You are on page 1of 74

CIVIL LAW REVIEW 2 Notes

[ATTY. CRISOSTOMO A. URIBE]

(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

I. OBLIGATIONS
[June 18, 2008]

(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:

A. IN GENERAL:
1. DEFINITION:
Article 1156. an obligation is a juridical
necessity
to give, to do or not
to do.

Defines CIVIL ;
JURID. NECESSITY
makes it enforceable by court action;

Balane: Book IV starts w/ an inaccuracy. It gives the


impression that obligations & contracts are of the same
status, w/c they are not. A contract is only one of the
sources of obligations. Book IV should have been
simply titled "Obligations."
Etymology two Latin words, ligare, meaning "to
bind"
& ob w/c is a proposition used to
intensify a
verb.
Literally obligare means "to bind
securely."

(3) Object of the obligation - the conduct or activity


that must be observed by the debtor, this is always an
activity or conduct, the prestation.
Requisites of an object:
It must be licit.
It must be possible.
It must be determinate or determinable.
It must have pecuniary value so that if not
performed it is converted into damages.

Tolentino: the juridical tie between two or more


persons, by virtue of which one of them, the creditor or
oblige, has the right to demand of the other, the debtor
or obligor, a definite prestation.
Manresa: legal relation established between one
party and another whereby the latter is bound to the
fulfillment of a prestation which the former may
demand of him.

(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 quasidelicts)

Arias Ramos: [more complete definition, accdg to T,


whch gives the element of responsibility essential to an
]
An is a juridical relation whereby a person
(called the creditor) may demand from another
(called the debtor) the observance of a
determinate conduct, and in case of breach, may
obtain satisfaction from the assets of the latter.

Where there is a right or power to demand,


there is a correlative or an imposition
upon a person of a definite conduct.

Balane: A better definition would be,


An obligation is a juridical relation (bec.
there are 2 parties) whereby a person
should engage or refrain fr. engaging in a
certain activity for the satisfaction of the
private interests of another, who in case of
non-fulfillment of such duty may obtain fr.
the patrimony of the former through
proper judicial proceedings the very
prestation due or in default thereof, the
economic equivalent (damages) that it
represents. (Diaz Piero.)

** All the above 3/4 elements are agreed upon by


commentators as essential elements. The following two
are being debated.
(i) Causa debendi/ obligationes (Castan)
This is what makes the obligation demandable.
This is the proximate why of an obligation.
(ii)
Form - This is controversial.
This is
acceptable
only
if
form
means
some
manifestation of the intent of the parties.

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.

[TOLENTINO:
to give prestation consists in the delivery of a
movable or an immovable thing in order to create a
real right, orfor the use of the recipient, or for
possession, or to return to its owner; e.g. to deliver
the thing in a of sale, deposit, lease, antichresis,
pledge and donation.

Characteristics of an Obligation:

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.

It represents an exclusively private interest


It creates ties that are by nature transitory
It involves the power to make the juridical tie
effective in case of non-fulfillment through an
economic equivalent obtained fr. the debtor's
patrimony.

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;

Essential Elements of an Obligation:

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)

& effect

Enforceability

Positive Law valid legal laws enacted by the


legislative department;

(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.

2. KINDS OF OBLIGATIONS AS TO BASIS &


ENFORCEABILITY
(a) NATURAL OBLIGATIONS

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

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)

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.

Juridical tie
Performance
by debtor

Basis of
existence of

Enforceability

of

Within
the
domain of law

Sources of Obligations according to Sanchez


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

Moral
none
act
of
pure
liberality which
springs
from
blood, affection
or benevolence
entirely domain
of morals

Baviera: When the source of the obligation is Law, there


is no need for an act or omission for the obligation to
arise.
CASE:
SAGRADA ORDEN VS. NACOCO [91 P 503]

True but for moral duty is


certain causes inexistent
in
cannot
be the
juridical
enforced
by point of view
law
Examples of natural s:

Support of a natural child

Indemnification of a woman seduced

Support of relatives, by consanguinity or


affinity

Source of
binding force

CIVIL s
From positive
law

an agreement is not necessary in


order that a party may demand
from another the fulfillment of an
arising from the application of a law
in the circumstances;

Balane: Law as a source of obligation It is my


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

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)
Moral :
Natural
Exists
legal
fulfillment
an

cannot be
compelled by
court action but
depends upon
good conscience
of the debtor

Illicit s s which are contrary to morals and


good customs do not constitute natural s, whatver is
paid under such s can be recovered, (apply Art.
1414, 1411, 1412.)

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 vs.

can be enforced
by court action
or the coercive
power of public
authority

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

NATURAL s
from equity and
natural justice

TCT and ordered reversion of title to plaintiff, and right


of recovery from NACOCO of rentals to the property.

binds himself, with respect to the other,


to give something or to render some
service.

ISSUE:
WON NACOCO is liable to pay back
rentals?
HELD: If def.-appellant (NaCoCo) is liable at all, its
obligations must arise fr. any of the 4 sources of
obligations, namely, law, contract or quasi
contract, crime, or negligence. (Art. 1089, OCC.)

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)

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)

Balane: There are two parts in Art. 1159.

As to QD: Neither was there any negligence on its part.

CASE:
PEOPLE'S CAR VS. COMMANDO SECURITY
SCRA 40]

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.

Neither is it a trustee of the former owner, the pltffappellee 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.

3. QUASI-CONTRACTS:
Article 1160. Obligations derived from
quasi-contracts shall be subject to the
provisions of Chapter 1, Title XVII, of this
Book.

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.
in

Art.

[51

Pltff. (People's Car) was in law liable to its customers for


the damages caused the customer's car, w/c had been
entrusted into its custody. Pltff. therefore was in law
justified in making good such damages & relying in turn
on def.(Commando Security) to honor its contract &
indemnify it for such undisputed damages, w/c had been
caused directly by the unlawful & wrongful acts of def.'s
security guard in breach of their contract.
WON commando security is liable to damages in
accordance w/ provisions of / whc provision/

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.

Balane:
Is the enumeration
exclusive or merely illustrative?

obligations derived fr. contract has the


force of law bet. the contracting parties
(jus civili )
there must be compliance in good faith
(jus gentium.)

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.

1157

Doctrine: The sense that the case of Sagrada


Orden tells us is that the enumeration is
exclusive.
In resolving the issue of whether the def. should
be liable to pay rentals, the SC used the process of
exclusion. For there to be an obligation to pay rentals,
that obligation must arise fr. either of the five (5)
sources of obligations. If it does not, then there is no
obligation. The clear implication of this ruling is
that, these five (5) are the only sources of
obligations.

The act must be:


(1) Lawful thus different from delict which is
unlawful;
(2) Voluntary thus different from quasidelict 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

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.

EXTRA-CONTRACTUAL OBLIGATIONS
(s without an agreement / based in IMPLIED
CONSENT)
Q: HOW MANY?
A: In NCC, 2 nominate and some innominate
QCs
a. Quasi-contracts
Article 2142. Certain lawful, voluntary and
unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the
expense of another.

2. CONTRACTS:
Article 1159. Obligations arising from
contracts have the force of law between
the contracting parties and should be
complied with in good faith.

Article 2143. The provisions for quasicontracts in this Chapter do not exclude other
quasi-contracts which may come within the
purview of the preceding article.

Article 1305. A contract is a meeting of


minds between two persons whereby one

b. Negotiorum Gestio

liability arising from negligence under the Penal


Code. But the plaintiff cannot recover damages
twice for the same act or omission of the
defendant.

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.

TITLE V - Civil Liability, RPC: CHAPTER


ONE - Persons Civilly Liable for Felonies
Article 100. Civil liability of a person guilty of
felony. - Every person criminally liable for a
felony is also civilly liable.

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.

[CHAPTER 2, RPC:
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.

In the first case, the provisions of articles 1317,


1403, No. 1, and 1404 regarding unauthorized
contracts shall govern.
In the second case, the rules on agency in Title
X of this Book shall be applicable.

NEGOTIORUM GESTIO juridical relation


which arises whenever a person voluntarily
takes charge of an agency or management of
the business or property of another without
any power or authority from the latter.

Baviera:
Requisites of
enforcing the subsidiary
obligation of the employer under the RPC:
criminal case was filed against the EE
the act or negligence arose during or in connection w/
the performance of the latters employment
the EE is found guilty of criminal negligence
a writ of execution has been returned unsatisfied, i.e. EE
has been found to be insolvent.

c. Solutio indebiti
Article 2154.
when there is
it was unduly
the obligation

If something is received
no right to demand it, and
delivered through mistake,
to return it arises.

There is no res judicata as regards the ER as there is a


difference in the COA. Quasi-delict (QD) differs fr. an
action based on delict on the following grounds:
QUASI DELICT
DELICT
it is subsidiary (imputed)
ERs liability is primary in
RPC
Diligence of good father of In RPC, such defense of
the family may be set up GFF is not available
by the ER as a defense

SOLUTIO INDEBITI juridical relation which


arise whenever person unduly delivers a thing
through or by mistake of another who has no
right to demand it.

4.
ACTS OR OMISSIONS PUNISHED BY LAW
(DELICT or CRIMES but not Felony whc is ltd.
To those punished under RPC ):

A person while not criminally liable may still


be civilly liable Failure of the plaintiff to reserve
in the criminal case his right to file a separate civil
action is not fatal to the civil action after the
acquittal of the accused.

Article 1167. If a person obliged to do


something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he
does it in contravention of the tenor of
the obligation. Furthermore, it may be
decreed that what has been poorly done
be undone.

Balane: Crime as a source of obligation There are


many crimes fr. w/c, civil liability arises in their
commission, in addition to the criminal penalty attached
to them. This underlines the two aspects in a crime:
one, as an offense against the state, & two as an
offense against the victim. It is in the latter case
that civil liability is recoverable.

When the acquittal is based on ground that the


guilt of the accused has not been proved
beyond reasonable doubt, plaintiff has the right
to institute a civil action for damages (culpa
aquiliana).

Q: Is it possible that even if there is a contract


bet. the parties, a quasi-delict can still be
committed by one against the other regarding the
area covered by the contract?
A: Yes, according to the case of Araneta v. de Joya,
57 SCRA 59. The same act can give rise to obligations
arising fr. different sources.

As far as crime is concerned, civil law is


not concerned w/ the penal liability but
only w/ the civil liability.

For example, Alinea is the owner of a bus co., the Alinea


Bus Co., Molina is a driver of one of the buses of Alinea
Bus Co. Lagdameo rode the bus being driven by Molina.
As a result of the reckless driving of Molina, Lagdameo
suffered injuries. In this case, Lagdameo has a choice-he can sue on either contract, quasi-delict or on crime.
If he decided to sue on the breach of the contract of
carriage, all he has to prove is the (existence of the
contract) & that it was not performed. In this case, he
can sue the common carrier but not the driver bec. he
has no contract w/ the driver. If he sues on quasi-delict,
he can sue both the common carrier & the driver. The
defense of the driver would be diligence in driving (or
fortuitous event.) The defense of the common carrier
would be diligence in the selection & supervision of

Performance at debtors cost non-compliance


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

What Civil Liability

when to do can only be performed by debtor


he cannot compelled to do so by force, the only
remedy is damages;
Article 2177. Responsibility for fault or
negligence under the preceding article is
entirely separate and distinct from the civil

employees. If he sues under crime, he has to sue the


driver. In case the driver is convicted & has been
sentenced to pay civil liability, the employer (Alinea Bus
Co.) is subsidiarily liable. If Molina is insolvent, Alinea
Bus Co. will pay.

(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

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.

(2) Culpa contractual, or negligence in


the performance of a contractual .
Governed by Art. 1179 (common
carrier), & all on contracts

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.

PERSONS
LIABLE:
LIABILITY, 2180)
1. father / mother
2. guardians
3. owners/managers
4. employers
5. the State
6. teachers

The responsibility shall cease if they can prove


that they have observed diligence of good
father of the family to prevent damage;

Baviera: The terms of the contract cannot be against


mandatory & prohibitive laws. And if the contract is
valid, it shall have the force of law between the
contracting parties.
5.
QUASI-DELICTS:
(culpa
aquiliana
negligence / torts*)
[NCC, CHAPTER 2 - Quasi-delicts]

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

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!)

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.

Article 1162. Obligations derived from


quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this
Book, and by special laws.
* Torts is seldom used by SC in juris., it is
broader term for actionable wrong whc may not
be negligence, may be malicious tortuous act
whc is not anymore QD.

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.

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;

Classes of Torts According to Manner of


Commission
1. Intentional Torts
a. tortfeasor desires to cause the
consequences of his act, or
b. tortfeasor believes that the
consequences are substantially
certain to result from it
c. ex. Art. 26, 32 & 33 (CC)
2. Negligent Torts:
d. tortfeasors conduct merely creates
a forseeable risk of harm which
may or may not occur
e. Art. 2176 (CC)
3. Strict Liability Torts:
f. ex. Art. 2183 & 2187 (CC)

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.

(IMPUTED/vicarious

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?

TEST OF NEGLIGENCE: Would a prudent man,


in the position of the person on who negligence
is attributed, foresee harm to the person injured
as a reasonable consequence of the course
about to be pursued?

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:

KINDS OF NEGLIGENCE:

CANGCO VS. MANILA RAILROAD CO. [38 P 768] -

The contract of defendant to transport plaintiff


carried with it, by implication, the duty to carry
him in safety and to provide safe means of
entering and leaving its trains (contract of
carriage). That duty, being contractual, was direct and
immediate, and its non-performance could not be
excused by proof that the fault was morally imputable
to defendant's servants.

Balane: There are two important principles that we


learn fr. this case:
The difference in concept bet. contract & quasi-delict
is that in a contract, there is a pre-existing
juridical tie bet. the parties. Violation of the
contract gives rise to liability but not to the
juridical tie.
Juridical tie is not borne by a
violation.
In quasi-delict, it is precisely the
wrongful act w/c gives rise to the juridical
tie. Liability & juridical tie are simultaneous.

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.

Contracts & quasi-delicts create two concentric circles


w/ quasi-delict as the bigger circle.
[Note: There is a little mistake in Cangco. The SC said
that the driver can be sued under culpa contractual.
This is wrong. The driver cannot be sued as he has no
privity of contract w/ the passenger.]
FACTS: Cangco was an EE of MRR Co. He takes the
train going home from work. That day he alighted from
the train while it was still slightly in motion. He landed
on the elevated platform on top of some sacks of
watermelon which made him fall violently, rolled away
from the platform under the moving train where he
badly crashed and lacerated his right arm. It happened
at night bet 7-8pm and d station was poorly lit.
Cangcos arm was amputated twice. The seriousness of
his injury made him file a case for damages vs MRR Co.

The test by which to determine


whether the passenger has been guilty of
negligence in attempting to alight from a
moving railway train, is that of ordinary
or reasonable care. It is to be considered
whether an ordinarily prudent person, of
the age, sex and condition of the
passenger, would have acted as the
passenger acted under the circumstances
disclosed by the evidence. This care has
been defined to be, not the care which may or
should be used by the prudent man generally,
but the care which a man of ordinary prudence
would use under similar circumstances, to
avoid injury." (Thompson, Commentaries on
Negligence, vol. 3, sec. 3010.)

HELD:
It can not be doubted that the employees of the
railroad company were guilty of negligence in piling
these sacks on the platform in the manner above
stated; that their presence caused the plaintiff to fall as
he alighted from the train; and that they therefore
constituted an effective legal cause of the injuries
sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby
occasioned unless recovery is barred by the
plaintiff's own contributory negligence.
It is important to note that the foundation of the
legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the
damage which plaintiff has suffered arises, if at all,
from the breach of that contract by reason of the
failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and
immediate, differing essentially, in legal viewpoint
from that presumptive responsibility for the negligence
of its servants, [RESPONDEAT SUPERIOR], which can
be rebutted by proof of the exercise of due care in their
selection and supervision. (presumption juris tantum,
rebuttable). Imputed liability in NCC is not applicable
to obligations arising ex contractu, but only to
extra-contractual obligations, or to use the technical
form of expression, that article relates only to culpa
aquiliana and not to culpa contractual.

RULING:
that the train was barely moving when
plaintiff alighted is shown conclusively by the fact that
it came to stop within six meters from the place where
he stepped from it. Thousands of person alight from
trains under these conditions every day of the year,
and sustain no injury where the company has kept its
platform free from dangerous obstructions. There is no
reason to believe that plaintiff would have suffered any
injury whatever in alighting as he did had it not been
for defendant's negligent failure to perform its duty to
provide a safe alighting place.
CASE: Where there could still be QD even when
there is contract of carriage
GUTIERREZ VS. GUTIERREZ [56 P 177]
FACTS:
A truck and a car collided on a narrow bridge. A
passenger of the truck was injured and filed a case. The
owner of the truck was made defendant although his
driver was driving the truck at that time and he was not
a passenger of the truck. The owner of the car was also
made defendant although the driver of the car at the
time of the collision was his son, 18 yrs. of age, w/ other
members of the family accommodated therein, but not
the car owner.
HELD: The court found both drivers negligent. The
owner of the truck was made liable for culpa
contractual, under the contract of carriage. The owner
of the car was made liable under Art. 2180, imputed
liability for culpa aquiliana.

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.

Nature of Act

FRAUD
dolo
involves
willfulness or
deliberate
intent to cause

NEGLIGENCE
Culpa
mere want of
care
or
diligence, not
voluntary act

Gives rise to

As to
nature
of
Right
violat
ed
Is
a
Wrong
agains
t
Crimin
al
Intent
Legal
Basis
for
liabilit
y
Liabili
ty for
Dama
ges
Form
of
Redre
ss
Quant
um of
Eviden
ce
Compr
omise

damage
or
injury
to
another
the act itself

moment of his act or default that an injury to


some person might probably result therefrom."

or omission

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.)

C. COMPLIANCE WITH OBLIGATIONS:


Article 19. Every person must, in the
exercise of his rights and in the performance
of his duties, act with justice, give
everyone his due, and observe honesty
and good faith.

CRIME
public right

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.

the individual

the State

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.

not needed

Necessary

Broad

penal
necessary

QUASI-DELICT
private right

every QD gives rise to


liability for damages

there are
without
liability

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.

law

If the thing is indeterminate or generic, he


may ask that the obligation be complied with
at the expense of the debtor.

crimes
civil

reparation for injury


suffered/indemnificatio
n/compensation

punishment/fine/i
mprisonment

preponderance

beyond reasonable
doubt

can be compromised

criminal
liability
can
never
be
compromised

If the obligor delays, or has promised to


deliver the same thing to two or more
persons who do not have the same interest,
he shall be responsible for any fortuitous
event until he has effected the delivery.
Article 1166. The obligation to give a
determinate thing includes that of delivering
all its accessions and accessories, even
though they may not have been mentioned.
Balane:
Three types of obligations.-- (1) obligation to give;
(2) obligation to do; & (3) obligation not to do.

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.

I. Obligation to give
A. Specific thing
B. Generic thing
II. To do
III.
Not to do (this includes all negative
obligations like
obligation not to give.)
Kinds of performance.-1. specific performance - performance
by the debtor himself ( applies only to
to give )

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.

2. substitute performance performance at the expense of the


debtor

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

3. equivalent performance - grant of


damages
Articles 1163 - 1166 cover obligation to give.
Three Accessory Obligations:
1. Art. 1163.-- To take care of the thing w/
the diligence of a good father of a family
until actual delivery.
2. Art. 1164.-- To deliver the fruits to the
creditor (fruits produced after obligation
to deliver arises.)

3. Art. 1166.-accessories.

To

deliver

accessions

&

into, the thing is capable of being made


determinate without the necessity of a new or
further agreement between the parties

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.

Article
442.
Natural
fruits
are
the
spontaneous products of the soil, and the young
and other products of animals.
Industrial fruits are those produced by lands of
any kind through cultivation or labor.
Civil fruits are the rents of buildings, the price
of leases of lands and other property and the
amount of perpetual or life annuities or other
similar income

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.)

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;

Personal right arises fr. the time the


obligation to deliver arises whereas the real
right does not arise until actual delivery.

Articles 1165 - 1167.-- Remedies Available to the


Creditor (specific performance, substitute performance,
equivalent performance.)
A. In obligations to give
1. A determinate thing
a. Specific performance
b. Equivalent performance
2. A generic thing, all remedies are available

B. In an obligation to do, make a distinction:

(2) Art. 1164 to deliver the fruits;


(441) natural / industrial /
civil
the to deliver arises only if
the
creditor is entitled;

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

(3)
Art. 1166 delivery of the
accessions and of the accessories (Art
440);
b. GENERIC THING is one that is indicated only by
its kinds, without being distinguished from others of
the same kind. (indeterminate)
In an to deliver a generic thing, the object is
determinable; when delivered it becomes
determinate.

Note: In obligations to do, specific performance is


not available. The reason for this is that specific
performance will give rise to involuntary servitude.
C. Obligation not to do
1. substitute performance
2. equivalent performance.

In all these cases, the creditor has the option of


resolution or rescission under Art. 1191. In
addition, he can also claim damages.

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.

Article 1244. The debtor of a thing cannot


compel the creditor to receive a different one,
although the latter may be of the same value as,
or more valuable than that which is due.

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.

In obligations to do or not to do, an act or


forbearance cannot be substituted by another
act or forbearance against the obligee's will.
Article 1245. Dation in payment, whereby
property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law of sales.

REAL RIGHT is the power by a person over a


specific thing, susceptible of being exercised against
the whole world.

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.

PERSONAL RIGHT belongs to a person who may


demand from another, as a definite passive subject,
the fulfillment of a prestation.

Article 1460. A thing is determinate when it is


particularly designated or physical segregated
from all others of the same class.
The requisite that a thing be determinate is
satisfied if at the time the contract is entered

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.

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.

[CHAPTER 2: Right of Accession


GENERAL PROVISIONS]
Article 440. The ownership of property gives
the right by accession to everything which is
produced thereby, or which is incorporated or
attached thereto, either naturally or artificially.

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 ;

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.

Q: In an with a TERM will the answer above be the


same?
A:
b. CONDITIONAL

D. KINDS OF CIVIL OBLIGATIONS:

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.

1. AS TO PERFECTION & EXTINGUISHMENT:


a. PURE
(CHAPTER 3) Different Kinds of
Obligations
SECTION 1 - Pure and Conditional
Obligations
Article
1179.
Every
obligation
whose
performance does not depend upon a future or
uncertain event, or upon a past event unknown
to the parties, is demandable at once.

Article 1182. When the fulfillment of the


condition depends upon the sole will of the
debtor, the conditional obligation shall be void.
If it depends upon chance or upon the will of a
third person, the obligation shall take effect in
conformity with the provisions of this Code.
Balane:
We are talking here of a suspensive
condition.

Every obligation which contains a resolutory


condition shall also be demandable, without
prejudice to the effects of the happening of the
event.

First sentence of Art. 1182.- The


condition
must
be
suspensive,
potestative & depends on the sole will of
the debtor.

Article 1197. If the obligation does not fix a


period, but from its nature and the
circumstances it can be inferred that a period
was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of
the period when it depends upon the will of the
debtor.
In every case, the courts shall determine such
period as may under the circumstances have
been probably contemplated by the parties.
Once fixed by the courts, the period cannot be
changed by them.

EXAMPLE: "I promise to sell you my car for P1.00


whenever I like."
Q: Why does it make the obligation void?
A: Bec. such an obligation lacks one of the essential
elements of an obligation, the vinculum juris, the
binding force-- the means by w/c it is enforceable in
court. In this case, there is no binding force. There is no
obligation. It is a joke.
Potestative Condition is one w/c depends solely on
the will of either one party.
EXAMPLE: " I will give you my plantation in
Davao
provided
you
reside
in
Davao
permanently."

A pure obligation is one w/c is not subject


to a condition or a term.

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."

CASE: re Art. 1179, par. 2


PAY V. PALANCA [57 SCRA 618]

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.

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
)

Q:
What if the condition is suspensive,
potestative & depends solely on the will of the
creditor, is the conditional obligation valid?

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

CASE: the term whc parties attempted to fix were so


uncertain it must be regarded as condition

A: Yes. In fact, the obligation is not even a condition


obligation. It is a pure obligation, binding at once.

SMITH BELL V. SOTELO MATTI [44 P 874]

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.

Where the fulfillment of the condition does


not depend on the will of the obligor, but
on that of a 3rd person who can, in no way
be compelled to carry it out, the obligor's
part of the contract is complied w/, if he
does all that is in his power, & it then
becomes incumbent upon the other
contracting party to comply w/ the terms
of the contract.

FACTS: s in s entered bet. Plaintiff Corp. as seller


and defendant as buyer:

Tolentino:
In contracts, an impossible condition
annuls the contract.
In gratuitous dispositions, the impossible
condition is simply disregarded.

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
or
26. 1918)

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.

25Kea to be shipped fr SF in Sept.1918


ASAP
(Delivered:Oct.

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

Q: Why is there a difference?


A:
Bec. in a donation as well as in a testamentary
disposition, the causa or consideration is the liberality of
the donor or testator, as the case may be. Even if you
take away the impossible condition, there is still a
reason for the disposition to exist-- liberality. They
(donation & testamentary disposition) have both their
underpinnings, liberality.

HELD: At the constitution of the , the 1 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 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.
st

But in an onerous transaction, since an onerous


prestation w/c is reciprocal requires concomitant
performances, that impossible condition becomes part
of the causa. Therefore, if the condition is impossible,
there is failure of causa. In no causa, there is also no
contract.
Paras:

Record shows that plaintiff did all w/in its power to have
machinery arrive in Mla. ASAP, and notified defendant of
such arrival STAT, court considered such as reasonable
time. Plaintiff was ordered to pay.
Article 1183. Impossible conditions, those
contrary to good customs or public policy and
those prohibited by law shall annul the
obligation which depends upon them. If the
obligation is divisible, that part thereof which is
not affected by the impossible or unlawful
condition shall be valid.

Positive suspensive condition to do an


impossible/ illegal thing The obligation is
void (Art. 1183, par. 1.)

A negative condition (not to do an


impossible thing)
Just disregard the
condition (Art. 1183, par. 2.)

A condition not to do an illegal thing


(negative) This is not expressly provided for
in the provision but is implied. The obligation is
valid.
EXAMPLE:
"I will sell you a piece of land
provided you do not plant marijuana on it."

Article 1184. The condition that some


event happen at a determinate time shall
extinguish the obligation as soon as the
time expires or if it has become indubitable
that the event will not take place.

The condition not to do an impossible thing


shall be considered as not having been
agreed upon.

Balane: This article refers to suspensive conditions. If


the condition is resolutory, the effect is the opposite.

Balane:
This refers to a suspensive condition.

Article 1185. The condition that some event


will not happen at a determinate time shall
render the obligation effective from the moment
the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have
probably been contemplated, bearing in mind
the nature of the obligation.

There are 2 classes of impossible conditions:


1. Impossible in fact
EXAMPLE: "I promise to sell my car to Mr. M for
P2 if he can swim across the Pacific Ocean for 2
hours."

2. Impossible in law or one w/c attaches an

illegal condition
EXAMPLE: "I promise to sell my car to Mr. M for
P2 on condition that he burns the College of
Law."

Balane: This article refers to a suspensive condition.

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.

Article 1186. The condition shall be


deemed
fulfilled
when
the
obligor
voluntarily prevents its fulfillment.
Balane: This article refers to a suspensive condition.

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.

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.

10

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.

improvement, loss or deterioration of the thing


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

Kinds of Conditional Obligations:


a. Suspensive Condition (Condition
precedent)
Article 1187. The effects of a conditional
obligation to give, once the condition has been
fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal
prestations upon the parties, the fruits and
interests during the pendency of the condition
shall be deemed to have been mutually
compensated. If the obligation is unilateral,
the debtor shall appropriate the fruits and
interests received, unless from the nature and
circumstances of the obligation it should be
inferred that the intention of the person
constituting the same was different.

In obligations to do and not to do, the


courts shall determine, in each case, the
retroactive effect of the condition that
has been complied with.

(b) Resolutory Condition (Condition subsequent)


Balane: Art. 1190 refers to resolutory conditions. This
is just the opposite of Art. 1189.

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.

Article 1190. When the conditions have for


their purpose the extinguishment of an
obligation to give, the parties, upon the
fulfillment of said conditions, shall return
to each other what they have received.

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.

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.

Article 1188. The creditor may, before the fulfillment


of the condition, bring the appropriate actions for the
preservation of his right.

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.

The debtor may recover what during the same time he


has paid by mistake in case of a suspensive
condition.
Balane: This article refers to suspensive conditions.

Balane: A condition is a future & uncertain event


upon w/c an obligation or provision is made to depend.

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.

Tolentino:
xxx
Futurity & uncertainty must
concur as characteristics of the event.

A past thing can never be a condition. A


condition is always future & uncertain.

Past event unknown to the parties It is really the


knowledge of the event w/c constitutes the future. It is
the knowledge w/c is future & uncertain.
EXAMPLE: " I will treat you for lunch if you get
the highest score in the Civil Law Final Exams
(on the assumption that Prof. Balane has already
finished checking the papers.)" Here, the event
(getting the highest score) is already a past
event, yet the knowledge is future & uncertain.

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?

Condition compared to a term

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.

