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CIVIL LAW REVIEW 2 Notes [Cecille V. Balondo]

[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 ; 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 ]

An 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 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 () 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:

(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 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 for
support;
2. Bilateral acts (e.g. contracts give rise to the s
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:
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.
to deliver the thing in a of sale, deposit, lease, antichresis,
pledge and donation.

to do incl. all kinds of work or services. E.g. of
employment or professional services.

not to do consists in abstaining from some act, e.g. duty
not to create a nuisance;

Requisites of a prestation:
1. it must be possible, physically and juridically
2. it must be determinate, or atleast determinable; and
3. it must have a positive equivalent in money.
(susceptible of pecuniary appreciation)

Positive Law valid legal laws enacted by the
legislative department;

Natural not sanctioned by any action but have a
relative juridical effect;
do not grant the right of action to enforce their
performance but after voluntary fulfillment by
their obligor, they authorize the retention of
what has been delivered or rendered by
reason thereof (Art. 1423);

2. KINDS OF OBLIGATIONS AS TO BASIS & ENFORCEABILITY

(a) NATURAL OBLIGATIONS

Article 1423. Obligations are civil or natural.
Civil obligations give a right of action to compel their
performance.

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Natural obligations, not being based on positive law but
on equity and 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. (Arts. 1423 1430 not exclusive
enumeration; some others)

Requisites of Natural :
1. there is a juridical tie between two persons
2. the tie is not given effect by law
an w/o a sanction, susceptible of voluntary
performance, but not thru compulsion by legal
means.

Voluntary fulfillment may be understood as spontaneous,
free from fraud or coercion or it may be understood as
meaning without knowledge or free from error;
- w/knowledge that he cannot be compelled to pay ;
RATIO: reputation (clan)

Natural vs. Moral :
Natural Moral
Juridical tie Exists none
Performance by
debtor
legal fulfillment
of an
act of pure
liberality which
springs from
blood, affection or
benevolence
Basis of existence
of
Within the
domain of law
entirely domain of
morals
Enforceability True but for
certain causes
cannot be
enforced by law
moral duty is
inexistent in the
juridical point of
view
Examples of natural s:
Support of a natural child
Indemnification of a woman seduced
Support of relatives, by consanguinity or affinity

CIVIL s NATURAL s
Source of binding
force & effect
From positive law
from equity and
natural justice
Enforceability
can be enforced by
court action or the
coercive power of
public authority
cannot be
compelled by court
action but depends
upon good
conscience of the
debtor

Illicit s s which are contrary to morals and good customs
do not constitute natural s, whatver is paid under such s can
be recovered, (apply Art. 1414, 1411, 1412.)

(b) CIVIL OBLIGATIONS:

Article 1157. Obligations arise from:
(1) Law; (s ex lege)
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

SOURCES OF s:
1. LAW:
Article 1158. Obligations derived from law are not
presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall be
regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the
provisions of this Book.

an agreement is not necessary in order that a
party may demand from another the
fulfillment of an arising from the application
of a law in the circumstances;

Balane: Law as a source of obligation It is my opinion that
there is an overlap in the enumeration bec. all obligations arise
fr. law. Law is the only source of obligation, in the ultimate
sense. But, as a proximate source, there are five sources of
obligations. Law is both the ultimate & a proximate source of
obligations.

Sources of Obligations according to Sanchez Roman.-- Law & Acts.
The latter are further classified, as follows:
(1) licit acts created by concurrence of wills (contracts);
(2) licit acts either voluntary or involuntary w/o concurrence of
wills (quasi-contract);
(3) illicit acts of civil character w/c are not punishable, voluntary or
involuntary (torts & all damages arising fr. delay);
(4) illicit acts w/c are voluntary & are punishable by law (crimes)

Baviera: When the source of the obligation is Law, there is no
need for an act or omission for the obligation to arise.
CASE:

SAGRADA ORDEN VS. NACOCO [91 P 503]

Plaintiff owned disputed property in Pandacan, Mla whc was
acquired during the Japanese occupation by Taiwan Tekkosho with
TCT. When RP was ceded to USA, the same was entrusted to Alien
Property Custodian, APC by the US govt. APC took possession,
control and custody under the Trading with the Enemy Act. APC
allowed Copra Export Management Co. to occupy the property for a
fee. RP later made representation with APC to use the same
property with warehouse. The warehouse was repaired by
NACOCO and was leased to Dioscoro Sarile. The latter failed to pay
rentals on the property.
In an action to recover possession of the property, the court
nullified the sale to T.Tekkosho and cancelled its 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.


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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 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

(s without an agreement / based in IMPLIED CONSENT)
Q: HOW MANY?
A: In NCC, 2 nominate and some innominate QCs

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 debtors cost non-compliance with to do,
creditor may do it himself or get a 3
rd
person at the expense of
the debtor;

when 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 liability arising from negligence
under the Penal Code. But the plaintiff cannot recover
damages twice for the same act or omission of the
defendant.


