
industry. However, the courts may equitably lessen this
responsibility if through the partner’s extraordinary
efforts in other activities of the partnership, unusual
profits have been realized.
Contractual/ Conventional compensation w/c takes
place when parties agree to set-off even if the requisites of
legal compensation are not present, e.g., Art. 1282. ( Baviera
OL: F. Comp 1. Kinds a. Voluntary)
Art. 1282. The parties may agree upon the
compensation of debts w/c are not yet due.
[Tolentino]
1. Voluntary Compensation is not limited to
obligations w/c are not yet due. The parties
may compensate by agreement any obligations,
in w/c the objective requisites provided for legal
compensation are not present. xx
2. Judicial Compensation when decreed by the
court in a case where there is a counterclaim,
such as that provided in Art. 1283. (Baviera OL:
F. Comp 1. Kinds b. Judicial)
Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other,
the former may set it off by proving his right to said
damages & the amount thereof.
[Baviera} What is the idea behind legal comp?
 To facilitate collxn of money. For
expediency.
Effect of Assignment of Credit:
Art. 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the
compensation w/c would pertain to him against the
assignor, unless the assignor was notified by the debtor
at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him
but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made w/o the knowledge of
the debtor, he may set up the compensation of all
credits prior to the same & also later ones until he had
knowledge of the assignment.
[Balane]
There are 3 situations covered in this
article:
1. Assignment w/ the debtor's consent;
2. Assignment w/ the debtor's knowledge but w/o
his consent; &
3. Assignment w/o the debtor's knowledge (&
obviously w/o his consent.)
Rules:
Assignment w/ the debtor's consent  Debtor
cannot set up compensation at all unless the
right is reserved.
Assignment w/ the debtor's knowledge but
w/o his consent  The debtor can set up
 compensation w/ a credit already existing at
the time of the assignment.
Assignment w/o the debtor's knowledge 
Debtor can set up as compensation any credit
existing at the time he acquired knowledge
even if it arose after the actual assignment.
Art. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other
before they are judicially rescinded or avoided.
6 MODE OF EXTINGUISHMENT:
TH
Novation
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
creditor.
[TOLENTINO]
 Novation is the extinguishment of an
obligation by the substitution or change
of the obligation by a subsequent one
w/c extinguishes or modifies the first,
either by changing the object of
principal conditions, or by substituting
the person of the debtor, or by
subrogating a third person in the rights
of the creditor. (Manresa.)
 Novation is the most unusual mode of extinguishing
an obligation.
 It is the only mode whereby an obligation is
extinguished & a new obligation is created to take its
place.
The other modes of extinguishing an obligation are
absolute in the sense that the extinguishment of the
obligation is total (w/ the exception of compromise.)
Novation, on the other hand, is a relative mode of
extinguishing an obligation.
Classification of Novation:
1. Subjective (Personal) or novation by a change
of subject
2. Active subjective or a change of creditor; also
known as subrogation.
3. Passive subjective or a change of debtor
4. Objective (Real) or novation by change in the
object or in the principal conditions.
 Novation by a change in the principal
conditions is the most problematic kind
of novation bec. you have to determine
whether or not the change in the
conditions is principal or merely
incidental.
 For example, a change fr. straight terms
to installment terms & a change fr. non-
interest bearing obligation to an interest
bearing one are changes in the principal
conditions.
5. Mixed novation w/c is a combination of both
subjective & objective novation.
Requisites of Novation:
1. There must be a previous valid obligation;
2. Agreement of the parties to create the new
obligation;
3. Extinguishment of the old obligation. (I would
consider this an effect, rather than a requisite of
novation-- Balane);
4. Validity of the new obligation. (Tiu Siuco v.
Habana, 45 P 707.)
5. There must be CONSENT of all the parties to the
substitution, resulting in the extinction of the old
obligation & the creation of a valid one.
68
Art. 1292. In order that an obligation may be
extinguished by another w/c substitute the same, it is
imperative that it be so declared in unequivocal terms,
or that the old & the new obligations be on every point
incompatible w/ each other.