As to element of
futurity

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

in the aspect of
certainty

Condition
Same, may be
past
event
unknown
to
parties
uncertain

Conditions can either be:

11

Term
Same,
future
certain

always

1. Suspensive

condition
(condition
precedent) wherein the happening of the
event gives birth to an obligation

2. Resolutory

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

12

c. WITH A TERM OR PERIOD:


Article 1180. When the debtor binds
himself to pay when his means permit
him to do so, the obligation shall be
deemed to be one with a period,
subject to the provisions of article
1197.
Balane: A term is a future and certain event upon
w/c the demandability (or extinguishment) of an
obligation depends.

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;

Terms
1.
2.
3.

As to time

may refer to a
past
event
unknown to the
parties
a condition w/c
depends
exclusively
on
the will of the
debtor
annuls
the obligation

a period left to
the debtor's will
merely
empowers
the
court to fix such
period

Balane: There are three requisites in order for


Art. 1189 to apply-1. There is loss, deterioration or delay

May also be,

(a) express, specified


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

2. There is an obligation to deliver a


determinate thing (on the part of the
debtor)
3. There
is
loss,
deterioration
or
improvement before the happening of the
condition.

Or

a. definite, fixed known date or time,


b.
indefinite, event will happen but not
known when

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.

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.

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.

Obligations
with
a
resolutory
period take effect at once, but
terminate upon arrival of the day
certain.

A day certain is understood to be


that which must necessarily come,
although it may not be known
when.

Both the things & the fruits can be


recovered.

If the term has already arrived, the question is moot &


academic. But can he recover the fruits produced
during the meantime? It depends on what school of
thought you follow:
Tolentino : According to one school of thought, the
debtor is entitled to the fruits produced in the
meantime.

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.

Caguioa : According to another school of thought, all


the fruits received during the pendency of the term
belong to the creditor.

MANRESA: A term or period is an interval of time, w/c,


exerting an influence on an obligation as a consequence
of a juridical act, either suspends its demandability
or produces its extinguishment.

a
condition
gives rise to an

May
have
retroactive effect

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.

classified accdg to source;


Legal, period fixed by law
voluntary, stipulated by parties
judicial, fixed/allowed by courts

As to influence
on
the

Effect

existence
of
obligations, but
only
their
demandability or
performance
NO
retroactive
effect,
except
when there is a
special
agreement
always refer to
the future

Balane: In a (suspensive) term, the obligation has


already arisen except that it is not yet demandable.

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.

Distinguished fr. Condition:


CONDITION
As
to
uncertain event
fulfillment

obligation
or
extinguishes one
already existing

As to will of
debtor

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


(3) possible.

2.

obligation

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)

TERM / PERIOD
an event that
must necessarily
come,
whether
on a date known
before hand or at
a
time
w/c
cannot
be
predetermined
has no effect
upon
the

2. Presumed for whose benefit: BOTH

13

Art. 1606 in pacto de retro sale where the period


is not specified by the parties

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.

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

Balane:
General rule: If a period is attached in an obligation,
the presumption is that it is for the benefit of both
parties.

The consequence is that the creditor cannot


compel the performance before the arrival of
the term; the debtor cannot compel acceptance
bef. the arrival of the term.

contract of services for an indefinite term


(bec. fixing of a period by the courts may
amount to involuntary servitude)

Art. 1197. Xxx The courts shall also fix the


duration of the period when it depends upon the
will of the debtor.

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.

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.

If the term is for the benefit of the debtor The


creditor cannot demand performance anytime; but the
debtor can insist on performance anytime.
EXAMPLE: "I promise to pay w/in 60 days." This
is a term for the benefit of the debtor.
"I promise to pay Clara the sum of P100,000 on
or before Oct. 31, 1996." This is a term for the
benefit of the debtor.
In of Loan, without interest, term is usually for benefit
of debtor, thus he may pay in advance;
If there is stipulation as to interest, period is generally
for both parties, debtor cannot pay in advance vs. will of
creditor; unless he also pays interest in full.
3. When NO period is fixed

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.

Balane:
Cases where the Courts may fix a period

CASE: Where obligation does not fix a period;


When fixing a period is mere formality

1. Art. 1197, par. 1

CHAVEZ V. GONZALES [32 SCRA 547] Def. virtually admitted non-performance by returning the
typewriter he was obliged to repair in a non-working
condition, w/ essential parts, missing. Plaintiff had the
thing fixed by another and later demanded fr. Def.
payment of actual, compensatory, temperate and moral
damages.

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.

ISSUE: WON Def. may not be held liable b/c did not
contain a period.
HELD:
He cannot invoke Art. 1197 of the NCC. The time for
compliance having evidently expired, & there being a
breach of contract by non-performance, it was academic
for the pltff. to have first petitioned the court to fix a
period for the performance of the contract before filing
his complaint in this case. The fixing of a period
would thus be a mere formality & would serve no
purpose than to delay.

The courts shall also fix the duration of


the period when it depends upon the will
of the debtor.
In every case, the courts shall determine
such
period
as
may
under
the
circumstances
have
been
probably
contemplated by the parties. Once fixed
by the courts, the period cannot be
changed by them.
Exceptions:

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.

(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

ELEIZEUI V. LAWN TENNIS CLUB [2 P309] -

14

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.

DOCTRINE: The term of a lease whose termination


is expressly left to the will of the lessee must be
fixed by the courts according to the character &
conditions of the mutual undertakings, in an
action brought for that purpose xxx.
The herein Contract of Lease was made to endure at the
will of the lessee who is expressedly authorized to make
improvements upon the subject land by erecting
buildings therein, perm or temp, making fills, lay pipes,
make such other improvements at his own convenience.
No period was fixed for the existence of the .
HELD: It is evident that the lessors did not intend to
reserve to themselves the right to rescind that which
they have expressly conferred to lessee whc is
exclusively in favor of the latter.
PHILBANKING V. LUI SHE [21 SCRA 53] DOCTRINE: A lease to an alien for a reasonable
period is valid.
on November 15, 1957, the parties entered
into the lease contract for 50 years: that
ten days after, that is on November 25, they
amended the contract so as to make it cover
the entire property of Justina Santos; that on
December 21, less than a month after, they
entered into another contract giving Wong
Heng the option to buy the leased
premises should his pending petition for
naturalization
be
granted;
that
on
November 18, 1958, after failing to secure
naturalization and after finding that adoption
does not confer the citizenship of the adopting
parent on the adopted, the parties entered into
two other contracts extending the lease to
99 years and fixing the period of the
option to buy at 50 years.

Art. 1180. When the debtor binds himself to pay


when his means permit him to do so, the
obligation shall be deemed to be one w/ a period,
subject to the provisions of article 1197.

4. When debtor loses the benefit of period


Article 1198. The debtor shall lose every right to
make use of the period:
(1) When after the obligation has been
contracted, he becomes insolvent,
unless he gives a guaranty or security
for the debt;
(2) When he does not furnish to the
creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired
said guaranties or securities after
their
establishment,
and
when
through a fortuitous event they
disappear, unless he immediately
gives new ones equally satisfactory;
(4) When
the
debtor
violates
any
undertaking, in consideration of which
the creditor agreed to the period;
(5) When the debtor attempts to abscond.

which indubitably demonstrate that each of the


contracts in question was designed to carry out Justina
Santos' expressed wish to give the land to Wong and
thereby in effect place its ownership in alien hands, 1
about which we shall have something more to say
toward the end of this resolution. We concluded that
"as the lease contract was part of a scheme to
violate the Constitution it suffers from the same
infirmity that renders the other contracts void
and can no more be saved from illegality than
the rest of the contracts."

(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.)

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.

Effects of Loss of Term (1198):

becomes immediately due & demandb


even if period has not yet expired.

is converted to a pure

Insolvency of DEBTOR need not be judicially


declared; state of financial difficulty is enough.

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.

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;

MILLARE V. HERNANDO [151 SCRA 484] FACTS: Pacifica Millare, lessor and spouses Co lessee in
a 5-yr of lease of Peoples Resto; at d last wk of d 5-yr
period, lessor offered to extend d lease if spouses Co will
agree to increase rental from P350 to P1200 a mo.;
spouses counter-offered p700; d discussion was set
aside; later a demand letter was issued by lessor to
vacate premises w/o renewal of expired ; lessor
disagreed and filed an ejectment case; spouses Co filed
a separate case for the court to order renewal of and
fix rental at p700 a mo. Spouses deposited monthly

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;

15

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.

CLASSIFICATION OF CONDITIONS:
1. SUSPENSIVE the happening of the former
gives rise to an ;
2. RESOLUTORY the happening of the latter
extinguishes rights already existing.
PAST BUT UNKNOWN a condition may refer to past
event unknown to the parties;
IMPOSSIBLE CONDITION:
1. PHYSICALLY IMPOSSIBLE when it is contrary to
law of nature;
2.
JUDICIALLY IMPOSSIBLE when contrary to
law, morals, good customs and public safety
PURE s when it is not subject to a term, period
and no condition;
- demandable at once
- its immediate demandability, give time for debtor to
comply
PERIOD = is an event that is future but certain (just a
matter of time); e.g. passing this class (oblicon)
PAST EVENT cannot be future event, cannot be
considered uncertain;

Art. 1183 impossible condition


1. physical impossibility
2. legal impossibility
Art. 873 impossible testamentary conditions
disregard
Ex. Art. 727 donation
CONDITION
1. future&uncertain event
2. suspensive condition
3. resolutory condition

PERIOD / TERM
1. future&certain
2.suspensive
period/demandability
3. resolutory period

SUSPENSIVE PERIOD prior to the period, there is


already an , but it is suspensive by the period;
Art. 1164 - the to deliver arises upon the perfection of
the contract if subject to suspensive period & not
suspensive condi.
RESOLUTORY PERIOD terminated but the effects that
accrued in the past will remain;

SUSPENSIVE CONDITION:
* rights are acquired, upon the happening of a condi.
Art. 1181 created upon the happening of a
condition

RESOLUTORY CONDITION extinguishes as if nothing


happens; retroactive effect of ;

RESOLUTORY - extinguished, or loss of existing rts,


upon the happening of a condi.

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;

*
Thus a contract may
demandability suspended.

Art. 1195 advanced payment


Art. 1196

be

perfected

but

its

Art. 1186 deemed constructively fulfilled; applied


only to suspensive not to resolutory condi.

Presumption if the period is designated, the benefit is


for both the creditor & debtor

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;

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;

Jan.2004
perfection

Sept. 2004

Oct.04
(w/o condi./
Pure)

Apr.05
condi.

[1544]
Retroactive effect
Art. 1188 preserve his interest
PROTECT HIS EXPECTANCY
1. Register with the Registry of Property
2. witness
3. possession in good faith
4. Injunction if the sell was not consummated
or not for sale

Art. 1197 3 reasons why the court will fix the


period:
1. if the does not fix a period, but from its
nature & circumstances it can be inferred that
a period was intended by the parties;
2. in the duration of the time depends upon the
will of the debtor
3. if the debtor binds himself to pay when his
means permit him to do so
Art. 1198 memorize!
Article 1198. The debtor shall lose every right
to make use of the period WHEN:
(1) after the obligation has been
contracted, he becomes insolvent,
unless he gives a guaranty or security
for the debt;
(2) he does not furnish to the creditor the
guaranties or securities which he has
promised;
(3) by his own acts he has impaired said
guaranties or securities after their
establishment, and when through a
fortuitous event they disappear, unless
he immediately gives new ones equally
satisfactory;
(4) the debtor violates any undertaking, in
consideration of which the creditor
agreed to the period;
(5) the debtor attempts to abscond.

RESOLUTORY CONDITION
Art. 1190 no exception, walang matitira
SUSPENSIVE CONDI upon the happening of the
condi., the exists (existence of is affected)
CLASSIFICATION OF CONDITION:
1. POTESTATIVE when the fulfillment of the
condi. depends upon the will of the party to the
;
2. CAUSAL depends upon chance 2 nd or 3rd
person
3. MIXED depends partly upon the will of the
party & partly upon chance or a 3rd person
Art. 1182: Potestative sole will of the debtor

Q: How cud there be guaranty when debtor is insolvent?

16

A: 3rd person (surety)

Q:
What is the technical term of the act of
making a choice in alternative obligations?
A: Concentration.

Q: when is due&demandb even if period has expired?


A: if debtor has lost rt. to make use of such period
(1198)

D.

Art. 1201. The choice shall produce no effect


except fr. the time it has been communicated.

(2) Obligations according to plurality of objects:


A. Simple

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. Multiple
C. Conjunctive where the debtor must
perform more than one prestation

No required form may be ORAL, IN WRITING, TACITLY,


OR OTHER UNEQUIVOCAL MEANS.

Q: A promised to deliver to B his carabao, dog &


goat. What kind of is this? A: conjunctive

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.)

D. Alternative Obligations where the debtor must


perform any of several
prestations
when several objects due, the fulfillment of one
is sufficient, generally the debtor chooses
which one.

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.

E. Facultative where only one thing is due but the


debtor has reserved the right to substitute it w/
another (Art. 1206)

The right to choose is indivisible debtor cant


choose part of one prestation and part of another;
Here, plaintiffs action must be in alternative form;

Not CONSENT: only declaration of choice made,


communicated to the other party, unilateral decal.of
will;

election here is never granted to creditor

Articles 1202 to 1205 talk of the loss of some of the


prestations before performance.

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.

1. If the choice is debtor's

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

a. When only one prestation is left (whether or not


the rest of the prestations have been lost through
fortuitous event or through the fault of the debtor), the
debtor may perform the one that is left.-- Art. 1202.

Q: What if debtor has rt. to choose and he delays?


A: rt. is not lost by mere delay; (before creditor files his
action)

Art. 1202. The debtor shall lose the right of


choice when among the prestations whereby he is
alternatively bound, only one is practicable.

(b) Alternative Obligations


b. If the choice is limited through the creditor's
own acts, the debtor can ask for resolution plus
damages.--

Art. 1199.
A person alternatively bound by
different prestations shall completely perform
one of them.
The creditor cannot be compelled to receive part
of one & part of the other undertaking.

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.

Tolentino: The characteristic of alternative obligations


is that, several objects being due, the fulfillment of one
is sufficient xxx.

c. If everything is lost through the debtor's fault,


the latter is liable to indemnify the creditor for
damages.--

Art. 1200. The right of choice belongs to the


debtor, unless it has been expressly granted to
the creditor.

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.

The debtor shall have no right to choose those


prestations w/c are impossible, unlawful or w/c
could not have been the object of the obligation.
Balane:
Q: To whom does the right of choice belong?
A: General rule: To the debtor (Art. 1200.)
Exception: When expressly granted to the
creditor (cannot be implied)

d. If some things are lost through the debtor's fault, the


debtor can still choose fr. those remaining.

* There is a third possibility where the choice


may be
made by a third person upon agreement
of the parties. (expressed)

e. If all are lost through fortuitous event, the obligation


is extinguished.

17

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.

parts of the
obligation

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.

As to nullity

the nullity of one


prestation does
not invalidate
the obligation,
w/c is still in
force w/ respect
to those w/c
have no vice

As to choice

the right to
choose may be
given to the
creditor
only the
impossibility of
all the
prestations due
w/o fault of the
debtor
extinguishes the
obligation

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:

As to effect of
loss

(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;

Balane:

Facultative obligations
choice by the debtor.

(3) If all the things are lost through the fault of


the debtor, the choice by the creditor shall fall
upon the price of any one of them, also w/
indemnity for damages.

The same rules shall be applied to obligations to


do or not to do in case one, some or all of the
prestations should become impossible.

a. If one or some are lost through fortuitous


event, the creditor may choose fr. those
remaining.-- Art. 1205 (1)
b. If one or some are lost through the debtor's
fault, the creditor has choice fr. the remainder or the
value of the things lost plus damages.-- Art. 1205 (2),
supra.

c. If all are lost through the debtor's fault, the choice of


the creditor shall fall upon the price of any of them, w/
indemnity for damages.-- Art. 1205 (3), supra.
d. If some are lost through the creditor's fault, the
creditor may choose fr. the remainder.
e. If all are lost through fortuitous event, the
obligation is extinguished.
f. If all are lost through the creditor's fault, the
obligation is extinguished.
Distinguished fr. Facultative obligations:
Art. 1206. When only one prestation has been
agreed upon, but the obligor may render another
in
substitution,
the
obligation
is
called
facultative.
The loss or deterioration of the thing intended as
a substitute, through the negligence of the
obligor, does not render him liable. But once the
substitution has been made, the obligor is liable
for the loss of the substitute on account of his
delay, negligence or fraud.
Tolentino: Facultative vs. Alternative As to contents
of the
obligation

Alternative
there are various
prestations all of
w/c constitute

constitutes the
obligation, the
accessory being
only a means to
facilitate
payment.
the nullity of the
principal
prestation
invalidates the
obligation & the
creditor cannot
demand the
substitute even
when this is valid
only the debtor
can choose the
substitute
prestation.
the impossibility
of the principal
prestation is
sufficient to
extinguish the
obligation, even
if the substitute
is possible

Facultative
only ONE
principal
prestation

18

always

involve

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.

[JULY 3, 2008 CLASS]

generally be given the choice to whom shall he give


payment.

3. AS TO RIGHTS & s OF MULTIPLE PARTIES:


[Joint & Solidary Obligations, Arts. 1207-1222]

Example: A binds himself to pay P100 either to


X or Y A or B will pay 100 to X.

a. Joint Obligations
b. Indivisible Obligations

Balane: A joint obligation is one in w/c each of the


debtors is liable only for a proportionate part of the debt
or each creditor is entitled only to a proportionate part
of the credit.

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.

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.

Art. 1210. The indivisibility of an obligation does


not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.
the here is joint even if the performance is
indivisible;

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

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

In P/N the phrase "We promise to pay," used by


2 or more signers, creates a pro rata liability (JOINT);
While I promise to pay followed by signatures
of 2 or more persons solidary; individually and
collectively; individually and jointly.
JOINT character is PRESUMED: WHEN no stipulation
as to liability of several debtors, presumption is joint,
and each is liable only for his proportionate part of the
;

INDIVISIBILITY

SOLIDARITY

Refers to the
prestation,
whc
is
not
capable
of
partial
performance

Refers to the
legal
tie
or
vinculum
defining
the
extent
of
liability

Effects to Joint
creditors

Each
cannot
demand more
than his share

Each
may
demand
the
full prestation

Effects to joint
debtors

Each
is
not
liable for more
than his share

Each has the


duty to comply
with
entire
prestation

J/FO of court as to several defendants when solidarity


has not been specified, the liability of the defendants in
joint; court cannot amend.
Effects of Joint Liability:
1. The demand by one creditor upon one debtor,
produces the effects of default only w/ respect
to the creditor who demanded & the debtor on
whom the demand was made, but not w/
respect to the others;
2. The interruption of prescription by the judicial
demand of one creditor upon a debtor, does not
benefit the other creditors nor interrupt the
prescription as to other debtors. On the same
principle,
a
partial
payment
or
acknowledgement made by one of several joint
debtors does not stop the running of the statute
of limitations as to the others;
3. The vices of each obligation arising fr. the
personal defect of a particular debtor or creditor
does not affect the obligation or rights of the
others;
4. The insolvency of a debtor does not increase the
responsibility of his co-debtors, nor does it
authorize a creditor to demand anything fr. his
co-creditors;
5. In the joint divisible obligation, the defense of
res judicata is not extended fr. one debtor to
another. (Manresa)

Art. 1224. A joint indivisible obligation gives rise


to indemnity for damages fr. the time anyone of
the debtors does not comply w/ his undertaking.
The debtors who may have been ready to fulfill
their promises shall not contribute to the
indemnity beyond the corresponding portion of
the price of the thing or of the value of the
service in w/c the obligation consists.
If there is plurality of creditors to only one debtor,
(GR) the can be performed by delivery of the object to
all the creditors jointly;

Delivery to only one creditor makes the debtor


liable for damages to the other debtors for nonperformance, 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.

Art. 1208. If fr. the law, or the nature or the


wording of the obligations to w/c the preceding
article refers the contrary does not appear, the
credit or debt shall be presumed to be divided
into as many equal shares as there are creditors
or debtors, the credits or debts being considered
distinct fr. one another, subject to the Rules of
Court governing the multiplicity of suits.
Disjunctive : not covered by NCC; there are 2 or
more creditors and 2 or more debtors but they are
named disjunctively as debtors and creditors in the
alternative.
* rules on solidary s must apply b/c if rules on
alternative s will be applied then the debtor will

Q: Is an -not do divisible or not? No (Tolentino)

19

A: -not do when there are several debtors, is a joint


indivisible .

a moral wrong cannot be divided into


parts,
thus must be solidary; akin to
QD/QC (2183 &
2187)

c. Solidary obligations

Liability may arise fr. the provisions


of articles 19 to 22 of the NCC. If 2
or more persons acting jointly
become
liable
under
these
provisions, their liability should be
solidary bec. of the nature of the
obligation. xxx The acts giving rise
to liability under these articles have
a common element-they are
morally wrong.

Art. 10, RPC; Art. 2194, & Art.


2157, NCC

Balane:
A solidary obligation is one in w/c the debtor
is liable for the entire obligation or each creditor is
entitled to demand the whole obligation. If there is only
one obligation, it is a solidary obligation.
There are three kinds of solidarity:
(1) Active solidarity where there are
several creditors w/ one debtor in a
solidary obligation;
(2) Passive solidarity where there is one
creditor w/ several debtors solidary
bound;
(3) Mixed Solidarity where there are
several creditors & several debtors in a
solidary obligation.
Tolentino:

Solidary obligations may also be referred to


as mancomunada solidaria or joint &
several or in solidum.

It has also been held that the terms "juntos


o separadamente" in a promissory note
creates a solidary responsibility;

Where there are no words used to indicate


the character of a liability, the phrase "I
promise to pay," followed by the signatures
of 2 or more persons, gives rise to an
individual or solidary responsibility.

The words "individually & collectively"


also create a solidary liability. So does an
agreement to be "individually liable" or
"individually & jointly liable."

(5) imposed by final judgment upon


several defendants must be
expressed in the JFO, cannot be
amended after finality.
Characteristics of Active
creditors): (Tolentino)

Solidarity

(solidary

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.)

c.1. Active Solidarity

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;

Art. 1211.
Solidarity may exist although the
creditors & the debtors may not be bound in the
same manner & by the same periods &
conditions.
Art. 1207.
The concurrence of two or more
creditors or of two or more debtors in one & the
same obligation does not imply that each one of
the former has a right to demand, or that each
one of the latter is bound to render, entire
compliance w/ the prestation. There is solidary
liability only when the obligation expressly so
states, or when the law or the nature of the
obligation requires solidarity.

4. Debtor may pay any of the creditors but if any


demand, judicial or extrajudicial is made on him,
he must pay only to the one demanding
payment (Art. 1214);
5. One creditor does not represent the others in
such acts as novation, compensation &
remission (even if the credit becomes more
advantageous). In these cases, even if the
debtor is released, the other creditors can still
enforce their rights against the creditor who
made the novation, compensation or remission;

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.

6. Each creditor may renounce his right even


against the will of the debtor, & the latter need
not thereafter pay the obligation to the former.
Characteristics
debtors):

There is solidary obligation in the ff.:


(1) when the obligation expressly so
states stipulation by parties;

of

Passive

Solidarity

(solidary

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):

(2) when a will expressly makes charging


or a condition in solidum;
(3) when the law requires crimes,
conspiracy, act or 1 is act of all; in torts
joint tortfeasors

The
liability
of
joint
tortfeasors, w/c include all
persons
who
command,
instigate,
promote,
encourage,
advise,
countenance, cooperate in,
aid or abet the commission of
a tort, or who approve of it,
after it is done, if done for
their benefit. (Tolentino)

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);

(4) nature of the obligation requires


solidarity Art. 19-22, NCC;

3. The debtor who is required to pay may set up


by way of compensation his own claim against

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.

20

the creditor, in this case, the effect is the same


as that of payment;

individually liable for the debts incurred, they are each


liable only for 1/2 of said amount.

4. The total remission of the debt in favor of a


debtor releases all the debtors; but when this
remission affects only the share of one debtor,
the other debtors are still liable for the balance
of the obligation.

The obligation in the case at bar being described


as "individually & jointly," the same is therefore
enforceable against one of the numerous
obligors.

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;

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.

6. The interests due by reason of the delay of one


of the debtors are borne by all of them.

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

Legal Bonds in solidarity may be uniform or varied:


Uniform when debtors are bound by same
conditions and clauses;
Varied where obligors, although liable for the
same prestation, are nevertheless not subject to
same terms and conditions; before fulfillment of
such condition or arrival of such term, an action
may be brought vs.such debtor or any other
solidary debtor for recovery of the entire ,
minus the portion corresponding to the debtor
affected by the varied condition or term; upon
happening however, this portion may be
claimed by creditor from any of the debtors.

HELD: While it is true that where the insurance contract


provide for indemnity against liability to 3rd persons,
such 3rd persons can directly sue the insurer, however,
the direct liability of the insurer under the
indemnity contracts against TPL does not mean
that the insurer can be held solidarily liable w/
the insured &/ or the other parties found at fault. The
liability of the insurer is based on contract; that of the
insured is based on tort.

when one of solidary debtors is bound by varied


terms and conditions, for instance a suspensive
condition or a suspensive period, creditors may
still demand for fulfillment of the whole
prestation prior to the happening of the
condition or arrival of the term, minus the share
of this debtor bound by varied condition/term.
This latter portion may be demanded from
anyone of the debtors soon as the term
arrives or condition happens.
EX. Is sureties who are solidarily liable w/other
debtors but binds themselves to varied
conditions distinct fr the principal debtors; BUT,
the of surety may not be greater than that of
ea principal debtor, nor more burdensome.

Liability of Malayan culpa contractual (liability is direct


but not
solidary)
Liability of Jeep Driver
QD;
and
his
vicarious
(2 principal tortfeasors)

ER,

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.

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]

Art. 1212. Each one of the solidary creditors may


do whatever may be useful to the others, but not
anything w/c may be prejudicial to the latter.
Acts beneficial: each solidary debtor may,
interrupt prescription,
constitute a debtor in default,
bring suit so that may produce interest

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

Acts prejudicial: solidary creditor cannot do anything


prejudicial to the others, like remission, novation,
compensation, merger or confusion but such
provision in 1212 conflicts w/ 1215;
Tolentino: Harmonize 1212 & 1215 by such acts of
extinguishment, whc is prejudicial to co-creditors, will be
valid so as to extinguish the claim vs. debtors, but not
w/respect to the rts.of co-creditors whc subsists and
may be enforced vs such creditor who performed the act
alone.

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."

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.

The term "individually" has the same meaning as


"collectively,"
"separately,"
"distinctively,"
"respectively" or "severally."
An agreement to be "individually liable" undoubtedly
creates a several obligation, & a "several obligation" is
one by w/c one individual binds himself to perform the
whole obligation.

Art. 1213. A solidary creditor cannot assign his


rights w/o the consent of the others.

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

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.

21

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.

debtors, shall extinguish the obligation,


prejudice to the provisions of article 1219.

w/o

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.

Effects of Unauthorized Transfer: no effect, no rts.


transferred; assignee does not become solidary creditor,
co-creditors and debtor/s not bound by such transfer;

payment made by this assignee will not


extinguish ; suit filed by him may not interrupt
Rx.

EXCEPT, if the assignee is also one of the cocreditors, b/c mutual confidence is incumbent.

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.

Justice JBL REYES: Art. 1213 places unjustifiable and


unnecessary burden on the rts of solidary creditors upon
his own share. The article shd have read as:

A solidary creditor who assigns his rts w/o the


consent of his co-creditors shall answer
subsidiarily for any prejudice caused by the
assignee in connection w/ d credit assigned.

Liability was compared to agent&principal;

Art. 1915. If two or more persons have appointed


an agent for a common transaction or
undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency.
Tolentino:
Novation A solidary debtor binds himself alone,
assumes the debt, releases the other debtors. But this
debtor cannot bind himself to a new debt w/o the
consent of others.

Balane:
General Rule A debtor may pay any of the solidary
creditors.
Exception If demand is made by one creditor upon
the debtor, in w/c case the latter must pay the
demanding creditor only.

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.

Tolentino:
Judicial Demand when such is made by one of
solidary creditors, tacit mutual representation is
deemed revoked.

Mere extension of time given by creditor to a solidary


debtor does not release others from the no
novation here.

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;

Dation in payment by one debtor extinguishes as in


payment if made immediately, otherwise if promised
only, this is a novation.
When merger & compensation is total there is
extinguishment of the s; only reimbursements remain;
if partial tho, applic. Of payments shd govern;
A surety who is bound in solidum will be released by
any material alteration in the principal contract made
w/o knowledge & consent of surety, e.g. extension of
time, unless suretys liability is varied, as in installment
payments.

Extra-judicial Demand same as above; demand by


several creditors separately, debtor shd pay the one
who notified him 1st ; if they demand at d same time, or
collectively, debtor may choose to whom to pay.
Other Instances:
Debtor upon whom demand was made pays to a
creditor other than the one who made the
demand in violation of Art. 1214 This is
considered payment to a third person (Art. 1241,
par. 2) & the debtor can still be made to pay the
debt. The only concession given to the debtor is
that he is allowed to deduct the share of the
receiving creditor fr. the total amount due even if he
paid the entire amount due to that creditor.

When 1 creditor makes a remission, the extent of that


particular is extinguish, this creditor is liable to cocreditors for their shares.
When remission favors only one debtor, in full share, this
debtor is released fr solidary , if partial, he retains the
solidary & becomes a surety of the whole ;
Factors to consider in Effects of Acts under 1215:
1. the relation bet. Creditors and that of debtors;
2. the relation among co-debtors themselves.