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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 latters 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) ERs liability is primary in RPC
Diligence of good father of the
family may be set up by the ER
as a defense
In RPC, such defense of GFF is
not available

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 ,
QUASI-DELICT;
Governed by Arts. 2176-2194
NO contractual relation at all

(2) Culpa contractual, or negligence in the
performance of a contractual .
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

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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. tortfeasors 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:
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.
Cangcos 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.
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

6
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 willfulness
or deliberate intent
to cause damage or
injury to another
mere want of care
or diligence, not
voluntary act or
omission
Gives rise to the act itself the want or care or
diligence
A single act may be a crime and a QD at
the same time; (Art. 100, RPC)
Injured party cannot recover damages
twice for the same act or omission of
defendant; (must choose 1 Rem.)

QUASI-DELICT CRIME
As to
nature
of Right
violated
private right public right
Is a
Wrong
against
the individual the State
Criminal
Intent
not needed Necessary
Legal
Basis for
liability
Broad penal law necessary
Liability
for
Damage
s
every QD gives rise to
liability for damages
there are crimes
without civil liability
Form of
Redress
reparation for injury
suffered/indemnification/c
ompensation
punishment/fine/imp
risonment
Quantu
m of
Evidence
preponderance beyond reasonable
doubt
Compro
mise
can be compromised criminal liability can
never be
compromised

REQUISITES FOR LIABILITY: (onus)
(1) Wrongful act or omission imputable to the defendant by
reason of his fault or negligence;
(2) Damage or injury proven by the person claiming
recovery;
(3) A direct causal connection between the negligent act
and the injury.

DOCTRINE OF PROXIMATE CAUSE is that which, in natural and
continuous sequence, unbroken by any efficient intervening
cause, produces injury and without which the result would not
have occurred.
The exemplification by the Court in one case is simple
and explicit; viz: "(T)he proximate legal cause is that
acting first and producing the injury, either immediately
or by setting other events in motion, all constituting a
natural and continuous chain of events, each having a
close causal connection with its immediate
predecessor, the final event in the chain immediately
affecting the injury as a natural and probable result of
the cause which first acted under such circumstances
that the person responsible for the first event should, as
an ordinarily prudent and intelligent person, have
reasonable ground to expect at the moment of his act
or default that an injury to some person might probably
result therefrom."


C. COMPLIANCE WITH OBLIGATIONS:
Article 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty
and good faith.
Article 1163. Every person obliged to give something
is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law
or the stipulation of the parties requires another
standard of care.
Article 1164. The creditor has a right to the fruits of
the thing from the time the obligation to deliver it
arises. However, he shall acquire no real right over it
until the same has been delivered to him.
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.
Balane:
Three types of obligations.-- (1) obligation to give; (2) obligation to
do; & (3) obligation not to do.

I. Obligation to give
A. Specific thing
B. Generic thing
II. To do

III. Not to do (this includes all negative obligations like
obligation not to give.)

Kinds of performance.--
1. specific performance - performance by the
debtor himself ( applies only to to give )

2. substitute performance - performance at the
expense of the debtor

3. equivalent performance - grant of damages

Articles 1163 - 1166 cover obligation to give.

Three Accessory Obligations:
1. Art. 1163.-- To take care of the thing w/ the diligence of
a good father of a family until actual delivery.

2. Art. 1164.-- To deliver the fruits to the creditor (fruits
produced after obligation to deliver arises.)

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.

7
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 s
OBJECT OF THE :
1. to give real determinate (specific)
or indeterminate (generic)
2. to do
3. not to do personal positive (to do)
or negative (not to do)
REAL :
a. DETERMINATE particularly designated from a particular
class;
PRINCIPAL to give (to deliver) a determinate thing;
ACCESSORY 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 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 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 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.
For failure to deliver, the creditors 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.

8
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
)

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.

PURE demandable at once running of Rx.pd.
starts immediately upon creation of the ;
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 ?
A: Not necessarily, only if suspensive condi.; if resolutory condi, the
happening exctinguishes the ;

Q: In an 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: s 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
st
W.War was 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 3
rd
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 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.

9
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.

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 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;

10
(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
futurity
Same, may be past
event unknown to
parties
Same, always future
in the aspect of
certainty
uncertain certain

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.


11
c. WITH A TERM OR PERIOD:

Article 1180. When the debtor binds himself
to pay when his means permit him to do so,
the obligation shall be deemed to be one with
a period, subject to the provisions of article
1197.

Balane: A term is a future and certain event upon w/c the
demandability (or extinguishment) of an obligation depends.

Tolentino: Period must be (1) future (2) certain and (3) possible.

A term can either be:
1. suspensive term (ex die -- fr. the day) or one the arrival of
w/c will make the obligation demandable;

2. resolutory term (in die -- into the day) or one the arrival of
w/c will extinguish the obligation. The period after which
the performance must terminate.

Terms classified accdg to source;
1. Legal, period fixed by law
2. voluntary, stipulated by parties
3. judicial, fixed/allowed by courts

May also be, (a) express, specified
(b) tacit, e.g. stipulated to do some work whc
may only be done at a particular season.
Or, 1. original period
2. grace period, extension fixed by parties

Or a. definite, fixed known date or time,
b. indefinite, event will happen but not known when

Effect of Period: with term are demandable only when day
fixed for performance arrive; Rt. Of Axn arises only when date
fixed arrives;

Article 1193. Obligations for whose 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.

