Civil Law Review 2

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the
element
of
essential to an ]
CIVIL LAW REVIEW 2 Notes

[ATTY. CRISOSTOMO A. URIBE]
responsibility
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.
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;
Where there is a right or

power to demand, there is a
correlative
or
an
imposition upon a person of a
definite conduct.
Balane:
be,
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."
A better definition would
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.)
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.
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.
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.
Characteristics
Obligation:
of
an
It represents an exclusively
private interest
Arias Ramos: [more complete

definition, accdg to T, whch gives
1
!k
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
Obligation:
of
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)
an
(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.
** 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.
(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.
(ii)
Form
This
is
controversial.
This
is
acceptable only if form means
some manifestation of the
intent of the parties.
Requisites of an object:
It must be licit.
It must be possible.
[TOLENTINO:
2
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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.
(a) NATURAL OBLIGATIONS

Article 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 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)
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)
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.
Positive Law valid legal

laws
enacted
by
the
legislative department;
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 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);
Natural
Juridical
tie
Perform
ance by
debtor
2. KINDS OF OBLIGATIONS AS
TO BASIS & ENFORCEABILITY
3
vs. Moral :
Natural
Moral
Exists
none
legal
fulfillmen
t of an
act
of
pure
liberality
!k
Basis of
existenc
e of
which
springs
from
blood,
affection
or
benevole
nce
entirely
domain of
morals
(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.
Within
the
domain
of law
Enforcea True
moral
bility
but
for duty
is
certain
inexistent
causes
in
the
cannot
juridical
be
point
of
enforced view
by law
Examples of natural s:
Support of a natural child
Indemnification of a woman
seduced
Support of relatives, by
consanguinity or affinity
SOURCES OF s:
1. LAW:
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;
NATURAL
CIVIL s
s
Source of
from
From
binding
equity and
positive
force &
natural
law
effect
justice
can be
cannot be
enforced
compelled
by court
by court
action or
action but
Enforcea
the
depends
bility
coercive
upon good
power of
conscienc
public
e of the
authority
debtor
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.
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.)
Sources
of
Obligations
according to Sanchez Roman.-4
!k
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)
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)
Baviera: When the source of the

obligation is Law, there is no need
for an act or omission for the
obligation to arise.
CASE:
As to QD: Neither was there any

negligence on its part.
SAGRADA ORDEN VS. NACOCO

[91 P 503]
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.
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.
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.
ISSUE: WON NACOCO is liable

to pay back rentals?
5
!k

arising
from
contracts
have the force of law
between the contracting
parties and should be
complied with in good
faith.
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?
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.
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.
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)
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.
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
2. CONTRACTS:
!k
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/
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.
3. QUASI-CONTRACTS:
derived from quasicontracts shall be subject
to the provisions of
Chapter 1, Title XVII, of
this Book.
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.
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.
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.
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
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.
EXTRA-CONTRACTUAL
OBLIGATIONS
In
the
first
case,
the
provisions of articles 1317,
1403, No. 1, and 1404
regarding
unauthorized
contracts shall govern.
(s without an agreement /
based in IMPLIED CONSENT)
Q: HOW MANY?
7
!k
been
poorly
undone.
In the second case, the rules

on agency in Title X of this
Book shall be applicable.
done
be
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.
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.
As
far
as
crime
is
concerned, civil law is not
concerned w/ the penal
liability but only w/ the
civil liability.
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.
Performance at debtors cost

non-compliance with to do,
creditor may do it himself or get a
3rd person at the expense of the
debtor;
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.
when to do can only

performed by debtor
cannot compelled to do so
force, the only remedy
damages;
be
he
by
is
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.
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.
TITLE V - Civil Liability,

RPC:
CHAPTER ONE Persons Civilly Liable for
Felonies
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
Article 100. Civil liability of a

person guilty of felony. - Every
person criminally liable for a
felony is also civilly liable.
8
!k
action is not fatal to the civil

action after the acquittal of the
accused.
[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.
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?
Baviera: Requisites of enforcing

the subsidiary obligation of the
employer under the RPC:
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.
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.
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 quasidelict, 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
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 ERs liability is
(imputed)
primary in RPC
Diligence
of In
RPC,
such
good father of defense of GFF is
the family may not available
be set up by the
ER as a defense
A person while not criminally
liable may still be civilly
liable Failure of the plaintiff
to reserve in the criminal case
his right to file a separate civil
9
!k
liable. If Molina is insolvent, Alinea

Bus Co. will pay.
* 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.
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.
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;
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.
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.
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 - Quasidelicts]
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!)
derived from quasi-delicts
shall be governed by the
provisions of Chapter 2,
Title XVII of this Book, and
by special laws.
TEST
OF
NEGLIGENCE:
Would a prudent man, in the
position of the person on who
negligence
is
attributed,
foresee harm to the person
10
!k
injured
as
a
reasonable
consequence of the course
about to be pursued?
Balane:
The Code Commission did not
choose to use tort. This is bec. tort
does not exactly have the same
meaning as quasi-delict.
Tort
[BROADER] covers intentional
torts
w/c
in
quasi-delict
is
considered as civil liability arising fr.
acts or omissions punishable by
law. There are some QD w/c are not
covered by tort.
Dean Bocobo
suggested the ancient term culpa
aquiliana. But this did not merit
the
approval
of
the
Code
Commission.
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
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.
(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
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
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
11
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e. Art. 2176 (CC)

3. Strict Liability Torts:
f. ex. Art. 2183 & 2187
(CC)
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.
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?
HELD:
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] -
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.
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 preexisting 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.
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
Contracts & quasi-delicts create

two concentric circles w/ quasidelict 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
12
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obligations
arising
ex
contractu, but only to extracontractual obligations, or to use
the technical form of expression,
that article relates only to culpa
aquiliana and not to culpa
contractual.
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.
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 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
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
nonperformance could not be excused
by proof that the fault was morally
imputable to defendant's servants.
13
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injury."
(Thompson,
Commentaries on Negligence,
vol. 3, sec. 3010.)
Nature of involves
Act
willfulnes
s
or
deliberat
e intent
to cause
damage
or injury
to
another
Gives
the
act
rise to itself
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.
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.)
CASE: Where there could still

be QD even when there is
contract of carriage
GUTIERREZ VS. GUTIERREZ [56
P 177]
FACTS:
A truck and a car collided on a
narrow bridge. A passenger of the
truck was injured and filed a case.
The owner of the truck was made
defendant although his driver was
driving the truck at that time and
he was not a passenger of the
truck. The owner of the car was
also made defendant although the
driver of the car at the time of the
collision was his son, 18 yrs. of age,
w/ other members of the family
accommodated therein, but not the
car owner.
HELD:
The court found both
drivers negligent. The owner of the
truck was made liable for culpa
contractual, under the contract of
carriage. The owner of the car was
made liable under Art. 2180,
imputed
liability
for
culpa
aquiliana.
FRAUD
dolo
mere
want
of
care
or
diligence
,
not
voluntary
act
or
omission
QUASIDELICT
private right
As
to
nat
ure
of
Rig
ht
viol
ate
d
Is a the individual
Wro
ng
agai
nst
Cri
not needed
min
al
Inte
nt
Leg Broad
al
Basi
NEGLIGE
NCE
Culpa
14
CRIME
public
right
the State
Necessary
penal
law
necessary
!k
s
for
liabi
lity
Liab
ility
for
Da
mag
es
For
m
of
Red
ress
Qua
ntu
m
of
Evid
enc
e
Com
pro
mis
e
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."
every QD gives there

are
rise to liability crimes
for damages
without civil
liability
reparation for
injury
suffered/indem
nification/comp
ensation
preponderance
punishment
/fine/impris
onment
beyond
reasonable
doubt
can
be criminal
compromised
liability can
never
be
compromise
d
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.
C.
COMPLIANCE
OBLIGATIONS:
WITH
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.
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.
15
!k
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.
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
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.
3. equivalent
performance - grant of
damages
Articles 1163 obligation to give.
1166
cover
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.
If
the
thing
is
indeterminate or generic,
he
may
ask
that
the
obligation be complied with
at the expense of the debtor.
2. Art. 1164.-- To deliver the

fruits to the creditor (fruits
produced after obligation
to deliver arises.)
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.
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
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.)
16
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real right does not arise

until actual delivery.
Articles
1165
1167.-Remedies Available to the
Creditor (specific performance,
substitute performance, equivalent
performance.)
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.
A. In obligations to give
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.
1. A determinate thing
a. Specific performance
b.
Equivalent
performance
2.
A generic
remedies are available
thing,
all
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.
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
Article 1460. A thing is

determinate
when
it
is
particularly
designated
or
physical segregated from all
others of the same class.
Note: In obligations to do,

specific performance is not
available. The reason for this is
that specific performance will give
rise to involuntary servitude.
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
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
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.
17
!k
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
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.
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;
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.
(2)
Art. 1164 to
deliver the fruits;
(441) natural /
industrial / civil
the to deliver
arises only if the
creditor is entitled;
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.
(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
18
!k
[CHAPTER 2: Right of
Accession GENERAL
PROVISIONS]
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.
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
OBLIGATIONS:
OF
A pure obligation is one

w/c is not subject to a
condition or a term.
CIVIL
1.
AS TO PERFECTION
EXTINGUISHMENT:
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 )
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.
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
Every
obligation
which
contains
a
resolutory
condition
shall
also
be
demandable,
without
prejudice to the effects of the
happening of the event.
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.
Article 1197. If the obligation

does not fix a period, but from
19
!k
depends on the sole will of

the debtor.
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.
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.
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 ;
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."
Q: In an with a TERM will the

answer above be the same?
A:
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."
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.
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?
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.
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
Balane: We are talking here of a