[TOLENTINO]
 Novation is NEVER presumed.
It must be established that 
1. the old & the new contracts are
incompatible in all points,
2. or that the will to novate appear by
express agreement of the parties
3. or in acts of equivalent import.
IMPLIED NOVATION  There is no specific form
required for an implied novation. All that is required is
INCOMPATIBILITY between the original & the subsequent
contracts.
 A mere extension of the term of payment does
not result in novation, for the period affects only
the performance, not the creation of the
obligation
CASES:
MILLAR VS. COURT OF APPEALS
FACTS: Millar obtained a judgment against Gabriel. A
writ of execution was issued, on the basis of w/c G’s
Willy’s Ford Jeep was seized. Subsequently, G pleaded
w/ M to release the jeep under an agreement whereby G
would mortgage the jeep in favor of M to secure the
payment of the judgment debt. The chattel mortgage
reduced the amount to be paid by G.
The TC said there was no novation bec. the mortgage
was executed only to secure the judgment.
ISSUE: WON the mortgage K novated the judgment
debt.
HELD: Where the new obligation merely
reiterates or ratifies the old Ø, although the
former effects but minor alterations or slight
modifications w/ respect to the cause or object or
conditions of the latter, such changes do not
effectuate any substantial incompatibility bet. the
2 Ø s.
Only those essential & principal changes
introduced by the new Ø producing an alteration or
modification of the essence of the old Ø result in implied
novation.
In the case at bar, the mere reduction of the
amount due in no sense constitutes a sufficient indicium
of incompatibility, especially in the light of (a) the
explanation by the petitioner that the reduced
indebtedness was the result of the partial payments
made by the resp. before the execution of the chattel
mortgage agreement, & (b) the latter's admissions
bearing thereon.
INTEGRATED CONSTRUCTION VS. RELOVA, [146 SC
360]
Novation; While the tenor of the subsequent
letter-agreement in a sense novates the
judgment award there being a shortening of the
period within which to pay, the failure of the
party to comply w/d suspensive & conditional
nature of d agreement, remitted the parties to
their original rights under the judgment award.
FACTS:
Pets., 2 constrx co.’s, Integrated, and Eng’rg, sued the
MWSS, formerly NAWASA, at CFI-Mla. The Arbitration
Board rendered decision-award whc became final &
exec, ordered MWSS t pay pets. Pets. Subseq. Agreed to
give MWSS some discounts, T&C f whc was approved by
MWSS Board. Failing therefrom, pets. Moved for
Execution of judgment vs MWSS, the court denied d/t
novation.
HELD:
While the tenor of the subsequent letter-agreement in
a sense novates the judgment award there being a
shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the
suspensive and conditional nature of the said
agreement (making the novation conditional) is
expressly acknowledged and stipulated in the 14th
whereas clause of MWSS' Resolution. MWSS' failure to
pay within the stipulated period removed the very
cause and reason for the agreement, rendering some
ineffective. Petitioners, therefore, were remitted to
their original rights under the judgment award.
As to whether or not petitioners are now in estoppel to
question the subsequent agreement, suffice it to state
that petitioners never acknowledged full payment; on
the contrary, petitioners refused MWSS' request for a
conforme or quitclaim. (p. 125, Rollo)
Accordingly, the award is still subject to execution by
mere motion, which may be availed of as a matter of
right any time within (5) years from entry of final
judgment in accordance with Section 5, Rule 39 of the
Rules of Court.
COCHINGYAN VS. R & B SURETY [151 S 339]
Novation defined.
FACTS: PAGRICO (P) submitted a surety bond issued by
R & B surety in favor of PNB. Under the bond, PNB had
the right to proceed directly against R&B w/o going after
P. In turn, 2 indemnity agreements were entered into w/
R&B by CCM & Joseph Cochingyan in his capacity as
CCM prexy & in his personal capacity; & by P, PACOCO,
Jose Villanueva as P’s manager & in his personal
capacity, Liu Tua Beth, as PACOCO prexy, & in his
personal capacity. 2 years after the execution of these
documents, a TRUST AGREEMENT was entered into bet.
Jose & Susana Cochingyan, Tomas Besa, a PNB officer,
as trustee; & PNB was the beneficiary. The trust
agreement expressly provided that it shall not, in any
manner release R&B fr. their respective liabilities under
the bond. When P failed to pay, PNB demanded
payment fr. R%B. R&B in turn demanded reimbursement
fr. Joseph Cochingyan & Jose V. who refused to pay on
the ground that the trust agreement had extinguished