If the uncertainty consists in whether the day
will come or not, the obligation is conditional,
and it shall be regulated by the rules of the
preceding Section.

MANRESA: A term or period is an interval of time, w/c, exerting an
influence on an obligation as a consequence of a juridical act,
either suspends its demandability or produces its extinguishment.

Distinguished fr. Condition:
CONDITION TERM / PERIOD
As to fulfillment uncertain event an event that must
necessarily come,
whether on a date
known before hand
or at a time w/c
cannot be
predetermined
As to influence on
the obligation
a condition gives
rise to an obligation
or extinguishes one
already existing
has no effect upon
the existence of
obligations, but only
their demandability
or performance
Effect May have
retroactive effect
NO retroactive
effect, except when
there is a special
agreement
As to time may refer to a past
event unknown to
the parties
always refer to the
future
As to will of debtor a condition w/c
depends exclusively
on the will of the
debtor annuls the
a period left to the
debtor's will merely
empowers the court
to fix such period
obligation

Balane: In a (suspensive) term, the obligation has already arisen
except that it is not yet demandable.

Article 1194. In case of loss, deterioration or improvement of the
thing before the arrival of the day certain, the rules in article
1189 shall be observed.

Balane: There are three requisites in order for Art. 1189 to apply-
-
1. There is loss, deterioration or delay
2. There is an obligation to deliver a determinate thing (on
the part of the debtor)
3. There is loss, deterioration or improvement before the
happening of the condition.
4. The condition happens.
Article 1195. Anything paid or delivered before the arrival of the
period, the obligor being unaware of the period or believing that
the obligation has become due and demandable, may be
recovered, with the fruits and interests.

1195 applies only in to give;

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:

Tolentino : According to one school of thought, the debtor is
entitled to the fruits produced in the meantime.

Caguioa : According to another school of thought, all the fruits
received during the pendency of the term belong to the
creditor.

When fruits & interests cannot be recovered notw/standing
premature delivery:

1. When the obligation is reciprocal & there has been
premature performance (by both parties);
2. When the obligation is a loan in w/c the debtor is bound
to pay interest;
3. When the period is for the creditor's exclusive benefit;
4. When the debtor is aware of the period & pays anyway.
(Knowledge, tacit waiver of benefit of term)

2. Presumed for whose benefit: BOTH

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.

12
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

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 Ayrosos tobacco for her at a price, in
consideration that the markup would be hers. They agreed that

13
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 under Art. 1197
HELD: 1197 does not apply in this case.
The agreement bet. Them was one of agency with the 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 Peoples 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 rental in court; plaintiff filed M2D
for lack of jus &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):
becomes immediately due & demandb even if period
has not yet expired.
is converted to a pure
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 s:
PURE AND CONDITIONAL s when the contains no terms or
conditions;

CONDITIONAL s one which is subject to condition;
CONDITION every future and uncertain event upon
which an 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;

CLASSIFICATION OF CONDITIONS:
1. SUSPENSIVE the happening of the former gives rise to
an ;
2. RESOLUTORY the happening of the latter extinguishes
rights already existing.
PAST BUT UNKNOWN a condition may refer to past event
unknown to the parties;
IMPOSSIBLE CONDITION:
1. PHYSICALLY IMPOSSIBLE when it is contrary to law of
nature;
2. JUDICIALLY IMPOSSIBLE when contrary to law,
morals, good customs and public safety

PURE s when it is not subject to a term, period and no
condition;
- demandable at once
- its immediate demandability, give time for debtor to comply

PERIOD = is an event that is future but certain (just a matter of
time); e.g. passing this class (oblicon)

PAST EVENT cannot be future event, cannot be considered
uncertain;

SUSPENSIVE CONDITION:
* rights are acquired, upon the happening of a condi.

Art. 1181 created upon the happening of a condition

RESOLUTORY - extinguished, or loss of existing rts, upon the
happening of a condi.

* Thus a contract may be perfected but its demandability
suspended.

Art. 1186 deemed constructively fulfilled; applied only to
suspensive not to resolutory condi.

Art. 1187 effects of conditional to give;
Ex. A sold a house&lot to B, 1M
Condition: if B will pass the bar exam
Term: effect retroacts after the passing is announced on April;

Jan.2004 Sept. 2004 Oct.04 Apr.05
perfection (w/o condi./ condi.
Pure)


[1544] Retroactive effect
Art. 1188 preserve his interest

PROTECT HIS EXPECTANCY
1. Register with the Registry of Property
2. witness
3. possession in good faith
4. Injunction if the sell was not consummated or not for
sale

RESOLUTORY CONDITION
Art. 1190 no exception, walang matitira

SUSPENSIVE CONDI upon the happening of the condi., the
exists (existence of is affected)

CLASSIFICATION OF CONDITION:
1. POTESTATIVE when the fulfillment of the condi.
depends upon the will of the party to the ;
2. CAUSAL depends upon chance 2
nd
or 3
rd
person
3. MIXED depends partly upon the will of the party &
partly upon chance or a 3
rd
person

Art. 1182: Potestative sole will of the debtor

14
Potestative suspensive is VOID.
Ex. A will give 5% commission to B, but it depends on the
will of A, void;
All other potestative conditions, valid.