suspensive condition.
SMITH BELL V. SOTELO MATTI

[44 P 874]
First sentence of Art. 1182.- The condition must be

suspensive, potestative &
Where the fulfillment of

the condition does not
20
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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.
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.
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
shipped fr SF in Sept.1918 or
ASAP
(Delivered:Oct. 26. 1918)
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.
be
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
The condition not to do an

impossible thing shall be
considered as not having
been agreed upon.
HELD: At the constitution of the ,

the 1st 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
3rd person who could in no way
be
compelled
to
issue
certificate
of
priority
and
permission. Thus the obligor will
be deemed to have sufficiently
fulfilled his part of the if he has
done all that is in his power even if
Balane:
This refers to a suspensive
condition.
There are 2 classes
impossible conditions:
of
1. Impossible in fact
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
my car to Mr. M for P2 on
condition that he burns the
College of Law."
21
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disposition to exist-liberality.
They (donation & testamentary
disposition)
have
both
their
underpinnings, liberality.
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.
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.
Art. 727. Illegal or impossible

conditions
in
simple
&
remuneratory donations shall
be considered as not imposed.
Art. 873. Impossible conditions
& those contrary to law or good
customs shall be considered as
not imposed & shall in no
manner prejudice the heir, even
if the testator should otherwise
provide.
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."
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.
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.
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

that some event will not
happen at a determinate time
shall render the obligation
effective from the moment the
22
!k
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.
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.
Balane: This article refers to a

shall be deemed fulfilled
when
the
obligor
voluntarily prevents its
fulfillment.
Balane: This article refers to a
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.
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
Obligations:
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.
Conditional
Article 1188. The creditor may,

before the fulfillment of the
condition, bring the appropriate
actions for the preservation of his
right.
a. Suspensive Condition
(Condition precedent)
Article 1187. The effects of a
conditional obligation to give,
once the condition has been
The debtor may recover what

during the same time he has paid
23
!k
by
mistake in case
of
debtor, the obligation shall

be extinguished;
(2) If the thing is lost
through the fault of the
debtor, he shall be obliged
to pay damages; it is
understood that the thing
is lost when it perishes, or
goes out of commerce, or
disappears in such a way
that
its
existence
is
unknown or it cannot be
recovered;
(3)
When
the
thing
deteriorates without the
fault of the debtor, the
impairment is to be borne
by the creditor;
(4)
If
it
deteriorates
through the fault of the
debtor, the creditor may
choose
between
the
rescission of the obligation
and its fulfillment, with
indemnity for damages in
either case;
(5) If the thing is improved
by its nature, or by time,
the
improvement
shall
inure to the benefit of the
creditor;
(6) If it is improved at the
expense of the debtor, he
shall have no other right
than that granted to the
usufructuary. (1122)
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
(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
24
!k
of said conditions, shall

return to each other what
they have received.
Condition compared to a term
Condition
As
to Same,
element of may
be
futurity
past event
unknown
to parties
in
the uncertain
aspect of
certainty
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.
certain
Conditions can either be:

1. Suspensive
condition
(condition
precedent)
wherein the happening of the
event gives birth to an
obligation
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.
2. Resolutory
condition
(condition
subsequent)
wherein the happening of the
event will extinguish 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
parties
It is really
knowledge of the event
constitutes the future.
It is
knowledge
w/c
is
future
uncertain.
Term
Same,
always
future
the
the
w/c
the
&
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.
25
!k
c. WITH A TERM OR PERIOD:
Or a. definite, fixed known date

or time,
b.
indefinite, event will
happen but not known when
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.
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.
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.
Obligations
with
a
resolutory period take
effect at once, but
terminate upon arrival
of the day certain.
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;
A
day
certain
is
understood to be that
which
must
necessarily
come,
although it may not be
known when.
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
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.
May also be, (a)

express,
specified
(b) tacit, e.g. stipulated
to do some work whc
may only be done at a
particular season.8
Or, 1. original period
2.
grace period, extension
fixed by parties
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.
26
Distinguished fr. Condition:

CONDITIO TERM
/
N
PERIOD
As
to
uncertain an event
!k
fulfillmen event
t
As
to
influence
on
the
obligatio
n
a
condition
gives rise
to
an
obligation
or
extinguish
es
one
already
existing
Effect
May have
retroactive
effect
As
time
to may refer
to a past
event
unknown
to
the
parties
As to will a condition
of debtor w/c
depends
exclusively
on the will
of
the
debtor
annuls the
obligation
that must
necessaril
y
come,
whether
on a date
known
before
hand or at
a time w/c
cannot be
predetermi
ned
has
no
effect
upon the
existence
of
obligations
, but only
their
demandab
ility
or
performan
ce
NO
retroactive
effect,
except
when
there is a
special
agreement
always
refer
to
the future
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
(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.
a
period
left to the
debtor's
will merely
empowers
the court
to fix such
period
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:
Balane: In a (suspensive) term,

the obligation has already arisen
except
that
it
is
not
yet
demandable.
Tolentino :
According to one
school of thought, the debtor is
entitled to the fruits produced in
the meantime.
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.
Caguioa : According to another

school of thought, all the fruits
received during the pendency of
the term belong to the creditor.
27
!k
If the term is for the benefit of

the debtor The creditor cannot
demand performance anytime; but
the
debtor
can
insist
on
performance anytime.
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
benefit: BOTH
for
EXAMPLE: "I promise to pay

w/in 60 days." This is a term
for the benefit of the debtor.
"I promise to pay Clara the
sum of P100,000 on or before
Oct. 31, 1996." This is a term
for the benefit of the debtor.
In of Loan, without interest, term
is usually for benefit of debtor, thus
he may pay in advance;
If there is stipulation as to interest,
period is generally for both parties,
debtor cannot pay in advance vs.
will of creditor; unless he also pays
interest in full.
whose
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.
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.
Balane:
General rule:
If a period is
attached in an obligation, the
presumption is that it is for the
benefit of both parties.
The courts shall also fix

the duration of the period
when it depends upon the
will of the debtor.
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.
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
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.
28
!k
cannot
them.
be
Exceptions:
changed
by
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.
(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. 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.
Art. 1606 in pacto de retro sale

where the period is not
specified by the parties
CASE: Where obligation does

not fix a period; When fixing a
period is mere formality
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
CHAVEZ V. GONZALES [32 SCRA

547] Def.
virtually
admitted
nonperformance 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.
contract of services for an

indefinite term (bec. fixing
of a period by the courts
may amount to involuntary
servitude)
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
Art. 1197. Xxx The courts shall

also fix the duration of the
period when it depends upon
the will of the debtor.
29
!k
having evidently expired, & there

being a breach of contract by nonperformance, 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.
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.
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.
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.
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.
which indubitably demonstrate that

each of the contracts in question
30
!k
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."
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.
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
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.
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.
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-
4. When debtor
benefit of period
31
loses
the
!k
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.
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
(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
PURE s when it is not subject

to a term, period and no condition;
32
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- demandable at once
- its immediate demandability, give
time for debtor to comply
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
PERIOD =
is an event that is
future but certain (just a matter of
time); e.g. passing this class
(oblicon)
RESOLUTORY CONDITION
Art. 1190 no exception, walang
matitira
PAST EVENT cannot be future

event,
cannot
be
considered
uncertain;
SUSPENSIVE CONDI upon the

happening of the condi., the
exists (existence of is affected)
SUSPENSIVE CONDITION:
* rights are acquired, upon the
happening of a condi.
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 2nd or 3rd person
3. MIXED depends partly upon
the will of the party & partly
upon chance or a 3rd person
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. 1182: Potestative sole

will of the debtor
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. 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)
Art.
1183
impossible
condition
1. physical impossibility
2. legal impossibility
Art.
873
impossible
testamentary conditions
disregard
Ex. Art. 727 donation
[1544]
Retroactive effect
Art. 1188 preserve his interest
CONDITION
1.
33
PERIOD / TERM
1.
!k
future&uncertain future&certain
event
2.
suspensive
2.suspensive
condition
period/demand
ability
3.
resolutory 3.
resolutory
condition
period
SUSPENSIVE PERIOD prior to the
period, there is already an , but it is
suspensive by the period;
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
which he has promised;
(3)
by his own acts he
has impaired said
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.
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;
Q: How cud there be guaranty when

debtor is insolvent?
A: 3rd person (surety)
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
Q: when is due&demandb even if

period has expired?
A: if debtor has lost rt. to make use
of such period (1198)
34
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D.
A: rt. is not lost by mere delay;

(before creditor files his action)
(2)
Obligations according to
plurality of objects:
(b) Alternative Obligations
A. Simple
Art.
1199.
A
person
alternatively bound by different
prestations shall completely
perform one of them.
B. Multiple
C.
Conjunctive where the

debtor must
perform more than
one prestation
The
creditor
cannot
be
compelled to receive part of
one & part of the other
undertaking.
Q: A promised to deliver to B
his carabao, dog & goat.
What kind of is this? A:
conjunctive
D.
Tolentino:
The characteristic of
alternative obligations is that,
several objects being due, the
fulfillment of one is sufficient xxx.
Alternative Obligations
where the debtor must
perform any of
several prestations
Art. 1200. The right of choice

belongs to the debtor, unless it
has been expressly granted to
the creditor.
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
granted to 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.
never
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)
Q: In conjunctive, right to choose is

always with debtor?
A: NO. No right to choose b/c all
must be performed.
Q: in Alternative, rt. To choose can
be given to 3rd person?
A: YES. (Art. 1000) as long as it is
not contrary to law, morals, PO, PP,
etc.
* There is a third possibility

where the choice may be made by
a third person upon agreement of
the parties.
(expressed)
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 is the technical term

of the act of making a choice in
alternative obligations?
A: Concentration.
Q: What if debtor has rt. to choose

and he delays?
The right to choose is indivisible

debtor cant choose part of
35
!k
one prestation and part of

another;
Here, plaintiffs action must be in
alternative form;
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.
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.
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.
No required form may be ORAL,