their oblig under the Indemnity Agreements.
HELD: Novation is the extinguishment of an
obligation by the substitution or change of the
obligation by a subsequent one w/c terminates it,
either by changing its object or principal
conditions, or by substituting a new debtor in
place of the old one, or by subrogating a third
person to the rights of the creditor.
Novation through a change of the object or
principal conditions of an existing obligation is referred
to as objective (or real) novation.
Novation by the change of either the person of
the debtor or of the creditor is described as subjective
(or personal) novation.
Novation may also be both objective &
subjective (mixed) at the same time. In both objective
& subjective novation, a dual purpose is achieved  an
obligation is extinguished & a new one is created in lieu
thereof.
Novation is never presumed.-- If objective
novation is to take place, it is imperative that the new
obligation expressly declare that the old obligation is
69
thereby extinguished, or that the new obligation be on
every point incompatible w/ the old one. Novation is
never presumed; it must be established either by the
discharge of the old debt by the express terms of the
new agreement, or by the acts of the parties whose
intention to dissolve the old obligation as a
consideration of the emergence of the new one must be
clearly discernible.
If old debtor is not released, no novation
occurs & the third person who assumed the
obligation becomes a co-debtor or surety or a co-
surety.  Again, if subjective novation by a change in
the person of the debtor is to occur, it is not enough that
the juridical relation bet. the parties to the original
contract is extended to a third person. It is essential
that the old debtor be released fr. the obligation, & the
third person or new debtor take the place in the new
relation. IF the old debtor is not released, no novation
occurs & the third person who has assumed the
obligation of the debtor becomes merely a co-debtor or
surety or a co-surety.
Novation is not implied when the parties
to the new obligation expressly negated the
lapsing of the old obligation.  Neither can the
petitioners anchor their defense on implied novation.
Absent an unequivocal declaration of extinguishment of
a pre-existing obligation, a showing of complete
incompatibility bet. the old & the new obligation (&
nothing else) would sustain a finding of novation by
implication. But where, as in this case, the parties to
the new obligation expressly recognize the continuing
existence & validity of the old one, where, in other
words, the parties expressly negated the lapsing of the
old obligation, there can be no novation. The issue of
implied n ovation is not reached at all.
FUA VS. YAP [74 P 287]
NOVATION BY SUBSEQUENT AGREEMENT
FACTS: Fua Cam Lu, judgment-Cr of Yap Fauco and Yap
Singco, agreed subsequently to execution of a mortgage
in his favor by the Yaps of a camarin plus reduction of
debt to 1,200 payable in 4 installments; that in case of
default they wud pay balance plus the discounted
amount and 10% attys fees.
HELD: The Yap’s liability under the judgment has been
extinguished by the new agreement. Although the
mortgage did not expressly cancel the old obligation,
this was impliedly novated by reason of incompatibility
resulting fr. the fact that, whereas the judgment was for
P1,538.04 payable at one time, did not provide for
attorney's fees, & was not secured, the new obligation is
for P1200 payable in installments, stipulates for
attorney's fees & is secured by a mortgage. The later
agreement did not merely extend the time to pay the
judgment, bec. it was therein recited that appellants
promised to pay P1,200 to appellee as a settlement of
the said judgment. Said judgment cannot be said to
have been settled, unless it was extinguished.
** Foreclosure of such new mortgage under the
judgment in the old Ø was VOID.
SANDICO VS. PIGUING [42 S 322]
FACTS:
Sps. Sandico and Timbol as rep of Est of Sixta Paras
obtained judgment in their favor against Desiderio Paras
for the recog of easement and payment of damages;
the judgment debt was later on agreed by them to be
reduced and was subseq paid by def.
When the sps demanded for performance of the part of
d judgment abt the recof of d easement, they demanded
that def rebuild & reconstruct the irrigation canal in its
original dimensions. When def,refused, sps.asked d
court a quo in a motion for exec 2compel them or hold
them in contempt.Alias writ of exec was issued whc was
later on appeal was ordered quashed by the CA bec. The
parties “novated by subseq. Agreement” the judgment
in question, thus there is nothing more to be executed.