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.

Baviera:

Principals are always liable solidarily;


Agents are not liable solidarily unless
expressly stipulated (res inter alios acta)

b. Passive Solidarity

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.

Art. 1216. The creditor may proceed against any


one of the solidary debtors or some or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those w/c may
subsequently be directed against the others, so
long as the debt has not been fully collected.

Q: 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.

Q: If a judgment made in an action brought by a


solidary cretditor vs a solidary debtor will it be
res judicata vs the co-debtors?
A: A favorable judgment that inures to the benefit of the
co-creditors will be res judicata as to the latter;
An adverse judgment would have the same effect if the
action of the plaintiff-creditor is not founded on a cause
personal to him, but actually consolidates in him all the

Art. 1215. Novation, compensation, confusion or


remission of the debt, made by any of the
solidary creditors or w/ any of the solidary

22

rts.as well of his co-creditors. (Tolentino) similarly


translated as to co-debtors;

Distinctions

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 codebtors, unless the cause is personal to the defdebtor.
PASSIVE
SOLIDARITY
Solidary debtors

Extent
Liability

of

Liability
Effects
of
Extension
of
time granted by
creditor

whole

Primary
solidary
remains

Extension
Time given
creditor

does not release


a solidary debtor
(novation)

Suretyship
liable only as to
his own
Subsidiary
liability
releases
a
solidary
guarantor
or
surety
(extinguishment)

Art. 1217. Payment made by one of the solidary


debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor
may choose w/c offer to accept.

solidary
guaranty
only
to
the
extent
of
contract
stipulations/as
expressed
Subsidiary
releases
the
surety

He who made the payment may claim fr. his codebtors 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.
Art. 1218. Payment by a solidary debtor shall not
entitle him to reimbursement fr. his co-debtors if
such payment is made after the obligation has
prescribed or become illegal.

PNB V. INDEPENDENT PLANTERS [122 SCRA 113] FACTS:


PNBs complaint vs.several solidary debtors for
collection of sum of money; one of defendants (Ceferino
Valencia) died during the pendency of the caase after
plaintiff had presented its evidence;

Art. 1219. The remission made by the creditor of


the share w/c affects one of the solidary debtors
does not release the latter fr. his responsibility
towards the co-debtors, in case the debt has been
totally paid by anyone of them before the
remission was effected.

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.
ISSUE: WON death of one solidary debtor-defendant
deprives the court of jus to proceed w/d case vs. d
surviving defs., being a money-claim based on ?

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;

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.

EXCEPT: If payment was made after the prescribed or


become illegal (mistake or not). (1218)

After the has prescribed or becomes illegal, it


is no longer due & demandable. None of the
solidary debtors can be compelled by the
creditors to pay.

Thus, if one debtor pays, he cannot reimburse fr


his co-debtors b/c his action will not revive the
inexistent ;

Generally, neither could he recover fr the


creditor to whom he paid (Art. 1424); except
perhaps under solutio indebiti.

Rules of Procedure cannot prevail over


substantive law.-- If Sec. 6, Rule 86, ROC were
applied literally, Art. 1216 would, in effect, be repealed
since under the ROC, petitioner has no choice but to
proceed against the estate of Manuel Barredo only.
Obviously, this provision diminishes the Bank's right
under the NCC to proceed against any one, some or all
of the solidary debtors. Such a construction is not
sanctioned by the principle xxx that a substantive law
cannot be amended by a procedural law. Otherwise
stated, Sec. 6 of Rule 86 cannot be made to prevail over
Art. 1216, the former being merely procedural, while the
latter, substantive.

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

Tolentino: Passive Solidarity vs. Suretyship

of
by

SURETY

CASE: If one of the alleged solidary debtor dies


during the pendency of the collection case, the
court where said case is pending retains
jurisdiction to continue hearing the charge as
against the surviving defendants. (1216)

Similarity:

Passive
Solidarity
Solidary debtor
is liable for his
own & that of
his co-debtors
Primary liability

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.

(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.

Q: Can A demand the P9,000 fr. Y?

23

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


Q: If W paid the whole debt before A remits Ys
share, may W still demand reimbursement of Ys
share?
A: Yes, Art. 1219, Y will not be released from his
solidary . Upon Ws full payment the entire was
extinguished, theres nothing more to remit in Ys favor.
Q: After A remits share of Y, W pays in full the
remaining 12,000. X then becomes insolvent.
May Y be compelled to contribute to the share of
X?
A: Yes (Manresa and Tolentino), gratuitous acts
shd be construed restrictively as to permit the
least transmission of rts (Art.1378). Thus, if W
paid 9,000 and X and Z were suppose to
reimburse him 3000 ea, Y could be compelled to
contribute 1000 as to the insolvency of X.

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 codebtors will pay him their equivalent share in
the original . Guilty debtor shoulders the
amount of damages though.

Balane:
Three Defenses of Solidary Debtor:

Art. 1220. The remission of the whole obligation,


obtained by one of the solidary debtors, does not
entitle him to reimbursement fr. his co-debtors.
Art. 1221. If the thing has been lost or if the
prestation has become impossible w/o the fault of
the solidary debtors, the obligation shall be
extinguished.

1.

Those derived fr. the nature of the


obligation is a total defense;
e.g., prescription, illegality of obligation (illicit
object); vitiated consent; unenforceability under
the Statute of Frauds; non-happening of
condition;
arrival
of
resolutory
period;
extinguished d/t payment, remission;

2.

Those defenses personal to the debtordefendant;


e.g., insanity If it involves vitiation of consent,
total defense. If it involves a special term or a
condition, a partial defense.

3.

Those defenses personal to other codebtors;


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
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.

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).

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.

Balane:

This kind of obligations has something to do w/


the performance of the prestation, & not to the
thing.

The thing may be divisible but the may still be


indivisible, e.g. to deliver 100 sacks of jasmine
rice found in Warehouse of specific address on a
fixed date (determinate );

Or thing is indivisible but performance is


divisible, i.e. stage-by-stage construction of a
public road where obligor may deliver every
15% of work done and collect its proportionate
cost from govt agency concerned, performance
bonds here may also be termed as such.
Divisible obligation is one susceptible of partial
performance.
An indivisible obligation is one that must be
performed in one
act.

Art. 1895. If solidarity has been agreed upon,


each of the agents is responsible for the nonfulfillment of the agency, & for the fault or
negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond
the scope of their authority.
Art. 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses w/c
are derived fr. the nature of the obligation & of
those w/c are personal to him, or pertain to his
own share. With respect to those w/c personally
belong to the others, he may avail himself thereof
only as regards that part of the debt for w/c the
latter are responsible.

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.)

Effects of 1221 limited to non-performance b/c of loss of


d thing or impossibility of prestation thats due if such
is d/t FE, w/o fault or delay on any debtor, then is
extinguished; no debtor is liable.

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 proindiviso co-owners;

If debtor is at fault on the loss/impossibility; Or if


in delay even b4 d loss/impossibility the is
converted to indemnification (of the price,
damages & interests).
If guilty debtor is made to pay by demand of
creditor, he cannot recover fr his co-debtors (if
there was loss/imp), he will shoulder the whole
amount of the loss thing + indemnity;
If another co-debtor pays the whole amount he
could recover fr his co-debtors;

24

Three Exceptions to the Rule on Indivisibility:


1. When the parties so provide. (Art. 1248,
par. 1.)
2.

When the nature of the obligation


necessarily entails performance in parts.

3.

Where the law provides otherwise.

they remain to be bound to


perform the same
prestation
Factors to Determine Whether is Divisible or
not:
1.

Divisibility
of
Obligation
distinguished
fr.
divisibility of object:

Divisibility of obligation or prestation does


not necessarily mean a divisible obligation.

Divisibility of object is not the same as


divisibility of obligation.

But the reverse is not the same.


Indivisibility of object means an indivisible
obligation.

2.
3.
4.

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.

will or intention of the parties, whc may be


expressed or presumed;
objective or purpose of stipulated prestation;
nature of the thing;
provisions of law affecting the prestation

In s to give, indivisibility is presumed;


except:
1. when work is agreed to be by
units of time or measure;
2. or otherwise susceptible of
partial performance =
divisible

In indivisible , partial performance is equal to


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

Art. 1225. For the purposes of the preceding


articles, obligations to give definite things &
those w/c are not susceptible of partial
performance shall be deemed to be indivisible.
When the obligation has for its object the
execution of a certain number of days of work,
the accomplishment of work by metrical units, or
analogous things w/c by their nature are
susceptible of partial performance, it shall be
divisible.

Consideration

ENTIRE
single

Prestation/s

However, even though the object or service may


be physically divisible, an obligation is indivisible
if so provided by law or intended by the parties.
In obligations not to do, divisibility or
indivisibility shall be determined by the character
of the prestation in each particular case.

When a part is
illegal
One void
undertaking

whole
unenforceable
void

Viz. Statute of
Frauds

must be in
writing

TOLENTINO: To enforce a Joint Indivisible , Art.


1209 has established the necessity of COLLECTIVE
FULFILLMENT and the action must be against all the
debtors.
in case of non-performance by any of the
debtors, the is converted into liability for
losses & damages = DIVISIBLE.
THUS, if one debtor is insolvent, or fails to
pay his share, the other debtors will no longer
be liable for his share. The entire liability for all
damages is shouldered by the defaulting debtor.
Solidarity vs. Indivisibility:
Solidarity
Refers to vinculum, and
principally to the subjects
of
Requires plurality of
subjects
Solidarity remains even in
case of breach of one, they
all remain liable for
indemnity
Death of debtor terminates
solidarity

SEVERABLE
apportioned
(expressly/implie
d)
several, distinct,
separate items
partly
enforceable
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

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.

Indivisibility
refers to the prestation or
the object of the

Art. 1210. The indivisibility of an obligation does


not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.

plurality not reqd

Examples of Indivisible Obligations:

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,

(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

25

them must bear it on the part w/c corresponds to


him.
If it is the dominant estate that is divided
between two or more persons, each of them may
use the easement in its entirety, w/o changing the
place of its use, or making it more burdensome in
any other way.

Where there is a contract of sale of goods to be


delivered by stated installments, w/c are to be
separately paid for, & the seller makes defective
deliveries in respect of one or more installments,
or the buyer neglects or refuses w/o just cause to
take delivery of or pay for one or more
installments, it depends in each case on the
terms of the contract & the circumstances of the
case, whether the breach of contract is so
material as to justify the injured party in refusing
to proceed further & suing for damages for
breach of the entire contract, or whether the
breach is severable, giving rise to a claim for
compensation but not to a right to treat the
whole contract as broken.

(2) Express provision of law


Art. 2089. A pledge or mortgage is indivisible,
even though the debt may be divided among the
successors in interest of the debtor or of the
creditor.
Therefore, the debtor's heir who has paid a part
of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.

(3) Express agreement


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.

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.

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.

5. AS TO THE PRESENCE OF AN ACCESSORY


UNDERTAKING IN CASE OF BREACH:

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.

a. Obligations w/ a Penal Clause


Art. 1226. In obligations w/ a penal clause, the
penalty shall substitute the indemnity for
damages & the payment of interests in case of
non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.

Art. 2090.
The indivisibility of a pledge or
mortgage is not affected by the fact that the
debtors are not solidarily liable.
Art. 1612. If several persons, jointly & in the
same
contract,
should
sell
an undivided
immovable w/ a right of repurchase, none of them
may exercise this right for more than his
respective share.

The penalty may be enforced only when it is


demandable in accordance w/ the provisions of
this Code.

The same rule shall apply if the person who sold


an immovable alone has left several heirs, in w/c
case each of the latter may only redeem the part
w/c he may have acquired.

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.

Art. 1613. In the case of the preceding article,


the vendee may demand of all the vendors or coheirs 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.

(Tolentino) Penal Clause.-- A penal clause is an


accessory undertaking to assume greater liability in
case of breach. The purpose is to strengthen the
coercive force of the obligation. When a penal clause is
present, damages do not have to be proved.
Thus, DUAL FUNCTION OF PENAL CLAUSE:
(1) To provide for liquidated damages
(2) To strengthen the coercive force of the by
threat of greater resp.in case of breach.

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.

Characteristics of Penal Clause:


1. Subsidiary (also called alternative) upon nonperformance, only the penalty may be demanded.

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.

Exception:
Where
penalty
is
joint
(cumulative)
where both the principal
undertaking & penalty may be demanded -Art. 1227, second sentence: "xxx unless this
right has been clearly granted him."
Notice the word clearly (not explicitly) w/c
means that the right can be clearly granted by
implication.

Art. 1583. Unless otherwise agreed, the buyer of


goods is not bound to accept delivery thereof by
installments.

26

2. Exclusive penal clause is for reparation.


takes the place of damages.

It
Pamintuan made incomplete deliveries, asked the
president of the Co. for cash payment and adjustments
in price, which the co.agreed to.
When Pamintuan
refused to complete his deliveries, he invoked that the
was novated and Co. failed to comply thereto.

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.

Co. filed for damages vs. Pamintuan.


awarded actual damages, liquidated
stipulated, and moral damages.

Lower court
damages as

Pamintuan appealed. CA found Pamintuan guilty of


fraud, and sustained the LC.

Balane: The SC considered the 4% interest as not a


penal clause bec. it does not strengthen the coercive
force of the obligation.

ISSUE:WON the Co. is entitled only to liquidated


damages as appearing in the contract of sale?

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.

We hold that appellant's contention cannot be sustained


bec. the second sentence of Art. 1226 itself provides
that "nevertheless, damages shall be paid if the
obligor xxx is guilty of fraud in the fulfillment of
the obligation." xxx The trial court & the CA found
that Pamintuan was guilty of fraud bec. he did not make
a complete delivery of the plastic sheeting & he
overpriced the same. xxx
Penalty & Liquidated damages:

There is no justification for the NCC to make an


apparent distinction bet. penalty & liquidated
damages bec. the settled rule is that there is no
difference bet. penalty & liquidated damages
insofar as legal results are concerned & either
may be recovered w/o the necessity of proving
actual damages & both may be reduced when
proper. Xxx

Failing to do so, Millan filed a case of specific


performance and damages vs. Robes in CFI. On trial it
was found that Corp. failed to deliver the TCT b/c such
was mortgaged w/GSIS. Corp. was found guilty of delay
amounting to non-performance of , thus Art.
1170 was applied.
Petitioner here invokes Art. 1226, that in lieu of the
contract Millan shd be allowed to recover damages more
than what was agreed upon.

We further hold that justice would be adequately


done in this case by allowing Yu Ping Kun Co.,
Inc. to recover only the actual damages proven,
& not to award to it the stipulated liquidated
damages of P10,000 for any breach of the
contract. The proven damages supersede the
stipulated liquidated damages.

This view finds support in the opinion of


Manresa that in cases of fraud the difference
bet. the proven damages & the stipulated
penalty may be recovered.

ISSUE: WON award by CFI of nominal damages of P20K


improper.
HELD: The foregoing argument of petitioner is totally
devoid of merit. We would agree w/ petitioner if the
clause in question were to be considered as a penal
clause. Nevertheless, for very obvious reasons, said
clause does not convey any penalty, for even w/o it,
pursuant to Art. 2209 of the NCC, the vendee would be
entitled to recover the amount paid by her w/ legal rate
of interest w/c is even more than the 4% provided for in
the clause.

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)

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)

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%

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.

(2) Debtor refused to pay penalty


(3) Theres fraud in debtors non-performance

Non-performance
gives
rise
to
presumption of fault, debtor has
burden of proof: defenses may be force
majeure, or act of creditor himself;
CASE:
BACHRACH V. ESPIRITU [52 P 346]
RE: Chattel Mortgage with PENAL CLAUSE
FACTS:
Faustino Espiritu purchased from Bachrach Motor in
JULY,1925, a 2-ton white-truck on installment basis. This
truck was mortgaged, incl. two other white trucks owned
by defendant whc are fully paid for, to secure the loan.

PAMINTUAN V. CA [94 S 556] FACTS:


RE: Recovery of compensatory damages for breach of
of sale in addition to liquidated damages.
In 1960, MARIANO C. PAMINTUAN, w/his barter license,
was authorized to export to Japan 1000 m.Tons of white
flint corn valued @USD 47K, in exchange for collateral
importation of plastic sheetings of equal value. As such
he entered into w/ TOKYO MENKA KAISHA, LTD. Of
OSAKA, JAPAN.
He also s TO SELL the plastic
sheetings to YU PING KUN, CO., INC. for Php 265K, thus
the latter undertook to open an irrevocable domestic
letter of credit in favor of Pamintuan.

In FEB. 1925 def. also purchased another 1-ton white


truck fr same plaintiff corp. w/downpd, balance on
installment basis also, placing this truck on mortgage for
security and incl the 2 above mortgaged trucks also.
Again, def. failed to pay this debt.
In both sales, a 12% p/a/ interest was agreed upon the
unpaid portion of the s, and upon maturity, when due,
non-payment of total remaining debt would give rise to
25% penalty; aside fr mortgage deed, there was a PN,
co-signed by def.brother solidarily. Thus, Rosario
appeared as intervenor in the collection suits alleging to
be the sole owner of the two other trucks mortgaged.
He alleged that he did not sign the mortgage and did
not consent to the inclusion of his two trucks therein.

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.

27

While the cases were pending in lower court, the trucks


were sold by virtue of the mortgage and brought in a net
sum not enough to settle the debts due; Lower court
directed payments of all the sums due and in both two
cases ordered the payment of 12% interest p.a. until
fully paid and a penalty of 25% in addition as appearing
in the contracts. To these matters the defs. Alleged that
these amounts to usury.

1. Distinguished fr. with suspensive condition:

Happening of the condition gives rise to the ;


in penal there is already a principal

The principal itself is dependent upon a future


and uncertain event; in penal, only the
accessory (the penalty) depends upon nonperformance or breach.

ISSUE: WON the 12% interest p.a. plus additional


penalty of 25% makes the contract usurious?
HELD:
Art. 1152 of the OCC permits the agreement upon a
penalty apart fr. the interest. Should there be such an
agreement, the penalty xxx does not include the
interest, & as such the two are different & distinct things
w/c may be demanded separately. The penalty is not to
be added to the interest for the determination of
whether the interest exceeds the rate fixed by law, since
said rate was fixed only for the interest.

2. Distinguished fr. alternative obligations


Art. 1227. The debtor cannot exempt himself fr.
the performance of the obligation by paying the
penalty, save in the case where his right has been
expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
& the satisfaction of the penalty at the same
time, unless this right has been clearly granted
him. However, if after the creditor has decided to
require the fulfillment of the obligation, the
performance thereof should become impossible
w/o his fault, the penalty may be enforced.

BUT, considering partial performance, SC reduced


penalty to 10% in accord with Art. 1154. (Art.
1229, NCC)
Art. 1227. The debtor cannot exempt himself fr.
the performance of the obligation by paying the
penalty, save in the case where this right has
been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
& the satisfaction of the penalty at the same
time, unless this right has been clearly granted
him. However, if after the creditor has decided to
require the fulfillment of the obligation, the
performance thereof should become impossible
w/o his fault, the penalty may be enforced.

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.

GR: Debtor cannot avoid performance by


paying the penalty; except when expressly
granted to debtor.

ALTERNATIVE
2 or more s are due but
performance
of
1
is
enough

GR as to creditor: may not demand both


fulfillment and payment of penalty at the same
time; except if such rt. is granted clearly.

Impossibility of one of s,
the other/s subsists
Debtor can choose whc
prestation to fulfill

as to the last sentence, when it becomes


impossible w/o creditors fault will happen only
if thru debtors fault or delay, for penalty to
become enforceable; b/c if thru FE w/o credotors
nor debtors fault, principal would be
extinguished and so will the penal clause.
Art. 1228. Proof of actual damages suffered by
the creditor is not necessary in order that the
penalty may be demanded.
Baviera:
terms

Thus penalty is mitigated in:


1. partial or irregular performance
2. iniquitous or unconscionable penalty

X obliged to deliver a
horse to Y or pay him P500

W/PENAL CLAUSE
theres only 1 principal ,
only in case of nonperformance
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

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.

Courts enforce contracts according to their

Art. 1229. The judge shall equitably reduce the


penalty when the principal obligation has been
partly or irregularly complied w/ by the debtor.
Even if there has been no performance, the
penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Art. 1230. The nullity of the penal clause does
not carry w/ it that of the principal obligation.
The nullity of the principal obligation
carries w/ it that of the penal clause.

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.

Partial Performance refers to extent or quantity of


fulfillment
Irregular Performance refers to the form

Doctrine of Strict Construction will apply as


against the enforcement of the penalty in its
entirety, when the clause is clearly punitive, not
when it is impliedly intended as liquidated
damages;

28

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
Is a by whc virtue, a 3rd
person (guarantor) obliged
himself to fulfill prestation
in lieu of debtors nonperformance
Intended
to
insure
performance of principal
Accessory & subsidiary
Principal debtor cannot be
guarantor
Subsists
even
when
principal is voidable or
unenforceable

w/ PENAL CLAUSE
to pay penalty is
different fr the principal ,
but also paid in lieu of
debtors non-performance
Intended
to
insure
performance of principal
Accessory & subsidiary
both s can be assumed
by one person
penalty is extinguished in
such case, unless assumed
by 3rd person

Q: When does delay set in?


A: Delay sets-in in the following manner:
1. For Reciprocal simultaneous obligations
by the readiness of one of the parties to perform &
his letting the other party know; & the other party is not
ready to comply in a proper manner w/ what is
incumbent upon him.
2.
For Reciprocal obligations w/c are not
simultaneous
Gen. Rule: Demand is necessary (Art. 1169, par.
(1) This is called mora solvendi ex persona.
Exception: When demand is not necessary (the
exceptions are found in Art. 11 69, par. 2.) This
is called mora solvendi ex re
Q: What kind of demand is necessary?
A: Judicial or extra-judicial
Exceptions:
When the obligation or the law expressly so
declare.-- when the contract says that w/o the
necessity of demand, default sets in upon the failure
of the obligor to perform on due date. There must
be something in the contract w/c explicitly states
that the demand is not necessary in order that delay
may set in.
When fr. the nature & the circumstances of the
obligation it appears that the designation of
the time when the thing is to be delivered or
the service is to be rendered was a controlling
motive for the establishment of the contract.
Illustration:
Bong Baylon is getting married in
Valentines '96. Inno Sotto was supposed to make
Ella's (the bride) wedding gown. Feb. 14 comes , no
gown was delivered. Ella gets married in blue jeans
& T-shirt. Finally, on Feb. 15, Inno delivers the gown.
xxx Ella sues Inno for breach. Inno says there was
no demand. In this case, demand is not necessary
in order that delay may exist.
When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.-- Example is the case of Chavez v.
Gonzales, infra.

29

July 9, 2008

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.)

E. BREACH OF OBLIGATIONS (ART. 1170)


Art. 1170. Those who in the performance of their
obligation are guilty of fraud, negligence or delay,
& those who in any manner contravene the tenor
thereof, are liable for damages.

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.

Irregularity of Performance [Articles 1169 - 1174]

Evasion of a legit. for benefits admittedly received


constitutes unjust enrichment.

Art. 1169. Those obliged to deliver or to do


something incur in delay fr. the time the obligee
judicially or extrajudicially demands fr. them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
When the obligation or the law expressly so
declare;
When fr. the nature & the circumstances of the
obligation it appears that the designation of the
time when the thing is to be delivered or the
service is to be rendered was a controlling motive
for the establishment of the contract;
When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready
to comply in a proper manner w/ what is
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other
begins.
Balane:
Two
Performance:

Classes

of

Irregularity

Q: What is a synonym for fraud as used in Art.


1170?
A: Malice.
Effects of Fraud:
1. Creditor may insist on performance, specific
or substitute (Art. 1233.)
2. Creditor may resolve/ rescind (Art. 1191.)
3. Damages in either case (Art. 1170.)
(2) Negligence
Art. 1171.
Responsibility arising fr. fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void.
Art. 1172. Responsibility arising fr. negligence in
the performance of every kind of obligation is
also demandable, but such liability shall may be
regulated by the courts, according to the
circumstances.
Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence w/c is
required by the nature of the obligation &
corresponds w/ the circumstances of the persons,
of the time & of the place. When negligence
shows bad faith, the provisions of articles 1171 &
2201, paragraph 2, shall apply.

of

1. Attributable to the debtor


A. Fraud
B. Negligence
C. Delay
2. Not attributable to the debtor
A. Fortuitous event.

(1) Fraud
Art. 1171.
Responsibility arising fr. fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void.

Negligence is the absence of something that


should be there due diligence.

Measure of Due Diligence.-- There are two guides:


1.
2.

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.

Diligence demanded by circumstances of


person, place & time
Care required of a good father of a family
(fictional bonus pater familias who was the
embodiment of care, caution & protection in
Roman law.)

In common law, the degree of care required is the


diligence of a prudent businessman.
This is
actually the same as the diligence of a good father of a
family.

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.

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.)

Incidental fraud only obliges the person


employing it to pay damages.

From 1173 = culpa contractual


from 2176 = culpa aquiliana or extra-contractual

Balane: Is it correct to say that fraud in Art. 1170


means deceit or insidious machinations? No.

** In both cases, for liability to attach, such negligence


must be the proximate cause of the injury to plaintiff.

LEGASPI OIL VS. CA [224 S 213] - Definition of


Fraud.-
In general, fraud may be defined as the
voluntary execution of a wrongful act, or
willful omission, knowing & intending the
effects w/c naturally & necessarily arise fr.
such act or omission;

The fraud referred to in Art. 1170 is the


deliberate & intentional evasion of the
normal fulfillment of obligation;

It is distinguished fr. negligence by the presence


of deliberate intent, w/c is lacking in the latter.

(3) Delay
See Art. 1169.
= default / mora, in the fulfillment of s;
REQUISITES to be In Default:
is demandable and liquidated
debtor delays performance

30

creditor requires performance, jud or extrajud


demand

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.

Art. 1165. xxx.


If the obligor delays, or has
promised to deliver the same thing to two or
more persons who do not have the same interest,
he shall be responsible for any fortuitous event
until he has effected the delivery.
Article 1786. Every partner is a debtor of the
partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case of
eviction
with
regard
to
specific
and
determinate things which he may have
contributed to the partnership, in the same
cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also
be liable for the fruits thereof from the time
they should have been delivered, without the
need of any demand.
Article 1788. A partner who has undertaken
to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation.
The same rule applies to any amount he may
have taken from the partnership coffers, and
his liability shall begin from the time he
converted the amount to his own use.
Article 1896. The agent owes interest on the
sums he has applied to his own use from the day
on which he did so, and on those which he still
owes after the extinguishment of the agency.

(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:
contract

in any manner contravene the tenor of

AGCAOILI VS. GSIS [165 S 1]


FACTS:
GSIS approved applic. Of Artemio Agcaoili for purchase
of H&L in Marikina, subjc.to condition that latter shd
forthwith occupy the house:
If you fail to occupy the same w/in 3 days fr receipt of
this notice, ur applic. Will be considered automatically
disapprovd & said H&L will be awarded to another.
There was then a perfected contract of sale bet. the
parties; there had been a meeting of the minds upon the
purchase by Agcaoili of a determinate house & lot in the
GSIS Housing Project at Nangka, Marikina, Rizal, at a
definite price payable in amortizations at P31.56 per
mo., & fr. the moment the parties acquired the right to
reciprocally demand performance. It was, to be sure,
the duty of the GSIS, as seller, to deliver the thing sold
in a condition suitable for its enjoyment by the buyer for
the purpose contemplated, in other words, to deliver the
house subject of the contract in a reasonably livable
state. This it failed to do.
Agcaoili could not stay in the haus whc was only a shell,
It did not have a ceiling, stairs, double walling, lights,
water, CR, drainage.
He asked a homeless friend
instead to stay and watch over the property. After
st
paying 1 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.

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)

There being a perfected of sale, it was


the duty of GSIS as seller to deliver the thing sold
in a condition suitable for enjoyment by the buyer
for the purpose contemplated.
CASE DOCTRINE:
One who assumes a contractual obligation & fails
to perform the same on account of his inability to
meet certain bank requirements w/c inability he
knew & was aware of when he entered into the
contract, should be held liable in damages for
breach of contract.

Delay is the non-fulfillment of the obligation w/ respect


to time.
Kinds of Delay:
1. Mora Solvendi -- delay in the performance
(on the part of the debtor);

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.

2. Mora Accipiendi -- delay in the acceptance


(on the part of the creditor);
3. Compensation Morae -- mutual delay
Art. 2201. xxx
(2) In contracts & quasi-contracts, the damages
for w/c the obligor who acted in good faith is
liable shall be those that are the natural &
probable consequences of the breach of the
obligation, & w/c the parties have foreseen or
could have reasonably foreseen at the time the
obligation was constituted.

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,

31

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.

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.

PNB required NARIC to make a marginal deposit of 50%


of the amount of LOC before such will be released in
favor of Arrietas supplier in Burma. Such condition
NARIC is not in any financial position to meet. PNB
conseq. Approved &released the LOC 2-mos. In delay.
The Burmese supplier has cancelled the order on Aug.
20, 1952, and forfeited the 5% tender of Arrieta
amounting to P200K. NARIC and PNB did not even make
the 15-day grace period given by the supplier. Arrieta
endeavored to restore to no avail.
It offered to
substitute w/Thailand rice, NARIC rejected.

Balane:
General Rule:
The happening of a fortuitous
event exonerates the debtor fr. liability.