IN WRITING, TACITLY, OR OTHER
UNEQUIVOCAL MEANS.
Q: If the choice belongs to the
debtor,
why
require
communication
before
performance
if
the
choice
belongs to him anyway?
A:
To give the creditor an
opportunity to consent to the
choice or impugn it.
(Ong v.
Sempio-Dy, 46 P 592.)
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.
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.
d. If some things are lost through

the debtor's fault, the debtor can
still choose fr. those remaining.
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
e. If all are lost through fortuitous

event,
the
obligation
is
extinguished.
36
!k
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.
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)
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.
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.
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:
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.
(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;
f. If all are lost through the

creditor's fault, the obligation
is extinguished.
Distinguished
obligations:
fr.
Facultative
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.
(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
37
!k
Tolentino:
Alternative -
As to
contents
of the
obligatio
n
As to
nullity
As to
choice
As to
effect of
loss
Facultative
Facultative
obligations
always involve choice by
the debtor.
vs.
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;
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.
Alternati
ve
there are
various
prestation
s all of w/c
constitute
parts of
the
obligation
Facultati
ve
only ONE
principal
prestation
constitutes
the
obligation,
the
accessory
being only
a means
to
facilitate
payment.
the nullity the nullity
of one
of the
prestation principal
does not
prestation
invalidate invalidates
the
the
obligation, obligation
w/c is still & the
in force w/ creditor
respect to cannot
those w/c
demand
have no
the
vice
substitute
even when
this is
valid
the right
only the
to choose debtor
may be
can
given to
choose the
the
substitute
creditor
prestation.
only the
the
impossibili impossibili
ty of all
ty of the
the
principal
prestation prestation
s due w/o
is
fault of the sufficient
debtor
to
extinguish extinguish
es the
the
obligation obligation,
even if the
substitute
is possible
Balane:
38
!k
[JULY 3, 2008 CLASS]
defendants in joint;
amend.
3.
AS TO RIGHTS & s OF
MULTIPLE PARTIES:
[Joint & Solidary Obligations,
Arts. 1207-1222]
court cannot
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
codebtors, 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)
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;
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 ;
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.
J/FO of court as to several

defendants when solidarity has not
been specified, the liability of the
Disjunctive :
not covered by
NCC; there are 2 or more creditors
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.
39
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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.
INDIVISIB
ILITY
Refers to
the
prestatio
n, whc is
not
capable
of partial
performa
nce
Each
cannot
Effects to
demand
Joint
more
creditors
than his
share
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.
Each
is
Effects to not liable
joint
for more
debtors
than his
share
Art. 1210. The indivisibility of

an
obligation
does
not
necessarily
give
rise
to
solidarity. Nor does solidarity of
itself imply indivisibility.
SOLIDARI
TY
Refers to
the legal
tie
or
vinculum
defining
the
extent of
liability
Each may
demand
the
full
prestatio
n
Each has
the duty
to
comply
with
entire
prestatio
n
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.
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
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
40
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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.
It has also been held that

the
terms
"juntos
o
separadamente"
in
a
promissory note creates a
solidary responsibility;
Where there are no words
used
to
indicate
the
character of a liability, the
phrase "I promise to pay,"
followed by the signatures
of 2 or more persons, gives
rise to an individual or
solidary responsibility.
The words "individually &
collectively" also create a
solidary liability. So does an
agreement
to
be
"individually liable" or
"individually & jointly
liable."
c.1. Active Solidarity
Q: Is an -not do divisible or not?

No (Tolentino)
A: -not do when there are several
debtors, is a joint indivisible .
Art. 1211. Solidarity may exist

although the creditors & the
debtors may not be bound in
the same manner & by the
same periods & conditions.
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.
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.
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.
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.
41
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There is solidary obligation in

the ff.:
(1)
when
the
obligation
expressly
so states stipulation
by parties;
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.
(2)
when
a
will
expressly
makes
charging or a condition in
solidum;
Characteristics
of
Active
Solidarity (solidary creditors):
(Tolentino)
(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)
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.)
(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)
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;
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.
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);
42
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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. 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;
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. Each creditor may renounce

his right even against the will
of the debtor, & the latter
need not thereafter pay the
obligation to the former.
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:
Characteristics
of
Passive
Solidarity (solidary debtors):
Uniform when debtors are

bound by same conditions and
clauses;
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):
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.
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.
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.
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
43
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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.
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.
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]
The obligation in the case at

bar
being
described
as
"individually & jointly," the
same is therefore enforceable
against one of the numerous
obligors.
CASE:
An agreement to be
individually
liable
or
individually and jointly liable
denotes a solidary obligation,
not a joint liability.
RONQUILLO V. CA [132 S 274,
Sept. 28, 1983]
FACTS:
1 creditor (Antonio So) and 4
debtors (Ronquillo, et.al.)
Collection for sum of money
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
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."
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
The term "individually" has the

same meaning as "collectively,"
"separately,"
"distinctively,"
"respectively" or "severally."
An agreement to be "individually
liable" undoubtedly creates a
44
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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.
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)
Art. 1213. A solidary creditor

cannot assign his rights w/o the
consent of the others.
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. 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.
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.
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.
Acts beneficial:
each solidary
debtor may,
interrupt prescription,
constitute a debtor in default,
bring suit so that may produce
interest
Effects
of
Unauthorized
Transfer:
no effect, no rts.
transferred; assignee does not
become solidary creditor, cocreditors 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.
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 cocreditors whc subsists and may be
enforced vs such creditor who
performed the act alone.
Justice JBL REYES: Art. 1213

places
unjustifiable
and
unnecessary burden on the rts of
solidary creditors upon his own
45
!k
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;
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.
Balane:
General Rule A debtor may pay
any of the solidary 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.
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.
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.
Defendant-debtor shd pay to d

plaintiff-creditor
to
effect
extinguishment; payment to
any of other creditors who did
not sue would be deemed
payment to a 3rd person.
plaintiff-creditor
merely
consolidates in himself the
representation of all the
others, but the essence of
solidarity of creditors shd not
be nullified;
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.
Extra-judicial Demand same

as above; demand by several
creditors separately, debtor shd pay
the one who notified him 1st ; if they
demand at d same time, or
collectively, debtor may choose to
whom to pay.
Other Instances:
Debtor upon whom demand
was made pays to a creditor
other than the one who made
the demand in violation of
Art. 1214 This is considered
payment to a third person (Art.
1241, par. 2) & the debtor can
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.
46
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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.
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 ;
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.
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.
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.
Baviera:
Principals
are always
liable solidarily;
Agents are not liable
solidarily
unless
expressly stipulated (res
inter alios acta)
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.
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.
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.
Q: If a judgment made in an
action brought by a solidary
cretditor vs a solidary debtor
will it be res judicata vs the codebtors?
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
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,
47
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cause personal to him, but actually

consolidates in him all the rts.as
well of his co-creditors. (Tolentino)
similarly translated as to codebtors;
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 decedentdebtor w/o prejudice to rt. of d
estate to go vs the other debtors for
reimbursement.
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
SOLIDARI
TY
Solidary
debtors
of whole
ISSUE: WON death of one solidary

debtor-defendant deprives the court
of jus to proceed w/d case vs. d
surviving defs., being a moneyclaim 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.
SURETY
solidary
guaranty
Extent
only to the
Liability
extent of
contract
stipulation
s/as
expressed
Liability
Primary
Subsidiary
Effects of solidary releases
Extension remains
the surety
of
time
granted by
creditor
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
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
48
!k
to the debtor paying the

obligation, such share shall be
borne by all his co-debtors, in
proportion to the debt of each.
prevail over Art. 1216, the former

being merely procedural, while the
latter, substantive.
Tolentino: Passive Solidarity vs.
Suretyship
Art. 1218.
Payment by a
solidary debtor shall not entitle
him to reimbursement fr. his codebtors if such payment is
made after the obligation has
prescribed or become illegal.
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.
Distinctio Passive
ns
Solidarity
Solidary
debtor is
liable for
his own
& that of
his
codebtors
Primary
liability
Extension does not
of
Time release a
given
by solidary
creditor
debtor
(novation)
Art. 1219. The remission made

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.
Suretyshi
p
liable only
as to his
own
Subsidiary
liability
releases a
solidary
guarantor
or surety
(extinguis
hment)
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;
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.
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 codebtors b/c his action will not
revive the inexistent ;
Generally, neither could he
recover fr the creditor to
whom he paid (Art. 1424);
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
49
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except perhaps under solutio

indebiti.
Art. 1220. The remission of the

whole obligation, obtained by
one of the solidary debtors,
does
not
entitle
him
to
reimbursement
fr.
his
codebtors.
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
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.
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.
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.
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.
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.
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. 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
50
!k
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.
Balane:
Three Defenses
Debtor:
of
Solidary
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;
nonhappening of condition; arrival
of
resolutory
period;
extinguished d/t payment,
remission;
Effects of 1221 limited to nonperformance 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.
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.
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 codebtors (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.
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
51
!k
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.
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.
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.)
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.
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;
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.
Three Exceptions to the Rule on