ISSUE: WON CA erred in quashing the alias writ of exec
d/t its interpret. That the subseq agreement extingusihd
d def’s Ø on d judgment of court a quo
HELD: NO. CA was not in grave abuse of disc.
Novation results in 2 stipulations  (1) to
extinguish an existing obligation, and (2) to substitute a
new one in its place. Fundamental it is that novation
effects a substitution or modification of an obligation by
another or an extinguishment of one obligation by the
creation of another. In the case at hand, we fail to see
what new or modified obligation arose out of the
payment by the resp. of the reduced amount of P4,000
& substituted the monetary liability for P6,000 of the
said resp. under the appellate court's judgment.
Additionally, to sustain novation
necessitates that the same be so declared in
unequivocal terms  clearly & unmistakably
shown by the express agreement of the parties or by
acts of equivalent import  or that there is complete &
substantial incompatibility bet. the 2 obligations.
Record showed that def
attempted to rebuild the irrigation canal but not in the
original dimensions, whc was not disputed by both
parties. Such partial recons does not constitute
substantial compliance. Thus SC remanded d case to TC
for ocular on the job done & if def refuses to complete to
ask another to do the work at the expense of def.
NPC VS. DAYRIT [125 S 849]
RATIO: Novation is never presumed but must be
explicitly stated; No novation in the absence of
explicit novation or incompatibility on every point
between the old & the new agreements of the
parties.
FACTS:
DANIEL E. ROXAS, doing business under the name and
style of United Veterans Security Agency and Foreign
Boats Watchmen, sued the NATIONAL POWER
CORPORATION (NPC) and two of its officers in Iligan
City. The purpose of the suit was to compel the NPC to
restore the contract of Roxas for security services
which the former had terminated. The parties drafted a
Compromise Agreement which the TC approved. The
agreement consisted of NPC paying plaintiff sum of
money, plaintiff will pay or return materials lost &
found by his agency, the © for security services w/NPC
will remain, and they both waive other claims &
counter-c w/ea other.
NPC subseq. Contracted another security agency.
Thus, plntf asked court a quo for writ of exec whc was
granted. NPC appealed claiming that d judgment was
novated thus extinguished,nothing more to exec.
ISSUE: WON novation of judgment by subseq agreement
of parties extinguished d Ø of NPC to sustain the
security © w/plantff
HELD: It is elementary that novation is never
presumed; it must be explicitly stated or there must
be manifest incompatibility between the old and the
new obligations in every aspect. Thus the Civil Code
provides:
Art. 1292. In order that an obligation may be
extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on
every point incompatible with each other.
In the case at bar, there is nothing in the May
14, 1982 agreement w/c supports the petitioner's
contention. There is neither explicit novation nor
incompatibility on every point bet. the "old" & the "new"
agreements…said contract was executed precisely to
implement the compromise agreement for which
reason there was no novation.
BALILA V. IAC [155 S 262]
RATIO: Subsequent mutual agreements & actions
of petitioners & private respondents allowing the
former extension of time to pay their obligations
& in installments novated & amended the period
of payment decreed by the trial court in its
judgement by compromise.
FACTS:
Amicable settlement of this dispute was arrived at and
made basis of decision of TC. Defendants admitted
"having sold under a pacto de retro sale the parcels of
land 4 described in the complaint in the amount of
P84,000.00" and that they "hereby promise to pay the
said amount within the period of four (4) months but
not later than May 15,1981. Subseq,
priv.resp.Guadalupe Vda. de del Castillo, rep.by her
70
son Waldo del Castillo as for attorney-in-fact,
accepted payments from petitioners and gave
petitioners several extensions of time to pay their
remaining Øs.
ISSUE: WON decision of trial court in its judgment by
compromise was novated and amended by the
subsequent mutual agreements and actions of
petitioners and private respondents
HELD: The fact therefore remains that the amount of
P84,000 payable on or before May 15, 1981 decreed by
the trial court in its judgment by compromise was
novated & amended by the subsequent mutual
agreements & actions of petitioners & prvt. resps.
Petitioners paid the aforestated amount on an
installment basis & they were given by prvt. resps no
less than 8 extensions of time to pay their obligation.
These transactions took place during the pendency of
the motion for recon. of the order of the trial court dated
4/26/83, during the pendency of the petition for
certiorari before the IAC & after the filing of the petition
bef. Us. This answers the claim of the resps. on the
failure of the petitioners to present evidences or proofs