Thus, Arrieta demanded for payment of damages of USD


286K representing unrealized profits. Again rejected.
Thus, this case.

EXEMPTIONS FROM APPLICATION OF G.R. ON F.E.:


1.

WON NARIC was in breach of contract?

2.
3.

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.

When the law so specifies.-- e.g., if the debtor is


already in delay (Art. 1165, par. 3.)
When the parties so agree
When the nature of the obligation requires the
assumption of risk, e.g., an insurance contract.

EXAMPLES OF BY Express Provision of Law:

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.

IN Depositary

Art. 1979. The depositary is liable for the loss of


the thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing w/o the depositor's
permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he
himself may have been authorized to use the
same.

Meaning of phrase "in any manner contravene the


tenor" of the obligation in Art. 1170 The phrase
includes any illicit task w/c impairs the strict & faithful
fulfillment of the obligation, or every kind of defective
performance.
Balane: This phrase is a catch-all provision. At
worst, it is a superfluity. At best, there is a safety net
just in case there is a culpable irregularity of
performance w/c is not covered by fraud, negligence or
delay. In this case, the SC was apparently not sure as to
what category the breach fell. This phrase is not really
an independent ground.

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.

TIME IS OF THE ESSENCE


TELEFAST VS. CASTRO [158 s 445] FACTS: Sofias mother died while they were here in RP
visiting..her father siblings were all abroad. Thus, that
same day she sent a telegram to her father in the USA
via TELEFAST. Her mother was interred w/o her father
nor siblings in attendance. When Sofia went back to the
USA she learned that her telegram never reached her
father.

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.

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.

Bailee in Commodatum
Art. 1942. The bailee is liable for the loss of the
thing, even if it should be through a fortuitous
event:
(1) If he devotes the thing to any purpose
different fr. that for w/c it has been loaned;
(2) If he keeps it longer than the period
stipulated, or after the accomplishment of the use
for w/c the commodatum has been constituted;
If the thing loaned has been delivered w/
appraisal of its value, unless there is a stipulation
exempting the bailee fr. responsibility in case of a
fortuitous event;
If he lends or leases the thing to a third person,
who is not a member of his household;
(5) If, being able to save either the thing
borrowed or his own thing, he chooses to save
the latter.

ISSUE;WON there was here breach of contract, and WON


only actual damages are due?
YES, Art. 1170, ALSO Art. 2176 applied.
This liability is not limited to actual or quantified
damages. To sustain petitioners contention and
award actual damages only would be iniquitous
such that he would be liable only for the cost of
that telegram paid for 30 yrs ago.

EXCUSE FOR NON-PERFORMANCE:


1. Loss due to Fortuitous Events
Art. 1174. Except in cases expressly specified by
law, or when it otherwise declared by stipulation,
or when the nature of the obligation requires the
assumption of risk, no person shall be responsible
for those events w/c could not be foreseen, or w/c
,though foreseen, were inevitable.

In Negotiorum Gestio
Art. 2147. The officious manager shall be liable
for any fortuitous event:

32

(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.

(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.

Art. 2148. Except when the management was


assumed to save the property or business fr.
imminent danger, the officious manager shall be
liable for fortuitous events:
(1) If he is manifestly unfit to carry on the
management;
(2) If by his intervention he prevented a more
competent person fr. taking up the management.
Payee in Solutio Indebiti
Art. 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits
received or w/c should have been received if the
thing produces fruits.
He shall furthermore be answerable for any loss
or impairment of the thing fr. any cause, & for
damages to the person who delivered the thing,
until it is recovered.

_________________________________________________________
CASES:
Balane: Some of the elements were present in this
case. What was absent was the last element.
NPC VS. CA [161 S 334] - NPC cannot escape
liability bec. its negligence was the proximate
cause of the loss & damage even though the
typhoon was an act of God.
FACTS:
Typhoon Welming
Plaintiff ECI (Engr.Constrx,Inc) entered w/NAWASA on
Aug.1964, to construct ipo-Bicti Tunnel in Norza.,Bul.
w/in 800 days; It has finished 1 st stage of the excavation
works and was already on the Ipo site phase when
typhoon Welming came in Sept. 1967.
it was
predicted that Welming wud pass through NPCs Angat
Hydroelectric Project and Dam at Ipo. Consequent to
the heavy downpour, the dam reached danger height of
212 m. above sea level causing the NPC to decide to
open spillway gates at that point.
Thus, the
extraordinary large volume of water rushed out of the
gates and hit the installations and constx worx of ECI at
Ipo Site w/terrific impact washing away and/or
destroying supplies and equipment of ECI.

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.

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,

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.

Thus, if upon the happening of a fortuitous event or an


act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in
any manner of the tenor of the obligation as
provided for in Art. 1170, w/c results in a loss or
damage, the obligor cannot escape liability. The
principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned
exclusively by the violence of nature & human
agencies are to be excluded fr. creating or
entering into the cause of the mischief. When the
effect, the cause of w/c is to be considered, is found to
be in part the result of the participation of man, whether
it be fr. active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it was, &
removed fr. the rules applicable to the acts of God.
Thus, it has been held that when the negligence of a
person concurs w/ an act of God in producing a loss,
such person is not exempt fr. liability by showing that
the immediate cause of the damage was the act of God.
To be exempt fr. liability for loss bec. of an act of
God, he must be free fr. any previous negligence
or misconduct by w/c the loss or damage may
have been occasioned.

Common Carrier
Art. 1763. A common carrier is responsible for
injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or
of strangers, if the common carrier's employees
through the exercise of the diligence of a good
father of a family could have prevented or
stopped the act or omission.
(2) when it is otherwise declared by stipulation
(1174)
Express agreement
Art. 1306.
The contracting parties may
establish such stipulations, clauses, terms &
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.

(2) ACT OF CREDITOR

33

to the bldg. was due to breach by def. of the terms of


and failure to follow the plan&specs. Def. filed 3rd party
complaint vs.the architects, petitioner herein. JFN&sons
stipulated in writing that it not be impleaded by
amendment of complaint. That in case court finds it
liable, it would be as if it was duly impleaded therein.

CASE: City of Mla. failed to exercise the diligence of a


good father of a family w/c is a defense in quasi-delict.
JIMENEZ vs. CITY OF MANILA [150 S 510]
FACTS: Bernardino Jimenez went to Sta. Ana Public
market to buy bagoong when his left foot fell in an
open hole that was hidden by muddy rainwater in the
flooded market. His left leg was stuck by a rusty 4-in
nail. His leg later on swelled and he was brought for
treatment to Veterans MH.
He walked around
w/crutches for 15 days, unable to work, forced to hire a
temp.driver for his sch.bus biz.. Thus, he sued the City
of Mla. For damages, and the Asiatic Integ. Corp. (AIC)
who had the managing and operating to that market.
Lower court dismissed his complaint for insuff. Of evid.
The appellate court found in his favor and placed sole
liability on AIC.
ISSUE: WON the City of Manila shd be held solidarily
liable w/ Asiatic integ. Corp. for injuries suffered by
petitioner?
HELD:
As a defense against liability on the basis of quasi-delict,
one must have exercised the diligence of a good father
of a family. (Art. 1173, NCC)
There is no argument that it is the duty of the City of
Mla. to exercise reasonable care to keep the public
market reasonably safe for people frequenting the place
for their marketing needs. While it may be conceded
that the fulfillment of such duties is extremely difficult
during storms & floods, it must, however, be admitted
that ordinary precautions could have been taken during
good weather to minimize the dangers to life & limb
under those difficult circumstances. For instance, the
drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is
the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates
that long before petitioner fell into the opening, it was
already uncovered, & 5 mos. after the incident
happened, the opening was still uncovered. Moreover,
while there are findings that during floods the vendors
remove the iron grills to hasten the flow of water, there
is no showing that such practice has ever been
prohibited, much less penalized by the City of Mla.
Neither was it shown that any sign had been placed
thereabouts to warn passers-by of the impending
danger.

April 30, 1979, bldg. disputed was authorized to be


demolished at expense of plaintiff, after further
earthquakes caused further damage to the bldg;
ISSUE: WON AN ACT OF GOD WHC CAUSED DAMAGE TO
THIS BLDG, EXEMPTS FR LIABILITY, PARTIES WHO ARE
OTHERWISE LIABLE B/C OF NEGLIGENCE? ART. 1723
To exempt obligor fr liability under Art. 1174, FE;
or for a breach of d/t an act of God, the ff. must
concur:
1. cause of the breach of must be independent
of the will of the debtor;
2. the event must be either unforeseeable or
unavoidable
3. the event must be such as to render it
impossible for debtor to fulfill in normal
manner;
4. debtor must be free from any participation in, or
aggravation of the injury to the creditor.
Thus, if upon the happening of a FE or an AOG, there
concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of
the as provided in 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.

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 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.)

CASE: Requisites for exemption fr. liability due to


an "act of God."
Juan F. NAKPIL & SONS vs. CA
October 3, 1986

[144 S 596]

NAKPIL & SONS VS. CA


1988

[160 S 334]

APRIL 15,

FACTS:
M.R. on the above decision
ISSUES RAISED ON THIS MR:
(1) That the building did not collapse on d earthquake of
4/2/68, thus the premise of the LC findings is
negated, Art. 1173 cannot apply HELD: it is
not the fact of collapse that was the premise on
applying Art. 1173 but on who shd be
responsible for the extreme damage to the bldg.
whc inevitably led to its collapse, or demolition.
Trial court correctly found defs. Liable;
(2) That court failed to impute liability on PBA or on
Ozaeta for failure to provide legal duty to
supervise, as owner HELD: no legal nor
contractual basis.
PBA sought technical
expertise of both United & JFN&sons for such
costs on this purpose. It was even JFN who
suggested administration basis.
(3) That findings of bad faith had no factual anchor
HELD: Wanton negligence of both United &
JFN&sons in effecting plans, specs, & constrx
designs is equivalent to BF in performance of
their resp. duties;
(4) Award of 5M had no basis, Commissioners report
est.only 1.1M such initial report was based on
the partial collapse only, after d 4/2/68 EQ, for
repairs; but after total collapse almost 20 yrs
later, unrealized rentals and major reconstrx
makes even 5M a very conservative est.
(5) As to award of attys fees & damages was court
discretion
(6) 12% interest p.a. accdg to CB Circular 416 (PD 116)
applies only to (1) loans; (2) forbearance of

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

34

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)

Article 1178. Subject to the laws, all rights


acquired in virtue of an obligation are transmissible,
if there has been no stipulation to the contrary.
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the
Mortgage Law.
Article 1192. In case both parties have committed
a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.

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.

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)

F. REMEDIES FOR BREECH OF OBLIGATIONS:


Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the
right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask
that the obligation be complied with at the expense
of the debtor.
If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Article 1166. The obligation to give a determinate
thing includes that of delivering all its accessions
and accessories, even though they may not have
been mentioned.
Article 1167. If a person obliged to do something
fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone.
Article 1168. When the obligation consists in not
doing, and the obligor does what has been
forbidden him, it shall also be undone at his
expense.
Article 1170. Those who in the performance of
their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
Article 1177. The creditors, after having pursued
the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save
those which are inherent in his person; they may
also impugn the acts which the debtor may have
done to defraud them.

FAMILY CODE:
Art. 153. The family home is deemed constituted
on a house and lot from the time it is occupied as a
family residence. From the time of its constitution
and so long as any of its beneficiaries actually
resides therein, the family home continues to be
such and is exempt from execution, forced sale or
attachment except as hereinafter provided and to
the extent of the value allowed by law.
Art. 155. The family home shall be exempt from
execution, forced sale or attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the
constitution of the family
home;
(3) For
debts
secured
by
mortgages on the premises
before
or
after
such
constitution; and

(4)

For debts due to laborers,


mechanics, architects, builders,
materialmen and others who
have rendered service or
furnished material for the
construction of the building.
R.O.C. RULE 39, SEC. 13:
Section 13. Property exempt from execution.
Except as otherwise expressly provided by law, the
following property, and no other, shall be exempt
from execution:

35

debt, no imprisonment. If can only be done by


debtor, then only rem is damages.

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.

RE 1168 NOT TO DO was done may compel


debtor to UNDO; but if impossible to undo, rem is
damages.
RE 1170 RECOVERABLE DAMAGES = when the is
to do something other than the payment of money;
If is payment of money, 2209 is the rule re damages
when debtors incurs in delay, is payment of interest
if w/o stipulation to the contrary, as agreed upon, if if
no agreement, the legal interest.
RE 1177 RIGHTS OF CREDITORS:
1. To levy by attachment & execution upon all
the property of debtor except if exempt by law;
2. to exercise all the rights and actions of the
debtor, except those inherently personal to
him;
accion subrogatoria;
prior court
approval is not required.
This shd concur w/d ff. requisites:
a. Cr. Has interest in the rt. or axn. Not
only bcoz of his credit but d/t
insolvency of debtor;
b. Malicious or negligent inaction of
debtor at level whc endanger claim of
Cr;
c. Debtors rt. vs. 3rd person must be
patrimonial, or susceptible of being
transformed to patrim.value.
3. ask for rescission of s made by debtor in
fraud of Cr.s rts.
Balane:
Q:
Against what
performance?

can

the

obligee

demand

A: Against non-exempt properties of the debtor.-- The


debtor is liable w/ all his property, present & future,
for the fulfillment of his obligations, subject to the
exemptions provided by law. (Art. 2236.)
If number one is not enough, the creditor goes to any
claims w/c the debtor may have against third
persons.
This is called accion subrogatoria,
wherein the creditor is subrogated in the rights of
the debtor.
Personal rts. Of debtor:
1. Rt. to subsistence, support he receives
exempt
2. Public rts;
3. Rts. Pertaining to honor
4. Rt. to use remaining powers available to
him, e.g. SPA of agency or deposit;
administrator; to accept a
5. Non-patrimonial rts estab. Status, legit or
illegit child; annulment of marriage, legal
sep., those arising fr, PFR;
6. Personal rts. Arising fr. Patrimonial source,
e.g. to revoke a donation d/t ingratitude, to
demand exclusion of an unworthy heir;

But no article or species of property mentioned in


this section shall be exempt from execution issued
upon a judgment recovered for its price or upon a
judgment of foreclosure of a mortgage thereon.
Tolentino:
RE 1165 REMEDIES OF CREDITOR: For failure of
debtor to comply,
1. SPECIFIC
PERFORMANCE,
to
obtain
compliance of the prestations, whether
determinate or generic; this action implies a
contractual relation;
2. TO RESCIND OR RESOLVE THE
3. AN ACTION FOR DAMAGES exclusively or
in addition to 1 & 2.

Accion pauliana (Articles 1380-89).-- This is the right


of creditors to set aside fraudulent transfers w/c the
debtor made so much of it as is necessary to pay
the debts.
pertains to acts whc debtor may have done in fraud
of Cr. E.g. alienation of property, renunciation of
inheritance or rt. of usufruct, assgnmnt of credit,
remission of debts.

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.

(1) EXTRAJUDICIAL REMEDIES:

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;

(a) EXPRESSLY GRANTED BY LAW


(b) STIPULATED BY THE PARTIES
(a) EXPRESSLY GRANTED BY LAW, extrajudicial
rem.

But, law may not compel or force debtor to


comply w/ , if to do, would amount to invol. Serv., if

36

(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.

Art. 1170. Those who in the performance of their


obligation are guilty of fraud, negligence or delay,
& those who in any manner contravene the tenor
thereof, are liable for damages.
(b) SUBSIDIARY REM 1380 /1177
Article 1380. Contracts validly agreed upon may
be rescinded in the cases established by law.
(Rescissible Contracts)
Article 1177. The creditors, after having pursued
the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save
those which are inherent in his person; they may
also impugn the acts which the debtor may have
done to defraud them.
--Rescission in reciprocal in Art. 1191 is not identical to
Rescission of s in Art. 1380+.
Requisites of Rsn of a K (1380):
a rescissible K, ex. under Art. 1381 & 1382
no other legal means to obtain reparation for damages
(Art. 1383)
person demanding Rsn must be able to return whatever
he may be obliged to restore if Rsn granted (Art. 1385)
objects of K must not have passed legally to possn of 3rd
p. in GF (Art. 1385)
Axn for Rsn brought w/in 4 years (Art. 1389)

(In Delivery of the Thing Sold)


Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller of
goods, as such, has:
(1) A lien on the goods or right to retain them
for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a
right of stopping the goods in transitu after he
has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise
limited by this Title.
Where the ownership in the goods has not passed
to the buyer, the unpaid seller has, in addition to his
other remedies a right of withholding delivery
similar to and coextensive with his rights of lien and
stoppage in transitu where the ownership has
passed to the buyer.

Rescindable Ks are valid until voided & cant be


attacked collaterally
as in a land registration
proceeding. Direct proceeding necessary.
Rsn only for legal cause, as those in Art. 1381 & 1382
Lesion under Art. 1381 par. 1 & 2, to give rise to Rsn,
must be known or could have been known at the time of
making the K, & not due to circs subseq thereto or
unknown to the parties.
Accion Pauliana: Axn to set aside Ks in fraud of Crs. (Art.
1381 par. 3)
Requisites for Accion Pauliana:
1. Pff. Asking for Rsn has a credit prior to
alienation, though demandable later
2. Dbt has made a subsequent K conveying a
patrimonial benefit to 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

(2) JUDICIAL REMEDIES:


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

Rsn. is a subsidiary axn, w/c presupposes that the


Cr has exhausted the prop. of the Db. Fraudulent
conveyance must be shown.

(a) PRINCIPAL REMEDY 1191 / 1170


Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the
Mortgage Law.
Notes on 1191:
Two remedies are alternative & not cumulative, subject
to the exception in par. 2 where he may also seek
rescission even after he has chosen fulfillment if the
latter should become impossible

Test: WON conveyance by dbtor a bona fide


transxn
Badges/ Signs of Fraud:
1. consideration of conveyance is inadequate
2. transfer made by Db after suit has begun &
while pending v. him
3. a sale upon credit by insolvent Db
4. evidence of large indebtedness or complete
insolvency
5. transfer of all or nearly all of prop of Db who is
insolvent or greatly embarrassed financially
6. transfer is made between father & son
7. failure of vendee to take exclusive possn of
prop
8. If alienation is gratuitous, GF of transferee does
NOT protect him O.W. Unjust enrichment
9. If alienation is by onerous title, transferee must
be a party to the fraud, to have Rsn
As a rule, Rsn benefits only Cr who obtained Rsn. And
the extent of revocation is only to the amount of
prejudice suffered by Cr.
As to the excess, the
alienation is maintained
Axn for Rsn may be brought by:
(1) the person injured by the Rescue K,
(2) heirs of this person, &

37

(3) their Crs by virtue of rt granted under Art. 1177.

W/N Tolentino can compel specific performance.


W/N Tolentinos liability to pay the P17,000 covered by
the promissory note subsists.

Rt. of transferee to retain prop. depends upon the


nature of the transfer & upon the complicity of the
former in the fraud.

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.

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.
Art. 1388: Cr. With axn only v. subsequence transferees
only when an axn lies v. 1 st transferee. If 1st Tfee in GF,
no liability. If 1st Tfee in BF, the rescissible char. Of 2 nd
alienation depends upon how 2nd Tfee acquired the
thing.
Art. 1191. The power to rescind obs. Is implied in
reciprocal ones, in case on of the obligors should
not comply w/ what is incumbent upon him.
The injured party may choose between the
fulfillment & the rescission of the ds., w/ the
payment of damages in either case. He may also
seek rescission, even after he has chosen
fulfillment,
if
the
latter
should
become
impossible.
The ct. shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a
period.
This is understood to be w/o prejudice to the rts
of third persons who have acquired the thing, in
accordance w/ Arts. 1385 & 1388 & the Mortgage
Law.

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.

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.

--CASES:
UNIVERSAL FOOD CORP. vs. CA: (1970)

Differences:
(1) Rsn under 1191 may be demanded only by party to
the , under 1380+ by 3rd p. prejudiced by the ;
(2) Rsn under 1191 may be denied when there is
sufficient reason to justify extension of time to perform,
under 1380+ such reason does NOT affect rt. to ask for
Rsn;
(3) Non-perf. is the only grd. for Rsn under 1191, while
there are various reasons of equity as grds. under 1191
applies only to recip. ds. where one party has not
performed, while under 1380(+) may be unilateral or
reciprocal & even when has been fulfilled.

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.

CENTRAL BANK VS. CA (1985)


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.

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 100hectare land. Only P17,000 was released by the Bank,
for w/c Tolentino executed a promissory note payable
w/in 3 years. The balance was not released. In 1965, the
Monetary Board of the Central Bank issued Resolution
No. 1049 prohibiting the Bank fr. doing business in the
Philippines.
The Bank filed an application for
extrajudicial foreclosure of the real estate mortgage of
Tolentino for non-payment of the promissory note for
P17,000. In turn, Tolentino filed an action for injunction,
specific performance or rescission, alleging that the
Bank failed to fulfill its obligation to lend the balance of
P63,000.

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.

Issues:

38

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..

which cannot be instituted except when the party


suffering damage has no other legal means to obtain
reparation for the same.
However, in this case the dismissal of the respondent
patentee Magdalo V. Francisco, Sr. as the permanent
chief chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment. He was
dismissed without any fault or negligence on his part.
Thus, apart from the legal principle that the option to
demand performance or ask for rescission of a
contract belongs to the injured party, the fact
remains that the respondents-appellees had no
alternative but to file the present action for rescission
and damages. It is to be emphasized that the
respondent patentee would not have agreed to the
other terms of the Bill of Assignment were it not for the
basic commitment of the petitioner corporation to
appoint him as its Second Vice-President and Chief
Chemist on a permanent basis; that in the manufacture
of Mafran sauce and other food products he would
have "absolute control and supervision over the
laboratory assistants and personnel and in the
purchase and safeguarding of said products;" and that
only by all these measures could the respondent
patentee preserve effectively the secrecy of the
formula, prevent its proliferation, enjoy its monopoly,
and, in the process afford and secure for himself a
lifetime job and steady income. The salient provisions
of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the
appointment of the respondent patentee as Second
Vice-President and chief chemist on a permanent
status; the obligation of the said respondent patentee
to continue research on the patent to improve the
quality of the products of the corporation; the need of
absolute control and supervision over the laboratory
assistants and personnel and in the purchase and
safekeeping of the chemicals and other mixtures used
in the preparation of said product all these
provisions of the Bill of Assignment are so
interdependent that violation of one would result in
virtual nullification of the rest.

ISSUE: WON the rescission of the Bill of Assignment by


the CA is proper?
In this connection, we quote for ready reference the
following articles of the new Civil Code governing
rescission of contracts:
ART.
1191.
The
power
to
rescind
obligations is implied in reciprocal ones,
in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of damages
in either case. He may also seek
rescission even after he has chosen
fulfillment, if the latter should become
impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice
to the rights of third persons who have
acquired the thing, in accordance with
articles 1385 and 1388 of the Mortgage
Law.
ART. 1383. The action for rescission is
subsidiary; it cannot be instituted except
when the party suffering damage has no
other legal means to obtain reparation for
the same.

Separate Opinion: REYES, J.B.L., J., concurring:

ART. 1384. Rescission shall be only to the


extent necessary to cover the damages
caused.

I concur with the opinion penned by Mr. Justice Fred


Ruiz Castro, but I would like to add that the argument
of petitioner, that the rescission demanded by the
respondent-appellee, Magdalo Francisco, should
be denied because under Article 1383, NCC
rescission can not be demanded except when the party
suffering damage has no other legal means to obtain
reparation, is predicated on a failure to distinguish
between a rescission for breach of contract under
Article 1191 of the Civil Code and a rescission by
reason of lesion or economic prejudice, under Article
1381, et seq.

HELD:
The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
The
injured
party
may
choose
between
fulfillment and rescission of the obligation, with
payment of damages in either case.

(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.

In this case before us, there is no controversy that the


provisions of the Bill of Assignment are reciprocal in
nature. The petitioner corporation violated the Bill of
Assignment, specifically paragraph 5-(a) and (b), by
terminating the services of the respondent patentee
Magdalo V. Francisco, Sr., without lawful and justifiable
cause.
The general rule is that rescission of a contract
will not be permitted for a slight or casual
breach, but only for such substantial and
fundamental breach as would defeat the very
object of the parties in making the agreement.
The question of whether a breach of a contract is
substantial
depends
upon
the
attendant
circumstances. The petitioner contends that rescission
of the Bill of Assignment should be denied, because
under article 1383, rescission is a subsidiary remedy

39

(Rescission by reason of lesion or economic


prejudice, under Article 1381, et seq. ) On the
contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d'etre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesion
enumerated in Article 1381 of the Civil Code of the
Philippines, and does not, apply to cases under Article
1191.

sale being reciprocal, such obligations are governed by


article 1124 of the Civil Code which declares that the
power to resolve, in the event that one of the obligors
should not perform his part, is implied.
Upon the other hand, where, as in this case, the
petitioner cancelled the contract, advised the
respondent that he has been relieved of his obligations
thereunder, and led said respondent to believe it so
and act upon such belief, the petitioner may not be
allowed, in the language of section 333 of the Code of
Civil Procedure (now section 68 (a) of Rule 123 of the
New Rules of Court), in any litigation the course of
litigation or in dealings in nais, be permitted to
repudiate his representations, or occupy inconsistent
positions, or, in the letter of the Scotch law, to
"approbate and reprobate."

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.

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;

MAGDALENA ESTATES VS. LOUIS MYRICK (1941)

In 1960, UP and ALUMCO (Assoc. Lumber Manuf. Co)


entered into a logging agreement under which the
latter was granted exclusive authority, for a period
starting from the date of the agreement to 31
December 1965, extendible for a further period of five
(5) years by mutual agreement, to cut, collect and
remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.; ALUMCO
cut and removed timber therefrom but, as of 8
December 1964, it had incurred an unpaid account of
P219,362.94, which, despite repeated demands, it had
failed to pay. After it had received notice that UP would
rescind or terminate the logging agreement, ALUMCO
executed an instrument, entitled "Acknowledgment of
Debt and Proposed Manner of Payments," dated 9
December 1964, which was approved by the president
of UP, and which stipulated the following:

FACTS: Magdalena Estate, Inc., sold to Louis J. Myrick


Parcel of lots in San Juan Subdivision, San Juan Rizal,
with contract of sale providing for the price which shall
be payable in 120 equal monthly installments of each
on the 2nd day of ea.mo. fr. the date of execution of the
agreement. Simultaneously, the vendee executed and
delivered to the vendor a PN for the whole purchase
price. Myrick made several installment payments the
last being Oct. 1930, but was in default as to May
payment.
Thus, vendor notified the vendee that, in view of his
inability to comply with the terms of their contract, said
agreement had been cancelled as of that date, thereby
relieving him of any further obligation thereunder, and
that all amounts paid by him had been forfeited in
favor of the vendor, who assumes the absolute right
over the lots in question. To this communication, the
vendee did not reply, and it appears likewise that the
vendor thereafter did not require him to make any
further disbursements on account of the purchase
price.

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;

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.

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;

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.

ALUMCO continued its logging operations, but again


incurred an unpaid account, for the period from 9
December 1964 to 15 July 1965, in the amount of
P61,133.74, in addition to the indebtedness that it had
previously acknowledged.

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.

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/

The fact that the contracting parties herein did not


provide for resolution is now of no moment, for the
reason that the obligations arising from the contract of

40

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.

final judgment of rescission is rendered when the law


itself requires that he should exercise due diligence to
minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent
declaring that judicial action is necessary for the
resolution of a reciprocal obligation, 1 since in every
case where the extrajudicial resolution is contested
only the final award of the court of competent
jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that
judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and
subject to judicial invalidation, unless attack thereon
should become barred by acquiescence, estoppel
or prescription.

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.

ZULUETA VS. MARIANO


FACTS: Petitioner Jose C. Zulueta is the registered
owner of a residential house and lot situated within the
Antonio Subdivision, Pasig, Rizal. On November 6,
1964, petitioner Zulueta and private respondent
Lamberto Avellana, a movie director, entered into a
"Contract to Sell" the aforementioned property for
P75,000.00 payable in twenty years with respondent
buyer assuming to pay a down payment of P5,000.00
and a monthly installment of P630.00 payable in
advance before the 5th day of the corresponding
month, starting with December, 1964 WITH FURTHER
SPECIFIC STIPULATIONS IN CASE OF BREACH OF SUCH
.

UPs MR was denied.


ISSUE: whether petitioner U.P. can treat its contract
with ALUMCO rescinded, and may disregard the same
before any judicial pronouncement to that effect.
In the first place, UP and ALUMCO had expressly
stipulated that, upon default by the debtor ALUMCO,
the creditor (UP) has "the right and the power to
consider, the Logging Agreement as rescinded without
the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the
Civil Code, this Court stated in Froilan vs. Pan Oriental
Shipping Co., et al., L-11897, 31 October 1964, 12
SCRA 276:

Avellana occupied the property but title remained with


petitioner Zulueta.
Upon the allegation that
respondent had failed to comply with the monthly
amortizations stipulated in the contract, despite
demands to pay and to vacate the premises, and that
thereby the contract was converted into one of
lease, petitioner, commenced an Ejectment suit
against respondent before the MTC-Pasig. Respondent
controverted by contending that the Municipal Court
had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the
contract; and made some affirmative defenses and
counterclaim. Lower court found in favor of plaintiff,
asked def. to vacate & pay back rentals,etc.
CA
reversed & ruled vs. jus of muni.court finding the case
as one of interpretation & rescission of b/c d to
sell was converted to of lease. MR denied.

there is nothing in the law that prohibits the


parties from entering into agreement that
violation of the terms of the contract would
cause cancellation thereof, even without court
intervention. In other words, it is not always
necessary for the injured party to resort
to court for rescission of the contract.
Of course, it must be understood that the act of party
in treating a contract as cancelled or resolved on
account of infractions by the other contracting party
must be made known to the other and is always
provisional, being ever subject to scrutiny and review
by the proper court. If the other party denies that
rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was
not warranted, the responsible party will be
sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.