Indivisibility:
When the obligation has for its

object the execution of a
52
!k
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.
Solidarity
remains even in
case of breach of
one, they all
remain liable for
indemnity
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.
Death of debtor
terminates
solidarity
In obligations not to do,

divisibility or indivisibility shall
be determined by the character
of the prestation in each
particular case.
Factors to Determine Whether

is Divisible or not:
TOLENTINO: To enforce a Joint

Indivisible , Art. 1209 has
established the necessity of
COLLECTIVE FULFILLMENT and
the action must be against all the
debtors.
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 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
Refers to
vinculum, and
principally to the
subjects of
Requires
plurality of
subjects
when is
converted to
liability for
damages, the
indivisibility
ceases to exist,
each debtor
becomes liable
for his part of
indemnity
indivisibility
affects the heirs
of a decedent
debtor, they
remain to be
bound to
perform the
same prestation
Indivisibility
refers to the
prestation or the
object of the
In indivisible , partial
performance is equal to nonperformance. Thus, partial
payment based on quantum
meruit is not availed. (Arts.
1233 and 1248 forbids partial
fulfillment)
plurality not
reqd
53
!k
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
Considerat single
ion
Prestation/
s
When a
part is
illegal
One void
undertakin
g
whole
unenforce
able
void
Viz.
Statute of
Frauds
must be in
writing
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.
SEVERABL
E
apportione
d
(expressly/
implied)
several,
distinct,
separate
items
partly
enforceabl
e
if not
illegal,
then valid
covenants
may be
enforced
if separate
chattels
may be
sold below
limits set
by Statute
of Frauds,
even when
the
sumtotal
exceeds,
not
affected
Examples
Obligations:
of
Indivisible
(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
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.
54
!k
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.
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.
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.
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.
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.
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. 2090. The indivisibility of a

pledge or mortgage is not
affected by the fact that the
debtors are not solidarily liable.
Art. 1583.
Unless otherwise
agreed, the buyer of goods is
not bound to accept delivery
thereof by installments.
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.
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
The same rule shall apply if the

person who sold an immovable
alone has left several heirs, in
55
!k
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.
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.
(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.
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:
5. AS TO THE PRESENCE OF AN
ACCESSORY UNDERTAKING IN
CASE OF BREACH:
1.
Subsidiary (also called
alternative)
upon
nonperformance, only the penalty may
be demanded.
a. Obligations w/ a Penal Clause
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."
Art. 1226. In obligations w/ a

penal clause, the penalty shall
substitute the indemnity for
damages & the payment of
interests in case of noncompliance, 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
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.
56
!k
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.
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.
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)
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.
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.
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.
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
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.
57
!k
damages & both may

reduced when proper. Xxx
an irrevocable domestic letter of

credit in favor of Pamintuan.
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.
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.
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.
Co.
filed
for
damages
vs.
Pamintuan. Lower court awarded
actual
damages,
liquidated
damages as stipulated, and moral
damages.
Pamintuan appealed.
Pamintuan guilty of
sustained the LC.
be
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)
CA found
fraud, and
ISSUE:WON the Co. is entitled only

to liquidated damages as appearing
in the contract of sale?
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%
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
(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 2ton white-truck on installment
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
58
!k
basis. This truck was mortgaged,

incl. two other white trucks owned
by defendant whc are fully paid for,
to secure the loan.
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)
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.
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.
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.
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.
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
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.
59
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Art. 1228.
Proof of actual
damages
suffered
by
the
creditor is not necessary in
order that the penalty may be
demanded.
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
nonperformance or breach.
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.
2. Distinguished fr. alternative

obligations
exempt
himself
fr.
the
the case where his right has
obligation,
the performance
thereof
should
become
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.
suspensive condition:
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 theres only 1
due
but principal , only
performance of 1 in case of nonis enough
performance
with
60
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Impossibility of
one of s, the
other/s subsists
Debtor
choose
prestation
fulfill
can
whc
to
X
obliged
to
deliver a horse
to Y or pay him
P500
shall the penal

clause
be
enforceable
impossibility of
principal
,
penal
clause
extinguished
debtor
cannot
choose to pay
penalty to avoid
performance,
unless expressed
X
obliged
to
deliver a horse
to Y. if he fails he
will
pay
him
P500

obligation,
the performance
thereof
should
become
FACULTATIVE
Debtor
has
power to make
substitution
Creditor cannot
demand
both
prestations
w/ PENAL
CLAUSE
GR, none; except
when expressed
such right to
demand
both
may be given
GUARANTY
w/ PENAL
CLAUSE
Is a by whc to pay penalty
virtue,
a
3rd is different fr the
person
principal , but
(guarantor)
also paid in lieu
obliged himself of debtors nonto
fulfill performance
prestation in lieu
of debtors nonperformance
Intended
to Intended
to
insure
insure
performance of performance of
principal
principal
Accessory
& Accessory
&
subsidiary
subsidiary
Principal debtor both s can be
cannot
be assumed by one
guarantor
person
Subsists
even penalty
is
when principal extinguished in
is voidable or such
case,
unenforceable
unless assumed
by 3rd person
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.
exempt
himself
fr.
the
the case where this right has
Q: When does delay set in?

A: Delay sets-in in the following
manner:
61
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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.
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.
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.
62
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Balane:
Two
Classes
of
Irregularity of Performance:
July 9, 2008
E. BREACH OF OBLIGATIONS
(ART. 1170)
1.
Attributable
debtor
A. Fraud
B. Negligence
C. Delay
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.
to
the
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.
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.
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 &
63
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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.
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.
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.
Negligence is the absence of

something that should be
there due diligence.
Measure of Due Diligence.-There are two guides:
Evasion of a legit. for benefits

admittedly received constitutes
unjust enrichment.
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.)
Q: What is a synonym for fraud

as used in Art. 1170?
A: Malice.
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 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.)
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.)
(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
From 1173 = culpa contractual

from 2176 = culpa aquiliana or
extra-contractual
** In both cases, for liability to
attach, such negligence must be
64
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the proximate cause of the injury

to plaintiff.
(3) Delay
See Art. 1169.
= default / mora,
fulfillment of s;
in
The same rule applies to any

amount he may have taken
from the partnership coffers,
and his liability shall begin
from the time he converted
the amount to his own use.
Article 1896. The agent owes
interest on the sums he has
applied to his own use from the
day on which he did so, and on
those which he still owes after
the extinguishment of the
agency.
the
REQUISITES to be In Default:
is demandable and liquidated
debtor delays performance
creditor requires performance,
jud or extrajud demand
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)
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.
Delay is the non-fulfillment of the

obligation w/ respect to time.
Kinds of Delay:
65
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1. Mora Solvendi -- delay in

the performance (on the part
of the debtor);
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 1st 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.
2. Mora Accipiendi -- delay

in the acceptance (on the part
of the creditor);
3. Compensation Morae -mutual delay
Art. 2201. xxx
(2)
In contracts & quasicontracts, 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
There being a perfected

of sale, it was the duty of GSIS
66
!k
as seller to deliver the thing

sold in a condition suitable for
enjoyment by the buyer for the
purpose contemplated.
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.
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.
Thus,
Arrieta
demanded
for
payment of damages of USD 286K
representing
unrealized
profits.
Again rejected. Thus, this case.
WON NARIC
contract?
was
in
breach
of
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.
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.
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.
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.
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.
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.
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.
TIME IS OF THE ESSENCE
67
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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.
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.
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.
HELD:
Petitioner
&
private
respondent Sofia C. Crouch entered
into a contract whereby, for a fee,
petitioner undertook to send said
private
respondent's
message
overseas by telegram.
This,
petitioner did not do, despite
performance by said pvt. resp. of
her obligation by paying the
required charges. Petitioner was
therefore guilty of contravening its
obligation
to
said
private
respondent & is thus liable for
damages.
Balane:
General Rule: The happening of
a fortuitous event exonerates
the debtor fr. liability.
ISSUE;WON there was here breach

of contract, and WON only actual
damages are due?
YES, Art. 1170, ALSO Art. 2176
applied.
EXEMPTIONS
FROM
APPLICATION OF G.R. ON F.E.:
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
PERFORMANCE:
1.
Loss
Events
due
to
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
NONFortuitous
Art. 1174.
Except in cases
expressly specified by law, or
when it otherwise declared by
stipulation, or when the nature
68
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have been authorized to use

the same.
(5) If, being able to save either

thing, he chooses to save the
latter.
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.
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. 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.
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.
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;
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
69
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person who delivered the thing,

until it is recovered.
(2) when it is otherwise

declared by stipulation (1174)
Express agreement
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.
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
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.
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.
____________________________________
_____________________
CASES:
Balane:
Some of the elements
were present in this case. What
was absent was the last element.
70
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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.
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 1st 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,
(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
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
71
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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.
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
rd
plan&specs. Def. filed 3
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.
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."
72
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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.)
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.
NAKPIL & SONS VS. CA

334] - APRIL 15, 1988
[160 S
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
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 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.
73
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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)
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.
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
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.
74
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are guilty of fraud, negligence, or

delay, and those who in any
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.
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)
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
FAMILY CODE:
Art. 153. The family home is
deemed constituted on a house
and lot from the time it is
occupied as a family residence.
From the time of its constitution
and so long as any of its
beneficiaries
actually
resides
therein,
the
family
home
continues to be such and is
exempt from execution, forced
sale or attachment except as
hereinafter provided and to the
extent of the value allowed by
law.
Art. 155. The family home shall
be exempt from execution, forced
sale or attachment except:
75
!k
(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.
76
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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.
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;
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.
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. 3rd person
must be patrimonial, or
susceptible
of
being
transformed
to
patrim.value.
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
77
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3. ask for rescission of s

made by debtor in fraud of
Cr.s rts.
(1) EXTRAJUDICIAL REMEDIES:

(a) EXPRESSLY GRANTED
BY LAW
Balane:
Q:
Against what can the
obligee demand performance?
A:
(b) STIPULATED
PARTIES
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.)
BY
THE
(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.
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 138089).-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.
(In Delivery of the Thing

Sold)
Article 1526. Subject to the
provisions
of
this
Title,
78
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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.
rescission of the obligation, with

the payment of damages in
either case. He may also seek
fixing of a period.
This is understood to be without
prejudice to the rights of third
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
(2) JUDICIAL REMEDIES:

(a)
PRINCIPAL
REMEDY
1191 / 1170
(b) SUBSIDIARY REM 1380 /
1177
(c) ANCILLARY REM The Rules
of Court
(a)
PRINCIPAL
1191 / 1170
REMEDY
(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.
Article 1191. The power to

rescind obligations is implied in
him.
between the fulfillment and the
79
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--Rescission in reciprocal in Art.