Art. 1183 impossible condition
1. physical impossibility
2. legal impossibility
Art. 873 impossible testamentary conditions
disregard
Ex. Art. 727 donation

CONDITION PERIOD / TERM
1. future&uncertain event 1. future&certain
2. suspensive condition 2.suspensive
period/demandability
3. resolutory condition 3. resolutory period

SUSPENSIVE PERIOD prior to the period, there is already an , but it
is suspensive by the period;

Art. 1164 - the to deliver arises upon the perfection of the contract
if subject to suspensive period & not suspensive condi.

RESOLUTORY PERIOD terminated but the effects that accrued in
the past will remain;

RESOLUTORY CONDITION extinguishes as if nothing happens;
retroactive effect of ;

EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM:
- the contract shall be deemed suspended but the F.E. shall not stop
the running of the term or period agreed upon;

Art. 1195 advanced payment
Art. 1196

Presumption if the period is designated, the benefit is for both the
creditor & debtor

Exception: the tenor of the same or other circumstances, it should
appear that the period has been established in favor of one or the
other;

Art. 1197 3 reasons why the court will fix the period:
1. if the does not fix a period, but from its nature &
circumstances it can be inferred that a period was
intended by the parties;
2. in the duration of the time depends upon the will of the
debtor
3. if the debtor binds himself to pay when his means
permit him to do so

Art. 1198 memorize!

Article 1198. The debtor shall lose every right to make
use of the period WHEN:
(1) after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) he does not furnish to the creditor the guaranties or
securities which he has promised;
(3) 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) the debtor violates any undertaking, in consideration
of which the creditor agreed to the period;
(5) the debtor attempts to abscond.

Q: How cud there be guaranty when debtor is insolvent?
A: 3
rd
person (surety)

Q: when is 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 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 3
rd
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)

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, plaintiffs 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?

15
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 event, & the
remaining prestation was lost through the debtor's fault, the latter
is liable to indemnify the creditor for damages.

g. If all but one are lost through the fault of the debtor & the last
one was lost through fortuitous event, the obligation is
extinguished.

2. Choice is the creditor's

Art. 1205. When the choice has been expressly given to the
creditor, the obligation shall cease to be alternative fr. the day
when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the
following rules:

(1) If one of the things is lost through a fortuitous event, he shall
perform the obligation by delivering that w/c the creditor should
choose fr. among the remainder, or that w/c remains if only one
subsists;
(2) If the loss of one of the things occurs through the fault of the
debtor, the creditor may claim any of those subsisting, or the price
of that w/c, through the fault of the former, has disappeared, w/ a
right to damages;

(3) If all the things are lost through the fault of the debtor, the
choice by the creditor shall fall upon the price of any one of them,
also w/ indemnity for damages.

The same rules shall be applied to obligations to do or not to do in
case one, some or all of the prestations should become
impossible.

a. If one or some are lost through fortuitous event, the creditor
may choose fr. those remaining.-- Art. 1205 (1)

b. If one or some are lost through the debtor's fault, the creditor
has choice fr. the remainder or the value of the things lost plus
damages.-- Art. 1205 (2), supra.

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/ indemnity for
damages.-- Art. 1205 (3), supra.

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 Facultative
As to contents of
the obligation
there are various
prestations all of
w/c constitute parts
of the obligation
only ONE principal
prestation
constitutes the
obligation, the
accessory being
only a means to
facilitate payment.
As to nullity the nullity of one
prestation does not
invalidate the
obligation, w/c is
still in force w/
respect to those
w/c have no vice
the nullity of the
principal prestation
invalidates the
obligation & the
creditor cannot
demand the
substitute even
when this is valid
As to choice the right to choose
may be given to the
creditor
only the debtor can
choose the
substitute
prestation.
As to effect of loss only the
impossibility of all
the prestations due
w/o fault of the
debtor extinguishes
the obligation
the impossibility of
the principal
prestation is
sufficient to
extinguish the
obligation, even if
the substitute is
possible

Balane:

Facultative obligations always involve choice by the
debtor.

In theory, it is easy to distinguish a facultative
obligation fr. an alternative one. But in practice,
it is difficult to distinguish the two. You just
have to find out what the parties really
intended.
Only One prestation is DUE and enforceable by
the creditor at the time of choice; if the
substitute becomes impossible d/t fault of
debtor the is not affected, thus no damages;

16
If after choosing the substitute and choice is
communicated to creditor, the principal
prestation becomes impossible, is not
extinguished but has become a simple that
must be performed; and he will be liable for
damages in delay, neglect or bad faith.
If principal becomes impossible by fault or
negligence of creditor, debtor cannot be
compelled to perform the substitute (no more
substitute, becomes simple) extinguished.

17
[JULY 3, 2008 CLASS]

3. AS TO RIGHTS & s OF MULTIPLE PARTIES:
[Joint & Solidary Obligations, Arts. 1207-1222]

a. Joint Obligations

Balane: A joint obligation is one in w/c each of the debtors is liable
only for a proportionate part of the debt or each creditor is entitled
only to a proportionate part of the credit.

In joint obligations, there are as many obligations as
there are debtors multiplied by the number of creditors.