ISSUE: WON the original to sell was rescinded d/t


the automatic resc.clause in the , thus the case was
unlawful detainer cognizable by the MTC or one of
judicial rescission of cognizable by then CFI?
HELD: Thus, the basic issue is not possession but one
of rescission or annulment of a contract, which is
beyond the jurisdiction of the Municipal Court to hear
and determine.
A violation by a party of any of the stipulations
of a contract on agreement to sell real property
would entitle the other party to resolved or
rescind it. An allegation of such violation in a
detainer suit may be proved by competent
evidence. And if proved a justice of the peace
court might make a finding to that effect, but it
certainly cannot declare and hold that the
contract is resolved or rescinded. It is beyond
its power so to do. And as the illegality of the
possession of realty by a party to a contract to
sell is premised upon the resolution of the
contract, it follows that an allegation and proof
of such violation, a condition precedent to such

In other words, the party who deems the contract


violated may consider it resolved or rescinded,
and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will
conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely
does not require that the contracting party who
believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's
breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the

41

resolution or rescission, to render unlawful the


possession of the land or building erected
thereon by the party who has violated the
contract, cannot be taken cognizance of by a
justice of the peace court. ...

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.

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.

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.

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.

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.

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:

ANGELES VS CALASANZ
FACTS: Ursula Torres Calasanz and Tomas Calasanz
and plaintiffs-appellees Buenaventura Angeles and
Teofila Juani entered into a contract to sell a piece of
land located in Cainta, Rizal for the amount of
P3,920.00 plus 7% interest per annum.

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.

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 defendantsappellants accepted and received delayed installment
payments from the plaintiffs-appellees. On December
7, 1966, the defendants-appellants wrote the plaintiffsappellees a letter requesting the remittance of past
due accounts. On January 28, 1967, the defendantsappellants 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.

There was no other recourse left for respondent Judge,


therefore, except to dismiss the appeal.
If an inferior court tries a case without
jurisdiction over the subject-matter on appeal,
the only authority of the CFI is to declare the
inferior court to have acted without jurisdiction
and dismiss the case, unless the parties agree
to the exercise by the CFI of its original
jurisdiction to try the case on the merits. 4
The foregoing premises considered, petitioner's prayer
for a Writ of Execution of the judgment of the Municipal
Court of Pasig must perforce be denied.
PALAY, INC. vs. CLAVE (1983)

The plaintiffs-appellees filed with CFI-Rizal to compel


the defendants-appellants to execute in their favor the
final deed of sale alleging inter alia that after
computing all subsequent payments for the land in
question, they found out that they have already paid
the total amount of P4,533.38 including interests,
realty taxes and incidental expenses for the
registration and transfer of the land.

FACTS:
Petitioner Palay, Inc., through its President,
Albert Onstott executed in favor of private respondent,
Nazario Dumpit, a Contract to Sell a parcel of Land of
the Crestview Heights Subd. in Antipolo, Rizal, owned
by said corporation. The sale price was P23,300.00
with 9% interest p.a., payable with a downpayment of
P4,660.00 and monthly installments of P246.42 until
fully
paid.
Contract
provided
for
automatic
extrajudicial rescission upon default in payment of
any monthly installment after the lapse of 90 days
from the expiration of the grace period of one month,
without need of notice and with forfeiture of all
installments paid.
Respondent Dumpit paid the
downpayment and several installments amounting to
P13,722.50. The last payment was made on December
5, 1967 for installments up to September 1967. Almost
six (6) years later, private respondent wrote petitioner
offering to update all his overdue accounts with
interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon.
Replying petitioners informed respondent that his
Contract to Sell had long been rescinded and the lot
had already been resold.

The defendants-appellants alleged in their answer that


the complaint states no cause of action and that the
plaintiffs-appellees violated paragraph six (6) of the
contract to sell when they failed and refused to pay
and/or offer to pay the monthly installments
corresponding to the month of August, 1966 for more
than five (5) months, thereby constraining the
defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the
plaintiffs-appellees. MR denied.
ISSUE:
WON the contract to sell has been
automatically and validly cancelled by the defendantsappellants

42

HELD: The right to rescind the contract for nonperformance of one of its stipulations, therefore, is not
absolute. In Universal Food Corp. v. Court of Appeals
(33 SCRA 1) the Court stated that

Ketchum on his own behalf assigned to J.


Amado Araneta the managerial rights over Solomon
Boysaw, presumably in preparation for his engagement
with Elorde. Then, Araneta assigned to Alfredo J. Yulo,
Jr. the managerial rights over Boysaw. The next day,
Boysaw wrote Lope Sarreal, Sr. informing him of his
arrival and presence in the Philippines.
Yulo, Jr. wrote to Sarreal informing him of his
acquisition of the managerial rights over Boysaw and
indicating his and Boysaw's readiness to comply with
the boxing contract of May 1, 1961. On the same date,
on behalf of Interphil, Sarreal wrote a letter to the
Games and Amusement Board [GAB] expressing
concern over reports that there had been a switch of
managers in the case of Boysaw, of which he had not
been formally notified, and requesting that Boysaw be
called to an inquiry to clarify the situation.
The GAB called a series of conferences &
changed the schedule the Elorde-Boysaw fight. The
USA National Boxing Association which has supervisory
control of all world title fights approved the date set by
the GAB. Yulo, Jr. refused to accept the change in the
fight date.
The fight never materialized. Thus, Boysaw
and Yulo, Jr. sued Interphil, Sarreal, & Nieto in CFI-Rizal
for damages.
The power to rescind obligations is
implied, in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him. [Part 1, Art. 1191, Civil
Code].
There is no doubt that the contract in question
gave rise to reciprocal obligations. "Reciprocal
obligations are those which arise from the same
cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of
one is dependent upon the obligation of the
other. They are to be performed simultaneously,
so that the performance of one is conditioned
upon the simultaneous fulfillment of the other"
[Tolentino]
The power to rescind is given to the
injured party. "Where the plaintiff is the party who
did not perform the undertaking which he was bound
by the terms of the agreement to perform 4 he is not
entitled to insist upon the performance of the contract
by the defendant, or recover damages by reason of his
own breach " [Seva vs. Alfredo Berwin 48 Phil. 581].
Another violation of the contract in question
was the assignment and transfer, first to J. Amado
Araneta, and subsequently, to appellant Yulo, Jr., of the
managerial rights over Boysaw without the knowledge
or consent of Interphil.
The assignments, from
Ketchum to Araneta, and from Araneta to Yulo, were in
fact novations of the original contract which, to be
valid, should have been consented to by Interphil.
Novation which consists in substituting a
new debtor in the place of the original
one, may be made even without the
knowledge or against the will of the
latter, but not without the consent of the
creditor. [Art. 1293]
Creditor not bound to deal w/unilaterally
substituted debtor - Under the law when a contract
is unlawfully novated by an applicable and unilateral
substitution of the obligor by another, the aggrieved
creditor is not bound to deal with the substitute.
The consent of the creditor to the change of
debtors, whether in expromision or delegacion is an,
indispensable requirement . . . Substitution of one
debtor for another may delay or prevent the fulfillment
of the obligation by reason of the inability or insolvency
of the new debtor, hence, the creditor should agree to
accept the substitution in order that it may be binding
on him.

The general rule is that rescission of a contract


will not be permitted for a slight or casual
breach, but only for such substantial and
fundamental breach as would defeat the very
object of the parties in making the agreement.
(Song Fo & Co. v. Hawaiian-Philippine Co., 47
Phil. 821, 827) The question of whether a
breach of a contract is substantial depends
upon the attendant circumstances.
The breach of the contract adverted to by the
defendants-appellants is so slight and casual
when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had
already paid the monthly installments for a period of
almost nine (9) years. In other words, in only a short
time, the entire obligation would have been paid.
Article 1234 If the obligation has been
substantially performed in good faith, the obligor may
recover as though there had been a strict and
complete fulfillment, less damages suffered by the
obligee.
We agree with the observation of the lower court to the
effect that:
Although the primary object of selling
subdivided lots is business, yet, it cannot be
denied that this subdivision is likewise
purposely done to afford those landless, low
income group people of realizing their dream of
a little parcel of land which they can really call
their own.
The contract to sell entered into by the parties has
some characteristics of a contract of adhesion. The
defendants-appellants drafted and prepared the
contract. The plaintiffs-appellees, eager to acquire a lot
upon which they could build a home, affixed their
signatures and assented to the terms and conditions of
the contract. They had no opportunity to question nor
change any of the terms of the agreement. It was
offered to them on a "take it or leave it" basis.
The contract to sell, being a contract of adhesion, must
be construed against the party causing it. We agree
with the observation of the plaintiffs-appellees to the
effect that "the terms of a contract must be interpreted
against the party who drafted the same, especially
where such interpretation will help effect justice to
buyers who, after having invested a big amount of
money, are now sought to be deprived of the same
thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and
injurious in its effect which, in essence, and in its
entirety is most unfair to the buyers."
BOYSAW VS INTERPHIL
FACTS: Solomon Boysaw and his then Manager, Willie
Ketchum, signed with Interphil Promotions, Inc.
represented by Lope Sarreal, Sr., a contract to engage
Gabriel "Flash" Elorde in a boxing contest for the
junior lightweight championship of the world. It was
stipulated that the bout would be held at the Rizal
Memorial Stadium in Manila on September 30, 1961 or
not later than thirty [30] days thereafter should a
postponement be mutually agreed upon, and that
Boysaw would not, prior to the date of the boxing
contest, engage in any other such contest without the
written consent of Interphil Promotions, Inc.

43

Thus, in a contract where x is the creditor and


y is the debtor, if y enters into a contract with z, under
which he transfers to z all his rights under the first
contract, together with the obligations thereunder, but
such transfer is not consented to or approved by x,
there is no novation. X can still bring his action against
y for performance of their contract or damages in case
of breach. [Tolentino]
From the evidence, it is clear that the
appellees, instead of availing themselves of the options
given to them by law of rescission or refusal to
recognize the substitute obligor Yulo, really wanted to
postpone the fight date owing to an injury that Elorde
sustained in a recent bout. That the appellees had the
justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts
aforestated. Under the circumstances, the appellees'
desire to postpone the fight date could neither be
unlawful nor unreasonable.
We uphold the appellees' contention that since
all the rights on the matter rested with the appellees,
and appellants' claims, if any, to the enforcement of
the contract hung entirely upon the former's pleasure
and sufferance, the GAB did not act arbitrarily in
acceding to the appellee's request to reset the fight
date to November 4, 1961. It must be noted that
appellant Yulo had earlier agreed to abide by the GAB
ruling.

under the circumstances, still in the instant case


there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the
many extensions granted private respondents by
the petitioner. In all these extensions, the petitioner
never called attention to the proviso on "automatic
rescission."
CENTRAL BANK VS. CA (1985)
Facts:
Islands Savings Bank approved the loan
application of Tolentino for P80,000. To secure the loan,
Tolentino executed a REM on his 100-hectare land. Only
P17,000 was released by the Bank, for w/c Tolentino
executed a PN payable w/in 3 years. The balance was
not released. In 1965, the Monetary Board of the Central
Bank issued Reso.No. 1049 prohibiting the Bank fr. doing
business in RP.
The Bank filed an application for
extrajudicial FREM vs. Tolentino for non-payment of the
PN. In turn, Tolentino filed an action for injunction,
specific performance or rescission, alleging that the
Bank failed to fulfill its obligation to lend the balance of
P63,000.
Issues: W/N Tolentino can compel specific performance.
WON Tolentino is entitled to rescission.
Held: NO. The agreement is a loan agreement, w/c is a
reciprocal obligation. In reciprocal obligations, the
obligation or promise of each party is the consideration
for that of the other; & when one party has performed or
is ready & willing to perform his part of the contract, the
other party who has not performed or is not ready &
willing to perform incurs in delay. The promise of
Tolentino to pay was the consideration for the obligation
of the Bank to furnish the P80,000. When Tolentino
executed a real estate mortgage, he signified his
willingness to pay the loan. From such date, the
obligation of the Bank to furnish the P80,000 accrued.
The Banks delay started in 1965, lasted for 3 years or
when the Monetary Board issued Resolution No. 967 in
1968, w/c prohibited the Bank fr. doing further business.
Resolution No. 1049 cannot interrupt the default of the
Bank in releasing the P63,000 bec. said resolution
merely prohibited the Bank fr. making new loans. Since
the Bank was in default in fulfilling its reciprocal
obligation under the loan agreement, Tolentino may
choose between specific performance or rescission w/
damages in either case. But since the Bank is now
prohibited fr. doing further business, the Court cannot
grant specific performance. Rescission is the only
alternative remedy left. However, rescission is only for
the P63,000 balance, bec. the bank is in default only
insofar as such amount is concerned.

PILIPINAS BANK VS. I.A.C.


FACTS: Hacienda Benito, Inc. (petitioner's predecessorin-interest) as vendor, and private respondents, Jose W.
Diokno and Carmen I. Diokno, as vendees executed a
Contract to Sell over a parcel of land in Victoria Valley
Subdivision in Antipolo, Rizal, subject to terms and
conditions as stipulated. At vendees failure to pay,
vendor sent several demands for the former to settle
arrearages, requests for extensions were give, further
demand was again given several times, until a Notice
of rescission was given to Carmen Diokno after she
informed the Corp that she wanted an audience with
the Pres. b/c she had a prospective buyer of the
property.
Thus, private respondents filed Complaint for Specific
Performance with Damages to compel petitioner to
execute a deed of sale in their favor, and to deliver to
them the title of the lot in question. Petitioner filed an
Answer with counterclaim for damages in the form of
attorney's fees, claiming that Contract to Sell has been
automatically rescinded or cancelled by virtue of
private respondents' failure to pay the installments due
in the contract under the automatic rescission clause.
After trial, the lower court rendered a decision in
private respondents' favor, holding that petitioner
could not rescind the contract to sell, because: (a)
petitioner waived the automatic rescission clause by
accepting payment on September 1967, and by
sending letters advising private respondents of the
balances due, thus, looking forward to receiving
payments thereon; (b) in any event, until May 18, 1977
(when petitioner made arrangements for the
acquisition of additional 870 square meters) petitioner
could not have delivered the entire area contracted for,
so, neither could private respondents be liable in
default, citing Art. 1189, NCC. CA affirmed.

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.

ISSUE: WON the Contract to Sell was rescinded or


cancelled, under the automatic rescission clause
contained therein.
HELD: We find the petition meritless. While it is true
that a contractual provision allowing "automatic
rescission" (without prior need of judicial
rescission, resolution or cancellation) is VALID,
the remedy of one who feels aggrieved being to
go to Court for the cancellation of the rescission
itself, in case the rescission is found unjustified

44

FOR JULY 16, 2008:

In this case, Molina can make out a case of


extinguishment of obligation on the ground of want of
interest. The obvious purpose of the stipulation is to
prevent unfair competition.

G. MODES OF EXTINGUISHMENT OF OBLIGATIONS


Art. 1231. Obligations are extinguished
BY:
(1) Payment or Performance;
(2) Loss of the thing due;
(3) Condonation or Remission of the debt;
(4) Confusion or Merger of the rights of
creditor & debtor;
(5) Compensation;
(6) Novation.
Other causes of extinguishment of obligations,
such as annulment, rescission, fulfillment of a
resolutory condition, & prescription are governed
elsewhere in this Code.

CASE:
SAURA IMPORT & EXPORT BANK VS. DBP [44 S
445]
FACTS: Plaintiff Saura, Inc. applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into
DBP, for an industrial loan of P500,000.00, to be used
as follows: P250,000.00 for the construction of a
factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and
P9,100.00 as additional working capital. The jute mill
machinery had already been purchased by Saura on
the strength of a LOC by PBTC. RFC approved the loan
secured by a first mortgage on the factory building to
be constructed, the land site thereof, and the
machinery and equipment to be installed, and the loan
to be released at the discretion of RFC, subject to
availability of funds, &as the construction of the factory
buildings progresses, to be certified to by an appraiser
of RFC. China Engineers, Ltd. had again agreed to act
as co-signer for the loan. When the RFC Board later
decided to decrease the loan fr. 500K to 300K, China
Eng signified to withdraw as co-maker. Thus, when
Saura requested for the release of the 500K loan, RFC
signified that the Loan Agreement has been cancelled.
Saura, Inc. does not deny that the factory he was
building in Davao was for the manufacture of bags
from local raw materials, a Kenaf mill plant, to
manufacture copra and corn bags, runners, floor
mattings, carpets, draperies; out of 100% local raw
materials. When negotiations came to a standstill.
Saura, Inc. did not pursue the matter further. Instead, it
requested RFC to cancel the mortgage which RFC did.
It appears that the cancellation was requested to make
way for the registration of a mortgage contract,
executed over the same property in favor of PBTC,
under which contract Saura, Inc. had up to December
31 of the same year within which to pay its obligation
on the trust receipt heretofore mentioned. It appears
further that for failure to pay the said obligation PBTC
sued Saura.
NINE YRS LATER, Saura commenced the present suit
for damages, alleging failure of RFC /DBP to comply
with its obligation to release the proceeds of the loan
applied for and approved, thereby preventing the
plaintiff from completing or paying contractual
commitments it had entered into, in connection with its
jute mill project. The trial court rendered judgment for
the plaintiff.

Balane:
Art. 1231 gives us ten modes of extinguishing
an obligation.
One of the modes mentioned is
rescission.
But it does not tell us whether this is rescission
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)
under

This enumeration is not exclusive.

Other modes of extinguishing an obligation are


the following:
1.

Death particularly where the obligation is


purely personal, e.g., death of one partner
dissolves the partnership/agency;

2.

Renunciation by the creditor

3.

Compromise

4.

Arrival of Resolutory
reso.condi.

5.

Mutual Desistance or mutuo disenso (Saura v.


DBP)

6.

In some cases, Unilateral Withdrawal, e.g., in


partnership, any partner can w/draw any time fr.
the partnership.

7.

In some cases, change of civil status, e.g., if


marriage is annulled, it extinguishes obligations
like the obligation to give support, among
others.

8.

Unforeseen Events (rebus sic stantibus)


(Art. 1267.)

9.

Want of Interest GR: No, but there are


certain cases:

if it is equitable to deem the extinguished d/t


want of interest of Cr in the fulfillment of such .

Term

fulfillment

of

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.

ISSUE: WON the of RFC to Saura in the perfected


loan subsists

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.

When RFC turned down the request of Saura, the


negotiations which had been going on for the
implementation of the loan agreement reached an
impasse. Saura, Inc. obviously was in no position to
comply with RFC's conditions. So instead of doing so
and insisting that the loan be released as agreed upon,
Saura, Inc. asked that the mortgage be cancelled,
which was done by RFC. The action thus taken by both
parties was in the nature of mutual desistance - what

45

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.

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.

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.

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.

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.

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. 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.

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.

In any other case the place of payment shall be the domicile of the

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.

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.

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/.

These provisions are w/o prejudice to venue under the Rules of


Court.
Article 1302. It is presumed that there is legal subrogation:

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.

(3)

If by the creditor's conduct, the debtor has been led to


believe that the third person had authority to receive the
payment.

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

(a) transactions where the funds involved are the proceeds of loans
or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies
and instrumentalities, and international financial banking
institutions so long as the funds are identifiable, as having
emanated from the sources enumerated above;

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:

If the creditor ratifies the payment to the third person;

When a third person, not interested in the


obligation, pays with the express or tacit
approval of the debtor;

The above prohibition shall not apply to

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.

(2)

2)

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.

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.

If after the payment, the third persons acquires the


creditor's rights;

When a creditor pays another creditor who


is preferred, even without the debtor's
knowledge;

Republic Act No. 529, as amended by R.A. No. 4100, provides:

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."

(1)

1)

(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;

Art. 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor.

(c) forward exchange transactions entered into between banks or


between banks and individuals or juridical persons;

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.

(d) import-export and other international banking, financial


investment and industrial transactions.

46

Payment in obligations to give,


Performance in obligations to do.

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.

Payment/ performance is the paradigmatic mode of


extinguishment of an obligation.

It is the only normal way of extinguishing an


obligation.
Art. 1233. A debt shall not be understood to have
been paid unless the thing or service in w/c the
obligation consists has been completely delivered
or rendered, as the case may be.

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.

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

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.

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

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)

II.

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.

1. Payor/ obligor/ debtor


2. Payee/ obligee/ creditor
III.

Re: Time & place

Discussion:

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.

I. With respect to prestation:


1. Identity

If specific prestation, this requisite means that


the very thing or service must be delivered.
(Art. 1244.)

It follows, therefore, that the jurisprudence established in R.A. No.


529 regarding the rate of conversion remains applicable. Thus, in
Asia World Recruitment, Inc. v. National Labor Relations
Commission,13 the Court, applying R.A. No. 8183, sustained the
ruling of the NLRC that obligations in foreign currency may be
discharged in Philippine currency based on the prevailing rate
at the time of payment.

If generic, the requisite requires the delivery of


something of neither inferior or superior quality
(Art. 1246). It must be something in the middle.
In case of money, there are special rules:

Governing rule: RA 529 as amended by RA 4100

CONCEPT OF PAYMENT

Art. 1232. Payment means not only the delivery


of money but also the performance, in any other
manner, of an obligation.

In case of money debts, you will have to


pay in legal tender in the Philippines. This
law supersedes Art. 1249.

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 ;

If the parties stipulate that payment will


be made in foreign currency, the
obligation to pay is valid but the
obligation to pay in foreign currency is
void. Payment will be made in Phil.
currency.

LEGAL TENDER means such currency whc in a given


jus can be used for payment of debts public & priv,
&whc cannot be refused by Cr.

it is made not only by 1 who owes money but also


by 1 bound to do something or to refrain fr doing

Re: The parties

In the RP the ff are legal tender: (sec. 54, RA 265)


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

Thus, Payment is identical w/ Fulfillment.

Requisites of Payment or Performance:


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

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.

payment shd be made by the debtor to the creditor at


the right time and place.

If incurred after RA 529 became effective, the


conversion must be as of the time the obligation was
incurred (Kalalo v. Luz)

KINDS:

1. NORMAL when Db voluntarily performs


2. ABNORMAL when Db is forced by judicial

If the loan is in foreign currency, the conversion is as of


the time of payment. (RA 529.)

proceeding

Balane:
Payment or Performance are used interchangeably. But
technically,

47

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?

4.

Anyone interested in the fulfillment of


the obligation, e.g., a guarantor

b. With the creditor's consent -- Anyone.


This is a departure fr. the rule in the Old Civil
Code w/c did not require consent on the part
of the creditor.
c. Effect of payment by a third person:

In any event, payment by check can be refused by


the creditor. And even if payment by check is accepted
by the creditor, the acceptance is only a provisional
payment until the check is
(a) encashed or
(b) when through the fault of the creditor
they have been impaired.
The case of Namarco v. Federation, 49 SCRA 238,
interprets the phrase "when through the fault of the
creditor, they have been impaired" as to apply only
to a check used in payment if issued by a person other
than the debtor.

1.

If the payment was w/ the debtor's consent,


he becomes the agent of the debtor. The
effect is subrogation (Articles 1236-1237.)
Exception: If the person paying intended it
to be a donation. (Art. 1238.)

2.

If payment was w/o the debtor's consent,


the third person may demand repayment to
the extent that the debtor has been
benefited. (Art. 1236, par. 2.)

2. Who may be the payee?

Why? Bec. if the check was issued by the debtor


himself, all that the debtor have to do is to issue another
check.

1.
2.
3.
4.

Revaluation in case of extraordinary inflation or


deflation (Art. 1250)
This rule has never been used. It was only during the
Japanese occupation that there was a recognition of
extraordinary inflation in this country.
Exceptions to the requirement of identity

The obligee proper (Articles 1240, 1626.)


His successor or transferee (Art. 1240.)
His agent (ibid.)
Any third person subject to the following
qualifications:
a. provided it redounded to the obligee's
benefit & only to the extent of such
benefit. (Art. 1241, par. 2.)
b. If it falls under Art. 1241, par. 2 nos. 1, 2
& 3, benefit is deemed to be total.

5. Anyone in possession of the credit.


1242.)

(i) Dacion en pago (Art. 1245.)


(ii) Novation

(Art.

In all these five (5) cases, it is required that the debt


should not have been garnished. (Art. 1243.)

In both cases, there is a voluntary change in the object.

III. With respect to the time & place of payment:

2. Integrity There must be delivery of the entire


prestation due. (Art. 1233) or completely fulfilled;

1. When payment to be made: When due


2. Place (Art. 1251.)

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.)

Primary rule: As stipulated


Secondary rule: Place where the thing was at the time
the obligation was constituted if the obligation is to
deliver a determinate thing.
Tertiary rule: At the debtor's domicile

3. Indivisibility This means that the obligor must


perform the prestation in one act & not in parts. (Art.
1248.)

Balane:
** Payment or Performance
interchangeably.

There
are
several
exceptions
to
this
requirement:
1. In case or express stipulation. (Art. 1248.)
2. In case of prestations w/c necessarily entail
partial performance. (Art. 1225, par. 2)
3. If the debt is liquidated in part & unliquidated in
part. (Art. 1248.)
4. In case of joint divisible obligations (Art. 1208.)
5. In solidary obligations when the debtors are
bound under different terms & conditions. (Art.
1211.)
6. In compensation when a balance is left. (Art.
1290.)
7. If the work is to be delivered partially, the price
or compensation for each part having been
fixed. (Art. 1720.)
8. In case of several guarantors who demand the
right of division. (Art. 2065.)
9. In case of impossibility or extreme difficulty of
single performance.

are

used

But technically, payment is used in obligations to give


whereas performance is used in obligations to do.
Payment/ performance is the paradigmatic mode of
extinguishment of an obligation. It is the only normal
way of extinguishing an obligation.
Art. 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict & complete
fulfillment, less damages suffered by the obligee.

Substantial Performance:
1. an attempt in GF to perform, w/o any willful or
intentional departure fr it
2. deviation fr perf. of must be slight, & omission
or defect must be so technical & unimpt, & must
not pervade the whole, must not be so material
to the achievement of the very purpose of the
parties;
3. party claiming substantial perf. must show
attempt in GF

II. With respect to the parties


There are two parties involved:
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor

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.

Requirements:
1. Art. 1226 - 1238. Who should the payor be:
a. Without need of the creditor's consent
1. The debtor himself
2. His heirs or assigns
3. His agent

FACTS:

48

Contract to Sell bet. Plaintiff JM Tuazon and def.


Ligaya Javier on a parcel of land in Sta. Msa Hts. Subd.
On installment w/ down & interest of 10% p.a. Def. took
possn of prop. After payment of 1 st installment on
execution of in Sept. 1954 & pd. Mo.installmts until
Jan. 1962. After subseq. Default by def. of monthly inst.
Plaintf informed her that has been rescinded. But def.
refused to vacate. Thus, pltff filed case w/CFI-Rizal for
judicial rescission of and payment of arrears.
Based on Art. 1592, CFI found in favor of def.
but made the latter pay arrears w/in 60 days, plus
interests, attys fees, and that title shd be transferred
after such payment w/costs at the expense of def.
Article 1592. In the sale of immovable
property, even though it may have been
stipulated that upon failure to pay the price at
the time agreed upon the rescission of the
contract shall of right take place, the vendee
may pay, even after the expiration of the period,
as long as no demand for rescission of the
contract has been made upon him either
judicially or by a notarial act. After the demand,
the court may not grant him a new term.
Thus pltff appealed for erroneous applic of 1592
b/c this is a TO Sell not OF Sale.

xxx If the petitioner is fussy enough to invoke it now, it


stands to reason that he would have fussed it too in the
receipt he willingly signed after accepting, w/o
reservation & apparently w/o protest only P7,000. Art.
1235 is applicable.
Petitioner says that he could not demand payment of
the balance of P200 on 10/26/60, date of receipt bec.
the rental for the crop year 1961-1962 was due on or
before 1/30/61. But this would not have prevented him
fr. reserving in the receipt his right to collect the balance
when it fell due. Moreover, there is evidence in the
record that when the due date arrived, he made any
demand, written or verbal, for the payment of that
amount.
Art. 1235.
When the obligee accepts the
performance, knowing its incompleteness or
irregularity, & w/o expressing any protest or
objection, the obligation is deemed fully complied
w/.

ISSUE: WON CFI erred in NOT declaring herewith


rescinded.

1. To whom payment should be made


Art. 1240. Payment shall be made to the person
in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it.

HELD: NO. What applies here is Art. 1234:


Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover
as though there had been a strict & complete
fulfillment, less damages suffered by the obligee.
LEGARDA HERMANOS V. SALDANA [55 S 324] The Court's doctrine in J.M. Tuason v. Javier is fully
applicable to the present case, RE Substantial
performance of in GF, Art. 1234.

ARAAS V. TUTAAN [127 S 828]


Payment by judgment debtor to the wrong party
does not extinguish judgment debt.
FACTS: CFI-Rizal,Quezon declared petitioner-plaintiff sps.
Araas as owner of 400 shares of stocks in Universal
Textile Mills, Inc. UTEX, whc the Corp-defendant issued
to co-def. Gene Manuel and BR Castaneda, incl. stock
dividends whc accrued to said shares. This court a quo
rendered decision in August 1971. UTEX made a motion
for clarification and such was answered in 1972 clearly
directing UTEX to pay sps.petitioners as rightful owners
of all accruing dividends from their stocks fr after the
judgment by the court, and for the transfer of the
disputed shares of stocks to the names of petitioner-sps.
In lieu of the appeal filed by Manuel and Castaneda,
UTEX failed to transfer the names of the shares and pay
the dividends to petitioners. Thus, sps-pet asked for a
writ of execution fr court a quo for payment of cash
dividends fr 1972-1979 w/interest and to effect the
transfer of the shares to them. Lower court granted
such order but absolved UTEX of payment of cash
dividends whc they have already paid to Manuel and
Castaneda on the ground of equity.

FACTS: Contract to Sell bet. Plaintiff vendee, Felipe


Saldana
and
Def.vendor,
Legarda
Hermanos,
subdivision-owner, on 2 written s, payable for 10yrs,
120 equal monthly installments w/ 10% interst p.a., fr.
May 1948
resp. Saldana faithfully pd. For 8-yrs about 95mos.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)

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.

ISSUE: WON cancellation here was proper?


HELD: NO. Applying Doctrine in JM Tuazon v. Javier

HELD:

The burden of recovering the supposed


payments of the cash dividends made by UTEX to the
wrong parties Castaneda & Manuel squarely falls upon
itself by its own action & cannot be passed by it to
petitioners as innocent parties.

AZCONA V. JAMANDRE [151 S 317] FACTS: GUILLERMO AZCONA leased 80 Ha. Out of his
150 Ha pro-indiviso share in hacienda Sta. fe in
Escalante, Negros Occ. To CIRILO JAMANDRE, decedent
rep.by Administrator to his Estate;
> Yearly rental agreed: P7,200 for 3-agri.years fr. 1960,
extendible to 1965 at 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;
> resp. filed complaint, def. filed counterclaim; both
were dismissed by TC for pari de licto;

*** It is elementary that payment made by a


judgment debtor to a wrong party cannot
extinguish the judgment obligation of such debtor
to its creditor. xxx

A payment in order to be effective to


discharge an obligation must be made to
the proper parties.--

In general, a payment, in order to be effective to


discharge an obligation, must be made to the proper
person. Thus, payment must be made to the obligee
himself or to an agent having authority, express or
implied, to receive the particular payment.

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.

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.

49

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.

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.

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.

3.

Same principles are applicable to paymt


made to 3P, but person who paid has right
to recover fr. 3P

4.

In ff. Cases, paymt. To 3P releases Db:

(a) when w/o notice to assngmt. of credit, he


pays to original Cr [Art. 1626] &
(b) when in GF he pays to one in possn of
credit [Art. 1242]
5.

In the absence of an agreement, either express or


implied, payment means the discharge of a debt or
obligation in money & unless the parties so agree, a
debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of
payment of his debt. Consequently, Unless authorized
by law or by consent of the obligee, a public officer has
no authority to accept anything other than money in
payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the
sheriff of the petitioner's checks, in the case at bar, does
not, per se, operate as a discharge of the judgment
debt. [PAL V. CA (181 S 557)]

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.

Tolentino:

2. Who shall make payment


Art. 1236. The creditor is not bound to accept
payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o
the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been
beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor
w/o the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his
rights, such as those arising fr. a mortgage, guaranty,
or penalty.
Art. 1238. Payment made by a third person who
does not intend to be reimbursed by the debtor is
deemed to be a donation, w/c requires the debtor's
consent. But the payment is in any case valid as to
the creditor who has accepted it.
Art. 2173. When a third person, w/o the knowledge
of the debtor, pays the debt, the rights of the former
are governed by articles 1236 & 1237. (Other 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.

Authority to receive: LEGAL or CONVENTIONAL


Legal: conferred by law, such as authority of guardian
to inc. creditor (Cr), or the admr of estate
Conventional: autho. Fr. Cr himself, as when agent is
appted. To collect fr. Debtor (Dr)

Payment to wrong party does NOT


extinguish oblig to Cr, if there is no
fault or negligence w/c can be imputed
to the latter, even when Db acted in
utmost GF & by mistake as to the
person of his Cr, or thru error induced
by fraud of 3P, EXCEPT AS PROV. IN ART.
1241

Deposit by Db in bank, in the name


of & to the credit of Cr, w/o latters
autho.
Does
NOT
constitute
payment; but when the Cr cannot be
found in the place of payment, such
deposit may be a valid excuse for not
holding the Db in default

GR: Consignation in ct. of thing or amt. due, when


properly made will ext. oblig.
Art. 1241.
Payment to a person who is
incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar
as the payment has been beneficial to him.
Payment made to a third person shall also
be valid insofar as it has redounded to the benefit
of the creditor. Such benefit to the creditor need
not be proved in the following cases:
(1) If after the payment, the third
persons acquires the creditor's
rights;
(2) If the creditor ratifies the payment
to the third person;
(3) If by the creditor's conduct, the
debtor has been led to believe that
the third person had authority to
receive the payment.

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.

Baviera: Number three is Estoppel in Pais


Tolentino:
1.

If mistake of Db due to fault of Cr, then Cr


cannot demand anew

When Cr is incapacitated, payment must be


made to his legal rep. or deliver the thing to
ct. for consignation ff. Art. 1256

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.

50

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;

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.

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

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.

Art. 1244. The debtor of a thing cannot compel the


creditor to receive a different one, although the latter
may be of the same value as, or more valuable than
that w/c is due.
In obligations to do or not to do, an act or
forbearance cannot be substituted by another act or
forbearance against the obligee's will.

Tolentino:

Defects of the thing delivered may be waived by


the Cr, if he expressly so declares, or if, w/
knowledge thereof, he accepts the thing w/o
protest or disposes of it or consumes it

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.

Art. 1245. Dation in payment, whereby property is


alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
Art. 1246. When the obligation consists in the delivery
of an indeterminate or generic thing, whose quality &
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of
the obligation & other circumstances shall be taken into
consideration.

The provisions of law applicable to the case at bar are the


following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.

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

The delivery of promissory notes payable to order, or bills of


exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.;

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.

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.

Art. 1248. Unless there is an express stipulation to


that effect, the creditor cannot be compelled partially to
receive the prestations in w/c the obligation consists.
Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated &
in part unliquidated, the creditor may demand & the
debtor may effect the payment of the former w/o
waiting for the liquidation of the latter.
BALANE CASE:

c. Section 63 of Republic Act No. 265, as amended


(Central Bank Act) which provides:

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.

Sec. 63. Legal character Checks representing deposit


money do not have legal tender power and their acceptance
in the payment of debts, both public and private, is at the
option of the creditor: Provided, however, that a check which
has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this
petition must fail.
A check, whether a manager's check or
ordinary check, is not legal tender, and an offer
of a check in payment of a debt is not a valid

51

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.

tender of payment and may be refused receipt


by the obligee or creditor.

KALALO V. LUZ [34 S 337] - Under RA 529, if the


obligation was incurred prior to the enactment in a
particular kind of coin or currency other than the Phil.
currency the same shall be discharged in Phil. currency
measured at the prevailing rate of exchange at the time
the obligation was incurred. RA 529 does not provide for
the rate of exchange for the payment of the obligation
incurred after the enactment of said Act. The logical
conclusion is that the rate of exchange should be that
prevailing at the time of payment for such contracts.

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.

FACTS:

Octavio KALALO, a licensed civil engineer doing business


under the firm name of O. A. Kalalo and Associates, entered
into an agreement with Alfredo LUZ, a licensed architect,
doing business under firm name of A. J. Luz and Associates,
whereby the former was to render engineering design services
to the latter for fees, as stipulated in the agreement. The
services included design computation and sketches, contract
drawing and technical specifications of all engineering phases
of the project designed by O. A. Kalalo and Associates bill of
quantities and cost estimate, and consultation and advice
during construction relative to the work. The fees agreed upon
were percentages of the architect's fee.
Kalalo in his complaint against Luz alleged that for services
rendered in connection with the different projects there was
due him fees in US$, excluding interests, of which some were
paid, thus leaving unpaid the balance plus prayer for
consequential and moral damages, as well as moral damages,
attorney's fees and expenses of litigation; and actual
damages.

As we have adverted to, Republic Act 529 was enacted


on June 16, 1950. In the case now before us the obligation
of appellant to pay appellee the 20% of $140,000.00, or the
sum of $28,000.00, accrued on August 25, 1961, or after the
enactment of Republic Act 529. It follows that the provision of
Republic Act 529 which requires payment at the prevailing
rate of exchange when the obligation was incurred cannot be
applied.
Republic Act 529 does not provide for the rate of exchange for
the payment of obligation incurred after the enactment of said
Act. The logical conclusion, therefore, is that the rate of
exchange should be that prevailing at the time of
payment.

Luz admitted that appellee rendered engineering services, as


alleged, but averred that some were not in accordance with
the agreement and such claims were not justified by the
services actually rendered, and that the aggregate amount
actually due was only P80,336.29, of which P69,475.21
had already been paid, thus leaving a balance of only
P10,861.08. Luz denied liability for any damage claimed by
appellee to have suffered, as alleged in the second, third and
fourth causes of action. Appellant also set up affirmative and
special defenses, alleging that appellee had no cause of
action, that appellee was in estoppel because of certain acts,
representations, admissions and/or silence, which led
appellant to believe certain facts to exist and to act upon said
facts, that appellee's claim regarding the Menzi project was
premature because appellant had not yet been paid for said
project, and that appellee's services were not complete or
were performed in violation of the agreement and/or
otherwise unsatisfactory. Appellant also set up a counterclaim
for actual and moral damages for such amount as the court
may deem fair to assess, and for attorney's fees.

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.

TC authorized the case to be heard before a Commissioner.


The Commissioner rendered a report which, in resume, states
that the amount due to appellee was US$28K as his fee in the
IRRI Project, and P51,539.91 for the other projects, less the
sum of P69,475.46 which was already paid by the appellant.
The Commissioner also recommended the payment to
appellee of the sum of P5,000.00 as attorney's fees. Both had
no objection to the findings of fact of the Commissioner
contained in the Report
ISSUE: WON the recommendation in the Report that the
payment of the amount due to the plaintiff in dollars was
legally permissible, and if not, at what rate of exchange it
should be paid in pesos.

FACTS:

On June 3, 1969, private respondent Jesusa B. Afable, together


with Felisa L. Mendoza and Ma. Aurora C. Dio executed a
promissory note in favor of petitioner Nelia G. Ponce in the
sum of P814,868.42, Philippine Currency, payable, without
interest, on or before July 31, 1969. It was further provided
therein that should the indebtedness be not paid at maturity,
it shall draw interest at 12% per annum, without demand; that
should it be necessary to bring suit to enforce pay ment of the
note, the debtors shall pay a sum equivalent to 10% of the
total amount due for attorney's fees; and, in the event of
failure to pay the indebtedness plus interest in accordance
with its terms, the debtors shall execute a first mortgage in
favor of the creditor over their properties or of the Carmen
Planas Memorial, Inc.

HELD: Under the agreement, Exhibit A, appellee was entitled


to 20% of $140,000.00, or the amount of $28,000.00.
Appellee, however, cannot oblige the appellant to pay him in
dollars, even if appellant himself had received his fee for the
IRRI project in dollars. This payment in dollars is prohibited by
Republic Act 529 which was enacted on June 16, 1950.
Said act provides as follows:
SECTION 1. Every provision contained in, or made with respect
to, any obligation which provision purports to give the obligee the
right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money
of the Philippines measured thereby, be as it is hereby declared
against public policy, and null, void and of no effect, and no such
provision shall be contained in, or made with respect to, any
obligation hereafter incurred. Every obligation heretofore or here
after incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be
discharged upon payment in any coin or currency which at the
time of payment is legal tender for public and private debts:

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

52

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.

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.

Moreover, since the said check has been certified by the


drawee bank, by the certification, the funds represented
by the check are transferred fr. the credit of the maker
to that of the payee or holder, & for all intents &
purposes, the latter becomes the depositor of the
drawee bank, w/ rights & duties of one in such situation.
Where a check is certified by the bank on w/c it is
drawn,
the
certification
is
equivalent
to
acceptance.
Said certification "implies that the
check is drawn upon sufficient funds in the hands
of the drawee, that they have been set apart fort
its satisfaction, & that they shall be so applied
whenever the check is presented for payment. It
is an understanding that the check is good then, & shall
continue to be good, & this agreement is as binding on
the bank as its notes in circulation, a certificate of
deposit payable to the order of the depositor, or any
other obligation it can assume. The object of certifying
a check, as regards both parties, is to enable the holder
to use it as money." When the holder procures the
check to be certified, "the check operates as an
assignment of a part of the funds to the creditors."
Hence, the exception to the rule enunciated under Sec.
63 of the CB Act shall apply in this case:
Sec. 63. Legal Character Checks
representing deposit do not have legal tender
power and their acceptance in payment of
debts, both pub & priv, is at the option of the Cr.
Provided, however that a check w/c has
been cleared & credited to the account of
the creditor shall be equivalent to a
delivery to the creditor in cash in an
amount equal to the amount credited to
his account.

CA affirmed TC. MR denied. CAs holding: the agreement is


null and void and of no effect under Republic Act No. 529.
Under the doctrine of pari delicto, no recovery can be made in
favor of the plaintiffs for being themselves guilty of violating
the law.
ISSUE: WON the subject matter is illegal and against public
policy, thus, doctrine of pari delicto applies.
HELD: WE DISAGREE. It is to be noted that while an
agreement to pay in dollars is declared as null and void and of
no effect, what the law specifically prohibits is payment
in currency other than legal tender. It does not defeat a
creditor's claim for payment, as it specifically provides that
"every other domestic obligation ... whether or not any such
provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin
or currency which at the time of payment is legal tender for
public and private debts." A contrary rule would allow a
person to profit or enrich himself inequitably at another's
expense.
Section 1 of Republic Act No. 529, which was enacted
on June 16, 1950:
Section 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to
require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null and void and of no
effect and no such provision shall be contained in, or made
with respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions were the funds involved
are the proceeds of loans or investments made directly or indirectly,
through bona fide intermediaries or agents, by foreign governments,
their agencies and instrumentalities, and international financial and
banking institutions so long as the funds are Identifiable, as having
emanated from the sources enumerated above; (b) transactions
affecting high priority economic projects for agricultural industrial and
power development as may be determined by the National Economic
Council which are financed by or through foreign funds; (c) forward
exchange transactions entered into between banks or between banks
and individuals or juridical persons; (d) import-export and other
international banking financial investment and industrial transactions.
With the exception of the cases enumerated in items (a) (b), (c) and (d)
in the foregoing provision, in, which cases the terms of the parties'
agreement shall apply, every other domestic obligation
heretofore or hereafter incurred whether or not any such
provision as to payment is contained therein or made 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
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)

BISHOP OF MALOLOS V. IAC [191 S 411]


FACTS:
Petitioner is vendor of parcels of land in Bulacan to
vendee Robes-Francisco Realty Corp. w/ downpym of
20K+ and bal of 100K payable w/in 4yrs w/12% int. p.a.
fr exec. Of on July 7, 1975, w/forfeiture clause in case
vendee fails to pay in 4yrs.
On July 17, 1975, vendee wrote a letter requesting for
extension and allowance to pay in installment w/in 6mos
w/interests. Petitioner denied, granted only 5 days grace
period. Request for 30-days grace on the 4 th day was
also denied by pet. Priv. resp. later purports tender of
payment (in check) on 5th day was refused by pet. TC
favored pet. IAC reversed after finding that resp. had
sufficient funds at the time of tender of check payment
to pet. On the 5th day of the grace period, and concluded
that there was valid tender of paymnt.
ISSUE: WON offer of check is vaid tender of pymnt of
under a whc stipulates that consid. Of sale is in Phil.
Currency?
HELD:
Finding of suff.avail.funds by CA does not constitute
proof of tender of pymnt. (non sequitur)
Tender of Payment involves a positive & uncondi. Act
by the obligor of offering legal tender currency as
payment to oblige for the & demanding that the latter
accept the same.
Since a negotiable instrument is only a substitute for
money & not money, the delivery of such an instrument
does not, by itself, operate as payment. A check,
whether a manager's check or ordinary check, is not
legal tender, & an offer of a check in payment of a debt
is not a valid tender of payment & may be refused
receipt by the obligee or creditor.

NEW PACIFIC TIMBER V. SENERIS [101 S 686] FACTS:


Upon a compromise judgment against petitioner, and for
the latters failure to comply, CFI-Zambo issued a writ of
exec. Sheriff levied on personal properties or pet. And
set such for auction sale. Prior to whc date of auction,
pet. Deposited w/clerk of court, ex-officio sheriff, the
payment of the judgment consisting of cash and
checks. Priv. resp., Ricardo TONG refused to accept and
requested the auction to proceed. Tong was the highest
bidder in the auction, for total amount short of the
judg.debt.

Tolentino:

ISSUE: WON judge erred in not issuing a cert. of


satisfaction of judgment after priv.resp. refused to
accept payment in checks and cash.

53

Legal tender: such currency w/c in a given


jurisdiction can be used for the pmts of debts,
public & private, & w/c cannot be refused by the
Cr

Since pmt must be in money that is legal


tender, pmt in check even when good may be
validly refused by Cr

Pymt by Check: WON MgrC or ordinary is NOT a


valid tender of pmt

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.

Art. 1250.
In case an extraordinary inflation or
deflation of the currency stipulated should supervene,
the value of the currency at the time of the
establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
Baviera:

ISSUE: WON Article 1250 applicable in determining JUST


compensation payable to Amigable fr taking in 1924.

This article applies to contracts only. EXTRAORDINARY


means unusual or beyond the common fluctuation, not
foreseen

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.

Tolentino: Does NOT apply where oblig to pay arises fr


law, independent of Ks, like the taking of private prop by
the govt in the exercise of its pwr of emt domain
FIL. PIPE & FOUNDRY CORP. V. NAWASA
Facts: In 61 NWS entered w/FPFC for d supply of
cast iron pressure pipes for the constrxn of the
Waterworx Msbate & Samar. NWS paid in installments.
Leaving a bal. + unpd.interests. thus, fpfc filed a collexn
case vs NWS in CFI-Mla
In 67, CFI ordered NAWASA to pay FPFC the balance IN
NWS negotiable bonds,redeemable in 10yrs w/6%p.a.
int..NWS failed to pay, neither delivered bonds. In 71,
FPFC filed another complaint seeking an adjustment of
the unpaid balance d/t change in value of judgment in
peso in 67 to 71. TC dismissed the complaint holding
that the inflation was a worldwide occurrence & that
there was no proof of extraord inflation in the sense
contemplated by Art. 1250.
Issue:
1250

DEL ROSARIO V. SHELL [164 S 556]


FACTS: DR leased to Shell his land in Ligao, Albay at
250/mo. w/stipulation on currency adjustment accdg to
inflation. An EO was promulgated by Pres D. Macapagal
prompting DR to demand for increase in rental fr Shell
whc the latter refused to pay. Thus DR filed w/CFI-Mla
whc was dismissed.
ISSUE: WON the effect of EO 195 is official devaluation
of peso as contemplated in the Lease Contract
HELD: In the case at bar, while no express reference
has been made to metallic content, there nonetheless is
a reduction in par value or in the purchasing power of
Phil. currency. Even assuming there has been no official
devaluation as the term is technically understood, the
fact is that there has been a diminution or lessening in
the purchasing power of the peso, thus there has been a
"depreciation" (opposite of "appreciation.") Moreover,
when laymen unskilled in the semantics of economics
use the terms "devaluation" or "depreciation" they
certainly mean them in their ordinary signification-decrease in value. Hence, as contemplated by the
parties herein in their lease agreement, the term
"devaluation" may be regarded as synonymous w/
"depreciation," for certainly both refer to a decrease in
the value of the currency. The rentals should therefore,
by their agreement, be proportionately increased.

WON there was extraord inflation to apply Art

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.

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.

VELASCO V. MERALCO [42 S 556]


FACTS:
Velascos MR; SC decision incorrectly reduced amt of
damages due him based only his BIR assessed income
not consid his undeclared source of income whc he did
not disclose. He now urges that damages awarded him
was inadeq consid present hi cost of living, applying Art
1250.
HELD:
From the employment of the words
"extraordinary inflation or deflation of the currency
stipulated" in Art. 1250, it can be seen that the same
envisages contractual obligations where a specific
currency is selected by the parties as the medium of
payment; hence it is inapplicable to obligations
arising fr. tort & not fr. contract. Besides, there is
no showing that the factual assumption of said article
has come into existence.
COMMISSIONER OF PUBLIC HIGHWAYS V. BURGOS
[96 S 831] FACTS:

Victoria Amigable is the owner of parcel of land in Cebu whc


the Government took for road-right-of-way purpose in 1924.
The land had since become streets known as Mango Avenue
and Gorordo Avenue. In 1959, Amigable filed in CFI-Cebu a
complaint, to recover ownership and possession of the land,
and for damages in the sum of P50,000.00 for the alleged
illegal occupation of the land by the Government, moral

54

Four Special Kinds of Payments:

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.

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.

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.

[Tolentino]
Dation in payment is the delivery &
transmission of ownership of a thing by the Db to the
Cr as an accepted equivalent of perf. of ;
It may be a thing or a real rt (i.e. usufruct), or of a
credit vs a 3P;
EX: assgmnt by an heir-Db of his interests in Sx to the
Cr, made after d death of decedent, extinguishes d .
Effect on extinguished to the extent of the value
of thng delivered
Db does not have to be insolvent, agreement
only betw d parties makes dation possible.

Dacion en pago, according to Manresa, is the


transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent
of the performance of an obligation.
In dacion en pago, as a special mode of
payment, the debtor offers another thing to the
creditor who accepts it as equivalent of
payment of an outstanding debt.

When personal prop is delivered it is PLEDGE, not


dation, unless parties clearly stipulate, but in doubt, the
presumption is pledge, w/lesser transmission of rts.
Warranties of Db Dation is an onerous transmission
or of alienation, provision in Sales Re warranty vs
eviction & vs hidden defects of d thing applies, Db is
vendor, Cr is vendee;

If Cr is evcted, original is not revived, but Cr is


entitled to recover fr breach of warranty in Art.
1555.
[Balane]

Dacion en pago, in Roman law, called "datio


in
solutum",
in
French,
"dation
en
paiement," in Spanish, "dacion en pago.")

Dation in payment is possible only if there is


a debt in money. Instead of money, a
thing is delivered in satisfaction of the
debt in money. (Dation en pago is explained
in the case of Filinvest v. Phil Acetylene).

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.

There are two ways at looking at dacion en pago:


1. Classical way where dacion en pago is
treated as a sale.
2.

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 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.

Modern concept w/c treats dacion en pago


as a novation.

Castan has another view Both are wrong.


* A dacion en pago is not a sale bec. there is no
intention to enter into a contract of sale.
* It is not also a novation bec. in novation, the old
obligation is extinguished & a new obligation takes
its place.
** But here, the old obligation is extinguished.
What takes its place? Nothing. So what is it? It is
a special form of payment w/c resembles a
sale.
There are two more things to remember in the
cases of Filinvest v. Phil. Acetylene, supra. &
Lopez v. CA, 114 SCRA 671:

ISSUE: WON CA erred in concluding there was


dation in payment by the execution of the Deed of
Assgment?

Dacion en pago can take place only if both


parties consent.

Q: To what extent is the obligation extinguished?


Answer: Up to the value of the thing given (the thing
must be appraised) unless the parties agree on a
total extinguishment. (Lopez. v. CA, supra.)

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.

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

2ND SPECIAL KIND OF PAYMENT:


Payment

55

Application of

[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:

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.

No.1:

In dacion en pago, there is a transfer of ownership fr. the


debtor to the creditor.

Q:
Difference between
payment by cession:

Apply in accordance w/ the agreement.

No.2: Debtor may apply the amount (an obvious


limitation bec. of the principles of indivisibility &
integrity) where there would be partial payment.
No.3:

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.

pago

&

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.

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.
If one is a secured debt & the other is not, the
secured debt is more onerous

en

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.

Creditor can make the application.

2.

dacion

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.

5th Rule: Proportional application if the debts are


equally onerous.

4th SPECIAL FORM OF PAYMENT:


Tender of Payment & Consignation

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.

Art. 1256. If the creditor to whom tender of payment


has been made refuses w/o just cause to accept it, the
debtor shall be released fr. responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect
in the following cases:
1. When the creditor is absent or unknown, or does
not appear at the place of payment;
2. When he is incapacitated to receive the
payment at the time it is due;
3. When, w/o just cause, he refuses to give a
receipt;
4. When two or more persons claim the same right
to collect;
5. When the title of the obligation has been lost.

[Tolentino]

Necessary that s must all be due

Only in case of mutual agreement, or upon


consent of the party in whose favor the term
was estab, that pmts may be applied to s w/c
have not yet matured
Art. 1253. If the debt produces interest, payment of
the principal shall not be deemed to have been made
until the interests have been covered.
Art. 1254. When the payment cannot be applied in
accordance w/ the preceding rules, or if application can
not be inferred fr. other circumstances, the debt w/c is
most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
If the debts due are of the same nature &
burden, the payment shall be applied to all of them
proportionately.

[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.

[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.

Consignation is an option on the part of


the debtor bec. consignation assumes that the
creditor was in mora accipiendi (when the
creditor w/o just cause, refuses to accept
payment.)

Consequence when the creditor w/o just cause,


refuses to accept payment The debtor may just
delay payment. But something still hangs above his
head. He is therefore, given the option to consign.
Distinguish this fr. BGB (German Civil Code) w/c states
that mora accipiendi extinguishes the obligation.
[Tolentino]
Tender of pmt b4 consign is required by the
present Art only in case where the Cr refuses to
accept it w/o just cause

3rd SPECIAL FORM OF Payment by Cession


[Balane]

Property is turned over by the debtor to the


creditor who acquires the right to sell it & divide
the net proceeds among themselves.

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.

56

But when tender is not accompanied by means of pmt,


& the Db did not take any immdte step to consign,
then interest is not suspended fr. the time of such
tender.
CASES:

In order to be valid, the tender of payment must be made


in lawful currency. While payment in check by the debtor
may be acceptable as valid, if no prompt objection to said
payment is made (Desbarats vs. Vda. de Mortera, L-4915,
May 25, 1956)

The fact that in previous years payment in check was


accepted does not place its creditor in estoppel from
requiring the debtor to pay his obligation in cash (Sy vs.
Eufemio, L-10572, Sept. 30, 1958).

Thus, the tender of a check to pay for an obligation is


not a valid tender of payment thereof (Desbarats vs. Vda.
de Mortera, supra).

Tender of payment must be distinguished from


consignation

SOCO V. MILITANTE [123 S 160] - Requiremts of


consignn
FACTS: Disputed here is decision of lower court in an
UD case filed by lessor SOLEDAD SOCO vs. private resp.
REGINO FRANCISCO JR. lessee of a building owned by
Soco, whose payments of rentals were considered valid
and effective, dismissed the UD case and made lessor
pay moral & exemp. Damages, attys fees, holding there
was substantial compliance in the w/d requisites of
consignation.

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.

Francisco and Soco entered into a Contract of Lease for a


monthly rental of P 800.00 for a period of 10 years renewable
for another 10 years at the option of the lessee. Francisco
subleased the bldg for a rental of 3,000/month. Knowing this,
Soco apparently stopped accepting rental payments of
Francisco and later demanded him to vacate the bldg. and
filed for rescission/annulment of Lease Contract w/CFI-Cebu.

ISSUE: WON the provisions in Arts. 1256-1261,


NCC re rquisites of Consignation must be
complied w/fully & strictly, mandatorily / did the
lower ct. err in ruling substantial compliance thereto?

Tender of payment is extrajudicial, while consignation is


necessarily judicial, and the priority of the first is the attempt
to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).

Art. 1257. In order that the consignation of the thing


due may release the obligor, it must first be announced
to the persons interested in the fulfillment of the
obligation.
The consignation shall be ineffectual if it is not
made strictly in consonance w/ the provisions w/c
regulate payment.
Art. 1258. Consignation shall be made by depositing
the things due at the disposal of judicial authority,
before whom the tender of payment shall be proved, in
a proper case, & the announcement of the consignation
in other cases.
The consignation having been made, the
interested parties shall also be notified thereof.

HELD: We do not agree with the questioned decision. We hold


that the essential requisites of a valid consignation must be
complied with fully and strictly in accordance with the
law, Articles 1256 to 1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly
evident and plain from the very language of the codal
provisions themselves which require absolute compliance with
the essential requisites therein provided. Substantial
compliance is not enough for that would render only a
directory construction to the law. The use of the words "shall"
and "must" which are imperative, operating to impose a duty
which may be enforced, positively indicate that all the
essential requisites of a valid consignation must be complied
with. The Civil Code Articles expressly and explicitly direct
what must be essentially done in order that consignation shall
be valid and effectual.

[Tolentino]

Notice: The reqmt is fulfilled by the service of


summons upon the Def together w/ copy of
complaint

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.

Art. 1259.
The expenses of consignation, when
properly made, shall be charged against the creditor.

Requisites of Valid Consignation:

In order that consignation may be effective, the debtor must


first comply with certain requirements prescribed by law. The
debtor must show

Tolentino] Proper when


1. Cr accepts consignn after deposit w/o
protest though Db failed to comply w/ reqs.
Or

1.

that there was a debt due;

2.

that the consignation of the obligation had


been made because the creditor to whom
tender of payment was made refused to accept
it, or because he was absent or incapacitated,
or because several persons claimed to be
entitled to receive the amount due (Art.
1176,NCC);

3.

that previous notice of the consignation had


been given to the person interested in the
performance of the obligation (Art. 1177,NCC);

4.

that the amount due was placed at the disposal


of the court (Art. 1178,NCC); and

5.

that after the consignation had been made the


person interested was notified thereof (Art.
1178,NCC).

2. Ct. declares consign as validly made


Art. 1260. Once the consignation has been duly made,
the debtor may ask the judge to order the cancellation of the obligation.
Before the creditor
has
accepted
the
consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may
w/draw the thing or the sum deposited, allowing the
obligation to remain in force.
[Tolentino]
Effects of Consignation:

Failure in any of these requirements is enough


ground to render a consignation ineffective. (Jose
Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil.
311).
Without prior notice, a consignation is void as
payment. (Limkako vs. Teodoro, 74 Phil 313)

57

1.

Db is released in the same manner as if he had


performed the oblig

2.

Accrual of INTEREST is suspended

3.

Deterioration or loss of thing or amt consigned


w/o fault of Db must be borne by Cr

4.

Any increment or increase in value of thing


inures to the benefit of Cr

SC:

ISSUE: WON offer to redeem was insincere in the absence of


consignation of such amount in Court?

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)

HELD: NO. The right to redeem is a RIGHT NOT AN ,


thus no consignation is required.

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.

To preserve the right to redeem, consignation


is not required. But to actually redeem, there
must of course be payment or consignation
(deposit) itself.

(2nd MODE OF EXTINGUISHEMENT)


LOSS OF THE THING DUE OR IMPOSSIBILITY OF
PERFORMANCE

[Baviera]
Q: When is there a need to tender pmt?
A: (a) upon demand & (b) when debt is due

Art. 1262. An obligation w/c consists in the delivery of


a determinate thing shall be extinguished if it should be
lost or destroyed w/o the fault of the debtor, & before he
has incurred in delay.
When by law or stipulation, the obligor is liable
even for fortuitous events, the loss of the thing
does not extinguish the obligation, & he shall be
responsible for damages. The same rule applies
when the nature of the obligation requires the
assumption of risk.

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.

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.

Q: Db consigns. HearingB4 the ct cld approve,


the City Hall burned + money. Shld Db pay again?
A: No. When money is consigned, it is no longer generic.
It becomes specific. Cr bears the loss bec. although it
was due to a fortuitous event, there was delay on his
part when he refused to accept pymt.

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

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?

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.

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.

Art. 1263. In an obligation to deliver a generic thing,


the loss or destruction of anything of the same kind
does not extinguish the obligation.
Art. 1264. The courts shall determine, whether, under
the circumstances, the partial loss of the object of the
obligation is so important as to extinguish the obligation.
Art. 1265. Whenever the thing is lost in the possession
of the debtor, it shall be presumed that the loss was due
to his fault, unless there is proof to the contrary, & w/o
prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake,
flood, storm, or other natural calamity.
Art. 1165.
When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may
ask that the obligation be complied w/ at the expense of
the debtor.
If the obligor delays, or has promised to deliver
the same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, &
those who in any manner contravene the tenor thereof
are liable for damages.
Art. 1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or
physically impossible w/o the fault of the obligor.

IMMACULATA V. NAVARRO [160 S 211] - We hereby grant


said alternative cause of action or prayer. While the sale was
originally executed in Dec. 1969, it was only on Feb. 3, 1974
when, as prayed for by prvt. res, & as ordered by the court a
quo, a deed of conveyance was formally executed. Since the
offer to redeem was made on 3/24/75, this was clearly w/in the
5-yr. period of legal redemption allowed by the Public
Land Act.
FACTS: A previous complaint, for annulment of judgment and
deed of sale with reconveyance of real property alleged that
Juanito Victoria, with the cooperation of defendant Juanita
Naval and others succeeded in causing plaintiff Lauro
Immaculata, petitioner herein, to execute a Deed of Absolute
Sale in favor of Juanito Victoria, by unduly taking advantage of
the mental illness and/or weakness of petitioner and thru
deceit and fraudulent means, purportedly disposed of by way
of absolute sale, a 5,000-sq.m.parcel of land w/TCT, for P
58K, which petitioner supposedly received, but in truth and in
fact did not; Jus of the court over the person of the defendant
was also questioned but such was upheld thru valid service of
summons to the guardian ad litem and also later thru
voluntary appearance in lieu of pleadings asking for exercise
of jus by the same court. Accordingly, respondent Court
directed the respondent Sheriff to execute the deed of
conveyance prayed for by Juanito Victoria, by reason of which,
without the knowledge and consent of petitioner, a new TCT
was issued in favor of Juanito Victoria; that the said TCT is null
and void having been based on void proceedings;
*** that, in the alternative, petitioner prays that he be
allowed to repurchase the property within five (5) years
from the time judgment is rendered by the respondent
court upholding the validity of the proceedings and the sale
since the land in question was originally covered by a Free
Patent title;
Respondent Court dismissed the complaint on the ground of
res judicata. In this present MR, the pet. Merely asks of this
Court to consider a point inadvertently missed the matter of
LEGAL REDEMPTION, whc has remained unresolved. The
bar of res jud is as to questions on the validity of the sale.

[Balane]
Objective & Subjective Impossibility:

An offer to redeem was made clearly within the 5-yr-period


allowed by law, Public Land Act. (Sec. 119, CA No. 141)

58

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.

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.

There are 3 views as to the effect of a subjective


impossibility:
1. One view holds that the is not extinguished.
The obligor should ask another to do the .
2. Another view holds that the is extinguished.
3. A third view distinguishes one prestation w/c is
very personal & one w/c are not personal such
that subjective impossibility is a cause for
extinguishes a very personal , but not an w/c
is not very personal.

Balane:
Rebus sic stantibus.-- Literally means "things as they
stand."
It is short for clausula rebus sic stantibus ("agreement of
things as they stand.")
This is a principle of international law w/c holds that
when 2 countries enter into a treaty, they enter taking
into account the circumstances at the time it was
entered into & should the circumstances change as to
make the fulfillment of the treaty very difficult, one may
ask for a termination of the treaty. This principle of
international law has spilled over into Civil law.

CASES:
PEOPLE V. FRANKLIN [39 S 363] FACTS:
Appellant, ASIAN SURETY & INS.CO.INC. contends that
the CFI-PAMPANGA erred in forfeiting its bail bond for the
provisional release of NATIVIDAD FRANKLIN, it contends
that lower court should have released it fr. all liability
under the bail bond bec. its failure to produce &
surrender the accused was due to the negligence of the
Phil. Govt itself in issuing a passport to said accused,
thereby enabling her to leave the country. In support of
this contention, the provisions of Art. 1266 are invoked.

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 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.

In the case of Naga, the court did not consider the 4th
element as an element.

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.

The attitude of the courts on this doctrine is


very strict. This principle has always been
strictly applied. To give it a liberal application is
to undermine the binding force of an obligation.
Every obligation is difficult. The performance
must be extremely difficult in order for rebus sic
stantibus to apply.

CASES:
LAGUNA V. MANABAT [59 S 650]
FACTS:
LEASE was executed betw. BTC and LTB, w/monthly
rental of Php 2500 of CPC,(cert. of public conv.)
provisionally approved by the PSC, public service comm.
Later, BTC was declared insolvent and FRANCISCO
MANABAT was appointed as assignee. Rentals were still
paid, until strikes by EEs of BTC caused them some
further losses. Thus they asked for permission of PSC to
suspend operation of the CPC also in lieu of low
passenger trafc on these lines and high cost of
operation. Manabat opposed the jus of PSC to suspend
the lease being an impairment of . PSC contended
that it had the power to suspend, as it did so, as a
consequence of its power to issue the same CPC, and
not as an interpretation of the prov. Of the Lease ,whc
is a fxn of reg.courts.

That the accused in this case was able to secure a Philippine passport
which enabled her to go to the United States was, in fact, due to the
surety company's fault because it was its duty to do everything and
take all steps necessary to prevent that departure. This could have
been accomplished by seasonably informing the Department of
Foreign Affairs and other agencies of the government of the fact that
the accused for whose provisional liberty it had posted a bail bond was
facing a criminal charge in a particular court of the country. Had the
surety company done this, there can be no doubt that no Philippine
passport would have been issued to Natividad Franklin.

NOTES:

Liability of Sureties on a bail bond is conditioned


upon appearance of accused t time set for
arraignment or trial or any other time as fixed
by court, the bondsman being the jailer of the
accused and absolutey responsible for his
custody, w/duty at all times to keep him under
surveillance.

Surety will be exonerated where the perf. of


condi. Of bail bond is rendered impossible by
act of God (e.g. death of accused), of the
obligee (arrested by govt), or the law (law
punishing him is repealed). Or also under
Rule 114, sec. 16.

ISSUE: WON petitioners may ask PSC for reduction of


rentals in lieu of such suspension and decl. of insolvency
of the corp. citing Art. 1680.
HELD:
Art. 1680, it will be observed is a special
provision for leases of rural lands. No other legal
provision makes it applicable to ordinary leases. xxx
Even if the cited article were a general rule on lease, its
provisions nevertheless do not extend to petitioners.
One of the requisites is that the cause of the loss
of the fruits of the leased prop. must be an
"extraordinary & unforeseen fortuitous event."
The circumstances of the case fail to satisfy such
requisite. xxx [T]he alleged causes for the suspension
of operations on the lines leased, namely, the high
prices of spare parts & gasoline & the reduction of the
dollar allocations (by the CB Monetary B), "already
existed when the contract of lease was executed." The
cause of petitioners' inability to operate on the lines
cannot, therefore, be ascribed to FE or circumstances

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

59

beyond their control, but to their own voluntary


desistance.

[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.

*** 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.

ART. 1189, 1174, 1165, 1268, 1942, 1979, 2159:


Art. 1189. When the conditions have been imposed w/
the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing
during the pendency of the condition.
1. If the thing is lost w/o the fault of the debtor, the
obligation shall be extinguished;
2. If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates w/o the fault of the
debtor, the impairment is to be borne by the
creditor;
4. If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission
of the obligation & its fulfillment, w/ indemnity
for damages in either case:
5. If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of
the creditor;
6. If it is improved at the expense of the debtor, he
shall have no other right than that granted to
the usufructuary.
[Balane]
There are three requisites in order for Art. 1189
to apply-1. There is loss, deterioration or improvement
before the happening of the condition.
2. There is an obligation to deliver a determinate
thing (on the part of the debtor)
3. The condition happens.

OCCENA V. JABSON [73 S 637]


FACTS:
Tropical HOMES INC, filed complaint for modification of
Terms & Condi of subdv. w/pet. Occena, landowners of
disputed lands in Davao, citing Art. 1267, and the
worldwide increases in prices.
The NCC authorizes the release of an
obligor when the service has become so difficult
as to be manifestly beyond the contemplation of
the parties.
ISSUE: WON the above art. Gives the court the authority
to consequently modify the contents of the contract
HELD: Respondent's complaint seeks not release fr. the
subdivision contract but that the court "render judgment
modifying the terms & conditions of the contract... by
fixing the proper shares that should pertain to the herein
parties out of the gross proceeds fr. the sales of
subdivided lots of subject subdivision."
Art. 1267 does not grant the courts this
authority to remake, modify, or revise the
contract or to fix the division of shares bet. the
parties as contractually stipulated w/ the force of law
bet. the parties, so as to substitute its own terms for
those covenanted by the parties themselves.
Balane: In this case the interpretation of the court is
too literal. According to the court, it can release a
debtor fr. the obligation but it cannot make the
obligation lighter. But if you look at Art. 1267, partial
release is permitted.
NAGA TELEPHONE V. CA [230 S 351] - The term
"service" should be understood as referring to the
"performance" of the obligation.-- Art. 1267 speaks of
"service" w/c has become so difficult.
Taking into
consideration the rationale behind this provision, the
term "service" should be understood as referring to the
"performance" of the obligation. In the present case,
the obligation of prvt. resp. consists in allowing
petitioners to use its posts in Naga City, w/c is the
service contemplated in said article. Furthermore, a
bare reading of this article reveals that it is not a
requirement thereunder that the contract be for future
service w/ future unusual change. Accdg. to Tolentino,
Art. 1267 states in our law the doctrine of unforeseen
events. This is said to be based on the discredited
theory of rebus sic stantibus in public international law;
under this theory, the parties stipulate in the light of
certain prevailing conditions, & once these conditions
cease to exist the contract also ceases to exist.
Considering practical needs & the demands of equity &
good faith, the disappearance of the basis of a contract
gives rise to a right to relief in favor of the party
prejudiced.

Art. 1174. Except in cases expressly specified by law,


or when it otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events w/c
could not be foreseen, or w/c ,though foreseen, were
inevitable.
Art. 1165.
When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may
ask that the obligation be complied w/ at the expense of
the debtor.
If the obligor delays, or has promised to deliver
the same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Art. 1268.
When the debt of a thing certain &
determinate proceeds fr. a criminal offense, the debtor
shall not be exempted fr. the payment of its price,
whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused w/o justification to accept it.
Art. 1942. The bailee is liable for the loss of the thing,
even if it should be through a fortuitous event:
1. If he devotes the thing to any purpose different
fr. that for w/c it has been loaned;
2. If he keeps it longer than the period stipulated,
or after the accomplishment of the use for w/c
the commodatum has been constituted;

Balane: The Court went too far in this case. It even


went to the extent of stipulating for the parties in the
name of equity.
Art. 1268.
When the debt of a thing certain &
determinate proceeds fr. a criminal offense, the debtor
shall not be exempted fr. the payment of its price,
whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused w/o justification to accept it.
Art. 1269. The obligation having been extinguished by
the loss of the thing, the creditor shall have all the rights
of action w/c the debtor may have against third persons
by reason of the loss.

60

3.

If the thing loaned has been delivered w/


appraisal of its value, unless there is a
stipulation exempting the bailee fr. responsibility
in case of a fortuitous event;
4. If he lends or leases the thing to a third person,
who is not a member of his household;
5. If, being able to save either the thing borrowed
or his own thing, he chooses to save the latter.
Art. 1979. The depositary is liable for the loss of the
thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing w/o the depositor's
permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he
himself may have been authorized to use the
same.

4.

Capacity of the parties.

The form of donation must be observed.


If the
condonation involves movables, apply Art. 748. If it
involves immovables, apply Art. 749.
But note that the creditor may just refuse to collect (w/o
observing any form.)
In this case, the will be
extinguished not by virtue of condonation but by waiver
under Art. 6.
Art. 1270. Condonation or remission is essentially
gratuitous, & requires the acceptance by the obligor. It
may be made expressly or impliedly.
One & the other kind shall be subject to the
rules w/c govern inofficious donations. Express condonation shall, furthermore, comply w/ the forms of donation.
FORMS of Condonation:
a. By a Will

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. 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.

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.

b. By Agreement
Art. 1270. Condonation or remission is essentially
gratuitous, & requires the acceptance by the obligor. It
may be made expressly or impliedly.
One & the other kind shall be subject to the
rules w/c govern inofficious donations. Express condonation shall, furthermore, comply w/ the forms of donation.

Payee in Solutio Indebiti


Art. 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
involved, or shall be liable for fruits received or w/c
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss
or impairment of the thing fr. any cause, & for damages
to the person who delivered the thing, until it is
recovered.

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.

3rd MODE OF EXTINGUISHMENT OF :


CONDONATION OF REMISSION OF THE DEBT

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.

[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

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.

61

If the value of the personal property donated


exceeds five thousand pesos, the donation & the acceptance shall be made in writing. Otherwise, the donation
shall be void.

& 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

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.

Under the 1985 Rules of Court, as amended: Rule


131, Sec. 3.
Disputable presumptions.-- The
following
presumptions
are
satisfactory
if
uncontradicted, but may be contradicted & overcome by
other evidence:
xxx
(c) That a person intends the ordinary
consequences of his voluntary act;
xxx
(f) That money paid by one to another was due
to the latter;
(g) That a thing delivered by one to another
belonged to the latter;
(h) That an obligation delivered up to the
debtor has been paid;
(i) That prior rents or installments had been paid
when a receipt for the later ones is produced;
(k) That a person in possession of an order on
himself for the payment of they money, or the
delivery of anything, has paid the money or
delivered the thing accordingly;
xxx

Presumption IN Condonation:
Art. 1271.
The delivery of a private document,
evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action w/c the
former had against the latter.
If in order to nullify this waiver it should be
claimed to be inofficious, the debtor & his heirs may
uphold it by providing that the delivery of the document
was made in virtue of payment of the debt.
[Balane:] Articles 1271 & 1272 refer to a kind of implied
renunciation when the creditor divests himself of the proof
credit. According to De Diego, this provision is absurd &
immoral in that it authorizes the debtor & his heirs to prove that
they paid the debt, when the provision itself assumes that
there has been a remission, w/c is gratuitous.
[Tolentino]

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.

This is Limited to Private Document Art. 1271 has no


application to public documents bec. there is always a copy in the
archives w/c can be used to prove the credit.
Private document refers to the original in order for Art. 1271
to apply. (Trans-Pacific. v. CA, supra.)
CASE:
TRANS-PACIFIC V. CA [234 S 494]
HELD: It may not be amiss to add that Art. 1271 raises
a presumption, not of payment, but of the renunciation
of the credit where more convincing evidence would be
required than what normally would be called for to prove
payment.

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.

The rationale for allowing the presumption of


renunciation in the delivery of a private
instrument is that, unlike that of a public
instrument, there could be just one copy of the
evidence of credit.
Where several originals are made out of a private
document, the intendment of the law would thus be to
refer to the delivery only of the original rather than to
the original duplicate of w/c the debtor would normally
retain a copy. It would thus be absurd if Art. 1271 were
to be applied differently.
Art. 1272. Whenever the private document in w/c the
debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved.
Rule 131, Sec. 5 (b), (j), (k), Rules of Court,
Disputable
presumptions.-The
following
presumptions are satisfactory if uncontradicted, but may
be contradicted & overcome by other evidence:
xxx
(b) That an unlawful act was done w/ an
unlawful intent;
xxx
(j) That a person found in possession of a thing
taken in the doing of a wrongful act is the taker

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.

62

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.

a. Principal Parties
Art. 1276. Merger w/c takes place in the person of the
principal debtor or creditor benefits the guarantors.
Confusion w/c takes place in the person of any of the
latter does not extinguish the obligation.
[Tolentino]

Extinguishment of the principal oblig through


confusion releases the guarantors, whose oblig
is merely accessory

When merger takes place in the person of the


guarantor, oblig is NOT extinguished.
b. Among guarantors
(Effects of Guaranty as Between Co-Guarantors)
Art. 2073. When there are two or more guarantors of
the same debtor & for the same debt, the one among
them who has paid may demand of each of the others
the share w/c is proportionally owing fr. him.
If any of the guarantors should be insolvent, his
share shall be borne by the others, including the payer,
in the same proportion.
The provisions of this article shall not be
applicable, unless the payment has been made in virtue
of a judicial demand or unless the principal debtor is
insolvent.

[Balane]
The accesory obligation of pledge is extinguished bec. pledge is a
possessory lien.

The presumption in this case is that the pledgee has


surrendered the thing pledged to the pledgor. This is
not a conclusive presumption according to Art. 2110,
par. 2.
Art. 2093. In addition to the requisites prescribed in
article 2085, it is necessary, in order to constitute the
contract of pledge, that the thing pledged be placed in
the possession of the creditor, or of a third person by
common agreement.
Art. 2105. The debtor cannot ask for the return of the
thing pledged against the will of the creditor, unless &
until he has paid the debt & its interest, w/ expenses in
a proper case.

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.

4TH MODE OF EXTINGUISHMENT:


Confusion or Merger of Rights

d. Solidary Obligations

Art. 1275. The obligation is extinguished fr. the time


the characters of creditor & debtor are merged in the
same person.

Art. 1215.
Novation, compensation, confusion or
remission of the debt, made by any of the solidary creditors or w/ any of the solidary debtors, shall extinguish
the obligation, w/o prejudice to the provisions of article
1219.
The creditor who may have executed any of
these acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation
corresponding to them.
Article 1219. The remission made by the creditor of
the share w/c affects one of the solidary debtors does
not release the latter fr. his responsibility towards the
co-debtors, in case the debt had been totally paid by
anyone of them before the remission was effected.
Art. 1216. The creditor may proceed against any of
one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them
shall not be an obstacle to those w/c may subsequently
be directed against the others, so long as the debt has
not been fully collected.
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose w/c
offer to accept.
He who made the payment may claim fr. his codebtors 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 codebtors, in proportion to the debt of each.

[Balane]

Confusion is the meeting in one person of the


qualities of the creditor & debtor w/ respect to
the same obligation.
There are two (2) requisites:
1. It must take place between the creditor
& the principle debtor (Art. 1276.)
2. The very same obligation must be
involved.
Rationale You become your own creditor or you
become your own debtor. So how can you sue yourself.
What may cause a merger or confusion?
(1) Succession, whether compulsory, testamentary or
intestate;
(2) Donation;
(3) Negotiation of a negotiable instrument.

Because of its nature, confusion/ merger may


overlap w/ other causes of extinguishment.

For example, I owe Ms. Olores P100,000. She bequeath


to me that credit. And then she died. In this case, there
is extinguishment both by merger. But in this case,
merger could overlap w/ payment.
Art. 1276 ( below) is perfectly in consonance w/ Art.
1275.

63

e. Indivisible Obligations

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.

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.

FRANCIA V. IAC [162 S 753]


RATIO: [T]here can be no off-setting of taxes
against the claims that the taxpayer may have
against the govt.
FACTS:
ENGRACIO FRANCIA is regd owner of lot & 2storey house
in Pasay City, a portion of whc lot was subject of exprop
by RP, w/ just comp computed at assessed value. Fr
1963, to 1977 Francia has not paid RETs on the prop.
Thus, such was sold on public auction by the City Treas
of Pasay City pursuant to sec. 73 PD 464 Real Prop.Tax
Code to satisfy his delinquency. Ho Fernandez was the
highest bidder. In 79 Francia received notice that Ho
wants TCT transferred to him after a Final Bill of Sale
was issued to him. Francia filed a complaint to annul the
auction sale. He was in Iligan at that time, but such was
dismissed & court ordered RD to effect the transfer of
title, and for him to pay Ho attys fees. IAC affirmed.

5TH MODE OF EXTINGUISHMENT:


Compensation
Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors & debtors of
each other.
[Balane]

Compensation is a mode of extinguishing, to the


concurrent amount, the obligations of those
persons who in their own right are reciprocally
debtors & creditors of each other. [Castan]

ISSUE: WON Francias tax delinquency of 2400 has been


set-off by the govts indebtedness to him of 4116 after
apportion of his lot was expropriated.
HELD: NO. Circumstances do not satisfy requirements
of Art. 1279.
A person cannot refuse to pay a tax on the
ground that the govt owes him an amount equal to or
greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the
govt.

Perhaps, next to payment, compensation is the


most common mode of extinguishing an
obligation.

Distinguished fr. Confusion In compensation,


there are 2 parties & 2 debts, whereas in confusion,
there are 2 debts & only 1 party.

A claim for taxes is not such a debt, demand, contract or


judgment as is allowed to be set-off xxx
The general rule based on grounds of public
policy is well-settled that no set-off admissible
against demands for taxes levied for general or
local governmental purposes. The reason on w/c
the gen. rule is based, is that taxes are not in the
nature of contracts bet. the party & party but
grow out of duty to, & are the positive acts of the
govt to the making & enforcing of w/c, the
personal consent of individual taxpayers is not
required. xxx (Republic v. Mambulao Lumber.)

CASES:
GAN TION vs. CA [28 S 235, 1969] Award of attys
fees is proper subject of legal compensation.
FACTS:
Ong Wan Sieng was a tenant in certain premises
owned by Gan Tion. Gan filed ejectment case vs. Ong in
1961 for non-payment of rents for 2 mos. Total of P360.
Ong denied and said that agreed rental was not 180 but
160 whc he offered but was refused by Gan. Trial court
favored plaintiff.
Appellate ct reversed & ordered
plaintiff to pay Attys fees of P500. This became final.

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.

When Ong obtained writ of exec, Gan Tion went


to the appellate ct. and pleaded legal compensation
averring that Ong owed him more than P4K in rentals fr
Aug 61 to Oct. 63. Appel. Ct said that attys fees may
not be legally compensated b/c such constitute trust
fund for benefit of lawyer. And the requisites of Art.
1278 not complied with.

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.

ISSUE: WON there was legal compensation bet. Pet Gan


Tion and resp. Ong Wan Sieng.

A. Different Kinds of Compensation:

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.

Legal Compensation (Articles 1279, 1290) w/c takes


place automatically by operation of law once all the
requisites are present.
Art. 1279. In order that compensation may be proper,
it is necessary:
(1) That each one of the obligors be bound
principally, & that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money,
or if the things due are consumable, they be of
the same kind, & also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated & demandable;
(5) That over neither of them there by any
retention or controversy, commenced by third
persons & communicated in due time to the
debtor.
[Balane]
Requisites under Art. 1279:

PNB V. ONG ACERO [148 S 166, 1987]


RATIO:
There is no compensation where the
parties are not creditors & debtors of each other.
FACTS:
Savings account of ISABELA Constrx & Devt Corp with
the PNB of P2M is subject of 2 conflicting claims that of
the Aceros, judgment Cr of ISABELA and of PNB as Cr of
the depositor d/t a loan or credit agreement by ISABELA
w/PNB the deposit being the collateral. IAC decided vs
PNB.
ISSUE: WON by operation of Art. 1278, where PNB and
ISABELA has become here debtors and creditors of each
other
HELD: The insuperable obstacle to the success of PNB's
cause is the factual finding of the IAC that it has not
proven by competent evidence that it is a creditor of
ISABELA. The only evidence presented by PNB towards
this end consists of 2 documents marked in its behalf.
But as the IAC has cogently observed, these documents
do not prove any indebtedness of ISABELA to PNB. All

64

1.

2.

3.
4.

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.

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.
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.
Maturity of Debts Both debts must be due
to permit compensation.
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.

ISSUE: WON resp. Judge erred in denying claim of RCA


that compensation of debts has taken place b/c records
showed no proof of plaintiffs indebtedness to RCA.
HELD: YES. Proof of the liquidation of a claim, in order
that there be compensation of debts, is proper if such
claim is disputed. But, if the claim is undisputed, as in
the case at bar, the statement is sufficient & no other
proof may be required. xxx
SOLINAP V. DEL ROSARIO [123 S 640]
RATIO: Compensation cannot take place where
one's claim against the other is still the subject of
court litigation.
It is a requirement, for
compensation to take place, that the amount
involved be certain & liquidated.
FACTS: SPS TIBURCIO LUTERO & ASUNCION MAGALONA,
owners of Hacienda Tambal, leased such to LOTERO
SOLINAP for 10yrs w/ rental of P50K/yr, further agreed
that half of annual rental would be paid by Solinap to
PNB as amort.on indebtedness of sps.Lutero. When
Tiburcio died, testate est. proceedings was instituted at
CFI-Iloilo whc authorized the administrator of est., Judge
Nicolas Lutero, grandson of decedent, to take fr the
heirs and pay rising s of the est.w/PNB w/ rts of
subrogation.
After compliance, the heirs who paid
subjugated to the PNBs claim vs lessee Solinap for
payment of rentals. Solinap instituted separate action
vs. sps. Lutero, the administrator, who allegedly owed
Solinap P71K w/REM as security. In this case sps Lutero
setup a counterclaim of P125K in unpaid rentals of
pet.on Hacienda Tambal.

A debt is liquidated when its existence &


amount are determined. xxx And a debt is
considered liquidated, not only when it is expressed
already in definite figures w/c do not require
verification, but also when the determination of the
exact amount depends only on a simple arithmetical
operation. xxx

ISSUE: WON TC erred in not holding that legal


compensation has taken place in these cases by
operation of Art. 1278.

The debt must not have been garnished.


(additional requirement)

Compensation is not prohibited by any provision


of law like Articles 1287, 1288 & 1794.

HELD:
Petitioner contends that respondent judge
gravely abused her discretion in not declaring the
mutual obligations of the parties extinguished to the
extent of their respective amounts. He relies on Art.
1278 to the effect that compensation shall take place
when 2 persons, in their own right, are creditors &
debtors of each other.
The argument fails to
consider
Art.
1279
w/c
provides
that
compensation can take place only if both
obligations are liquidated.
In the case at bar, the petitioner's claim against the
resp. Luteros is still pending determination by the court.
While it is not for Us to pass upon the merits of the
pltff's cause of action in that case, it appears that the
claim asserted therein is disputed by the Luteros on
both factual & legal grounds. More, the counterclaim
interposed by them, if ultimately found to be
meritorious, can defeat petitioner's demand. Upon this
premise, his claim in that case cannot be categorized as
liquidated credit w/c may properly be set-off against his
obligation. Compensation cannot take place where
one's claim against the other is still the subject of
court litigation.
It is a requirement, for
compensation to take place, that the amount
involved be certain & liquidated.

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.

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

CASES:
REPUBLIC V. DE LOS ANGELES [98 S 103]
RATIO: Compensation of debts arising even w/o
proof of liquidation of claim is allowable where
the claim is undisputed.
FACTS:
Sps FARIN got a loan fr MARCELO STEEL CORP of p600k
& did a REM of their lot in QC as security in favor of
MARCELO STEEL. A yr later MARCELO STEEL asked
sheriff assist in extrajud FREM of such lot. Sps Farin filed
for injunction and succeeded. Thus, MARCELO STEEL
invoked par. 5 in the mortgage and asked the court
instead to compel the lessees of Dona Petra Bldg
situated on the mortgaged lot, incl the Rice & Corn
Admin (RCA), to direct their rental payments to
MARCELO STEEL. Such an order was issued by the
court. RCA filed an MR praying to be excluded fr such
order b/c sps Farin has a standing w/RCA whc shd be
setoff w/ their rental s, thus rents of RCA has been
previously assigned by sps Farin to Vidal Tan. Sps Farin

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.

65

Atrium being the sole bidder, acquired them only at 20M


in all. At the end she is still indebted in the amt of
P6.81M.
She thus filed a complaint w/TC for annulment of the
sheriffs sale of her mortgaged properties the debt not
yet being due & demandable, the release of the balance
of her loan of P30M, and recovery of the proceeds of her
money-market investments.
The IAC ordered ICB to pay plaintiff Pajardo the proceeds
of her money-market investments. CA affirmed. On
execution, ICBs 20 motor vehicles were levied upon,
and upon motion by plaintiff, its branches were ordered
to pay.

HELD: Petitioner contends that resp. CA erred in not


applying the provisions on compensation or setting-off
debts under Art. 1278 & 1279, despite evidence
showing that Jose Lapuz still owed him an amount of
more than P5,000 & in not dismissing the appeal
considering that the latter is not legally the aggrieved
party.
This contention is untenable. Compensation cannot
take place in this case since the evidence shows that
Jose Lapuz is only an agent of Albert Smith &/ or
Dr. Dwight Dill. Compensation takes place only when
two persons in their own right are creditors & debtors of
each other, & that each one of the obligors is bound
principally & is at the same time a principal creditor of
the other. Moreover, xxx Lapuz did not consent to
the off-setting of his obligation w/ petitioner's
obligation to pay for the 500 shares.

Petitioner contends that after foreclosing the mortgage,


there is still due fr. prvt. resps as deficiency the amount
of P6.81 million against w/c it has the right to apply or
set off prvt. respondent's money market claim of
P1,062,063.83.
ISSUE: WON there was legal compensation in this case,
that after Pet. Foreclosed the mortgage, upon the
deficiency amount, it has the right to setoff plaintiffs
money-market investments proceeds.

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.

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.)

FACTS:
FERNANDO FROILAN purchased fr SHIPPING ADMIN a
boat for 200K, pd down of 50K, constituted a mortgage
on the vessel for the unpaid balance. RP Pres. Approved
the contract.
Froilan defaulted in payment of the
balance and interests as well as insurance premiums on
the vessel whc was paid for by the SH.ADMIN.
Thus, Sh.AD. took imme.possn of the vessel as well as
its cargoes, w/claim that the vessel is not repossessed
but its ownership is retransferred to the Sh.Ad./govt.
PAN ORIENTAL offered to charter the same vessel
w/monthly rental of 3K, govt agreed w/further stipulation
that charterer will pay cost of labor, drydocking and
repairs, incl spareparts needed. Froilan protested to the
Pres this charter agreement.
Before formal bareboat charter was to be approved by
GM of Sh.Ad. a Cabinet resolution was issued revoking
the cancellation of the of Sale to Froilan, restored him
to all his rts., on condition he will pay at least 10K to
settle partially his outstanding accounts, reimburse Pan
Oriental of its expenses incurred, and file a bond to
cover the rest of his undertaking w/govt. After posting
his bond, court ordered to restore Froilans possn of the
vessel. Pan Oriental resisted. COMPANIA MARITIMA as
purchaser of the vessel fr Froilan was allowed to be
intervenor.

Art. 1279 requires among others, that in order that


legal compensation shall take place, 'the two
debts be due' & 'they be liquidated &
demandable.' Compensation is not proper where the
claim of the person asserting the set-off against the
other is not clear nor liquidated; compensation cannot
extend to unliquidated, disputed claim arising fr. breach
of contract.
There can be no doubt that petitioner is indebted to prvt
resp. in the amount of P1,062,063.83 representing the
proceeds of her money market investment. This is
admitted.
But whether prvt. resp is indebted to
petitioner in the amount of P6.81 million representing
the deficiency balance after the foreclosure of the
mortgage executed to secure the loan extended to her,
is vigorously disputed. This circumstance prevents legal
compensation fr. taking place.
Art. 1280.
Notw/standing the provisions of the
preceding article, the guarantor may set up
compensation as regards what the creditor may owe the
principal debtor.
Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other,
the former may set it off by proving his right to said
damages & the amount thereof.

ISSUE: WON the Court erred in holding that Froilan,


Compania and rp shd pay pan oriental reimbursements
of its legitimate expenses w/legal int. from the time of
disbursement, instead of fr. The date of
dispossession, failing to consider legal compensation
betwn. RP and Pan O.
HELD: More, the legal interest payable fr. 2/3/51 on the
sum of P40,797.54, representing useful expenses
incurred by PAN-ORIENTAL, is also still unliquidated since
interest does not stop accruing "until the expenses are
fully paid."
Thus, we find w/o basis REPUBLIC's
allegation that PAN-ORIENTAL'S claim in the amount of
P40,797.54 was extinguished by compensation since the
rentals payable by PAN-ORIENTAL amount to P59,500
while the expenses reach only P40,797.54. Deducting
the latter amount fr. the former, REPUBLIC claims that
P18,702.46 would still be owing by PAN-ORIENTAL to
REPUBLIC. That argument loses sight of the fact that to
the sum of P40,797.54 will still have to be added the
legal rate of interest "fr. Feb. 3, 1951 until fully paid."

Effect of Legal Compensation:


Art. 1289. If a person should have against him several
debts w/c are susceptible of compensation, the rules on
the application of payments shall apply to the order of
the compensation.
Art. 1290. When all the requisites mentioned in article
1279 are present, compensation takes effect by
operation of law, & extinguishes both debts to the
concurrent amount, even though the creditors & debtors
are not aware of the compensation.
Art. 1279. In order that compensation may be proper,
it is necessary:
(1) That each one of the obligors be bound
principally, & that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money,
or if the things due are consumable, they be of
the same kind, & also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated & demandable;

INTERNATIONAL CORPORATE BANK V. IAC [163 S


296] Requisite of legal compensation under Art.
1279.-FACTS:
NATIVIDAD
PAJARDO
secured
from
Investment
Underwiriting and ATRIUM Capital, predecessors of ICB,
a loan of P50M, whc she secured w/REM of her
properties in Quiapo & Bulacan w/total market value of
110M. Only 20M of the loan was approved for release.
Whc same amount went to pay her standing s w/d
same bank, thus she did not receive the same amt. She
also made a money-market placement w/ATRIUM of
more than P1M @17% int.p.a. for 32 days. At maturity,
proceeds of such was not released to her but instead
allegedly applied to her mortgaged indebtedness whc
she failed to pay. Her properties were auctioned and

66

(5) That over neither of them there by any


retention or controversy, commenced by third
persons & communicated in due time to the
debtor.

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.

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.

Art. 1794.
Every partner is responsible to the
partnership for damaged suffered by it through his fault,
& he cannot compensate them w/ the profits & benefits
w/c he may have earned for the partnership by his
industry. However, the courts may equitably lessen this
responsibility if through the partners extraordinary
efforts in other activities of the partnership, unusual
profits have been realized.

ISSUE: WON TC erred in not holding the 2 judgment


debts of the 2 corps. vs ea other mutually compensated

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)

HELD: It is clear fr. the record that both corporations,


petitioner Mindanao Portland Cement Corp. (appellant)
& resp. Pacweld Steel Corp. (appellee), were creditors &
debtors of each other, their debts to each other
consisting in final & executory judgements of the CFI in
2 separate cases, ordering the payment to each other of
the sum of P10T by way of attorney's fees. The 2
obligations, therefore, respectively offset each other,
compensation having taken effect by operation of law &
extinguished both debts to the concurrent amount of
P10T, pursuant to the provisions of Art. 1278, 1279 &
1290, since all the requisites provided in Art. 1279 for
automatic compensation "even though the
creditors & debtors are not aware of the
compensation" were duly present.

Art. 1282.
The parties may agree
compensation of debts w/c are not yet due.

upon

the

[Tolentino]
1. Voluntary Compensation is not limited to
obligations w/c are not yet due. The parties
may compensate by agreement any obligations,
in w/c the objective requisites provided for legal
compensation are not present. xx
2.

Automatic compensation, requisites of, present


Extinguishment of two debts arising fr. final & executory
judgments due to compensation by operation of law.

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.

Facultative Compensation w/c takes place when


compensation is claimable by only one of the
parties but not of the other, e.g., Articles 1287,
1288.
Art. 1287. Compensation shall not be proper when one
of the debts arises fr. a depositum or fr. the obligations
of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a
creditor who has a claim for support due by gratuitous
title, w/o prejudice to the provisions of paragraph 2 of
article 301.
Art. 301. The right to receive support cannot be
renounced; nor can it be transmitted to a third person.
Neither can it be compensated w/ what the recipient
owes the obligor.
However,
support
in
arrears
may
be
compensated & renounced, & the right to demand the
same may be transmitted by onerous or gratuitous title.

[Baviera} What is the idea behind legal comp?

To facilitate collxn of money. For


expediency.
Effect of Assignment of Credit:
Art. 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the
compensation w/c would pertain to him against the
assignor, unless the assignor was notified by the debtor
at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him
but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made w/o the knowledge of
the debtor, he may set up the compensation of all
credits prior to the same & also later ones until he had
knowledge of the assignment.

[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]
There are 3 situations covered in this
article:

[Balane]

The depositary cannot set up compensation w/


respect to the things deposited to him.

But the depositor can set up the compensation.

1.
2.
3.

Assignment w/ the debtor's consent;


Assignment w/ the debtor's knowledge but w/o
his consent; &
Assignment w/o the debtor's knowledge (&
obviously w/o his consent.)

Rules:
Assignment w/ the debtor's consent Debtor
cannot set up compensation at all unless the
right is reserved.

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.

Assignment w/ the debtor's knowledge but


w/o his consent The debtor can set up

67

compensation w/ a credit already existing at


the time of the assignment.

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.

Assignment w/o the debtor's knowledge


Debtor can set up as compensation any credit
existing at the time he acquired knowledge
even if it arose after the actual assignment.
Art. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other
before they are judicially rescinded or avoided.

[TOLENTINO]

Novation is NEVER presumed.


It must be established that
1. the old & the new
contracts are
incompatible in all points,
2. or that the will to novate appear by
express agreement of the parties
3. or in acts of equivalent import.

6 MODE OF EXTINGUISHMENT:
Novation
TH

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.

IMPLIED NOVATION There is no specific form


required for an implied novation. All that is required is
INCOMPATIBILITY between the original & the subsequent
contracts.

[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.)

CASES:
MILLAR VS. COURT OF APPEALS
FACTS: Millar obtained a judgment against Gabriel. A
writ of execution was issued, on the basis of w/c Gs
Willys Ford Jeep was seized. Subsequently, G pleaded
w/ M to release the jeep under an agreement whereby G
would mortgage the jeep in favor of M to secure the
payment of the judgment debt. The chattel mortgage
reduced the amount to be paid by G.
The TC said there was no novation bec. the mortgage
was executed only to secure the judgment.

Novation is the most unusual mode of extinguishing


an obligation.
It is the only mode whereby an obligation is
extinguished & a new obligation is created to take its
place.
The other modes of extinguishing an obligation are
absolute in the sense that the extinguishment of the
obligation is total (w/ the exception of compromise.)

ISSUE:
debt.

Novation, on the other hand, is a relative mode of


extinguishing an obligation.

Subjective (Personal) or novation by a change


of subject

2.

Active subjective or a change of creditor; also


known as subrogation.

3.

Passive subjective or a change of debtor

4.

Objective (Real) or novation by change in the


object or in the principal conditions.

Novation by a change in the principal


conditions is the most problematic kind
of novation bec. you have to determine
whether or not the change in the
conditions is principal or merely
incidental.

For example, a change fr. straight terms


to installment terms & a change fr. noninterest bearing obligation to an interest
bearing one are changes in the principal
conditions.

5.

INTEGRATED CONSTRUCTION VS. RELOVA, [146 SC


360]

Mixed novation w/c is a combination of both


subjective & objective novation.

Novation; While the tenor of the subsequent


letter-agreement in a sense novates the
judgment award there being a shortening of the
period within which to pay, the failure of the
party to comply w/d suspensive & conditional
nature of d agreement, remitted the parties to
their original rights under the judgment award.

Requisites of Novation:
1.
2.
3.
4.
5.

WON the mortgage K novated the judgment

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.

Classification of Novation:
1.

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

There must be a previous valid obligation;


Agreement of the parties to create the new
obligation;
Extinguishment of the old obligation. (I would
consider this an effect, rather than a requisite of
novation-- Balane);
Validity of the new obligation. (Tiu Siuco v.
Habana, 45 P 707.)

FACTS:
Pets., 2 constrx co.s, Integrated, and Engrg, sued the
MWSS, formerly NAWASA, at CFI-Mla. The Arbitration
Board rendered decision-award whc became final &
exec, ordered MWSS t pay pets. Pets. Subseq. Agreed to

There must be CONSENT of all the parties to the


substitution, resulting in the extinction of the old
obligation & the creation of a valid one.

68

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.

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.

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.

If old debtor is not released, no novation


occurs & the third person who assumed the
obligation becomes a co-debtor or surety or a cosurety. 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.

As to whether or not petitioners are now in estoppel to


question the subsequent agreement, suffice it to state
that petitioners never acknowledged full payment; on
the contrary, petitioners refused MWSS' request for a
conforme or quitclaim. (p. 125, Rollo)

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.

Accordingly, the award is still subject to execution by


mere motion, which may be availed of as a matter of
right any time within (5) years from entry of final
judgment in accordance with Section 5, Rule 39 of the
Rules of Court.

COCHINGYAN VS. R & B SURETY [151 S 339]


Novation defined.
FACTS: PAGRICO (P) submitted a surety bond issued by
R & B surety in favor of PNB. Under the bond, PNB had
the right to proceed directly against R&B w/o going after
P. In turn, 2 indemnity agreements were entered into w/
R&B by CCM & Joseph Cochingyan in his capacity as
CCM prexy & in his personal capacity; & by P, PACOCO,
Jose Villanueva as Ps manager & in his personal
capacity, Liu Tua Beth, as PACOCO prexy, & in his
personal capacity. 2 years after the execution of these
documents, a TRUST AGREEMENT was entered into bet.
Jose & Susana Cochingyan, Tomas Besa, a PNB officer,
as trustee; & PNB was the beneficiary. The trust
agreement expressly provided that it shall not, in any
manner release R&B fr. their respective liabilities under
the bond. When P failed to pay, PNB demanded
payment fr. R%B. R&B in turn demanded reimbursement
fr. Joseph Cochingyan & Jose V. who refused to pay on
the ground that the trust agreement had extinguished
their oblig under the Indemnity Agreements.

FUA VS. YAP [74 P 287]


NOVATION BY SUBSEQUENT AGREEMENT
FACTS: Fua Cam Lu, judgment-Cr of Yap Fauco and Yap
Singco, agreed subsequently to execution of a mortgage
in his favor by the Yaps of a camarin plus reduction of
debt to 1,200 payable in 4 installments; that in case of
default they wud pay balance plus the discounted
amount and 10% attys fees.
HELD: The Yaps liability under the judgment has been
extinguished by the new agreement. Although the
mortgage did not expressly cancel the old obligation,
this was impliedly novated by reason of incompatibility
resulting fr. the fact that, whereas the judgment was for
P1,538.04 payable at one time, did not provide for
attorney's fees, & was not secured, the new obligation is
for P1200 payable in installments, stipulates for
attorney's fees & is secured by a mortgage. The later
agreement did not merely extend the time to pay the
judgment, bec. it was therein recited that appellants
promised to pay P1,200 to appellee as a settlement of
the said judgment. Said judgment cannot be said to
have been settled, unless it was extinguished.
** Foreclosure of such new mortgage under the
judgment in the old was VOID.

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.

SANDICO VS. PIGUING [42 S 322]


FACTS:
Sps. Sandico and Timbol as rep of Est of Sixta Paras
obtained judgment in their favor against Desiderio Paras
for the recog of easement and payment of damages;
the judgment debt was later on agreed by them to be
reduced and was subseq paid by def.
When the sps demanded for performance of the part of
d judgment abt the recof of d easement, they demanded
that def rebuild & reconstruct the irrigation canal in its
original dimensions. When def,refused, sps.asked d
court a quo in a motion for exec 2compel them or hold
them in contempt.Alias writ of exec was issued whc was
later on appeal was ordered quashed by the CA bec. The
parties novated by subseq. Agreement the judgment
in question, thus there is nothing more to be executed.

Novation is never presumed.-- If objective


novation is to take place, it is imperative that the new
obligation expressly declare that the old obligation is

69

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 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

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: 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.

HELD: The fact therefore remains that the amount of


P84,000 payable on or before May 15, 1981 decreed by
the trial court in its judgment by compromise was
novated & amended by the subsequent mutual
agreements & actions of petitioners & prvt. resps.
Petitioners paid the aforestated amount on an
installment basis & they were given by prvt. resps no
less than 8 extensions of time to pay their obligation.
These transactions took place during the pendency of
the motion for recon. of the order of the trial court dated
4/26/83, during the pendency of the petition for
certiorari before the IAC & after the filing of the petition
bef. Us. This answers the claim of the resps. on the
failure of the petitioners to present evidences or proofs
of payment in the lower court & the appellate court.
PEOPLE'S BANK VS. SYVEL'S [164 S 247]
RATIO: When does novation take place; Novation
is never presumed.

NPC VS. DAYRIT [125 S 849]


RATIO: Novation is never presumed but must be
explicitly stated; No novation in the absence of
explicit novation or incompatibility on every point
between the old & the new agreements of the
parties.
FACTS:
DANIEL E. ROXAS, doing business under the name and
style of United Veterans Security Agency and Foreign
Boats Watchmen, sued the NATIONAL POWER
CORPORATION (NPC) and two of its officers in Iligan
City. The purpose of the suit was to compel the NPC to
restore the contract of Roxas for security services
which the former had terminated. The parties drafted a
Compromise Agreement which the TC approved. The
agreement consisted of NPC paying plaintiff sum of
money, plaintiff will pay or return materials lost &
found by his agency, the for security services w/NPC
will remain, and they both waive other claims &
counter-c w/ea other.
NPC subseq. Contracted another security agency.
Thus, plntf asked court a quo for writ of exec whc was
granted. NPC appealed claiming that d judgment was
novated thus extinguished,nothing more to exec.

Absence of existence of an explicit


novation nor incompatibility between the old &
the new agreements.
Novation was not intended in the case at
bar as the REM was taken as additional security
for the performance of the contract.
If objective novation is to take place, it is
essential that the new obligation expressly declare that
the old obligation is to be extinguished or that the new
obligation be on every point incompatible w/ the old
one. xxx
FACTS:

Action for foreclosure of chattel mortgage


executed in favor of the plaintiff by the def. Syvel's Inc.
on its stocks of goods, personal properties and other
materials owned by it and located at its stores or
warehouses.
This
chattel mortgage was duly
registered in RD of Manila and Pasay City, in
connection with a credit commercial line in the
amount of P900K granted to Syvels; defendants
Antonio & Angel V. Syyap guaranteed absolutely and
unconditionally and without the benefit of excussion
the full and prompt payment of any indebtedness to be
incurred on account of the said credit line.
> failure of Syvels to pay in accord w/terms and
conditions of the Commercial Credit Agreement,
bank started to foreclose extrajudicially the chattel
mortgage but was not pushed thru after Syvels
attempted to settle. As no payment was made, this
case was filed in Court. During its pendency, Syyap
proposed to have the case settled amicably and to that
end a conference was held in which Mr. Antonio de las
Alas, Jr., VP of the Bank, plaintiff, defendant Antonio V.
Syyap and Atty. Mendoza were present. Mr. Syyap
requested that the plaintiff dismiss this case because
he did not want to have the goodwill of Syvel's
Incorporated impaired, and offered to execute a REM
on his property in Bacoor. Mr. De las Alas consented,
and so the REM.

ISSUE: WON novation of judgment by subseq agreement


of parties extinguished d of NPC to sustain the
security w/plantff
HELD: It is elementary that novation is never
presumed; it must be explicitly stated or there must
be manifest incompatibility between the old and the
new obligations in every aspect. Thus the Civil Code
provides:
Art. 1292. In order that an obligation may be
extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on
every point incompatible with each other.
In the case at bar, there is nothing in the May
14, 1982 agreement w/c supports the petitioner's
contention.
There is neither explicit novation nor
incompatibility on every point bet. the "old" & the "new"
agreementssaid contract was executed precisely to
implement the compromise agreement for which
reason there was no novation.

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.

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.

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:
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

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.

70

3. Subrogation/Subjective Novation

Records show that in the real estate mortgage,


appellants agreed that the chattel mortgage "shall
remain in full force and shall not be impaired by this
(real estate) mortgage."
It is clear, therefore, that a novation was not
intended. The real estate mortgage was evidently
taken as additional security for the performance of the
contract

a.
novation

In case of active subjective

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.

b. FORMS OF NOVATION:
Art. 1281. Compensation may be total or partial. When
the two debts are of the same amount, there is a total
compensation. (Classmates, I think there was a typo
error in Maam Bubbles outline. I think this should have
been Art. 1291, reproduced below)

Legal (Art. 1302) In all cases of Art. 1302,


subrogation takes place by operation of law.
Art. 1302.
It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor who is
preferred, even w/o the debtor's knowledge;
(2) When a third person, not interested in the
obligation, pays w/ the express or tacit approval
of the debtor;
(3) When, even w/o the knowledge of the
debtor, a person interested in the fulfillment of
the obligation pays, w/o prejudice to the effects
of confusion as to the latter's share;

1. Substitution of debtor-Art. 1236. The creditor is not bound to accept payment


or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o
the knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such
as those arising fr. a mortgage, guaranty, or penalty.
Art. 1835 second paragraph
A partner is discharged fr. any existing liability upon
dissolution of the partnership by an agreement to that
effect between himself, the partnership creditor & the
person or partnership continuing the business; & such
agreement may be inferred fr. the course of dealing
between the creditor having knowledge of the
dissolution & the person or partnership continuing the
business.

Conventional/ Contractual (Art. 1301) Consent of the 3


parties (old creditor, debtor & new creditor) are required.
Art. 1301. Conventional subrogation of a third person
requires the consent of the original parties & of the third
person.
Q: Is it possible for a creditor to transfer his
credit w/o consent of the debtor?
A: Yes. But this is not novation but an assignment of
rights under Art. 1624.

Assignment is also a novation but much simpler.


But is not subrogation.

KINDS OF NOVATION:
PNB VS. MALLARI

a. Legal

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. 1302.
It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor
who is preferred, even w/o the debtor's
knowledge;
(2) When a third person, not interested in
the obligation, pays w/ the express or tacit
approval of the debtor;
(3) When, even w/o the knowledge of the
debtor, a person interested in the
fulfillment of the obligation pays, w/o
prejudice to the effects of confusion as to
the latter's share;

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.

Art. 1177. The creditors, after having pursued the


property in possession of the debtor to satisfy their
claims, may exercise all the rights & bring all the actions
of the latter for the same purpose, save those w/c are
inherent in his person; they may also impugn the acts
w/c the debtor may have done to defraud them.
(Conventional Redemption)
Art. 1610. The creditors of the vendor cannot make
use of the right of redemption against the vendee, until
after they have exhausted the property of the vendor.
Art. 1729. Those who put their labor upon or furnish
materials for a piece of work undertaken by the
contractor have an action against the owner up to the
amount owing fr. the latter to the contractor at the time
the claim is made. However, the following shall not
prejudice the laborers, employees & furnishers of
materials:

Effect of insolvency of new debtor-Article 1294. If the substitution is w/o the knowledge
or against the will of the debtor, the debtors insolvency
or non-fulfillment of the obligation shall not give rise to
any liability on the part of the original debtor.
Art. 1295. The insolvency of the new debtor, who has
been proposed by the original debtor & accepted by the
creditor, shall not revive the action of the latter against
the original obligor, except when said insolvency was
already existing & of public knowledge, or known to the
debtor, when he delegated his debt.
2. Change of Principal Condition or Object

71

(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.

The obligation to discharge the mortgage indebtedness


therefore, remained on the shoulders of the original
debtors & their heirs, petitioners herein, since the record
is devoid of any evidence of contrary intent. xxx
Art. 1835. xxx
A partnership is discharged fr. any existing liability upon
dissolution of the partnership by an agreement to that
effect between himself, the partnership creditor & the
person or partnership continuing the business; & such
agreement may be inferred fr. the course of dealing
between the creditor having knowledge of the
dissolution & the person or partnership continuing the
business.

This article is subject to the provisions of special


laws:
(Assignment of Credits & Other Incorporeal
Rights)
Art. 1629. In case the assignor in good faith should
have made himself responsible for the solvency of the
debtor, & the contracting parties should not have
agreed upon the duration of the liability, it shall last for
one year only, fr. the time of the assignment if the
period had already expired.
If the credit should be payable w/in a term or
period w/c has not yet expired, the liability shall cease
one year after the maturity.
Art. 2207. If the plaintiff's property has been insured,
& he has received indemnity fr. the insurance company
for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency fr. the person
causing the loss or injury.

[Balane]
Passive Subjective Novation-1293 & 1295

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.

Art. 1293 talks of expromission (not upon the


old debtor's initiative. It could be upon the
initiative of the creditor or of the new debtor.)

Art. 1295 talks of delegacion (change at the


old debtor's initiative.)

In expromission, the change in the person of the


debtor is not upon the initiative of the old
debtor, whether or not he gave his consent. As
soon as a new debtor & creditor agree, novation
takes place.

In both cases, the intent of the parties must be


to release the old debtor.

What is the difference in


expromission & delegacion?

b. Passive Subjective Novation


(Substitution of the debtor)

Articles

effect

between

In expromission, the release of the old debtor


is absolute (even if it turns out that the new
debtor is insolvent.)

In delegacion, the release of the old debtor is


not absolute. He may be held liable (1) if the
new debtor was already insolvent at the time of
the delegacion; & (2) such insolvency was
either known to the old debtor or of public
knowledge.

Cases of expromission are quite rare.

Art. 1293. Novation w/c consists in substituting a new


debtor in the place of the original one, may be made
even w/o the knowledge or against the will of the latter,
but not w/o the consent of the creditor. Payment by the
new debtor gives him the rights mentioned in articles
1236 & 1237.
Art. 1236.
The creditor is not bound to accept
payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.
Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o
the knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such
as those arising fr. a mortgage, guaranty or penalty.

Effect of Novation
Art. 1296.
When the principal obligation is
extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
[Balane]
Effect of novation as to accessory
obligations
Accessory obligations may
subsist only insofar as they may benefit third
persons who did not give their consent, e.g.,
stipulation pour atrui
General rule: In a novation, the accesory obligation is
extinguished.
Exception:
In an active subjective novation, the
guarantors, pledgors, mortgagors are not released.
Look at Art. 1303, accessory obligations are not
extinguished. So there is a conflict.
How do you resolve? According to commentators,
Art. 1303 is an exception to Art. 1296.

RODRIGUEZ V. REYES

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.

HELD: By buying the property covered by TCT No.


48979 w/ notice that it was mortgaged, resp. Dualan
only undertook either to pay or else allow the land's
being sold if the mortgage creditor could not or did not
obtain payment fr. the principal debtor when the debt
matured. Nothing else. Certainly, the buyer did not
obligated himself to replace the debtor in the principal
obligation, & he could not do so in law w/o the creditor's
consent. (Art. 1293)

72

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. 1956. No interest shall be due unless it has been


expressly stipulated in writing.

VILLAROEL v. ESTRADA

ANSAY v. NDC

H. NATURAL OBLIGATIONS ARTS. 1423-1430.


1155
Art. 1423.
Obligations are civil or natural. Civil
obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity & natural law, do not grant a
right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in
the following articles.
Art. 1424. When a right to sue upon a civil obligation
has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what
he has delivered or the value of the service he has
rendered.
Art. 1425. When w/o the knowledge or against the will
of the debtor, a third person pays a debt w/c the obligor
is not legally bound to pay bec. the action thereon has
prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has
paid.
Art. 1428. When, after an action to enforce a civil
obligation has failed, the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.
Art. 1429. When a testate or intestate heir voluntarily
pays a debt of the decedent exceeding the value of the
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.

DBP v. CONFESSOR:

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


been executed in accordance w/ the formalities required
by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy
in compliance w/ a clause in the defective will, the
payment is effective & irrevocable.
Art. 1960. If the borrower pays interest when there has
been no stipulation therefor, the provisions of this Code
concerning solutio indebiti, or natural obligations, shall
be applied, as the case may be.

73

74