1191 is not identical to Rescission
of s in Art. 1380+.
exhausted the prop. of the Db.

Fraudulent conveyance must be
shown.
Test: WON conveyance by dbtor
a bona fide transxn
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 3rd p. in GF (Art.
1385)
Axn for Rsn brought w/in 4 years
(Art. 1389)
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
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.
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
Accion Pauliana: Axn to set aside Ks

in fraud of Crs. (Art. 1381 par. 3)
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.
Requisites for Accion Pauliana:

1. Pff. Asking for Rsn has a credit
prior to alienation, though
demandable later
2. Dbt has made a subsequent K
conveying
a
patrimonial
benefit to 3rd p.
3. Cr-Pff has no other legal
remedy to satisfy his claim
4. Act
being
impugned
is
fraudulent
5. 3rd p. who received prop., if by
onerous title, is accomplice in
the fraud
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. 3rd
p. is in GF, the party who caused
the loss is liable for the damages
Badges of fraud, & Art. 1387:
Presumptions. May be rebutted by
satisfactory & convincing evidence.
Rsn. is a subsidiary axn, w/c

presupposes that the Cr has
80
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Art. 1388: Cr. With axn only v.

subsequence transferees only when
an axn lies v. 1st transferee. If 1st
Tfee in GF, no liability. If 1st Tfee in
BF, the rescissible char. Of 2nd
alienation depends upon how 2nd
Tfee acquired the thing.
Art. 1191.
The power to
rescind obs. Is implied in
reciprocal ones, in case on of
w/ what is incumbent upon him.
between the fulfillment & the
rescission of the ds., w/ the
payment of damages in either
case.
He may also seek
The
ct.
shall
decree
the
fixing of a period.
This is understood to be w/o
prejudice to the rts of third
thing, in accordance w/ Arts.
1385 & 1388 & the Mortgage
Law.
(1) Rsn under 1191 may be

demanded only by party to the ,
under 1380+ by 3rd p. prejudiced by
the ;
(2) Rsn under 1191 may be denied
when there is sufficient reason to
justify extension of time to perform,
under 1380+ such reason does NOT
affect rt. to ask for Rsn;
(3) Non-perf. is the only grd. for
Rsn under 1191, while there are
various reasons of equity as grds.
under 1191 applies only to recip.
ds. where one party has not
performed, while under 1380(+)
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 nonpayment 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.
Art. 1192. In case both parties

have committed a breach of the
obligation, the liability of the 1st
infractor
shall
be
equally
tempered bye the cts.
If it
cannot be det. Which of the
parties 1st violated the , the
same
shall
be
deemed
extinguished, & each shall bear
his own damages.
Tolentino:
Similarities between Rsn under
Art. 1191 & Art. 1380+:
(1) both presuppose s validly
entered into & existing, &
(2) both require mutual restitution
when declared proper.
Issues:
W/N Tolentino can compel specific
performance.
W/N Tolentinos liability to pay the
P17,000 covered by the promissory
note subsists.
Differences:
81
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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.
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.
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
82
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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.
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.
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..
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.
ISSUE: WON the rescission of the

Bill of Assignment by the CA is
proper?
ART. 1384. Rescission shall

be only to the extent
necessary to cover the
damages caused.
In this connection, we quote for

ready reference the following
articles of the new Civil Code
governing rescission of contracts:
HELD: The power to rescind

obligations
is
implied
in
him.
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.

between
fulfillment
and
rescission of the obligation,
with payment of damages in
either case.
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.
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.

rescission claimed, unless
there
be
just
cause
83
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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.
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.
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 respondentsappellees 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
Separate Opinion:
J.B.L., J., concurring:
REYES,
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
84
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under Article 1191 of the Civil Code

and a rescission by reason of lesion
or economic prejudice, under
Article 1381, et seq.
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.
(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.
MAGDALENA
ESTATES
LOUIS MYRICK (1941)
VS.
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.
(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
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
85
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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.
one of the obligors should not

perform his part, is implied.
Upon the other hand, where, as in
this case, the petitioner cancelled
the
contract,
advised
the
respondent that he has been
relieved
of
his
obligations
thereunder,
and
led
said
respondent to believe it so and act
upon such belief, the petitioner
may not be allowed, in the
language of section 333 of the
Code of Civil Procedure (now
section 68 (a) of Rule 123 of the
New Rules of Court), in any
litigation the course of litigation or
in dealings in nais, be permitted to
repudiate his representations, or
occupy inconsistent positions, or, in
the letter of the Scotch law, to
"approbate and reprobate."
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.
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;
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.
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,
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
86
!k
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:
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.
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;
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.
ALUMCO continued its logging

operations, but again incurred an
unpaid account, for the period from
9 December 1964 to 15 July 1965,
UPs MR was denied.

87
!k
ISSUE: whether petitioner U.P. can

treat its contract with ALUMCO
rescinded, and may disregard the
same
before
any
judicial
pronouncement to that effect.
damages; in the contrary case,

the resolution will be affirmed,
and the consequent indemnity
awarded
to
the
party
prejudiced.
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:
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).
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
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
1
obligation,
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
88
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thereon should become barred

by acquiescence, estoppel or
prescription.
muni.court finding the case as one

of interpretation & rescission of
b/c d to sell was converted to
of lease. MR denied.
ZULUETA VS. MARIANO
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?
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 .
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
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 MTCPasig. 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
89
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cognizance of by a justice of
the peace court. ...
There was no other recourse left for

respondent
Judge,
therefore,
except to dismiss the appeal.
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.
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
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.
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)
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:
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
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.
90
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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.
ANGELES VS CALASANZ
FACTS: Ursula Torres Calasanz and
Tomas Calasanz and plaintiffsappellees 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 plaintiffsappellees
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 plaintiffsappellees. 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.
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.
The plaintiffs-appellees filed with

CFI-Rizal to compel the defendantsappellants 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
91
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interests,
realty
taxes
and
incidental
expenses
for
the
registration and transfer of the
land.
The breach of the contract

adverted to by the defendantsappellants 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.
The defendants-appellants alleged

in their answer that the complaint
states no cause of action and that
the plaintiffs-appellees violated
paragraph six (6) of the contract to
sell when they failed and refused to
pay and/or offer to pay the monthly
installments corresponding to the
month of August, 1966 for more
than five (5) months, thereby
constraining
the
defendantsappellants to cancel the said
contract.
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.
The lower court rendered judgment

in favor of the plaintiffs-appellees.
MR denied.
We agree with the observation of

the lower court to the effect that:
ISSUE: WON the contract to sell

has been automatically and validly
cancelled by the defendantsappellants
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.
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 contract to sell entered into by

the
parties
has
some
characteristics of a contract of
adhesion.
The
defendantsappellants drafted and prepared
the
contract.
The
plaintiffsappellees, 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 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.
92
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The contract to sell, being a

contract of adhesion, must be
construed
against
the
party
causing it. We agree with the
observation
of
the
plaintiffsappellees 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."
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 CFIRizal for damages.
The
power
to
rescind
obligations
is
implied,
in
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
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
93
!k
simultaneously, so that the

performance
of
one
is
conditioned
upon
the
simultaneous fulfillment of the
other" [Tolentino]
The power to rescind is
given to the injured party.
"Where the plaintiff is the party
who
did
not
perform
the
undertaking which he was bound
by the terms of the agreement to
perform 4 he is not entitled to
insist upon the performance of the
contract by the defendant, or
recover damages by reason of his
own breach " [Seva vs. Alfredo
Berwin 48 Phil. 581].
Another
violation
of
the
contract in question was the
assignment and transfer, first to J.
Amado Araneta, and subsequently,
to appellant Yulo, Jr., of the
managerial rights over Boysaw
without the knowledge or consent
of Interphil. The assignments, from
Ketchum to Araneta, and from
Araneta to Yulo, were in fact
novations of the original contract
which, to be valid, should have
been consented to by Interphil.
Novation which consists in
substituting a new debtor
in the place of the original
one, may be made even
without the knowledge or
against the will of the
latter, but not without the
consent of the creditor.
[Art. 1293]
Creditor not bound to deal
w/unilaterally substituted
debtor - Under the law when a
contract is unlawfully novated by
an applicable and unilateral
substitution of the obligor by
another, the aggrieved creditor is
not bound to deal with the
substitute.
The consent of the creditor to

the change of debtors, whether in
expromision or delegacion is an,
indispensable requirement . . .
Substitution of one debtor for
another may delay or prevent the
fulfillment of the obligation by
reason of the inability or insolvency
of the new debtor, hence, the
creditor should agree to accept the
substitution in order that it may be
binding on him.
Thus, in a contract where x is
the creditor and y is the debtor, if y
enters into a contract with z, under
which he transfers to z all his rights
under the first contract, together
with the obligations thereunder,
but such transfer is not consented
to or approved by x, there is no
novation. X can still bring his action
against y for performance of their
contract or damages in case of
breach. [Tolentino]
From the evidence, it is clear
that the appellees, instead of
availing themselves of the options
given to them by law of rescission
or
refusal
to
recognize
the
substitute obligor Yulo, really
wanted to postpone the fight date
owing to an injury that Elorde
sustained in a recent bout. That the
appellees had the justification to
renegotiate the original contract,
particularly the fight date is
undeniable
from
the
facts
aforestated.
Under
the
circumstances,
the
appellees'
desire to postpone the fight date
could neither be unlawful nor
unreasonable.
We uphold the appellees'
contention that since all the rights
on the matter rested with the
appellees, and appellants' claims, if
any, to the enforcement of the
contract hung entirely upon the
former's pleasure and sufferance,
94
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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.
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.
PILIPINAS BANK VS. I.A.C.