There are three kinds of joint obligations:
1) Active joint where the obligation is joint on
the creditor's side;
2) Passive joint where the obligation is joint on
the debtor's side; &
3) Multiple Joint where there are multiple
parties on each side of a joint obligation.

Tolentino:
The joint obligation has been variously termed
mancomunada or mancomunada simple or pro rata;

In P/N the phrase "We promise to pay," used by 2 or
more signers, creates a pro rata liability (JOINT);

While I promise to pay followed by signatures of 2 or
more persons solidary; individually and collectively; individually
and jointly.

JOINT character is PRESUMED: WHEN no stipulation as to liability
of several debtors, presumption is joint, and each is liable only for
his proportionate part of the ;

J/FO of court as to several defendants when solidarity has not
been specified, the liability of the defendants in joint; court cannot
amend.

Effects of Joint Liability:
1. The demand by one creditor upon one debtor, produces
the effects of default only w/ respect to the creditor who
demanded & the debtor on whom the demand was
made, but not w/ respect to the others;
2. The interruption of prescription by the judicial demand of
one creditor upon a debtor, does not benefit the other
creditors nor interrupt the prescription as to other
debtors. On the same principle, a partial payment or
acknowledgement made by one of several joint debtors
does not stop the running of the statute of limitations as
to the others;
3. The vices of each obligation arising fr. the personal defect
of a particular debtor or creditor does not affect the
obligation or rights of the others;
4. The insolvency of a debtor does not increase the
responsibility of his co-debtors, nor does it authorize a
creditor to demand anything fr. his co-creditors;
5. In the joint divisible obligation, the defense of res
judicata is not extended fr. one debtor to another.
(Manresa)
Art. 1208. If fr. the law, or the nature or the wording of the
obligations to w/c the preceding article refers the contrary does
not appear, the credit or debt shall be presumed to be divided into
as many equal shares as there are creditors or debtors, the credits
or debts being considered distinct fr. one another, subject to the
Rules of Court governing the multiplicity of suits.

Disjunctive : not covered by NCC; there are 2 or more creditors
and 2 or more debtors but they are named disjunctively as debtors
and creditors in the alternative.
* rules on solidary s must apply b/c if rules on alternative s
will be applied then the debtor will generally be given the choice to
whom shall he give payment.

Example: A binds himself to pay P100 either to X or Y
A or B will pay 100 to X.

b. 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 other shall not be liable for his
share.

Art. 1210. The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.

the here is joint even if the performance is indivisible;

Joint Indivisible : there are several debtors or creditors but the
prestation is indivisible Ex. Delivery of a house or a determinate
thing;
fulfillment requires the concurrence of ALL debtors, although
they are each for his part; and on side of creditors, collective action
required for acts whc may be prejudicial;
Consent required, must still communicate choice after
consensus

INDIVISIBILITY SOLIDARITY

Refers to the
prestation, whc is
not capable of
partial performance
Refers to the legal
tie or vinculum
defining the extent
of liability
Effects to Joint
creditors
Each cannot
demand more than
his share
Each may demand
the full prestation
Effects to joint
debtors
Each is not liable for
more than his share
Each has the duty to
comply with entire
prestation

Art. 1224. A joint indivisible obligation gives rise to indemnity for
damages fr. the time anyone of the debtors does not 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.

If there is plurality of creditors to only one debtor, (GR) the can
be performed by delivery of the object to all the creditors jointly;
Delivery to only one creditor makes the debtor liable for
damages to the other debtors for non-performance,
unless they have authorized this one creditor to collect in
their behalf;
If only one or some, not all creditors demand fulfillment
the debtor may refuse to deliver and insist that all the
creditors together receive the thing, if not consignation to
the court may be had;
In non-performance, debtor is liable for damages here
w/respect to damages, the prestation becomes divisible,
each creditor may recover proportionately.

Q: Is an -not do divisible or not? No (Tolentino)
A: -not do when there are several debtors, is a joint indivisible .

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,"

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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;
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 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 , 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 of surety may not be
greater than that of ea principal debtor, nor more
burdensome.

An 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 s 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.

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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 , 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 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 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 ;
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 3
rd
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 1
st
;
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.


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Art. 1215. Novation, compensation, confusion or remission of the
debt, made by any of the solidary creditors 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.

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 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 s; 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 suretys liability is varied,
as in installment payments.

When 1 creditor makes a remission, the extent of that particular
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 , if partial, he retains the solidary &
becomes a surety of the whole ;

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 does not exist
extinguished the the defendant-debtor, and such
decision inures to the benefit of co-debtors, unless the
cause is personal to the def-debtor.

PASSIVE
SOLIDARITY
SURETY
Solidary debtors solidary guaranty
Extent of Liability whole only to the extent of
contract
stipulations/as
expressed
Liability Primary Subsidiary
Effects of Extension
of time granted by
creditor
solidary remains releases the surety

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:
PNBs 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 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 jus 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 Solidarity Suretyship
Solidary debtor is
liable for his own
& that of his co-
debtors
liable only as to his
own
Primary liability Subsidiary liability
Extension of Time
given by creditor
does not release a
solidary debtor
(novation)
releases a solidary
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 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.