of payment in the lower court & the appellate court.
PEOPLE'S BANK VS. SYVEL'S [164 S 247]
RATIO: When does novation take place; Novation
is never presumed.
Absence of existence of an explicit
novation nor incompatibility between the old &
the new agreements.
Novation was not intended in the case at
bar as the REM was taken as additional security
for the performance of the contract.
If objective novation is to take place, it is
essential that the new obligation expressly declare that
the old obligation is to be extinguished or that the new
obligation be on every point incompatible w/ the old
one. xxx
FACTS:
Action for foreclosure of chattel mortgage
executed in favor of the plaintiff by the def. Syvel's Inc.
on its stocks of goods, personal properties and other
materials owned by it and located at its stores or
warehouses. This chattel mortgage was duly
registered in RD of Manila and Pasay City, in
connection with a credit commercial line in the
amount of P900K granted to Syvel’s; defendants
Antonio & Angel V. Syyap guaranteed absolutely and
unconditionally and without the benefit of excussion
the full and prompt payment of any indebtedness to be
incurred on account of the said credit line.
> failure of Syvels’ to pay in accord w/terms and
conditions of the Commercial Credit Agreement,
bank started to foreclose extrajudicially the chattel
mortgage but was not pushed thru after Syvel’s
attempted to settle. As no payment was made, this
case was filed in Court. During its pendency, Syyap
proposed to have the case settled amicably and to that
end a conference was held in which Mr. Antonio de las
Alas, Jr., VP of the Bank, plaintiff, defendant Antonio V.
Syyap and Atty. Mendoza were present. Mr. Syyap
requested that the plaintiff dismiss this case because
he did not want to have the goodwill of Syvel's
Incorporated impaired, and offered to execute a REM
on his property in Bacoor. Mr. De las Alas consented,
and so the REM.
ISSUE: WON on the ground that by the execution of
said real estate mortgage, the obligation secured by
the chattel mortgage subject of this case was novated,
and therefore, appellee's cause of action thereon was
extinguished.
HELD: Novation takes place when the object or
principal condition of an obligation is changed or
altered. It is elementary that novation is never
presumed; it must be explicitly stated or there
must be manifest incompatibility bet. the old &
the new obligations in every aspect.
In the case at bar, there is nothing in the REM
w/c supports appellants' submission. The contract on its
face does not show the existence of an explicit novation
nor incompatibility on every point bet. the old & the new
agreements as the second contract evidently indicates
that the same was executed as new additional security
to the CM previously entered into by the parties.
 Records show that in the real estate mortgage,
appellants agreed that the chattel mortgage "shall
remain in full force and shall not be impaired by this
(real estate) mortgage."
It is clear, therefore, that a novation was not
intended. The real estate mortgage was evidently
taken as additional security for the performance of the
contract
b. FORMS OF NOVATION:
Art. 1281. Compensation may be total or partial. When
the two debts are of the same amount, there is a total
compensation. (Classmates, I think there was a typo
error in Ma’am Bubbles’ outline. I think this should have
been Art. 1291, reproduced below)
1. Substitution of debtor--
Art. 1236. The creditor is not bound to accept payment
or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o
the knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such
as those arising fr. a mortgage, guaranty, or penalty.
Art. 1835 second paragraph
A partner is discharged fr. any existing liability upon
dissolution of the partnership by an agreement to that
effect between himself, the partnership creditor & the
person or partnership continuing the business; & such
agreement may be inferred fr. the course of dealing
between the creditor having knowledge of the
dissolution & the person or partnership continuing the
business.
PNB VS. MALLARI
FACTS: Def borrowed fr. PNB & this loan was secured by
a chattel mortgage on his standing crop. Mallari
defaulted so the sacks of rice deposited in a warehouse
were attached. Guanzon, defendant’s Er, offered to pay
the obli of the latter. This was accepted by PNB so the
attachment was later lifted. Guanzon defaulted in his
payment so PNB sued the def on the same obligation.
The LC dismissed the comp on the ground that there
was novation brought about by the alteration of the
principal conditions of the original obli & the substitution
of a news debtor.
HELD: The acceptance of PNB of the offer of G to pay
under the terms specified by him constituted not only a
substitution of the debtor but an alteration or
modification of the terms & conditions of the original K.
Effect of insolvency of new debtor--
Article 1294. If the substitution is w/o the knowledge
or against the will of the debtor, the debtor’s insolvency
or non-fulfillment of the obligation shall not give rise to
any liability on the part of the original debtor.
Art. 1295. The insolvency of the new debtor, who has
been proposed by the original debtor & accepted by the
creditor, shall not revive the action of the latter against
the original obligor, except when said insolvency was
already existing & of public knowledge, or known to the
debtor, when he delegated his debt.
2. Change of Principal Condition or Object
71
3. Subrogation/Subjective Novation
a. In case of active subjective
novation
Art. 1300. Subrogation of a third person in the rights
of the creditor is either legal or conventional. The former
is not presumed, except in cases expressly mentioned in
this Code; the latter must be clearly established in or
order that it may take effect.
Legal (Art. 1302)  In all cases of Art. 1302,
subrogation takes place by operation of law.
Art. 1302. It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor who is
preferred, even w/o the debtor's knowledge;
(2) When a third person, not interested in the
obligation, pays w/ the express or tacit approval
of the debtor;
(3) When, even w/o the knowledge of the
debtor, a person interested in the fulfillment of
the obligation pays, w/o prejudice to the effects
of confusion as to the latter's share;
Conventional/ Contractual (Art. 1301)  Consent of the 3
parties (old creditor, debtor & new creditor) are required.
Art. 1301. Conventional subrogation of a third person
requires the consent of the original parties & of the third
person.
Q: Is it possible for a creditor to transfer his
credit w/o consent of the debtor?
A: Yes. But this is not novation but an assignment of
rights under Art. 1624.
 Assignment is also a novation but much simpler.
But is not subrogation.
KINDS OF NOVATION:
a. Legal
Art. 1302. It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor
who is preferred, even w/o the debtor's
knowledge;
(2) When a third person, not interested in
the obligation, pays w/ the express or tacit
approval of the debtor;
(3) When, even w/o the knowledge of the
debtor, a person interested in the
fulfillment of the obligation pays, w/o
prejudice to the effects of confusion as to
the latter's share;
Art. 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
claims, may exercise all the rights & bring all the actions
of the latter for the same purpose, save those w/c are
inherent in his person; they may also impugn the acts
w/c the debtor may have done to defraud them.
(Conventional Redemption)
Art. 1610. The creditors of the vendor cannot make
use of the right of redemption against the vendee, until
after they have exhausted the property of the vendor.
Art. 1729. Those who put their labor upon or furnish
materials for a piece of work undertaken by the
contractor have an action against the owner up to the
amount owing fr. the latter to the contractor at the time
the claim is made. However, the following shall not
prejudice the laborers, employees & furnishers of
materials:
 (1) Payments made by the owner to the
contractor before they are due;
(2) Renunciation by the contractor of any
amount due him fr. the owner.
This article is subject to the provisions of special
laws:
(Assignment of Credits & Other Incorporeal
Rights)
Art. 1629. In case the assignor in good faith should
have made himself responsible for the solvency of the
debtor, & the contracting parties should not have
agreed upon the duration of the liability, it shall last for
one year only, fr. the time of the assignment if the
period had already expired.
If the credit should be payable w/in a term or
period w/c has not yet expired, the liability shall cease
one year after the maturity.
Art. 2207. If the plaintiff's property has been insured,
& he has received indemnity fr. the insurance company
for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency fr. the person
causing the loss or injury.
2. Effect:
Art. 1304. A creditor, to whom partial payment has
been made, may exercise his right for the remainder, &
he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment
of the same credit.
Art. 1303. Subrogation transfers to the person
subrogated the credit w/ all the rights thereto apper-
taining, either against the debtor or against third
persons, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional
subrogation.
b. Passive Subjective Novation
(Substitution of the debtor)
Art. 1293. Novation w/c consists in substituting a new
debtor in the place of the original one, may be made
even w/o the knowledge or against the will of the latter,
but not w/o the consent of the creditor. Payment by the
new debtor gives him the rights mentioned in articles
1236 & 1237.
Art. 1236. The creditor is not bound to accept
payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.
Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o
the knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such
as those arising fr. a mortgage, guaranty or penalty.
RODRIGUEZ V. REYES
HELD: By buying the property covered by TCT No.
48979 w/ notice that it was mortgaged, resp. Dualan
only undertook either to pay or else allow the land's
being sold if the mortgage creditor could not or did not
obtain payment fr. the principal debtor when the debt
matured. Nothing else. Certainly, the buyer did not
obligated himself to replace the debtor in the principal
obligation, & he could not do so in law w/o the creditor's
consent. (Art. 1293)
72
The obligation to discharge the mortgage indebtedness
therefore, remained on the shoulders of the original
debtors & their heirs, petitioners herein, since the record
is devoid of any evidence of contrary intent. xxx
Art. 1835. xxx
A partnership is discharged fr. any existing liability upon
dissolution of the partnership by an agreement to that
effect between himself, the partnership creditor & the
person or partnership continuing the business; & such
agreement may be inferred fr. the course of dealing
between the creditor having knowledge of the
dissolution & the person or partnership continuing the
business.
[Balane]
Passive Subjective Novation-- Articles
1293 & 1295
 Art. 1293 talks of expromission (not upon the
old debtor's initiative. It could be upon the
initiative of the creditor or of the new debtor.)
 Art. 1295 talks of delegacion (change at the
old debtor's initiative.)
 In expromission, the change in the person of the
debtor is not upon the initiative of the old
debtor, whether or not he gave his consent. As
soon as a new debtor & creditor agree, novation
takes place.
 In both cases, the intent of the parties must be
to release the old debtor.
What is the difference in effect between
expromission & delegacion?
 In expromission, the release of the old debtor
is absolute (even if it turns out that the new
debtor is insolvent.)
 In delegacion, the release of the old debtor is
not absolute. He may be held liable (1) if the
new debtor was already insolvent at the time of
the delegacion; & (2) such insolvency was
either known to the old debtor or of public
knowledge.
Cases of expromission are quite rare.
Effect of Novation
Art. 1296. When the principal obligation is
extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
[Balane]
 Effect of novation as to accessory
obligations Accessory obligations may
subsist only insofar as they may benefit third
persons who did not give their consent, e.g.,
stipulation pour atrui
General rule: In a novation, the accesory obligation is
extinguished.
Exception: In an active subjective novation, the
guarantors, pledgors, mortgagors are not released.
Look at Art. 1303, accessory obligations are not
extinguished. So there is a conflict.
How do you resolve? According to commentators,
Art. 1303 is an exception to Art. 1296.
Art. 1297. If the new obligation is void, the original
one shall subsist, unless the parties intended that the
former relation should be extinguished in any event.
Art. 1298. The novation is void if the original
obligation was void, except when annulment may be
claimed only by the debtor, or when ratification
validates acts w/c are voidable.
Art. 1299. If the original obligation was subject to a Art. 1956. No interest shall be due unless it has been
suspensive or resolutory condition, the new obligation expressly stipulated in writing.
shall be under the same condition, unless it is otherwise
stipulated.
VILLAROEL v. ESTRADA

ANSAY v. NDC

H. NATURAL OBLIGATIONS – ARTS. 1423-1430.

1155

Art. 1423. Obligations are civil or natural. Civil

obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity & natural law, do not grant a
right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in
the following articles.

Art. 1424. When a right to sue upon a civil obligation

has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what
he has delivered or the value of the service he has
rendered.

Art. 1425. When w/o the knowledge or against the will

of the debtor, a third person pays a debt w/c the obligor
is not legally bound to pay bec. the action thereon has
prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has
paid.

Art. 1428. When, after an action to enforce a civil

obligation has failed, the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.

Art. 1429. When a testate or intestate heir voluntarily

pays a debt of the decedent exceeding the value of the DBP v. CONFESSOR:
property w/c he received by will or by the law of
intestacy fr. the estate of the deceased, the payment is
valid & cannot be rescinded by the payer.

Art. 1430. When a will is declared void bec. it has not

been executed in accordance w/ the formalities required
by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy
in compliance w/ a clause in the defective will, the
payment is effective & irrevocable.

Art. 1960. If the borrower pays interest when there has

been no stipulation therefor, the provisions of this Code
concerning solutio indebiti, or natural obligations, shall
be applied, as the case may be.

73
74