FACTS:
Hacienda Benito, Inc.
(petitioner's
predecessor-ininterest) 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.
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."
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
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
95
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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.
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.
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
96
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FOR JULY 16, 2008:

G.
MODES
EXTINGUISHMENT
OBLIGATIONS
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:
OF
OF
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.
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.
Balane:
Art. 1231 gives us ten modes
of extinguishing an obligation. One
of the modes mentioned is
rescission.
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.
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
exclusive.
is
not
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
In this case, Molina can make

out a case of extinguishment of
97
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obligation on the ground of want of

interest. The obvious purpose of
the stipulation is to prevent unfair
competition.
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.
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,
ISSUE: WON the of RFC to Saura

in the perfected loan subsists
98
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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.
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:
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.
99
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(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
100
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instrumentalities, and international financial
banking institutions so long as the funds are
identifiable, as having emanated from the
sources enumerated above;
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)
(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;
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 than Philippine currency, such that
obligations or transactions may now be
paid in the currency agreed upon by the
parties.
(c) forward exchange transactions entered

into between banks or between banks and
individuals or juridical persons;
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.
(d) import-export and other international

banking, financial investment and industrial
transactions.
It follows, therefore, that the jurisprudence
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.
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
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.
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.
101
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For BALANE:
Art. 1233 states
these requisites of payment
I.
Re: The prestation
1. Identity
2. Integrity
3. Indivisibility
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.
II.
Re: The parties

1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
III.
payment shd be made by the

debtor to the creditor at the right
time and place.
Re: Time & place
Discussion:
KINDS:
1. NORMAL
when
Db
voluntarily performs
2. ABNORMAL when Db is
forced by judicial proceeding
I. With respect to prestation:

1. Identity
If specific prestation, this
requisite means that the very
thing or service must be
delivered. (Art. 1244.)
Balane:
Payment or Performance are used
interchangeably. But technically,
Payment in obligations to
give,
Performance in obligations
to do.
If
generic,
the
requisite
requires
the
delivery
of
something of neither inferior
or superior quality (Art. 1246).
It must be something in the
middle. In case of money,
there are special rules:
Payment/
performance
is
the
paradigmatic
mode
of
extinguishment of an obligation.
It is the only normal way of
extinguishing an obligation.
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.
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.
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.
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
LEGAL TENDER
currency whc in a
used for payment
priv, &whc cannot
means such
given jus can be
of debts public &
be refused by Cr.
In the RP the ff are legal tender:

(sec. 54, RA 265)
102
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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.
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
extraordinary
inflation
deflation (Art. 1250)
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.
This rule has never been used. It

was only during the Japanese
occupation that there was a
recognition
of
extraordinary
inflation in this country.
If incurred after RA 529 became

effective, the conversion must be
as of the time the obligation was
incurred (Kalalo v. Luz)
Exceptions to the requirement

of identity
If the loan is in foreign currency, the

conversion is as of the time of
payment. (RA 529.)
1245.)
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?
(i)
Dacion en pago (Art.
(ii) Novation
In both cases, there is a voluntary

change in the object.
2. Integrity There must be
delivery of the entire prestation
due. (Art. 1233) or completely
fulfilled;
The
exceptions
to
the
requirement of integrity are:
1. In
case
of
substantial
performance in good faith (Art.
1234.) This is an equity rule.
2. In case of waiver of obligee/
creditor (Art. 1235.)
3. In case of application of
payments if several debts are
equally onerous (Art. 1254,
par. 2.)
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
of
or
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.)
103
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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.
becomes the agent of the

debtor.
The effect is
subrogation (Articles 12361237.) 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.
II. With respect to the parties

There are two parties
involved:
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
Requirements:
1.
Art. 1226 - 1238.
should the payor be:
Who
5. Anyone in possession of
the credit. (Art. 1242.)
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
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.)
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.
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.
c. Effect of payment by a
third person:
1. If the payment was w/ the
debtor's
consent,
he
104
Tertiary rule:
domicile
At the debtor's
!k
informed her that has been

rescinded.
But def. refused to
vacate. Thus, pltff filed case w/CFIRizal 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.
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
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
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.
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
1st
installment on execution of in
Sept. 1954 & pd. Mo.installmts until
Jan. 1962. After subseq. Default by
def. of monthly inst. Plaintf
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,
105
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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 8yrs about 95-mos.instalmnts out of
120; he stopped paying fr. Filing of
this case w/CFI-Manila in 1961;
after his 1st 5yrs of paying, resp.
called attention of vendors that he
wanted to build a house on his lot
but
they
have
to
start
improvements on d subd, e.g.
roads. Instead, he was informed of
cancellation of for failure to pay
as stipulated, the 120installments
and his payments were to be
treated as rents.
> LC dismissed resp.s complaint,
upheld the cancellation of the .
Appellate court reversed, and
ordered the conveyance of one of
the 2 lots to defs. At the 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)
> 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.
ISSUE: WON cancellation here was

proper?
HELD: NO. Applying Doctrine in JM
Tuazon v. Javier
AZCONA V. JAMANDRE
317] -
[151 S
FACTS:
GUILLERMO
AZCONA
leased 80 Ha. Out of his 150 Ha
pro-indiviso share in hacienda Sta.
fe in Escalante, Negros Occ. To
CIRILO JAMANDRE, decedent rep.by
Administrator to his Estate;
> Yearly rental agreed: P7,200 for
3-agri.years fr. 1960, extendible to
1965 at lessees option. 1st annual
rental due on Mar. 1960; but resp.
did not pay for failure of Pet. To
deliver possn of the prop. To him
until he pd in Oct. 1960 of P7000;
> In April 1961, Pet. Notified Resp.
that is deemed cancelled for
failure to comply w/conditions
therein;
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
should be made
payment
Art. 1240.
Payment shall be
made to the person in whose
106
!k
favor the obligation has been

constituted, or his successor in
interest,
or
any
person
authorized to receive it.
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
ARAAS V. TUTAAN [127 S 828]

Payment by judgment debtor to
the wrong party does not
extinguish judgment debt.
A payment in order to be
effective to discharge an
obligation must be made
to the proper parties.--
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 petitionersps. 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 19721979 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.
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.
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
In the absence of an agreement,

either express or implied, payment
107
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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)]
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.
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
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
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
108
!k
to 3P, but person who paid

has right to recover fr. 3P
4. In ff. Cases, paymt. To 3P
releases Db:
(a) when w/o notice to
assngmt. of credit, he pays
to original Cr [Art. 1626] &
(b) when in GF he pays to
one in possn of credit [Art.
1242]
5. If mistake of Db due to fault
of Cr, then Cr cannot
demand anew
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 QuasiContracts)
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.
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.
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
109
!k
latter has been judicially ordered to

retain the debt shall not be valid.
deliver a thing of inferior quality.

The purpose of the obligation &
other circumstances shall be taken
into consideration.
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;
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
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. 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. 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. 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.
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
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
110
!k
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.
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.
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.
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.
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.
c. Section 63 of Republic Act No.

265, as amended (Central Bank Act)
which provides:
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.
a. Article 1249 of the Civil Code

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.
Art. 1249. The payment of debts in

money shall be made in the currency
From the aforequoted provisions of law, it

is clear that this petition must fail.
The provisions of law applicable to the

case at bar are the following:
111
!k
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.
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.
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:
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
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.
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:
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
112
!k
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.
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.
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
FACTS:
On June
Jesusa B.
Mendoza
executed
113
3, 1969, private respondent

Afable, together with Felisa L.
and Ma. Aurora C. Dio
a promissory note in favor of
!k
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.
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 withrespect 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
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
114
!k
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.
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, CFIZambo 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, exofficio 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.
BISHOP OF MALOLOS V. IAC

[191 S 411]
FACTS:
Petitioner is vendor of parcels of
land in Bulacan to vendee RobesFrancisco 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.
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
115
!k
check even when good may be

validly refused by Cr
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
4th day was also denied by pet. Priv.
resp. later purports tender of
payment (in check) on 5th day was
refused by pet. TC favored pet. IAC
reversed after finding that resp. had
sufficient funds at the time of
tender of check payment to pet. On
the 5th day of the grace period, and
concluded that there was valid
tender of paymnt.
Pymt by Check: WON MgrC or

ordinary is NOT a valid tender
of pmt
Art.
1250.
In
case
an
extraordinary inflation or deflation
of the currency stipulated should
supervene, the value of the
currency at the time of the
establishment of the obligation
shall be the basis of payment,
unless there is an agreement to the
contrary.
ISSUE: WON offer of check is vaid

tender of pymnt of under a
whc stipulates that consid. Of sale
is in Phil. Currency?
Baviera:
HELD:
This article applies to contracts

only.
EXTRAORDINARY means
unusual or beyond the common
fluctuation, not foreseen
Finding of suff.avail.funds by CA
does not constitute proof of tender
of pymnt. (non sequitur)
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
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.
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 CFIMla
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
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
116
!k
occurrence & that there was no

proof of extraord inflation in the
sense contemplated by Art. 1250.
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 CFICebu 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 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.
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.
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.
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
COMMISSIONER
OF
PUBLIC
HIGHWAYS V. BURGOS
[96 S
831] 117
!k
These provisions are w/o

prejudice to venue under the Rules
of Court.
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.
118
!k
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).
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.
There are two ways at looking at

dacion en pago:
1. Classical way where
dacion en pago is treated as a
sale.
[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 ;
2. Modern concept w/c

treats dacion en pago as a
novation.
It may be a thing or a real rt

(i.e. usufruct), or of a credit vs a
3P;
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.
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.
There are two more things to

remember in the cases of
Filinvest v. Phil. Acetylene,
supra. & Lopez v. CA, 114 SCRA
671:
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.
Dacion en pago can take place

only if both parties consent.
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
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.)
119
!k
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.
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.
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.
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.
CITIZENS SURETY V. CA [162 S

738]
RATIO:
There is no dation in
payment when there is no
obligation
to
be
extinguished
FACTS:
Pet. Issued 2 surety bonds to
Pascual Perez to guarantee his
compliance in a Contract of Sale of
Goods he entered w/Singer Sawing
Machine Co. Perez in turn executed
a deed of assignment of its stock of
lumber to pet. And a 2nd REM to
guaranty
reimbursement
of
whatever liability it will be made to
pay in the future on 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
Dacion en pago, according to

Manresa, is the transmission of
the ownership of a thing by the
120
!k
No.4:
Apply
to
the
most
onerous debt. (Art. 1252, par. 1.)
Q;
What are the rules to
determine w/c is the most
onerous debt?
A: (1252)
1. If one is interest paying & the
other is not, the debt w/c is
interest
paying
is
more
onerous.
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.
2. If one is a secured debt & the

other is not, the secured debt
is more onerous
ISSUE:
WON CA erred in
concluding there was dation in
payment by the execution of
the Deed of Assgment?
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.
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.
5th Rule: Proportional application if

the debts are equally onerous.
Art. 1252. He who has various
debts of the same kind in favor of
one & the same creditor, may
declare at the time of making the
payment, to w/c of them the same
must be applied. Unless the parties
so
stipulate,
or
when
the
application of payment is made by
the party for whose benefit the
term has been constituted, application 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.
2ND SPECIAL KIND OF PAYMENT:

Application of Payment
[Balane]
Application
of
payment
(Imputacion in Spanish) is the
designation of a debt w/c is being
paid by the debtor who has several
obligations of the same kind in
favor of the creditor to whom the
payment is made.
Rules where the amount sent
by the debtor to the creditor is
less than all that is due:
No.1:
Apply in accordance w/
the agreement.
[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
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.
121
!k
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.
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.
[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.
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.
3rd SPECIAL FORM OF Payment

by Cession
4th
SPECIAL
FORM
PAYMENT:
Tender
of
Payment
Consignation
[Balane]
Property is turned over by the
debtor to the creditor who
acquires the right to sell it &
divide the net proceeds among
themselves.
OF
&
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;
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:
122
!k
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.
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.
[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.)
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.
CASES:
SOCO V. MILITANTE [123 S 160]
- Requiremts of consignn
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.
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.
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
[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.
123
!k
requisites of a valid consignation must be
complied with. The Civil Code Articles
expressly and explicitly direct what must
be essentially done in order that
consignation shall be valid and effectual.
Consignation Defined:
Consignation is the act of
depositing the thing due w/
the
court
or
judicial
authorities whenever the
creditor (1) cannot accept
or (2) refuses to accept
payment, & it generally
requires a prior tender of
payment.
Requisites
Consignation:
of
Valid
In order that consignation may be

effective, the debtor must first comply
with certain requirements prescribed by
law. The debtor must show
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, L10572, 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.
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);
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, &
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).
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).
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).
124
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the
announcement
of
the
consignation in other cases.
The consignation having been
made, the interested parties shall
also be notified thereof.
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
[Tolentino]
Notice: The reqmt is fulfilled
by the service of summons
upon the Def together w/ copy
of complaint
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. 1259.
The expenses of
consignation, when properly made,
shall be charged against the
creditor.
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.
[
Tolentino] Proper when
1.
Cr accepts consignn
after deposit w/o protest
though Db failed to comply
w/ reqs. Or
[Baviera]
Q: When is there a need to
tender pmt?
A: (a) upon demand & (b)
when debt is due
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.
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.
[Tolentino]
Effects of Consignation:
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.
1. Db is released in the same

manner as if he had performed
the oblig
2. Accrual
of
suspended
INTEREST
is
125
!k
although it was due to a fortuitous

event, there was delay on his part
when he refused to accept pymt.
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;
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?
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.
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.
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?
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.
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.
FACTS:
A previous complaint, for
annulment of judgment and deed of sale
with reconveyance of real property
alleged that Juanito Victoria, with the
cooperation of defendant Juanita Naval
and others succeeded in causing plaintiff
Lauro Immaculata, petitioner herein, to
execute a Deed of Absolute Sale in favor
of Juanito Victoria, by unduly taking
advantage of the mental illness and/or
weakness of petitioner and thru deceit
and fraudulent means, purportedly
disposed of by way of absolute sale, a
5,000-sq.m.parcel of land w/TCT, for
P 58K, which petitioner supposedly
received, but in truth and in fact did not;
Jus of the court over the person of the
defendant was also questioned but such
was upheld thru valid service of
summons to the guardian ad litem and
also later thru voluntary appearance in
lieu of pleadings asking for exercise of jus
by the same court.
Accordingly,
respondent
Court
directed
the
respondent Sheriff to execute the deed of
conveyance prayed for by Juanito
Victoria, by reason of which, without the
knowledge and consent of petitioner, a
new TCT was issued in favor of Juanito
(2nd
MODE
OF
EXTINGUISHEMENT)
LOSS OF THE THING DUE OR
IMPOSSIBILITY
OF
PERFORMANCE
Art. 1262.
An obligation w/c
consists in the delivery of a
determinate
thing
shall
be
extinguished if it should be lost or
destroyed w/o the fault of the
debtor, & before he has incurred in
delay.
When by law or stipulation,
the obligor is liable even for
fortuitous events, the loss of
the thing does not extinguish
the obligation, & he shall be
126
!k
responsible for damages. The

same rule applies when the
nature
of
the
obligation
requires the assumption of
risk.
the creditor, in addition to the right

granted him by article 1170, may
compel the debtor to make the
delivery.
obligation be complied w/ at the
expense of the debtor.
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:
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
("Genus never perishes." )
perit
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,
[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
127
!k
, but not an w/c is not very

personal.
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.
CASES:
PEOPLE V. FRANKLIN [39 S 363]
FACTS:
Appellant,
ASIAN
SURETY
&
INS.CO.INC. contends that the CFIPAMPANGA 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.
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.
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.
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.
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.
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
128
!k
order for rebus sic stantibus to

apply.
Balane:
Rebus sic stantibus.-- Literally
means "things as they stand."
CASES:
It is short for clausula rebus sic

stantibus ("agreement of things as
they stand.")
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.
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.
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
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
129
!k
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.
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.
*** 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.
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.
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."
Balane: The Court went too far in

this case.
It even went to the
130
!k
extent of stipulating for the parties

in the name of equity.
its existence is unknown or it

cannot be recovered;
3. When the thing deteriorates
w/o the fault of the debtor,
the impairment is to be borne
by the creditor;
4. If it deteriorates through the
fault of the debtor, the creditor
may choose between the
rescission of the obligation &
its fulfillment, w/ indemnity for
damages in either case:
5. If the thing is improved by its
nature, or by time, the
improvement shall inure to the
benefit of the creditor;
6. If it is improved at the expense
of the debtor, he shall have no
other right than that granted
to the usufructuary.
[Balane]
There are three requisites in
order for Art. 1189 to apply-1. There is loss, deterioration or
improvement
before
the
happening of the condition.
2. There is an obligation to
(on the part of the debtor)
3. The condition happens.
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. 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.
obligation be complied w/ at the
expense of the debtor.
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
131
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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
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
132
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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.
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
3rd MODE OF EXTINGUISHMENT

OF :
CONDONATION OF REMISSION
OF THE DEBT
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.
[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.
b. By Agreement
Art. 1270.
Condonation or
remission is essentially gratuitous,
& requires the acceptance by the
Art. 1270.
Condonation or
remission is essentially gratuitous,
& requires the acceptance by the
133
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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.
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.
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.
Presumption IN Condonation:
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. 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]
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
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.
134
!k
(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
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.
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;
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
135
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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.
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.
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.
[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.
136
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Art. 2093.
In addition to the
requisites prescribed in article
2085, it is necessary, in order to
constitute the contract of pledge,
that the thing pledged be placed in
the possession of the creditor, or of
a
third
person
by
common
agreement.
Art. 2105. The debtor cannot ask
for the return of the thing pledged
against the will of the creditor,
unless & until he has paid the debt
& its interest, w/ expenses in a
proper case.
4TH
MODE
EXTINGUISHMENT:
Confusion
or
Merger
Rights
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.
OF
of
Art. 1275.
The obligation is
extinguished fr. the time the
characters of creditor & debtor are
merged in the same person.
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.
[Balane]
Confusion is the meeting in
one person of the qualities of
the creditor & debtor w/
respect to the same 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.
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.
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
What may cause a merger or

confusion?
(1)
Succession,
whether
compulsory,
testamentary
or
intestate;
(2) Donation;
(3)
Negotiation of a negotiable
instrument.
137
!k
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.
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.
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
affects one of the solidary debtors
does not release the latter fr. his
responsibility towards the codebtors, 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
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.
138
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5
MODE
EXTINGUISHMENT:
Compensation
TH
constitute trust fund for benefit of

lawyer. And the requisites of Art.
1278 not complied with.
OF
ISSUE: WON there was legal

compensation bet. Pet Gan Tion and
resp. Ong Wan Sieng.
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]
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.
Perhaps, next to payment,

compensation is the most
common
mode
of
Distinguished fr. Confusion In
compensation, there are 2 parties &
2 debts, whereas in confusion, there
are 2 debts & only 1 party.
CASES:
ISSUE: WON by operation of Art.

1278, where PNB and ISABELA has
become here debtors and creditors
of each other
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.
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.
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
FRANCIA V. IAC [162 S 753]

139
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RATIO: [T]here can be no offsetting 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.
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
Compensation:
ISSUE:
WON
Francias
tax
delinquency of 2400 has been setoff by the govts indebtedness to
him of 4116 after apportion of his
lot was expropriated.
Kinds
of
Legal Compensation (Articles

1279, 1290) w/c takes place
automatically by operation of law
once all the requisites are
present.
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.
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
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 wellsettled
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
140
!k
controversy, commenced by
third persons & communicated
in due time to the debtor.
[Balane]
Requisites under Art. 1279:
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
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.
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
A debt is liquidated when its

existence & amount are
141
!k
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.
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 CFIIloilo
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
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
142
!k
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.
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 offsetting of his obligation w/
petitioner's obligation to pay
for the 500 shares.
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
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
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.
143
!k
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.
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 moneymarket investments. CA affirmed.
On execution, ICBs 20 motor
vehicles were levied upon, and
upon motion by plaintiff, its
branches were ordered to pay.
ISSUE: WON the Court erred in

holding that Froilan, Compania and
rp
shd
pay
pan
oriental
reimbursements of its legitimate
expenses w/legal int. from the
time of disbursement, instead of
fr. The date of dispossession,
failing
to
consider
legal
compensation betwn. RP and Pan O.
HELD:
More, the legal interest
payable fr. 2/3/51 on the sum of
P40,797.54, representing useful
expenses
incurred
by
PANORIENTAL, 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 PANORIENTAL'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 PANORIENTAL 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."
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 moneymarket 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.)
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
Art. 1279 requires among others,

that
in
order
that
legal
compensation shall take place,
'the two debts be due' & 'they
be liquidated & demandable.'
144
!k
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.
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
Compensation:
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.
Legal
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
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
145
!k
may be transmitted by onerous or

gratuitous title.
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.
[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.
Automatic
compensation,
requisites
of,
present
Extinguishment of two debts arising

fr. final & executory judgments due
to compensation by operation of
law.
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.
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
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
146
!k
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.
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.
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
[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.)
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.
Rules:
Assignment w/ the debtor's
consent Debtor cannot set
up compensation at all unless
the right is reserved.
[Baviera}
What is the idea
behind legal comp?
To facilitate collxn of
money. For expediency.
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.
Effect of Assignment of Credit:
Assignment w/o the debtor's

knowledge Debtor can set
147
!k
up as compensation any
credit existing at the time he
acquired knowledge even if it
arose
after
the
actual
assignment.
the obligation is total (w/

exception of compromise.)
Novation, on the other hand, is a

relative mode of extinguishing an
obligation.
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.
6TH
MODE
EXTINGUISHMENT:
Novation
the
Classification of Novation:
1. Subjective
(Personal)
novation by a change
subject
or
of
2. Active
subjective
or
a
change of creditor; also known
as subrogation.
OF
3. Passive subjective
change of debtor
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.
or
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.
[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.)
5. Mixed novation w/c is a

combination of both subjective
& objective novation.
Requisites of Novation:
Novation is the most unusual

mode
of
extinguishing
an
obligation.
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.)
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
148
!k
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.
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
presumed.
is
ISSUE:
WON the mortgage
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.
NEVER
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:
INTEGRATED
CONSTRUCTION
VS. RELOVA, [146 SC 360]
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
Novation; While the tenor of

the
subsequent
letteragreement in a sense novates
the judgment award there
being a shortening of the
period within which to pay, the
149
!k
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.
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.
FACTS:
Pets., 2 constrx co.s, Integrated,
and Engrg, sued the MWSS,
formerly NAWASA, at CFI-Mla. The
Arbitration Board rendered decisionaward 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.
COCHINGYAN
VS.
SURETY [151 S 339]
Novation defined.
& B
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:
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
150
!k
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.
the obligation becomes a codebtor 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.
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
151
!k
FUA VS. YAP [74 P 287]

NOVATION
BY
SUBSEQUENT
AGREEMENT
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.
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.
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: 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.
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.
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
NPC VS. DAYRIT [125 S 849]

RATIO:
Novation
is
never
presumed
but
must
be
152
!k
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.
said
contract
was
executed
precisely
to
implement
the
compromise agreement for which
reason there was no novation.
BALILA V. IAC [155 S 262]
RATIO:
Subsequent
mutual
agreements
&
actions
of
petitioners
&
private
respondents
allowing
the
former extension of time to pay
their
obligations
&
in
installments
novated
&
amended
the
period
of
payment decreed by the trial
court in its judgement by
compromise.
FACTS:
Amicable settlement of this dispute
was arrived at and made basis of
decision of TC.
Defendants
admitted "having sold under a
pacto de retro sale the parcels of
land 4 described in the complaint in
the amount of P84,000.00" and
that they "hereby promise to pay
the said amount within the period
of four (4) months but not later
than May 15,1981.
Subseq,
priv.resp.Guadalupe Vda. de del
Castillo, rep.by her 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 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" agreements
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.
153
!k
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.
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, 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.
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
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.
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
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
154
!k
taken as additional security for the

performance of the contract
PNB VS. MALLARI
b. FORMS OF NOVATION:
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.
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
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.
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
155
!k
known to the debtor, when he

delegated his debt.
requires the consent of the original

parties & of the third person.
2. Change
of
Condition or Object
Principal
Q: Is it possible for a creditor

to transfer his credit w/o
consent of the debtor?
3. Subrogation/Subjective
Novation
A: Yes. But this is not novation but

an assignment of rights under Art.
1624.
a. In case of active
subjective novation
Assignment is also a novation

but much simpler. But is not
subrogation.
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.
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
pays, w/o prejudice to the
effects of confusion as to
the latter's share;
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
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)
Conventional/ Contractual (Art.

1301) Consent of the 3 parties (old
creditor, debtor & new creditor) are
required.
Art.
1301.
subrogation of
Conventional
third person
156
!k
Art. 1610. The creditors of the

vendor cannot make use of the
right of redemption against the
vendee, until after they have
exhausted the property of the
vendor.
Art. 1729. Those who put their
labor upon or furnish materials for a
piece of work undertaken by the
contractor have an action against
the owner up to the amount owing
fr. the latter to the contractor at the
time the claim is made. However,
the following shall not prejudice the
laborers, employees & furnishers of
materials:
(1) Payments made by the
owner to the contractor before
they are due;
(2)
Renunciation
by
the
contractor of any amount due
him fr. the owner.
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.
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
b.
Passive
Novation
(Substitution
debtor)
Subjective
of
the
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
demand fr. the debtor what he has
157
!k
paid, except that if he paid w/o 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
latter, cannot compel the creditor to
subrogate him in his rights, such as
those arising fr. a mortgage,
guaranty or penalty.
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.
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)
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.)
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
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.
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.
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
[Balane]
158
!k
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
H.
NATURAL OBLIGATIONS
ARTS. 1423-1430. 1155
General rule: In a novation, the

accesory obligation is extinguished.
Exception: In an active subjective
novation, the guarantors, pledgors,
mortgagors are not released.
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.
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.
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
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
159
!k
the obligation, he cannot demand

the return of what he has delivered
or the payment of the value of the
service he has rendered.
ANSAY v. NDC
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
DBP v. CONFESSOR:
160
!k
161

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CIVIL LAW REVIEW 2 Notes

Where there is a right or

Balane: Book IV starts w/ an

A better definition would

Arias Ramos: [more complete

It creates ties that are by

(1) Active Subject This refers to

** All the above 3/4 elements are

(3) Object of the obligation the conduct or activity that must be

to give prestation consists

(a) NATURAL OBLIGATIONS

to do incl. all kinds of

Positive Law valid legal

Voluntary fulfillment may be

Natural not sanctioned

(b) CIVIL OBLIGATIONS:

Illicit s s which are

Law & Acts. The latter are further

Baviera: When the source of the

As to QD: Neither was there any

SAGRADA ORDEN VS. NACOCO

As to Contract: There was also no

Plaintiff owned disputed property in

The APA had the control & admin. of

ISSUE: WON NACOCO is liable

Article 1159. Obligations

Therefore, even if def. were liable to

Article 1305. A contract is

Doctrine: The sense that the

The problem w/ Art. 1157 is that it

Balane: There are two parts in Art.

Pltff. (People's Car) was in law liable

directly by the unlawful & wrongful

Article 2143. The provisions

The act must be:

This juridical relation does

In the second case, the rules

Balane: Crime as a source of

juridical relation which arises

Performance at debtors cost

SOLUTIO INDEBITI juridical

when to do can only

Article 2177. Responsibility

TITLE V - Civil Liability,

This same rule shall be

Article 100. Civil liability of a

action is not fatal to the civil

When the acquittal is based on

Baviera: Requisites of enforcing

A: Yes, according to the case of

criminal case was filed against the

For example, Alinea is the owner of

There is no res judicata as regards

liable. If Molina is insolvent, Alinea

* Torts is seldom used by SC in

Notice that the choice of cause

QUASI-DELICTS the fault or

Again, remember that in this

The omission to do something

Baviera: The terms of the contract

A TORT is a civil wrong (an

Classes of Torts According

The responsibility shall cease