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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 and releases the credit gives rise to a new for
reimbursement by the other debtors to this one debtor who paid
(JOINT ); plaintiff creditor may be properly substituted by the
debtor who paid;

EXCEPT: If payment was made after the prescribed or become
illegal (mistake or not). (1218)
After the 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 ;
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

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?
A: Yes. But he can recover the same fr. W, X & Z.

Q: If W paid the whole debt before A remits Ys share, may W still
demand reimbursement of Ys share?
A: Yes, Art. 1219, Y will not be released from his solidary . Upon
Ws full payment the entire was extinguished, theres nothing
more to remit in Ys 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 thats due if such is d/t FE, w/o fault
or delay on any debtor, then 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 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;
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 , 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 . 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 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 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 may still be
indivisible, e.g. to deliver 100 sacks of jasmine rice
found in Warehouse of specific address on a fixed date
(determinate );
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.


22
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:
1. When the parties so provide. (Art. 1248, par. 1.)

2. When the nature of the obligation necessarily
entails performance in parts.

3. Where the law provides otherwise.

Divisibility of Obligation distinguished fr. divisibility of object:
Divisibility of obligation or prestation does not
necessarily mean a divisible obligation.

Divisibility of object is not the same as divisibility of
obligation.

But the reverse is not the same. Indivisibility of
object means an indivisible obligation.

Art. 1224. A joint indivisible obligation gives rise to indemnity for
damages fr. the time anyone of the debtors does not 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 piece of the thing or of the value of
the service in w/c the obligation consists.

Art. 1225. For the purposes of the preceding articles, obligations
to give definite things & those w/c are not susceptible of partial
performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things w/c by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically
divisible, an obligation is indivisible if so provided by law or
intended by the parties.

In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular
case.

TOLENTINO: To enforce a Joint Indivisible , Art. 1209 has
established the necessity of COLLECTIVE FULFILLMENT and the
action must be against all the debtors.

in case of non-performance by any of the debtors, the
is converted into liability for losses & damages =
DIVISIBLE.
THUS, if one debtor is insolvent, or fails to pay his
share, the other debtors will no longer be liable for his
share. The entire liability for all damages is shouldered
by the defaulting debtor.
Solidarity vs. Indivisibility:

Solidarity Indivisibility
Refers to vinculum, and
principally to the subjects of
refers to the prestation or the
object of the
Requires plurality of subjects plurality not reqd
Solidarity remains even in case
of breach of one, they all
when is converted to liability
for damages, the indivisibility
remain liable for indemnity ceases to exist, each debtor
becomes liable for his part of
indemnity
Death of debtor terminates
solidarity
indivisibility affects the heirs of
a decedent debtor, they remain
to be bound to perform the
same prestation

Factors to Determine Whether is Divisible or not:

1. will or intention of the parties, whc may be expressed or
presumed;
2. objective or purpose of stipulated prestation;
3. nature of the thing;
4. provisions of law affecting the prestation
In s to give, indivisibility is presumed; except:
1. when work is agreed to be by units
of time or measure;
2. or otherwise susceptible of partial
performance = divisible

In indivisible , partial performance is equal to non-
performance. Thus, partial payment based on quantum
meruit is not availed. (Arts. 1233 and 1248 forbids partial
fulfillment)
Work half done is worst than work undone!
Exceptions:
(1) has been substantially performed in good faith
debtor may recover as if there had been complete
performance, minus the damages suffered by creditor;
(2) Creditor accepts, despite partial performance, with
knowledge of incompleteness, without protest is
deemed fully performed.

ENTIRE SEVERABLE
Consideration single apportioned
(expressly/implied)
Prestation/s several, distinct,
separate items
When a part is
illegal
whole
unenforceable
partly enforceable
One void
undertaking
void if not illegal, then
valid covenants may
be enforced
Viz. Statute of
Frauds
must be in writing if separate chattels
may be sold below
limits set by Statute
of Frauds, even
when the sumtotal
exceeds, not
affected

b. 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. 1210. The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.

Examples of Indivisible Obligations:

(1) By virtue of its object

Art. 618. Easements are indivisible. If the servient estate is divided
between two or more persons, the easement is not modified, &
each of 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


23
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 unliq-
uidated, 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.

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 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. It 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 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 , 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.

24

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 ;
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.

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 attorneys fees of 20%

(2) Debtor refused to pay penalty

(3) Theres fraud in debtors 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.

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
creditors fault will happen only if thru debtors fault or delay, for
penalty to become enforceable; b/c if thru FE w/o credotors nor
debtors fault, principal 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.


25
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;
Thus penalty is mitigated in:
1. partial or irregular performance
2. iniquitous or unconscionable penalty

1. Distinguished fr. with suspensive condition:
Happening of the condition gives rise to the ; in penal
there is already a principal
The principal itself is dependent upon a future and
uncertain event; in penal, only the accessory (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 W/PENAL CLAUSE
2 or more s are due but
performance of 1 is enough
theres only 1 principal , only
in case of non-performance
shall the penal clause be
enforceable
Impossibility of one of s, the
other/s subsists
impossibility of principal ,
penal clause extinguished
Debtor can choose whc
prestation to fulfill
debtor cannot choose to pay
penalty to avoid performance,
unless expressed
X obliged to deliver a horse to Y
or pay him P500
X obliged to deliver a 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 w/ PENAL CLAUSE
Debtor has power to make
substitution
GR, none; except when
expressed
Creditor cannot demand both such right to demand both may
prestations be given

GUARANTY w/ PENAL CLAUSE
Is a by whc virtue, a 3
rd

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

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.


26
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 of 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 s; 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. 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.
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 s;

REQUISITES to be In Default:
is demandable and liquidated
debtor delays performance
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

27
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.
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 , 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
st
installment &other fees, refused to make
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, Arrietas was to
deliver the rice at d price of her bid, while NARICs 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 , 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 Arrietas
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> NARICs culpability arises from its willful and deliberate
assumption of al s 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: Sofias 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

28
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 petitioners 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.

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.



(3) when the nature of the requires the assumption of risks


29
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 NPCs 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 Veterans 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
reqd 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 3
rd
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
d/t an act of God, the ff. must concur:
1. cause of the breach of 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 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 as provided in

30
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 doctrines 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, Commissioners 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 money, goods or
credit; (3) rate allowed in JFOs 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.
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

31
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
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 by another at creditors choice a&
at debtors cost court may not by discretion merely award
damages to Cr. When the may be done in spite of debtors
refusal to do so;

But, law may not compel or force debtor to comply w/ , if to do,
would amount to invol. Serv., if debt, no imprisonment. If can
only be done by debtor, then only rem is damages.

RE 1168 NOT TO DO was done may compel debtor to
UNDO; but if impossible to undo, rem is damages.

RE 1170 RECOVERABLE DAMAGES = when the is to do
something other than the payment of money;

If 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. Debtors rt. vs. 3
rd
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


32
(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

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 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 possn of 3
rd
p. in GF
(Art. 1385)
Axn for Rsn brought w/in 4 years (Art. 1389)

Rescindable Ks are valid until voided & cant 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 3
rd
p.
3. Cr-Pff has no other legal remedy to satisfy his claim
4. Act being impugned is fraudulent
5. 3
rd
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 possn 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 cant be rescinded bec. 3
rd
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 1
st
Tfee in GF, no liability. If 1
st
Tfee
in BF, the rescissible char. Of 2
nd
alienation depends upon how 2
nd

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.

33
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 1
st
infractor shall be equally tempered
bye the cts. If it cannot be det. Which of the parties 1
st
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, &
(2) both require mutual restitution when declared proper.

Differences:
(1) Rsn under 1191 may be demanded only by party to the ,
under 1380+ by 3
rd
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(+)
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:
W/N Tolentino can compel specific performance.
W/N Tolentinos 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 Banks
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 Tolentinos 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.

---
CASES:

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.

34
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 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 2
nd
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 petitioners 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 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

35
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.
UPs 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 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

36
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. jus 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.
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

37
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.
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.

38
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 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 Banks
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 Tolentinos 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.



39
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 Tolentinos)

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 of 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 extinguished d/t want of
interest of Cr in the fulfillment of such .
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 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 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 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 s 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.












40
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.
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.

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 discharged 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 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.
Pertinent portion of Republic Act No. 8183 states:
SECTION 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties
may agree that the obligation or transaction shall be settled in any other
currency at the time of payment.
SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the
Uniform Value of Philippine Coin and Currency" is hereby repealed.
(Approved on June 11, 1996)

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

41
than Philippine currency, such that obligations or transactions
may now be paid in the currency agreed upon by the parties.

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.

CONCEPT OF PAYMENT

Art. 1232. Payment means not only the delivery of money but also
the performance, in any other manner, of an obligation.

it is the fulfillment of the prestation due whc extinguishes
the by the realization of the purposes for whc it was
constituted.

it is a juridical act whc is voluntary, licit and made with the
intent to exting. d ;

it is made not only by 1 who owes money but also by 1
bound to do something or to refrain fr doing

Thus, Payment is identical w/ Fulfillment.

Requisites of Payment or Performance:
[TOLENTINO]
1. the person who pays must have requisite capacity
2. the person to whom payment is made
3. the thing to be paid in accordance w/ the
4. the manner, time and place of payment, etc.

payment shd be made by the debtor to the creditor at the right
time and place.

KINDS:
1. NORMAL when Db voluntarily performs
2. ABNORMAL when Db is forced by judicial proceeding

Balane:
Payment or Performance are used interchangeably. But
technically,
Payment in obligations to give,
Performance 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. 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.

Tolentino: This art. States Two requisites for Payment:
(1) Identity, of the prestation, & the very thing or service due
must be delivered or released;
(2) its integrity prestation must be fulfilled completely

For BALANE: Art. 1233 states these requisites of payment
I. Re: The prestation
1. Identity
2. Integrity
3. Indivisibility

II. Re: The parties

1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor

III. Re: Time & place

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 nor 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

In case of money debts, you will have to pay in legal
tender in the Philippines. This law supersedes Art. 1249.

If the parties stipulate that payment will be
made in foreign currency, the obligation to pay
is valid but the obligation to pay in foreign
currency is void. Payment will be made in Phil.
currency.

LEGAL TENDER means such currency whc in a given jus can be
used for payment of debts public & priv, &whc cannot be refused
by Cr.

In the RP the ff are legal tender: (sec. 54, RA 265)
1. RP silver peso & half peso for debts of any amount, RP
subsidiary silver coins 20 & 10 for up to P20 debts, and RP
minor nickel &copper coins for up to P2.00 debts;
2. RP Treasury certs., new Victory series (EO 25, s. 1944,
already w/drawn fr circ)
3. All notes and coins issued by CB.

Q: How do you convert?
A: In case of an obligation w/c is not a loan in foreign currency, if
incurred bef. RA 529, conversion must be as of the time the
obligation was incurred.

If incurred after RA 529 became effective, the conversion must be
as of the time the obligation was incurred (Kalalo v. Luz)

If the loan is in foreign currency, the conversion is as of the time of
payment. (RA 529.)

Payment in negotiable paper This may be refused by the
creditor. Payment in manager's check or certified check is
not payment in legal tender. The 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.)

42
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
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 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 possn 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 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 1
st
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 latters 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;

43
> Yearly rental agreed: P7,200 for 3-agri.years fr. 1960, extendible
to 1965 at lessees option. 1
st
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.

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.

ARAAS 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. Araas 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.Araas the cash
dividends fr 1972-1979 w/interests, after it has already paid the
same to Manuel and Castaeda, despite knowledge of the courts
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 admr 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 latters 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
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

44
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 possn 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. Consignn
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.

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:

45
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: 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.



46
FACTS:
On June 3, 1969, private respondent Jesusa B. Afable, together with
Felisa L. Mendoza and Ma. Aurora C. Dio 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/, 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. Dio , 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. CAs 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
latters 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 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.
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 5
th
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 5
th
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 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 &
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


47
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:
Velascos 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
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.


48
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 ;

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 .

Effect on 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 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 Lims favor. Lim assigned to Filinvest Finance Corp. his
interests in the PN 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 was extinguished.

ISSUE: WON the return of mortgaged vehicle to appellee by
voluntary surrender by appellant totally extinguished the , 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 appellees 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 2
nd
REM to guaranty
reimbursement of whatever liability it will be made to pay in the
future on Perezs liabilities. Perez failed to comply. Singer made
pet. Pay Perezs s. 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.

2
ND
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.)

49
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.

5
th
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 s 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 s 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 applicn 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 applicn, pmt shall be made to the most
onerous debt.

3
rd
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.

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.

4
th
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 consign 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 consignn., 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 consignn

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.



50

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)
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 consignn after deposit w/o protest
though Db failed to comply w/ reqs. Or

2. Ct. declares consign as validly made

Art. 1260. Once the consignation has been duly made, the debtor
may ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or
before 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 consign, 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 consignn, 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. HearingB4 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

51
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)

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 , 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.


(2
nd
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 is extinguished if the is to deliver a determinate thing.
If the is to deliver a generic thing, the is not extinguished.

[GR] Genus nunquam perit ("Genus never perishes." )

But what is not covered by this rule is an 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 does not really fall under either Art. 1262 or Art. 1263. But
this really falls under Art. 1262. In this case, the 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 .
In subjective impossibility, the 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 is not extinguished. The
obligor should ask another to do the .
2. Another view holds that the 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
, but not an 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 Kor bec. such circum. was already
considered by the parties when they entered into the K.

52
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 jus of PSC
to suspend the lease being an impairment of . 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.

[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 possn, w/ the oblig to use due
diligence, subj to the gen rules of s, 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;

53
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.


3
rd
MODE OF EXTINGUISHMENT OF :
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
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 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 condonation 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 testator 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 condonation shall,
furthermore, comply w/ the forms of donation.

54

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 acceptance 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 & 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 Vs 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 Vs 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.











55
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.

4
TH
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.










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 creditors 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 solidary 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.


56
5
TH
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 attys 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 Attys 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 attys 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 attys 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
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 attys fees. IAC
affirmed.

ISSUE: WON Francias tax delinquency of 2400 has been set-off by
the govts 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.






57
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 w/RCA whc shd be
setoff w/ their rental s, thus rents of RCA has been previously
assigned by sps Farin to Vidal Tan. Sps Farin 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 Farins
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 s
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 Froilans possn 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

58
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 s 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 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 sheriffs 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, ICBs 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 plaintiffs 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 attys fees to counsel invoking the
fact that Pet.MPCC was adjudged to pay Pacweld 10K in attys
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 sons 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.



59
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.

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 partners 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
TH
MODE OF EXTINGUISHMENT:
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.

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.


60
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 Gs Willys 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 , 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 s.
Only those essential & principal changes introduced by
the new producing an alteration or modification of the essence
of the old 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 Engrg, 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 Ps 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 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.






61
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 Yaps 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 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 defs 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 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" agreementssaid 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 son Waldo
del Castillo as for attorney-in-fact, accepted payments from
petitioners and gave petitioners several extensions of time to pay
their remaining s.

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
Syvels; 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 Syvels 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,

62
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 Maam 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,
defendants 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 debtors 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

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:

63
(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 appertaining, 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)

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 suspensive or
resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated.




















64
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 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.

Art. 1956. No interest shall be due unless it has been expressly
stipulated in writing.


VILLAROEL v. ESTRADA















ANSAY v. NDC






































DBP v. CONFESSOR: