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D. KINDS OF CIVIL OBLIGATIONS:


1. AS TO PERFECTION & EXTINGUISHMENT:
a. PURE
(CHAPTER 3) Different Kinds of OBLIGATIONS
SECTION 1 - Pure and Conditional OBLIGATIONS
Article 1179. Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of the happening of the
event.
Article 1197. If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended, the
court may fix the duration thereof.
The court shall also fix the duration of the period when it depends upon
the will of the debtor.
In every case, the court shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the court, the period cannot be changed by them.

A pure obligation is one which is not subject to a condition or a term and it


is immediately demandable that there is nothing to exempt the debtor
from compliance therewith. (Floriano vs. Delgado)
What is a demand note? It is subject to neither a suspensive condition nor
a suspensive period. The demand is not a condition precedent , since the
effectivity and binding effect of the note does not depend upon the
making of the demand: the note is binding even before the demand
is made. Neither does the demand constitute an implied suspensive
period since there is nothing to prevent the creditor from making a
demand.

Case: Hongkong and Shanghai Banking Corp., Ltd. Staff Retirement Plan
vs. Spouses Bienvenido and Editha Broqueza, November 17, 2012, J.
Carpio.
Facts: Spouses Broqueza, as employees of HSBC and members of Petitioner
HSBC-SRP (purposely for the benefit of the employees), obtained loans
specifically, car and appliance loan which are to be paid through automatic
salary deduction. The promissory note appears to have this period for which the
employees can pay for the loan: on or before until fully paid
Meanwhile, when a labor dispute arose between HSBC and its employees,
majority of the employees of the former were terminated including herein
respondent (with supposed co-respondent Gerong who was eventually
withdrawn through a manifestation because she settled her OBLIGATIONS to the
company). Because of such dismissal, herein respondents were not able to pay
the monthly amortizations of their loans. Thus, the HSBC-SRP considered the
accounts for respondents as delinquent. Demand to pay the obligation were

made upon respondents but failed to pay the same. In a civil suit for
recovery and collection of sum of money against respondents, MeTC ruled that
the nature of HSBC-SRPs demands for payment is civil and has no connection to
the labor dispute and that by reason of the respondents termination from
employment, it resulted in the loss of continued benefits under the retirement
plan. Thus, the loans secured by their future retirement benefits to which they
are no longer entitled are reduced to unsecured and pure civil
OBLIGATIONS. As unsecured and pure OBLIGATIONS, the loans are
immediately demandable. RTC affirmed the MeTC. But CA reversed the same
saying that HSBC-SRPs complaints for recovery of sum of money against
respondents are premature as the loan OBLIGATIONS have not yet matured.
Thus, no cause of action accrued in favor of HSBC-SRP. Hence, this appeal.
Issue: Whether or not the interpretation of the subject promissory note is
correctly classified by MeTC and RTC as being a pure obligation.
Held: YES. In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179
of the Civil Code:
Aright 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.
x x x. (Emphasis supplied.)
We affirm the findings of the MeTC and the RTC that there is no date of
payment indicated in the Promissory Notes. The RTC is correct in ruling
that since the Promissory Notes do not contain a period, HSBCL-SRP
has the right to demand immediate payment. Article 1179 of the Civil Code
applies. The spouses Broquezas obligation to pay HSBCL-SRP is a pure
obligation. The fact that HSBCL-SRP was content with the prior monthly checkoff from Editha Broquezas salary is of no moment. Once Editha Broqueza
defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a
pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha Broquezas
dismissal from HSBC in December 1993, she "religiously paid the loan
amortizations, which HSBC collected through payroll check-ofollowing:" A
definite amount is paid to HSBCL-SRP on a specific date. Editha Broqueza
authorized HSBCL-SRP to make deductions from her payroll until her loans are
fully paid. Editha Broqueza, however, defaulted in her monthly loan payment
due to her dismissal. Despite the spouses Broquezas protestations, the
payroll deduction is merely a convenient mode of payment and not the
sole source of payment for the loans. HSBCL-SRP never agreed that the
loans will be paid only through salary deductions. Neither did HSBCL-SRP
agree that if Editha Broqueza ceases to be an employee of HSBC, her obligation
to pay the loans will be suspended. HSBCL-SRP can immediately demand
payment of the loans at anytime because the obligation to pay has no period.
Moreover, the spouses Broqueza have already incurred in default in paying the
monthly installments.
CASE: re Article 1179, par. 1
Case: In the matter of the Intestate Estate of Justo Palanca, deceased,
George Pay vs. Segundina Chua Vda. De Palanca, June 28, 1974, J.
Fernando.
Facts: George Pay as creditor of the late Justo Palanca (who died in Manila on
July 3, 1963) claimed payment from the latter premised from a promissory note
dated January 30, 1952, which has the following details: For value received

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from time to time since 1947, we jointly and severally promise to pay to Mr.
George Pay at his office the sum of P26, 900 with 12% interest rate per annum
upon receipt by either of the undersigned of cash payment from the Estate of
the late Don Carlos Palanca and Justo Palanca or upon demand. Then
came this paragraph: "The Court has inquired whether any cash payment has
been received by either of the signers of this promissory note from the Estate of
the late Carlos Palanca. Petitioner informed that he does not insist on this
provision but that petitioner is only claiming on his right under the promissory
note." After which, came the ruling that the wording of the promissory
note being "upon demand," the obligation was immediately due. Since
it was dated January 30, 1952, it was clear that more "than ten (10)
years has already transpired from that time until to date. The action,
therefore, of the creditor has definitely prescribed." The result, as above noted,
was the dismissal of the petition.
Issue: Whether or not Pays claim against the estate of the deceased through
the promissory note has already prescribed.
Held: YES. The obligation being due and demandable, it would appear
that the filing of the suit after fifteen years was much too late. For
again, according to the Civil Code, which is based on Section 43 of Act No. 190,
the prescriptive period for a written contract is that of ten years. From the
manner in which the promissory note was executed, it would appear that
petitioner was hopeful that the satisfaction of his credit could he realized either
through the debtor sued receiving cash payment from the estate of the
late Carlos Palanca presumptively as one of the heirs, or, as expressed
therein, "upon demand." There is nothing in the record that would
indicate whether or not the first alternative was fulfilled. What is
undeniable is that on August 26, 1967, more than fifteen years after
the execution of the promissory note on January 30, 1952, this petition
was filed. The defense interposed was prescription. Its merit is rather obvious.
Article 1179 of the Civil Code provides: "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." This used to be Article 1113 of
the Spanish Civil Code of 1889.
Q: Does the happening of a condition give rise to the OBLIGATION?
A: Not necessarily, only if suspensive condition; if resolutory condition, the
happening extinguishes the OBLIGATION;
Q: In an OBLIGATION with a TERM will the answer above be the same?
A: Yes.
b. CONDITIONAL
Article 1181. In conditional OBLIGATIONS, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.
Article 1182. When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be void. If it
depends upon chance or upon the will of a third person, the obligation
shall take effect in conformity with the provisions of this Code.

Balane: We are talking here of a suspensive condition.


First sentence of Article 1182.
The condition must be suspensive, potestative & depends on the
sole will of the debtor.
EXAMPLE: "I promise to sell you my car for P1.00 whenever I like."
Q: Why does it make the obligation void?
A: Because such an obligation lacks one of the essential elements of an
obligation, the vinculum juris, the binding force- the means by which it is
enforceable in couright In this case, there is no binding force. There is no
obligation. It is a joke.
Potestative Condition is one which depends solely on the will of either one
party.
EXAMPLE: "I will give you my plantation in Davao provided you reside in
Davao permanently."
Casual Condition is one where the condition is made to depend upon a third
person or upon chance.
EXAMPLE: "I will give you my land in Floridablanca if Mt. Pinatubo erupts
this year."
Mixed Condition is one which depends partly upon the will of one of the
parties & partly on either chance or the will of a third person.
Q: What if the condition is suspensive, potestative & depends solely on
the will of the creditor, is the conditional obligation valid?
A: Yes. In fact, the obligation is not even a condition obligation. It is a pure
obligation, binding at once.
CASE: the term which parties attempted to fix were so uncertain it must be
regarded as condition
Case: Smith Bell & Co., Ltd. vs. Vicente Sotelo Matti, March 9, 1922, J/
Romualdez.
Facts: In August 1918, plaintiff corporation and defendant entered into
contracts whereby the former obligated itself to sell and the latter to purchase
from it the following which accordingly delivered with dates below:
Items/
Produ
cts

Prices

2 steel
tanks

P21,00
0

Delive
ry
date
under
the
promi
ssory
note
to be
shippe
d from

Actual
date
of
delive
ry

April
27,
1919

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New
York to
Manila
within
3 or 4
mont
hs
2
P25,00 to be Octobe
expell
0/each shippe r
26,
ers
d from 1918
San
Francis
co in
the
mont
h
of
Septe
mber,
1918
or as
soon
as
possi
ble
2
P2,000 Appr
Februa
electri
/each
oxima ry 27,
c
te
1919
motors
delive
ry
within
90
days
This
is not
guara
nteed

In all these contracts, there is a final clause as follows:


The sellers are not responsible for delays caused by fires, riots on
land or on the sea, strikes or other causes known as "Force
Majeure" entirely beyond the control of the sellers or their
representatives.
Smith Bell notified Mr. Sotelo of the arrival of these goods but the latter
refused to receive and pay the pay prices stipulated. The plaintiff brought
suit against the defendant, based on four separate causes of action, alleging,
among other facts, that it immediately notified the defendant of the arrival of the
goods, and asked instructions from him as to the delivery thereof, and that the
defendant refused to receive any of them and to pay their price. The case having
been tried, the court below absolved the defendants from the complaint insofar as
the tanks and the electric motors were concerned, but rendered judgment
against them, ordering them to "receive the aforesaid expellers and pay
the plaintiff the sum of fifty thousand pesos (P50,00), the price of the

said goods, with legal interest thereon from July 26, 1919, and costs."
Both parties appeal from this judgment.
Issue: Whether or not under the contract being entered into by the parties, the
plaintiff corporation is held in delay by reason of the period stipulated in the
contract.
Held: NO. Under these stipulations, it cannot be said that any definite date was
fixed for the delivery of the goods. As to the tanks, the agreement was that the
delivery was to be made "within 3 or 4 months," but that period was subject to
the contingencies referred to in a subsequent clause. With regard to the
expellers, the contract says "within the month of September, 1918," but to this
is added "or as soon as possible." And with reference to the motors, the contract
contains this expression, "Approximate delivery within ninety days," but right
after this, it is noted that "this is not guaranteed." The oral evidence falls
short of fixing such period.
From the record it appears that these contracts were executed at the time of the
world war when there existed rigid restrictions on the export from the United
States of articles like the machinery in question, and maritime, as well as
railroad, transportation was difficult, which fact was known to the parties; hence
clauses were inserted in the contracts, regarding "Government regulations,
railroad embargoes, lack of vessel space, the exigencies of the requirements of
the United States Government," in connection with the tanks and "Priority
Certificate, subject to the United State Government requirements," with respect
to the motors. At the time of the execution of the contracts, the parties were not
unmindful of the contingency of the United States Government not allowing the
export of the goods, nor of the fact that the other foreseen circumstances
therein stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but
conclude that the term which the parties attempted to fix is so
uncertain that one cannot tell just whether, as a matter of fact, those
articles could be brought to Manila or not. If that is the case, as we
think it is, the OBLIGATIONS must be regarded as conditional.
OBLIGATIONS for the performance of which a day certain has been fixed shall be
demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even
though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day,
the obligation is conditional and shall be governed by the rules of the
next preceding section. (referring to pure and conditional
OBLIGATIONS). (Aright 1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the contract,
contingent upon the sellers obtaining certificate of priority and permission of the
United States Government, subject to the rules and regulations, as well as to
railroad embargoes, then the delivery was subject to a condition the fulfillment
of which depended not only upon the effort of the herein plaintiff, but upon the
will of third persons who could in no way be compelled to fulfill the condition. In
cases like this, which are not expressly provided for, but impliedly
covered, by the Civil Code, the obligor will be deemed to have
sufficiently performed his part of the obligation, if he has done all that
was in his power, even if the condition has not been fulfilled in reality.

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Article 1183. Impossible conditions, those contrary to good customs
or public policy and those prohibited by law shall annul the obligation
which depends upon them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful condition shall be
valid.
The condition not to do an impossible thing shall be considered as
not having been agreed upon.
Balane:
This refers to a suspensive condition.
There are 2 classes of impossible conditions:
1. Impossible in fact
EXAMPLE: "I promise to sell my car to Mr. M for P2 if he can swim across
the Pacific Ocean for 2 hours."
2.

Impossible in law or one which attaches an illegal condition


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

Effect of Impossible Condition It annuls the obligation which depends upon


them.
The entire juridical tie is tainted by the impossible condition. Correlate
this with Articles 727 & 873.
Article 727. Illegal or impossible conditions in simple & remuneratory donations
shall be considered as not imposed.
Article 873. Impossible conditions & those contrary to law or good customs shall
be considered as not imposed & shall in no manner prejudice the heir, even if the
testator should otherwise provide.
Tolentino:
In contracts, an impossible condition annuls the contract.
In gratuitous dispositions, the impossible condition is simply disregarded.

condition becomes part of the causa. Therefore, if the condition is impossible,


there is failure of causa. In no causa, there is also no contract.
Paras:
Positive suspensive condition to do an impossible/ illegal thing
The obligation is void (Article 1183, par. 1.)
A negative condition (not to do an impossible thing) Just
disregard the condition (Article 1183, par. 2.)
A condition not to do an illegal thing (negative) This is not
expressly provided for in the provision but is implied. The obligation is
valid.
EXAMPLE: "I will sell you a piece of land provided you do not plant
marijuana on it."
Article 1184. The condition that some event happen at a determinate
time shall extinguish the obligation as soon as the time expires or if it has
become indubitable that the event will not take place.
Balane: This article refers to suspensive conditions. If the condition is resolutory,
the effect is the opposite.
Article 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the moment
the time indicated has elapsed, or if it has become evident that the event
cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such
time as may have probably been contemplated, bearing in mind the
nature of the obligation.
Balane: This article refers to a suspensive condition.
Article 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Balane: This article refers to a suspensive condition.

Balane: The first statement is inaccurate because 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.

Doctrine of Constructive Compliance There are three requisites in order


that this article may apply:
1. Intent on the part of the obligor to prevent fulfillment of the condition.
The intent does not have to be malicious.
2. Actual prevention of compliance (by the obligor)
3. Constructive compliance can have application only if the condition is
potestative. It can also apply to mixed condition as to that part which the
obligor should perform.

Q: Why is there a difference?


A: Because in a donation as well as in a testamentary disposition, the causa or
consideration is the liberality of the donor or testator, as the case may be. Even if
you take away the impossible condition, there is still a reason for the disposition to
exist- liberality. They (donation & testamentary disposition) have both their
underpinnings, liberality. But in an onerous transaction, since an onerous
prestation which is reciprocal requires concomitant performances, that impossible

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

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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.

(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)

In OBLIGATIONS to do and not to do, the court shall determine,


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

Balane:
This article refers to suspensive condition. This article sets forth the rule of
retroactivity in an obligation to give. This rule is logical but impractical. Many
modern Civil Codes have discarded it.
No Retroactivity as to the Fruits Notice that there is no retroactivity with
respect to the fruits. The fruits are deemed to cancel out each other. If only one
of the thing produces fruits, there is no obligation to deliver the fruits.
Article 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in
case of a suspensive condition.
Balane: This article refers to suspensive conditions.
Bring the appropriate actions According to JBL Reyes, the phrase "may xxx
bring the appropriate actions" is inaccurate. To bring action is to file a suit.
But the creditor is not restricted to filing a suit.
The proper verb is not "bring" but "take." For example, in a sale of land subject to
suspensive condition, the creditor should have the suspensive condition annotated
on the title of the land. This is not bringing an appropriate action but taking an
appropriate action.
The principle in this article is:
Vigilantibus et non dormientibus jura
subveniunt which means that the laws aid those who are vigilant, not
those who sleep upon their rights.
Q: Why does Article 1188 give the creditor a recourse although technically the
creditor still have no right?
A: Because as a matter of fact, although technically the creditor still have no
right, he is already expecting a right. You cannot let the creditor sit & fold his
arms & wait for his right of expectancy to be rendered illusory.
Article 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during
the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished;

(b) Resolutory Condition (Condition subsequent)


Balane: Article 1190 refers to resolutory conditions. This is just the opposite of
Article 1189.
Article 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the fulfillment of
said conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the
provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to return.
As for the OBLIGATIONS to do and not to do, the provisions of the second
paragraph of article 1187 shall be observed as regards the effect of the
extinguishment of the obligation.
Balane: A condition is a future & uncertain event upon which an obligation or
provision is made to depend.
Tolentino: Futurity & uncertainty must concur as characteristics of the event.

A past thing can never be a condition.


uncertain.

A condition is always future &

Past event unknown to the parties It is really the knowledge of the event
which constitutes the future. It is the knowledge which is future & uncertain.
EXAMPLE: "I will treat you for lunch if you get the highest score in the Civil
Law Final Exams (on the assumption that Prof. Balane has already finished
checking the papers.)" Here, the event (getting the highest score) is
already a past event, yet the knowledge is future & uncertain.
Condition compared to a term
Conditio
n

Term

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As
to Same,
Same,
element
may
be always
of futurity
past event future
unknown
to parties
in
the uncertai
certain
aspect of n
certainty
Conditions can either be:
1. Suspensive
condition (condition precedent)
happening of the event gives birth to an obligation
2. Resolutory condition (condition subsequent)
happening of the event will extinguish the obligation.

\Article 1193. OBLIGATIONS for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes.
OBLIGATIONS with a resolutory period take effect at once, but terminate
upon arrival of the day certain.
A day certain is understood to be that which must necessarily come,
although it may not be known when.

wherein

the

wherein

the

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 which the demandability (or
extinguishment) of an obligation depends.
Tolentino: Period must be (1) future (2) certain and (3) possible.
A term can either be:
1. Suspensive term (ex die- from the day) or one the arrival of which
will make the obligation demandable;
2. Resolutory term (in die- into the day) or one the arrival of which will
extinguish the obligation. The period after which the performance must
terminate.
Terms
1.
2.
3.

classified according to source;


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

May also be, (a) express, specified


(b) tacit, e.g. stipulated to do some work which may only be done at a
particular season.
Or,
1. Original period
2. Grace period, extension fixed by parties
Or
a. definite, fixed known date or time,
b. indefinite, event will happen but not known when
Effect of Period: OBLIGATION with term are demandable only when day fixed
for performance arrive; right of action arises only when date fixed arrives;

If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the
preceding Section.
MANRESA: A term or period is an interval of time, which, exerting an influence
on an obligation as a consequence of a juridical act, either suspends its
demandability or produces its extinguishment.
Distinguished from Condition:
CONDI
TERM / PERIOD
TION
As to
uncert an event that
fulfill
ain
must necessarily
ment
event
come, whether
on a date known
before hand or
at a time which
cannot
be
predetermined
As to
a has no effect
influen conditio upon
the
ce on n gives existence
of
the
rise to OBLIGATIONS,
obligat an
but only their
ion
obligati
demandability or
on
or performance
extingui
shes
one
already
existing
Effect
May
NO
retroactive
have
effect,
except
retroact when there is a
ive
special
effect
agreement
As to may
always refer to
time
refer to the future
a past
event
unknow
n to the
parties

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As to a
a period left to
will of conditio the debtor's will
debtor n which merely
depend empowers
the
s
court to fix such
exclusiv period
ely on
the will
of the
debtor
annuls
the
obligati
on
Balane: In a (suspensive) term, the obligation has already arisen except that it is
not yet demandable.
Article 1194. In case of loss, deterioration or improvement of the thing before
the arrival of the day certain, the rules in article 1189 shall be observed.
Balane: There are three requisites in order for Article 1189 to apply-1. There is loss, deterioration or delay
2. There is an obligation to deliver a determinate thing (on the part of the
debtor)
3. There is loss, deterioration or improvement before the happening of the
condition.
4. The condition happens.
Article 1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation has become
due and demandable, may be recovered, with the fruits and interests.

Article 1195 applies only in OBLIGATION to give;

Balane:
Mistaken Premature Delivery This article assumes 2 things:
(1) the delivery was by mistake;
(2) the mistake was discovered before the term arrives.

Both the things & the fruits can be recovered.

If the term has already arrived, the question is moot & academic. But can he
recover the fruits produced during the meantime? It depends on what school of
thought you follow:
Tolentino: According to one school of thought, the debtor is entitled to the fruits
produced in the meantime.
Caguioa: According to another school of thought, all the fruits received during the
pendency of the term belong to the creditor.
When fruits & interests cannot be recovered notwithstanding premature delivery:

1.
2.
3.
4.

When the obligation is reciprocal & there has been premature


performance (by both parties);
When the obligation is a loan in which the debtor is bound to pay interest;
When the period is for the creditor's exclusive benefit;
When the debtor is aware of the period & pays anyway. (Knowledge, tacit
waiver of benefit of term)

2. Presumed for whose benefit: BOTH


Article 1196. Whenever in an obligation a period is designated, it is presumed to
have been established for the benefit of both the creditor and the debtor , unless
from the tenor of the same or other circumstances it should appear that the
period has been established in favor of one or of the other.
Balane:
General rule: If a period is attached in an obligation, the presumption is that it is
for the benefit of both parties.

The consequence is that the creditor cannot compel the performance


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

If the term is for the benefit of the creditor The creditor can demand
performance anytime; but the debtor cannot insist on payment before the period.
If the term is for the benefit of the debtor The creditor cannot demand
performance anytime; but the debtor can insist on performance anytime.
EXAMPLE:
"I promise to pay within 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 contract of Loan, without interest, term is usually for benefit of debtor, thus he
may pay in advance;
-If there is stipulation as to interest, period is generally for both parties, debtor
cannot pay in advance vs. will of creditor; unless he also pays interest in full.
3. When NO period is fixed
Balane:
Cases where the Court may fix a period
1. Article 1197, par. 1
Article 1197. If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended, the
court may fix the duration thereof.
The court shall also fix the duration of the period when it depends upon
the will of the debtor.

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In every case, the court shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the court, the period cannot be changed by them.
Exceptions:
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 which the whole estate leased may yield in one year, or
which 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
from year to year, if the rent agreed upon is annual; from month to month, if it is
monthly; from week to week, if the rent is weekly; & from day to day, if the rent is
to be paid daily. xxx
Article 1606 in pacto de retro sale where the period is not specified by the parties
Article 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 from the date of the contract.
XXX

contract of services for an indefinite term (because fixing of a period by


the court may amount to involuntary servitude)

Article 1197. Xxx


The court shall also fix the duration of the period when it depends upon the will of
the debtor.
Article 1191. Xxx
the court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Article 1687. xxx
However, even though a monthly rent is paid, & no period for the lease has been
set, the court 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 court may likewise determine
a longer period after the lessee has been in possession for over six months. In
case of daily rent, the court may also fix a longer period after the lessee has
stayed in the place for over one month.
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.
CASE: Where obligation does not fix a period; When fixing a period is
mere formality
Case: Chavez vs. Gonzales, 32 SCRA 547.

Facts: In the early part of July 1963, Rosendo Chavez delivered to Fructuoso
Gonzales, who is a typewriter repairer, a portable typewriter for routine cleaning
and servicing. Gonzales was not able to finish job after some time despite
repeated reminder. Gonzales merely gave assurances but failed to comply with
the same. In October 1963, Gonzales asked from Chavez the sum of P6.00 for
the purchase of spare parts which amount was duly given to the former. On
October 26, 1963, Chavez asked for the return of the typewriter. Gonzales just
delivered it in a wrapped package. And it was only upon reaching home that
Chavez found out that the typewriter was in shambles, with the interior cover
and some parts and screws missing. On October 29, 1963, Chavez demanded
the return of the missing parts and the P6.00 which was heeded to. Thereafter,
Chavez had the typewriter repaired for P89.85. Chavez sued for damages.
Issue: Whether or not Gonzales is liable for damages for the subsequent repair
of the typewriter of Chavez.
Held: YES. The SC found that both Chavez and Gonzales had a perfected
contract for cleaning and servicing of typewriter intending for Gonzales to finish
the work at some future time although such time was not specified and that
such time had passed without the work having been accomplished, for Gonzales
returned the typewriter cannibalized and unrepaired, which in itself is a breach
of obligation, without demanding that he should be given more time to finish the
job or compensation for the work he had already done. The time for
compliance having evidently expired and there being a breach of
contract by non-compliance, Gonzales cannot invoke Article 1197 for he
admitted non-performance by returning the typewriter that he was
obliged to repair. The fixing of a period would thus be a mere formality
and would serve no purpose than to delay. For such, Gonzales is liable
under Article 1167 for the cost of the execution of the obligation in a proper
manner.
Case: Vicente Singson Encarnacion vs. Jacinta Baldomar, Oct. 4, 1946, J.
Hilado.
Facts: Vicente Singson Encarnacion, owner of the house numbered 589 Legarda
Street, Manila, some six years ago leased said house to Jacinto Baldomar and
her son, Lefrado Fernando, upon a month-to-month basis for the monthly
rental of P35. After Manila was liberated in the last war, specifically on March
16, 1945, and on April 7, of the same year, plaintiff Singson Encarnacion notified
defendants, the said mother and son, to vacate the house above-mentioned on
or before April 15, 1945, because plaintiff needed it for his offices as a
result of the destruction of the building where said plaintiff had said
offices before. Despite this demand, defendants insisted on continuing
their occupancy. When the original action was lodged with the Municipal Court
of Manila on April 20, 1945, defendants were in arrears in the payment of the
rental corresponding to said month, the agrees rental being payable within the
first five days of each month. That rental was paid prior to the hearing of the
case in the municipal court, as a consequence of which said court entered
judgment for restitution and payment of rentals at the rate of P35 a month from
May 1, 1945, until defendants completely vacate the premises. In the Court of
First Instance, the defendants interposed defense that the contract which they
had celebrated with plaintiff since the beginning authorized them to
continue occupying the house indefinitely and while they should
faithfully fulfill their OBLIGATIONS as respects the payment of the
rentals. However, Vicente Singson Encarnacion, jr., contended that the lease

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had always and since the beginning been upon a month-to-month basis. The
Court of First Instance gave more credence to the lessor.
Issue: Whether the contract can be interpreted as a month-to-month basis
thereby giving more credence to the effect that herein lessor can eject lessee at
anytime possible.
Held: YES. We think that the Court of First Instance was right in so declaring.
Furthermore, carried to its logical conclusion, the defense thus set up by
defendant Lefrado Fernando would leave to the sole and exclusive will of one of
the contracting parties (defendants in this case) the validity and fulfillment of
the contract of lease, within the meaning of article 1256 of the Civil Code, since
the continuance and fulfillment of the contract would then depend solely and
exclusively upon their free and uncontrolled choice between continuing paying
the rentals or not, completely depriving the owner of all say in the matter. If
this defense were to be allowed, so long as defendants 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 the aforesaid article of the Civil Code. (8 Manresa, 3d ed.,
pp. 626, 627; Cuyugan vs. Santos, 34 Phil., 100.)
Case: Dario and Gaudencio Eleizegui vs. Manila Lawn Tennis Club, May
19, 1903, J. Arellano.
Facts: This suit concerns the lease of a piece of land for a fixed consideration
and to endure at the will of the lessee. By the contract of lease the lessee is
expressly authorized to make improvements upon the land, by erecting buildings
of both permanent and temporary character, by making fills, laying pipes, and
making such other improvements as might be considered desirable for the
comfort and amusement of the members. "The court is of the opinion that the
contract of lease was terminated by the notice given by the plaintiff on August
28 of last year . . . ." And such is the theory maintained by the plaintiffs, which
expressly rests upon article 1581 of the Civil Code, the law which was in force at
the time the contract was entered into (January 25, 1890). The judge, in giving
to this notice the effect of terminating the lease, undoubtedly considers that it is
governed by the article relied upon by the plaintiffs, which is of the following
tenor: "When the term has not been fixed for the lease, it is understood to be for
years when an annual rental has been fixed, for months when the rent is
monthly. . . ." The second clause of the contract provides as follows: "The rent of
the said land is fixed at 25 pesos per month." (P. 11, Bill of Exceptions.)
In accordance with such a theory, the plaintiffs might have terminated the lease
the month following the making of the contract at any time after the first
month, which, strictly speaking, would be the only month with respect to which
they were expressly bound, they not being bound for each successive month
except by a tacit renewal (aright 1566) an effect which they might prevent by
giving the required notice. The OBLIGATIONS which, with the force of law, the
lessors assumed by the contract entered into, so far as pertaining to the issues,
are the following: "First. . . . They lease the above-described land to Mr.
Williamson, who takes it on lease, . . . for all the time the members of the said
club may desire to use it . . . Third. . . . the owners of the land undertake to
maintain the club as tenant as long as the latter shall see fit, without altering in

the slightest degree the conditions of this contract, even though the estate be
sold."
It is evident that they had no intention of stipulating that they reserved the right
to give such notice. Clause 3 begins as follows: "Mr. Williamson, or whoever may
succeed him as secretary of said club, may terminate this lease whenever
desired without other formality than that of giving a month's notice. The owners
of the land undertake to maintain the club as tenant as long as the latter shall
see fit."
Although the relief asked for in the complaint, drawn in accordance with the new
form of procedure established by the prevailing Code, is the restitution of the
land to the plaintiffs (a formula common to various actions), nevertheless the
action which is maintained can be no other than that of desahucio, in
accordance with the substantive law governing the contract. The lessor says
article 1569 of the Civil Code may judicially dispossess the lessee upon the
expiration of the conventional term or of the legal term; the conventional term
that is, the one agreed upon by the parties; the legal term, in defect of the
conventional, fixed for leases by articles 1577 and 1581.
Issue: Whether or not the duration of the term of lease can be fixed by the
couright
Held: The Civil Code has made provision for such a case in all kinds of
OBLIGATIONS. In speaking in general of OBLIGATIONS with a term it has supplied
the deficiency of the former law with respect to the "duration of the term when it
has been left to the will of the debtor," and provides that in this case the term
shall be fixed by the court. (Aright 1128, sec. 2.) In every contract, as laid down
by the authorities, there is always a creditor who is entitled to demand the
performance, and a debtor upon whom rests the obligation to perform the
undertaking. In bilateral contracts the contracting parties are mutually creditors
and debtors. Thus, in this contract of lease, the lessee is the creditor with
respect to the rights enumerated in article 1554, and is the debtor with respect
to the OBLIGATIONS imposed by articles 1555 and 1561. The term within which
performance of the latter obligation is due is what has been left to the will of the
debtor. This term it is which must be fixed by the court.
Case: Philippine Banking Corporation representing the estate of Justina
Santos Y Canon Faustino, deceased vs. Lui She in her own behalf and as
administratrix of the intestate estate of Wong Heng, deceased., 21
SCRA 53.
Facts: Justina Santos y Canon Faustino and her sister Lorenzo were the owners
in common of a piece of land in Manila. This parcel, with an area of 2,582.30
square meters, is located on Rizal Avenue and opens into Florentino Torres street
at the back and Katubusan street on one side. In it are two residential houses
with entrance on Florentino Torres street and the Hen Wah Restaurant with
entrance on Rizal Avenue. The sisters lived in one of the houses, while Wong
Heng, a Chinese, lived with his family in the restaurant. Wong had been a longtime lessee of a portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire property
as her sister died with no other heir. Then already well advanced in years, being
at the time 90 years old, blind, crippled and an invalid, she was left with no other
relative to live with. Her only companions in the house were her 17 dogs and 8
maids. Her otherwise dreary existence was brightened now and then by the
visits of Wong's four children who had become the joy of her life. Wong himself
was the trusted man to whom she delivered various amounts for safekeeping,

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including rentals from her property at the corner of Ongpin and Salazar streets
and the rentals which Wong himself paid as lessee of a part of the Rizal Avenue
property. Wong also took care of the payment; in her behalf, of taxes, lawyers'
fees, funeral expenses, masses, salaries of maids and security guard, and her
household expenses.
"In grateful acknowledgment of the personal services of the lessee to
her," Justina Santos executed on November 15, 1957 a contract of lease (Plff
Exh. 3) in favor of Wong, covering the portion then already leased to him and
another portion fronting Florentino Torres street. The lease was for 50 years,
although the lessee was given the right to withdraw at any time from the
agreement; the monthly rental was P3,120. The contract covered an area of
1,124 square meters. Ten days later (November 25), the contract was amended
(Plff Exh. 4) so as to make it cover the entire property, including the portion on
which the house of Justina Santos stood, at an additional monthly rental of P360.
For his part Wong undertook to pay, out of the rental due from him, an amount
not exceeding P1,000 a month for the food of her dogs and the salaries of her
maids.
On December 21 she executed another contract (Plff Exh. 7) giving Wong
the option to buy the leased premises for P120,000, payable within ten years at
a monthly installment of P1,000. The option, written in Tagalog, imposed on him
the obligation to pay for the food of the dogs and the salaries of the maids in her
household, the charge not to exceed P1,800 a month. The option was
conditioned on his obtaining Philippine citizenship, a petition for which was then
pending in the Court of First Instance of Rizal. It appears, however, that this
application for naturalization was withdrawn when it was discovered that he was
not a resident of Rizal. On October 28, 1958 she filed a petition to adopt him and
his children on the erroneous belief that adoption would confer on them
Philippine citizenship. The error was discovered and the proceedings were
abandoned.
On November 18, 1958 she executed two other contracts, one (Plff Exh. 5)
extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing the
term of the option of 50 years.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she
bade her legatees to respect the contracts she had entered into with Wong, but
in a codicil (Plff Exh. 17) of a later date (November 4, 1959) she appears to have
a change of hearight Claiming that the various contracts were made by her
because of machinations and inducements practiced by him, she now directed
her executor to secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First Instance
of Manila. The complaint alleged that the contracts were obtained by Wong
"through fraud, misrepresentation, inequitable conduct, undue influence and
abuse of confidence and trust of and (by) taking advantage of the helplessness
of the plaintiff and were made to circumvent the constitutional provision
prohibiting aliens from acquiring lands in the Philippines and also of the
Philippine Naturalization Laws."
From this judgment both parties appealed directly to this Couright After the case
was submitted for decision, both parties died, Wong Heng on October 21, 1962
and Justina Santos on December 28, 1964. Wong was substituted by his wife, Lui
She, the other defendant in this case, while Justina Santos was substituted by
the Philippine Banking Corporation.
Justina Santos maintained now reiterated by the Philippine Banking
Corporation that the lease contract (Plff Exh. 3) should have been annulled

along with the four other contracts (Plff Exhs. 4-7) because it lacks mutuality;
because it included a portion which, at the time, was in custodia legis; because
the contract was obtained in violation of the fiduciary relations of the parties;
because her consent was obtained through undue influence, fraud and
misrepresentation; and because the lease contract, like the rest of the contracts,
is absolutely simulated.
Paragraph 5 of the lease contract states that "The lessee may at any time
withdraw from this agreement." It is claimed that this stipulation offends article
1308 of the Civil Code which provides that "the contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of
them."
Issue: Whether or not the option given to Wong to buy the property despite him
being an alien is valid.
Held: NO. Taken singly, the contracts show nothing that is necessarily illegal,
but considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease to an alien
for a reasonable period is valid. So is an option giving an alien the right to buy
real property on condition that he is granted Philippine citizenship. As this Court
said in Krivenko v. Register of Deeds:20
[A]liens are not completely excluded by the Constitution from the use of
lands for residential purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire
to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or otherwise
dispose of his property, 21 this to last for 50 years, then it becomes clear that the
arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land ( jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it ( jus
disponendi) rights the sum total of which make up ownership. It is just as if
today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made
up are consolidated in an alien. And yet this is just exactly what the parties in
this case did within the space of one year, with the result that Justina Santos'
ownership of her property was reduced to a hollow concept. If this can be done,
then the Constitutional ban against alien landholding in the Philippines, as
announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.
Case: Lim vs. People
Facts: Lourdes Lim is a businesswoman who went to Maria Ayroso and proposed
to the latter to sell Ayrosos tobacco. Ayroso agreed to the proposition to sell her
tobacco consisting of 615 kilos at P1.30/kilo. The agreement reads: This is to
certify that I have received from Maria Ayroso of Nueva Ecija, 615 kilos of leaf
tobacco to be sold at P1.30/kilo. The proceed in the amount of P799.50 will be
given to her as soon as it was sold. Of the P799.50, only P240 was paid by
Lim. Lim failed to pay the balance. Ayroso filed an Estafa case against Lim.
Issue: Whether Lims obligation to pay Ayroso is immediately demandable as
soon as the tobacco was disposed of.
Held: YES. The SC ruled that it was clear in the agreement that the proceeds of
the sale of the tobacco should be turned over to the complainant as soon as the

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same was sold, or, that the obligation was immediately demandable as soon as
the tobacco was disposed of. Hence, Article 1197 of the NCC, which provides
that the court may fix the duration of the obligation if it does not fix a period,
does not apply. The agreement cannot be understood to mean that the duration
of the period depends upon the will of the debtor which the court can fix the
duration thereof. Instead the agreement between them was one of agency with
the OBLIGATION to return the unsold tobacco and the proceeds of the sale
demandable.
Case: Gregorio Araneta, Inc. vs. Phil. Sugar Estates Dev., May 31, 1967,
J.B.L. Reyes.
Facts: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon
City, otherwise known as the Sta. Mesa Heights Subdivision, and covered by a
Torrens title in its name. On July 28, 1950, through Gregorio Araneta, Inc., it
(Tuason & Co.) sold a portion thereof with an area of 43,034.4 square meters,
more or less, for the sum of P430,514.00, to Philippine Sugar Estates
Development Co., Ltd. The parties stipulated, among in the contract of purchase
and sale with mortgage, that the buyer will
Build on the said parcel land the Sto. Domingo Church and Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of the land herein
sold so that the latter will be a block surrounded by streets on all four
sides; and the street on the NE side shall be named "Sto. Domingo
Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the
construction of Sto. Domingo Church and Convent, but the seller, Gregorio
Araneta, Inc., which began constructing the streets, is unable to finish the
construction of the street in the Northeast side named (Sto. Domingo Avenue)
because a certain third-party, by the name of Manuel Abundo, who has been
physically occupying a middle part thereof, refused to vacate the same; hence,
on May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its complaint
against J. M. Tuason & Co., Inc., and instance, seeking to compel the latter to
comply with their obligation, as stipulated in the above-mentioned deed of sale,
and/or to pay damages in the event they failed or refused to perform said
obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the
complaint, the latter particularly setting up the principal defense that the action
was premature since its obligation to construct the streets in question was
without a definite period which needs to he fixed first by the court in a proper
suit for that purpose before a complaint for specific performance will prosper.
Plaintiff moved to reconsider and modify the above decision, praying that the
court fix a period within which defendants will comply with their obligation to
construct the streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that
plaintiff's complaint did not expressly or impliedly allege and pray for the fixing
of a period to comply with its obligation and that the evidence presented at the
trial was insufficient to warrant the fixing of such a period.
Issue: Whether the period fixed by the court is proper.
Held: We agree with the petitioner that the decision of the Court of Appeals,
affirming that of the Court of First Instance is legally untenable. The fixing of a
period by the court under Article 1197 of the Civil Code of the Philippines is
sought to be justified on the basis that petitioner (defendant below) placed the

absence of a period in issue by pleading in its answer that the contract with
respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner
Gregorio Araneta, Inc. "reasonable time within which to comply with its
obligation to construct and complete the streets." Neither of the court below
seems to have noticed that, on the hypothesis stated, what the answer put in
issue was not whether the court should fix the time of performance, but whether
or not the parties agreed that the petitioner should have reasonable time to
perform its part of the bargain. If the contract so provided, then there was a
period fixed, a "reasonable time;" and all that the court should have done was to
determine if that reasonable time had already elapsed when suit was filed if it
had passed, then the court should declare that petitioner had breached the
contract, as averred in the complaint, and fix the resulting damages. On the
other hand, if the reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature. But in no case can it be
logically held that under the plea above quoted, the intervention of the court to
fix the period for performance was warranted, for Article 1197 is precisely
predicated on the absence of any period fixed by the parties.
Even on the assumption that the court should have found that no reasonable
time or no period at all had been fixed (and the trial court's amended decision
nowhere declared any such fact) still, the complaint not having sought that the
Court should set a period, the court could not proceed to do so unless the
complaint in as first amended; for the original decision is clear that the
complaint proceeded on the theory that the period for performance had already
elapsed, that the contract had been breached and defendant was already
answerable in damages.
Granting, however, that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is stated to
support the conclusion that the period should be set at two years after finality of
the judgment. The list paragraph of Article 1197 is clear that the period can not
be set arbitrarily. The law expressly prescribes that
the Court shall determine such period as may under the circumstances
been probably contemplated by the parties.
All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this
respect is that "the proven facts precisely warrant the fixing of such a period," a
statement manifestly insufficient to explain how the two period given to
petitioner herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a twostep process. The Court must first determine that "the obligation does
not fix a period" (or that the period is made to depend upon the will of
the debtor)," but from the nature and the circumstances it can be
inferred that a period was intended" (Aright 1197, pars. 1 and 2). This
preliminary point settled, the Court must then proceed to the second
step, and decide what period was "probably contemplated by the
parties" (Do., par. 3). So that, ultimately, the Court can not fix a period
merely because in its opinion it is or should be reasonable, but must
set the time that the parties are shown to have intended. As the record
stands, the trial Court appears to have pulled the two-year period set in its
decision out of thin air, since no circumstances are mentioned to support it.
Plainly, this is not warranted by the Civil Code.
Case: Pacifica Millare vs. Hon. Hernando, Antonio Co and Elsa Co., June 30,
1987, J. Feliciano.

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Facts: Pacifica Millare, lessor and spouses Co lessee in a 5-year contract of lease
of Peoples Restaurant, a commercial establishment located at the corner of
McKinley and Pratt Streets in Bangued, Abra. At the last week of the 5-year period,
the lessor offered to extend the lease if spouses Co will agree to increase rental
from P350 to P1200 a month. The spouses counter-offered the rental to P700 but
this discussion was set aside. Later, a demand letter was issued by lessor to
vacate premises without renewal of expired contract which the lessor disagreed
and filed an ejectment case. The spouses Co filed a separate case for the court to
order renewal of contract and fix rental at P700 a month. Spouses deposited
monthly rental in court while the plaintiff filed Motion to Dismiss for lack of
jurisdiction and no cause of action but the same was denied.
Issue: Whether the Spouses Co have valid cause of action in claiming renewal of
lease contract.
Held: YES. There was implied renewal of lease contract but only on a month-tomonth basis, but not for another 5 years. Hence, par. 1 of Article 1197 is clearly
inapplicable, since the Contract of Lease did in fact fix an original period of 5
years, which had expired. It is also clear from 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 Article 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, Article 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 which could have
been fixed. SC agreed the TRO and injunction.
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.
4. When debtor loses the benefit of period
Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally
satisfactory;
(4) When the debtor violates any undertaking, in consideration of which
the creditor agreed to the period;
(5) When the debtor attempts to abscond.
(6) Article 2109 - If the creditor is deceived on the substance or quality of the
thing pledged, he may either claim another thing in its stead, or demand
immediate payment of the principal obligation. (The sixth ground was added by
Prof. Balane.)
Effects of Loss of Term (Article 1198):

OBLIGATION becomes immediately due & demandable even if period has


not yet expired.

OBLIGATION is converted to a pure OBLIGATION


Insolvency of DEBTOR need not be judicially declared; state of financial
difficulty is enough.

Balane: In number one, factual insolvency is enough. A judicial declaration of


insolvency is not required.
Summary of the Different Kinds of OBLIGATIONS As to Perfection and
Extinguishment
DIFFERENT KINDS OF OBLIGATIONS:
PURE AND CONDITIONAL OBLIGATIONS when the OBLIGATION contains
no terms or conditions;
CONDITIONAL OBLIGATIONS one which is subject to condition;
CONDITION every future and uncertain event upon which an
OBLIGATION or provision is made to depend;
FUTURE & UNCERTAIN EVENT the acquisition or resolution of the rights is
made to depend by those who execute the juridical act;
CLASSIFICATION OF CONDITIONS:
1. SUSPENSIVE the happening of the former gives rise to an
OBLIGATION;
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 OBLIGATIONS when it is not subject to a term, period and no
condition;
- demandable at once
- it is 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 (Civil law Review 2)
PAST EVENT cannot be future event, cannot be considered uncertain;
SUSPENSIVE CONDITION:
*rights are acquired, upon the happening of a condition.
Article 1181 OBLIGATION created upon the happening of a condition
RESOLUTORY- extinguished, or loss of existing rights, upon the happening of a
condition
*Thus a contract may be perfected but its demandability suspended.

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Article 1186 deemed constructively fulfilled; applied only to suspensive not to
resolutory condition
Article 1187 effects of conditional OBLIGATION to give;
E.g. A sold a house & lot to B, 1M
Condition: if B will pass the bar exam
Term: effect retroacts after the passing is announced on April;
Jan.2004
perfection

Sept. 2004

Oct.04
Apr.05
(without condition/
condition
Pure)

[1544]
Retroactive effect
Article 1188 preserve his interest
PROTECT HIS EXPECTANCY
1. Register with the Registry of Property
2. witness
3. possession in good faith
4. Injunction if the sell was not consummated or not for sale
RESOLUTORY CONDITION
Article 1190 no exception, nothing will be left.
SUSPENSIVE CONDITION upon the happening of the condition, the
OBLIGATION exists (existence of OBLIGATION is affected)
CLASSIFICATION OF CONDITION:
1. POTESTATIVE when the fulfillment of the condition depends upon the
will of the party to the OBLIGATION;
2. CAUSAL depends upon chance 2nd or 3rd person
3. MIXED depends partly upon the will of the party & partly upon chance
or a 3rd person
Article 1182: Potestative sole will of the debtor
Potestative suspensive is VOID.
Example. A will give 5% commission to B, but it depends on the will of A,
void;
All other potestative conditions, valid.
Article 1183 impossible condition
1. physical impossibility
2. legal impossibility
Article 873 impossible testamentary conditions
disregard
Ex. Article 727 donation
CONDITION
1.

future

&

PERIOD
TERM
1.

/
future

uncertain event
2.
suspensive
condition
3.
resolutory
condition

&certain
2.suspensive
period/demand
ability
3.
resolutory
period

SUSPENSIVE PERIOD prior to the period, there is already an OBLIGATION, but it


is suspensive by the period;
Article 1164- the OBLIGATION to deliver arises upon the perfection of the
contract if subject to suspensive period & not suspensive condition
RESOLUTORY PERIOD terminated but the effects that accrued in the past
will remain;
RESOLUTORY CONDITION extinguishes as if nothing happens; retroactive
effect of OBLIGATION;
EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM:
-the contract shall be deemed suspended but the Fortuitous Event shall not stop
the running of the term or period agreed upon;
Article 1195 advanced payment
Article 1196 benefit of period
Presumption if the period is designated, the benefit is for both the creditor &
debtor
Exception: the tenor of the same or other circumstances, it should appear that
the period has been established in favor of one or the other;
Article 1197 3 reasons why the court will fix the period:
1. if the OBLIGATION 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
Article 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;

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(4) the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) the debtor attempts to abscond.
Q: How could there be guaranty when debtor is insolvent?
A: 3rd person (surety)
Q: when is OBLIGATION due & demandable even if period has expired?
A: if debtor has lost right to make use of such period (Article 1198)
Illustrations:
1. As to when the obligation will arise? It will depend on the nature of the
obligation. How would you know what kind of obligation? It depends on
the stipulation of the party, if the source of obligation is the law then the law
may provide how the obligation may be complied with. Having said that
another important consideration, we should go to the nature of the
obligation as to prestation whether it is an obligation to give, to do,
or not to do because whatever may be the cause of prestation there
will be general rules as to how the obligation are to be complied
with.
2. Specifically xxx a valid obligation, an obligation to give a generic
thing what would be the source of this obligation? What contract?
Would that be a valid obligation as to the sale of the car? CAN
THERE BE A VALID OBLIGATION ARISING FROM A CONTRACT OF SALE
INVOLVING A GENERIC THING? No specific thing has been agreed by
a party. When would there be a valid sale of a car which is a generic
car? When a thing, though generic is capable of being determined without a
need of a new agreement. Therefore, a car per se as an object of a
sale cannot be a valid sale. Therefore, may there be a valid
obligation to deliver a generic thing as generic as a car or a condo
unit, if there is such obligation it will arise from what source? Yes, it
may arise from other sources like a legacy, in a will a car is given to an heir,
maybe a donation involving a car, no particular, the law does not require a
specific thing in order for an obligation to arise.
3. Assuming in the will of X a car was given, I hereby give a car to my
favorite grandchild A, now upon the death of X, the executor
delivered to A a brand new Toyota Yaris, A refused to accept the car
and demanded for a brand new Mitsubishi lancer, who is correct? In
an obligation to deliver a generic thing and the features of the thing has not
been determined, the law provides that the debtor cannot deliver an inferior
kind neither the creditor can demand for a superior thing. The problem in
this rule is that how would we know if the thing being offered is just
the appropriate thing, what is superior and inferior is very
subjective? The purpose of the testator. What do you think would be
the purpose of the testator that the grandchild is entitled to a
better car? When for instance the purpose of the testator is to give the
grandchild a race car. Having said that, therefore the child may be
entitled to a car better than Yaris? Not necessarily. So what possible
circumstances would affect the claim? If the estate cannot afford the
car, the legitimes might be affected. So what is the solution? May be the

executor may deliver a cheaper car like an altis not an evolution. Again sec.
1246 is very much relevant rule as regards obligation to deliver a
generic thing.
4. A obliged himself to deliver a brand new Mitsubishi lancer dlx 2008
black, due October 30, October 25, the B creditor demanded for the
delivery of the car, A did not deliver until Nov. 1, the car he
intended to deliver to B was destroyed probably of earthquake, can
A be compelled to deliver the car? Yes the debtor can be compelled to
deliver the thing. Is A already in default? The demand here is premature;
demand should be made when the obligation is already due for a person to
incur in delay. Having said that can A be compelled to perform the
obligation? Yes because the reason here is the object involved is a generic
thing and when a generic thing is lost because of fortuitous event, the
obligation is not extinguished because generic things do not perish. In
other words, in OBLIGATIONS to give a very important consideration
is whether a thing to be delivered is generic or determinate.
5.

Obligation to deliver a limited generic thing, like one of the horses


of A, 5 of the horses of A died, what is the effect? It depends on the
number of horses that A has, because if A still has other horses then there
are other horses that may be delivered, the obligation is not extinguished.
An obligation to deliver a limited generic thing will only be
extinguished if all of the thing belonging to that group will perish
due to fortuitous event.

6. An obligation to deliver a determinate thing, the principal


obligation of the debtor here is? The very thing which he promised to
deliver in other words if A the debtor promised to deliver to B his
Toyota Yaris, but instead, he offered to deliver brand new MB
sporights car worth 4M, will the obligation be extinguished? It may
be extinguished; while the creditor may not be compelled to he may accept
the delivery of another thing. Now in this scenario, what is the mode of
extinguishment? Novation, more specifically, dacion in payment which
shall be governed by law on sales.
7. What are the accessory OBLIGATIONS of an obligation to deliver a
generic thing? An obligation to preserve and to take good care of the thing
with the diligence of a father of a good family. If the debtor xxx however,
the creditor wanted to hold the debtor liable for the loss, but the
creditor was not able to prove that the debtor failed to exercise due
care, can the debtor be held liable? Yes, if there is another standard of
care required, also known as utmost diligence. Therefore, if there is no
stipulation as to degree of diligence, therefore the degree of
diligence is diligence of a good father of a family? Not necessarily, the
law may provide for the degree of diligence necessary, like what law, like the
law on common carrier.
8. A obliged himself to deliver and to transfer ownership to B a female
pig, the agreement was entered January 1, the delivery was made
May 1, however, when the pig was delivered to B, he demanded for
the delivery of piglets, the piglets was born in February 15, does A

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have the right over the piglet? It will depend when the time the
obligation to deliver arises because the law provides that the creditor has
the right to the fruits of the thing from the time the obligation to deliver
arises, however, he will only have real rights over the fruits when the same
has been delivered. This reasonable because for example A owns the
pig, if he was aware that in feb 15 the pig is pregnant, therefore he
would want to deliver the pig only after 4 months when the pig has
already gave birth. Therefore the obligation as to when to deliver
will depend on? First as to the answer that the obligation will
become due upon demand in what aspect will demand affect the
time the obligation will become due? Do you agree that an
obligation becomes demandable upon demand? As I mentioned earlier,
you cannot demand if the obligation is not yet due, therefore demand has
nothing to do with being due, because if it is not yet due you cannot demand
validly, therefore the effect of demand is what? To suspend the running
of the prescriptive period. Therefore an obligation becomes due when?
It depends on the obligation. What kind of obligation? Whether the
obligation is pure, conditional, or with a term. Thus, in which obligation
or OBLIGATIONS would the obligation be due and demandable at
once? Pure obligation and conditional obligation when the condition is
resolutory because upon the happening of the resolutory condition it will
extinguish the obligation.
9. When would therefore an obligation be considered a pure
obligation? A pure obligation is considered as such when it does not
depend upon a future and uncertain event this is apparently correct, do
you agree with this? This is wrong, why wrong? It should be future or
uncertain event, why or where lies the difference in or and and? if and
it can pertain to only condition and you are not pertaining to term, while if
you use or future will pertain to a term, thus, if or is used, both the term and
condition is excluded.
10. A promissory note is what kind of obligation as to perfection and
extinguishment? According to the SC in the case of Pay v. Palanca, it
appears to be an alternative obligation, it may be considered as a pure or
conditional obligation, because as worded there appears to be a condition
but it also appears that it is demandable at once. What was the phrase in
that promissory note which is the basis that the same is with
condition? Upon receipt of the share from the estate of Don Palanca. On
the other hand, the phrase UPON DEMAND is the basis why the PN
seemed to be a pure obligation. The trial court ruled that the PN was a
pure obligation, the judge here asked the plaintiff, under what
cause of action have you filed this case, upon receipt or upon
demand? The plaintiff said upon demand, the trial court here held that the
action for compel performance has already prescribed. A PROMISSORY
NOTE IS CONSIDERED A PURE OBLIGATION, therefore it is
demandable at once, the prescriptive period begins to run from the
time the cause of action accrued, in this case the period of
prescription began to run at the time of execution.
11. BAR EXAM QUESTION: A grandfather promised the grandchild that
he will give the GC a brand new car if he passed the bar

examination, thereafter the GC passed the bar exam, the GC


demanded the GF said that his obligation is void because it depends
upon a potestative condition, is the GF correct? In this case, the
condition is passing the bar exam, and therefore the answer is the obligation
is valid because the condition is not purely potestative, the condition does
not purely depend on the will of the debtor. The rule relative in this case
is if the happening of the condition depends upon the sole will of
the debtor the obligation is void. Having said this, aright 1182, in a
conditional obligation when the condition depends solely upon the
will of the debtor it is always void correct? Not necessarily. When may
it be a valid obligation? When the condition is resolutory. What is the
rationale behind this, why would the law consider an obligation void
when it depends on a suspensive condition, the happening of which
depends solely on the will of the debtor? Because then the debtor may
make sure that the obligation will not happen. What if the debtor said, I
will give you my car if I go to Baguio, this is void, but what if he
went to Baguio 2 days after, can he be compelled to deliver his car?
The obligation is void; a supervening event that makes the obligation valid
will not make the void obligation valid. Passing the bar exam is a mixed
obligation, CASUAL, in other words passing the bar is not
dependent upon the will of the examinee, why? Because it will also
depend upon the SC, or it depends upon the examiner. Lets assume that
passing the bar is a potestative condition, therefore the GF was
correct that his obligation is void? No, why not? Because in order that
the obligation to be void, the happening of the event must depend solely on
the will of the debtor, here, the GF will not take the exam, the GC, so the
happning of the condition does not depend on his own will.
12. If the debtor promised to pay if his son does not die of cancer
within one year what is the status of the obligation? There are two
important provisions in relation to effect conditions to OBLIGATIONS
are aright 1182 or the provision about impossible obligation. When
the condition is an impossible condition, it will annul the obligation,
however the SC will not use the phrase shall annul because in fact
the obligation is void, shall annul presupposes valid but it shall be
annulled, which is wrong in the first place the obligation is
impossible, the obligation will never arise. The more accurate
statement is THE OBLIGATION IS VOID. In this problem what kind of
condition is involved? If the son does not die of cancer within 1 year. This
condition is? Suspensive. Passing the bar exam, give me an example
when it would be a resolutory condition? I will give continuous support
until you pass the bar exam. In the first problem, if his son does not
die, what kind of condition? Aside from suspensive, it is possible, it is
negative, and mixed condition not only dependent on the will of the debtor
but other factors as well. Having said this, if the obligation is an
impossible condition, therefore the obligation may not be a valid
obligation? It may, if the condition is negative impossible condition,
because under the law, the law provides that the negative impossible
condition is deemed not written, therefore the effect is? The obligation
becomes a pure obligation because no condition is attached to the
obligation. In this discussion therefore, the happening of the
condition does not depend solely on the will of the debtor, the

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condition is also possible, so when will the obligation become due?
If the son does not die of cancer after 1 year. Even before the expiration
of period may the son be compelled to pay? Yes when the son recovers
from cancer or when the son dies of other causes not cancer.
13. A agreed with B, he promised to give his condo unit to B if B will not
become a priest in 10 years. 2 weeks after the agreement, B
entered the seminary; therefore it is already certain the obligation
will not arise? The condition is suspensive; the condition may still be
demandable. Because when B entered the seminary it does not necessarily
confirm that he will become a priest because he might still get out of the
seminary. The condition here is that B will not become a priest, this
is a negative condition, in a negative condition, ordinarily, and when
will it be certain that the condition will not arise? If within the 10th
year he already becomes a priest. Therefore, in relation to the
obligation, if 2 weeks after the obligation B entered the seminary?
Not necessarily.
14. The debtor prevented the happening of the condition; he may be
compelled to perform the obligation? Not necessarily, it must be an
intention of the debtor. Assuming he voluntarily prevented, does this
mean that he is compelled? Not necessarily. When will the debtor
voluntarily prevent the happening of the condition and the
performance of obligation will not arise? When he prevented the
happening of the condition as matter of a right.
15. BAR EXAM QUESTION: In 2001 A obliged himself to deliver a house
and lot to B upon Bs passing the bar exam, B passed the bar exam
in 2005, however when B passed the bar exam it so happen that A
already sold the house and lot to C in 2003, who has the better
right over the house and lot? B the effect of the happening of the
condition in a conditional obligation will retroact to the time of the
constitution of the agreement as if the condition has already happened
before the property was sold to C, this does not have an exception? The
exception is when C is a buyer in good faith, when would C be a buyer in
good faith? when the agreement between A and B is not registered.
Assuming that B has a better right, therefore B demanded for the
delivery of the property and he also demanded for the rental, is it a
valid claim? this may seem a unilateral obligation, although a good answer
is if the obligation of A is unilateral obligation, who is entitled to the
fruits if this problem pertains to a unilateral obligation, in the first
place what transaction may have been entered into by A and B in
the obligation to give? it may be xxx so who will be entitled? the donor,
why the donor absolutely? No it is very clear from the agreement of the
party that the fruits will pertain to the creditor from the time of constitution.
If this is donation when will the creditor be entitled to the fruits?
Upon the happening of the condition unless it is shown that the intention of
the debtor is to give to the creditor even the fruits of the property. However,
if the obligation is reciprocal? In the contract of sale, and therefore what
is considered the fruits in relation to the obligation of B, as to A the fruit is
the rental, in the first place if the obligation is sale what is obligation
of B, payment and interest. The payment and interest are the fruits.

16. Before the happening of the condition, what is the implication, did
the condition happen or not? Not yet. Before the happening of the
condition what if an action was filed by the creditor against the
debtor will that action prosper? Yes it may prosper it will depend on the
action, whether it is xxx even if the right of the creditor is an inchoate right
such right is already protected. Example of this action: Annotation so that
third persons will be bound by their agreement.
17. Obligation to deliver a condo unit, before of the happening of the
condition, the debtor had the condo renovated, the condition
happened, the creditor demanded for the delivery of the condo unit,
the debtor claimed that he can only be compelled to deliver if he is
reimbursed for the expenses of the renovation, until then he has
the right to retain the condo unit, is the contention correct? The
debtor has the right to remove those that may be removed without
damaging the property.
18. A term pertain to an event, correct? Yes. When may a term pertain
to an event? When the event is uncertain, like what? Death. But the
definite term example? Dec. 25, 2009. Now, is it correct to say that
just like a conditional obligation, in obligation with a term,
depending whether the term is suspensive or resolutory the
obligation will arise or the obligation will be extinguished? The error
in the statement is when it provides that upon the arrival of the period the
obligation arises because in an obligation with a term there is already an
obligation, the arrival of the period will result in the demandability of the
obligation, because since this is a term IT IS CERTAIN TO HAPPEN, THE
PERIOD WILL ARRIVE BUT THE TIME OF HAPPENING IS JUST UNCERTAIN.
19. The kinds of periods discussed in the case of Eleizegui: Legal,
voluntary. There will always be a period in contract of sale? No. when
will there be a period in a contract of sale? Period as to payment of the
price which is known as sale on credit, if it is installment sale on installment.
This is correct because even on lease there is a period. Legal a period
fixed by law, Example: Period provided by law like in contracts of lease if the
parties failed to agree as to the period, depends on the manner of payment
if annually 1 year and if monthly 30 days. Judicial period Aright 1180 if
the obligor will pay if his means permits him to do so.
20. BAR EXAM QUESTION: A borrowed money from B in Jan 1 payable at
the end of the year, the same was secured by a real estate
mortgage, they agreed that B can occupy the house and lot during
the period agreed upon, however, by June 30 of that year, A offered
to pay the entire indebtedness and demanded B vacate the house,
can the creditor be compelled to accept the payment? Can the
creditor be compelled to vacate the house? It depends whether the
period is solely for the benefit of the debtor or both the debtor or the
creditor. If the same is for the benefit of the debtor what is the right?
Xxx

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(2) OBLIGATIONS according to plurality of objects:
A. Simple
B. Multiple
C. Conjunctive where the debtor must perform more than one prestation
Q: A promised to deliver to B his carabao, dog & goat. What kind of OBLIGATION
is this?
A: conjunctive obligation.

* There is a third possibility where the choice may be made by a third person upon
agreement of the parties. (expressed)
Q: What is the technical term of the act of making a choice in alternative
OBLIGATIONS?
A: Concentration.

The right to choose is indivisible debtor cant choose part of one prestation
and part of another;

Here, plaintiffs action must be in alternative form;

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.

Article 1201. The choice shall produce no effect except from the time it has
been communicated.

E. Facultative where only one thing is due but the debtor has reserved the
right to substitute it with another (Article 1206)
-election here is never granted to creditor

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.

Q: In conjunctive, right to choose is always with debtor?


A: NO. No right to choose because all must be performed.
Q: In Alternative, right to choose can be given to 3rd person?
A: YES. (Article 1000) as long as it is not contrary to law, morals, public order,
public policy and etc.
Q: In an agreement where there is no stipulation as to who has right to choose?
A: It depends. If Alternative, generally debtor chooses; if facultative, only with
debtor
Q: What if debtor has right to choose and he delays?
A: right is not lost by mere delay; (before creditor files his action)
(b) Alternative OBLIGATIONS
Article 1199.
A person alternatively bound by different prestations shall
completely perform one of them.
The creditor cannot be compelled to receive part of one & part of the other
undertaking.
Tolentino: The characteristic of alternative OBLIGATIONS is that, several objects
being due, the fulfillment of one is sufficient xxx.
Article 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 which are impossible,
unlawful or which 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 (Article 1200)
Exception: When expressly granted to the creditor (cannot be implied).

No required form may be ORAL, IN WRITING, TACITLY, OR OTHER UNEQUIVOCAL


MEANS.
Q: If the choice belongs to the debtor, why require communication before
performance if the choice belongs to him anyway?
A: To give the creditor an opportunity to consent to the choice or impugn it. (Ong
v. Sempio-Dy, 46 P 592.)
BUT how can the creditor impugn it if the choice belongs to the debtor? The better
reason would be to give the creditor a chance to prepare for the performance.
Not CONSENT: Only declaration of choice made, communicated to the other
party, unilateral declaration will;
Articles 1202 to 1205 talk of the loss of some of the prestations before
performance.
1. If the choice is to the debtor's
a. When only one prestation is left (whether or not the rest of the prestations
have been lost through fortuitous event or through the fault of the debtor), the
debtor may perform the one that is left.- Article 1202.
Article 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
b. If the choice is limited through the creditor's own acts, the debtor can
ask for resolution plus damages.
Article 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 with
damages.

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c. If everything is lost through the debtor's fault, the latter is liable to
indemnify the creditor for damages.

c. If all are lost through the debtor's fault, the choice of the creditor shall fall
upon the price of any of them, with indemnity for damages.-- Article 1205 (3),
supra.

Article 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which 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 which
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.

d. If some are lost through the creditor's fault, the creditor may choose from
the remainder.

d. If some things are lost through the debtor's fault, the debtor can still
choose from those remaining.

Distinguished from Facultative OBLIGATIONS:

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


f. If all prestations but one are lost through fortuitous event, & the
remaining prestation was lost through the debtor's fault, the latter is
liable to indemnify the creditor for damages.
g. If all but one are lost through the fault of the debtor & the last one
was lost through fortuitous event, the obligation is extinguished.

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


f. If all are
extinguished.

(1) If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which 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 which, through the
fault of the former, has disappeared, with a right to damages;

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

the

creditor's

fault,

the

obligation

is

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
obligatio
n

Alternati
ve
OBLIGATI
ON
there are
various
prestation
s all of
which
constitute
parts
of
the
obligation

(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 with 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.

through

Article 1206. When only one prestation has been agreed upon, but the obligor
may render another in substitution, the obligation is called facultative.

2. Choice is the creditor's


Article 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from 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:

lost

As
to
nullity

the nullity
of
one
prestation
does not
invalidate
the
obligation
, which is
still
in
force with
respect to

Facultati
ve
OBLIGATI
ON
only ONE
principal
prestation
constitute
s
the
obligation,
the
accessory
being only
a means
to
facilitate
payment.
the nullity
of
the
principal
prestation
invalidate
s
the
obligation
&
the
creditor
cannot
demand

Rojano, Queennie Compiled


those
the
which
substitute
have
no even
vice
when this
is valid
As
to the right only
the
choice
to choose debtor
may
be can
given to choose
the
the
creditor
substitute
prestation
.
As
to only the the
effect of impossibil impossibili
loss
ity of all ty of the
the
principal
prestation prestation
s
due is
without
sufficient
fault
of to
the
extinguish
debtor
the
extinguish obligation,
es
the even
if
obligation the
substitute
is possible
Balane:

a. Joint OBLIGATIONS
Balane: A joint obligation is one in which each of the debtors is liable only for a
proportionate part of the debt or each creditor is entitled only to a proportionate
part of the credit. In joint OBLIGATIONS, there are as many OBLIGATIONS as there
are debtors multiplied by the number of creditors.
There are three kinds of joint OBLIGATIONS:
1) Active joint where the obligation is joint on the creditor's side;
2) Passive joint where the obligation is joint on the debtor's side; &
3) Multiple Joint where there are multiple parties on each side of a joint
obligation.
Tolentino:
The joint obligation has been
mancomunada simple or pro rata;

variously

termed

mancomunada

or

In the PROMISSORY NOTE 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 OBLIGATION;
J/FO of court as to several defendants when solidarity has not been specified, the
liability of the defendants is joint; court cannot amend.

Facultative OBLIGATIONS always involve choice by the debtor.

In theory, it is easy to distinguish a facultative obligation from 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 OBLIGATION is not affected, thus no damages;

If after choosing the substitute and choice is communicated to


creditor, the principal prestation becomes impossible, OBLIGATION is not
extinguished but has become a simple OBLIGATION that must be
performed; and he will be liable for damages in delay, neglect or bad
faith.

If principal OBLIGATION becomes impossible by fault or


negligence of creditor, debtor cannot be compelled to perform the
substitute (no more substitute, becomes simple) extinguished.

Effects of Joint Liability:


1. The demand by one creditor upon one debtor, produces the effects of
default only with respect to the creditor who demanded & the debtor on
whom the demand was made, but not with 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 from the personal defect of a
particular debtor or creditor does not affect the obligation or rights of the
others;
4. The insolvency of a debtor does not increase the responsibility of his codebtors, nor does it authorize a creditor to demand anything from his cocreditors;
5. In the joint divisible obligation, the defense of res judicata is not extended
from one debtor to another. (Manresa)

3. AS TO RIGHTS & OBLIGATIONS OF MULTIPLE PARTIES:


[Joint & Solidary OBLIGATIONS, Articles 1207-1222]

Article 1208. If from the law, or the nature or the wording of the OBLIGATIONS to
which 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

Rojano, Queennie Compiled


or debtors, the credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits.
Disjunctive OBLIGATION: This is not covered by New Civil Code; there are 2 or
more creditors and 2 or more debtors but they are named disjunctively as debtors
and creditors in the alternative.
*The rules on solidary OBLIGATIONS must apply because if rules on alternative
OBLIGATIONS will be applied then the debtor will generally be given the choice to
whom shall he give payment.
Example: A binds himself to pay P100 either to X or Y A or B will pay 100 to X.
b. Indivisible OBLIGATIONS
Article 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.
Article 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.
The OBLIGATION here is joint, even if the performance is indivisible;
Joint Indivisible OBLIGATION: There are several debtors or creditors but the
prestation is indivisible Example: 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 which may be
prejudicial;
Consent required, must still communicate choice after consensus.

Effe
cts
to
Joint
cred
itors
Effe
cts

INDIVISI
BILITY
Refers
to
the
prestati
on,
which is
not
capable
of
partial
perform
ance
Each
cannot
demand
more
than his
share
Each is
not

to
joint
debt
ors

liable for
more
than his
share

entire prestation

Article 1224. A joint indivisible obligation gives rise to indemnity for damages
from the time anyone of the debtors does not comply with 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 which the obligation consists.
If there is plurality of creditors to only one debtor, the OBLIGATION can be
performed by delivery of the object to all the creditors jointly;

Delivery to only one creditor makes the debtor liable for damages to the
other debtors for non-performance, unless they have authorized this one
creditor to collect in their behalf;

If only one or some, not all creditors demand fulfillment the debtor may
refuse to deliver and insist that all the creditors together receive the thing,
if not consignation to the court may be had;

In non-performance, debtor is liable for damages here with respect to


damages, the prestation becomes divisible, each creditor may recover
proportionately.
Q: Is an OBLIGATION-not do divisible or not?
A: No (Tolentino)
A: OBLIGATION-not do when there are several debtors, is a joint indivisible
OBLIGATION.
c. Solidary OBLIGATIONS

SOLIDARITY

Balane:
A solidary obligation is one in which 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.

Refers to the legal


tie or vinculum
defining the extent
of liability

There are three kinds of solidarity:


(1) Active solidarity where there are several creditors with one debtor in a
solidary obligation;
(2) Passive solidarity where there is one creditor with several debtors
solidary bound;
(3) Mixed Solidarity where there are several creditors & several debtors in a
solidary obligation.

Each may demand


the full prestation

According to 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.

Each has the duty


to comply with

Rojano, Queennie Compiled


The words "individually & collectively" also create a solidary liability. So
does an agreement to be "individually liable" or "individually & jointly
liable."
c.1. Active Solidarity
Article 1211. Solidarity may exist although the creditors & the debtors may not
be bound in the same manner & by the same periods & conditions.
Article 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 with the prestation. There is solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires
solidarity.
Balane:
Q: When is an obligation with several parties on either side Joint or Solidary?
A: The presumption is that an obligation is joint because a joint obligation is
less onerous that a solidary one.
There is solidary obligation in the following::
(1) When the obligation expressly so states stipulation by parties;
(2) When a will expressly makes charging or a condition in solidum;
(3) When the law requires crimes, conspiracy, act or one is act of all; in
torts joint tortfeasors
The liability of joint tortfeasors, which include all persons who command,
instigate, promote, encourage, advise, countenance, cooperate in, aid or
abet the commission of a tort, or who approve of it, after it is done, if done
for their benefit. (Tolentino)
(4) nature of the obligation requires solidarity Article 19-22, NCC;
A moral wrong cannot be divided into parts, thus must be solidary; akin
to Quasi Delicts/ Quasi Contracts (Articles 2183 & 2187)
Liability may arise from 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 because of the nature of the obligation. xxx The
acts giving rise to liability under these articles have a common element- they
are morally wrong.

Article 10, RPC; Article 2194, & Article 2157, NCC


Art. 10. Offenses not subject to the provisions of this Code. Offenses
which are or in the future may be punishable under special laws are not subject
to the provisions of this Code. This Code shall be supplementary to such laws,
unless the latter should specially provide the contrary.
Article 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary.
Art. 2157. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary. (n)
(5) Imposed by final judgment upon several defendants must be
expressed in the judgement for the obligation, cannot be amended after
finality.

Characteristics of Active Solidarity (solidary creditors): (Tolentino)


ESSENCE Mutual agency, or mutual representation, which consists in the
authority of each creditor to claim & enforce the rights. Of all, with the resulting
OBLIGATION to pay each 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 Article 1005 where brothers & sisters of decedent


inherit in their own right per capita while nephews & nieces, per
stirpes by right of representation.)
2. Each creditor represents others in the act of requiring payment, & in all
other acts which tend to secure the credit or make it more
advantageous. Hence, if he receives only a partial payment, he must
divide it among the other creditors. He can interrupt the period of
prescription or render the debtor in default, for the benefit of all other
creditors;
3. A credit once paid is shared equally among the creditors unless a different
intention appears;
4. Debtor may pay any of the creditors but if any demand, judicial or
extrajudicial is made on him, he must pay only to the one demanding
payment (Article 1214);
5. One creditor does not represent the others in such acts as novation,
compensation & remission (even if the credit becomes more
advantageous). In these cases, even if the debtor is released, the other
creditors can still enforce their rights against the creditor who made the
novation, compensation or remission;
6. Each creditor may renounce his right even against the will of the debtor, &
the latter need not thereafter pay the obligation to the former.
Characteristics of Passive Solidarity (solidary debtors)
ESSENCE each debtor can be made to answer for the others, with resulting
right to the debtor-payor to recover from others their respective shares, akin to
mutual guaranty (Manresa):
1. Each debtor may be required to pay the entire obligation but after
payment, he can recover from the co-debtors their respective shares (this
is something similar to subrogation);
2. Interruption of prescription as to one debtor affects all the others; but the
renunciation by one debtor of prescription already had does not prejudice
the others, because the extinguishment of the obligation by
prescription extinguishes also the mutual representation among
the solidary debtors.
3. The debtor who is required to pay may set up by way of compensation his
own claim against the creditor, in this case, the effect is the same as that
of payment;
4. The total remission of the debt in favor of a debtor releases all the
debtors; but when this remission affects only the share of one debtor, the
other debtors are still liable for the balance of the obligation.

Rojano, Queennie Compiled


5. All the debtors are liable for the loss of the thing due, even if such loss is
caused by the fault of only one of them, or by fortuitous event after one of
the debtors has incurred in delay;
6. The interests due by reason of the delay of one of the debtors are borne
by all of them.
Legal Bonds in solidarity may be uniform or varied:
Uniform when debtors are bound by same conditions and clauses;
Varied where obligors, although liable for the same prestation, are
nevertheless not subject to same terms and conditions; before fulfillment
of such condition or arrival of such term, an action may be brought
against such debtor or any other solidary debtor for recovery of the entire
OBLIGATION, minus the portion corresponding to the debtor affected by
the varied condition or term; upon happening however, this portion may
be claimed by creditor from any of the debtors.
When one of solidary debtors is bound by varied terms and conditions, for
instance a suspensive condition or a suspensive period, creditors may still
demand for fulfillment of the whole prestation prior to the happening of
the condition or arrival of the term, minus the share of this debtor bound
by varied condition/term. This latter portion may be demanded from
anyone of the debtors soon as the term arrives or condition
happens.
Example: Is sureties who are solidarily liable without their debtors but
binds themselves to varied conditions distinct from the principal debtors;
BUT, the OBLIGATION of surety may not be greater than that of ea
principal debtor, nor more burdensome.
An OBLIGATION 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 OBLIGATIONS not incompatible with the old
one. [Inchausti & Co. v. Yulo, 34 Phil 978, 1908]
Case Doctrine: The owner of the bus is not jointly and severally liable to
the bus driver who was criminally charged for a criminal act but instead
subsidiarily liable thereto.
Case: Rolito Calang and Philtranco Service Enterprises, Inc. vs. People,
August 3, 2010.
Facts: At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving
Philtranco Bus No. 7001, owned by Philtranco along Daang Maharlika Highway in
Barangay Lambao, Sta. Margarita, Samar when its rear left side hit the front left
portion of a Sarao jeep coming from the opposite direction. As a result of the
collision, Cresencio Pinohermoso, the jeeps driver, lost control of the vehicle,
and bumped and killed Jose Mabansag, a bystander who was standing along the
highways shoulder. The jeep turned turtle three (3) times before finally stopping
at about 25 meters from the point of impact. Two of the jeeps passengers,
Armando Nablo and an unidentified woman, were instantly killed, while the other
passengers sustained serious physical injuries.
The prosecution charged Calang with multiple homicide, multiple serious
physical injuries and damage to property thru reckless imprudence before the
Regional Trial Court (RTC), Branch 31, Calbayog City.

The RTC ordered Calang and Philtranco, jointly and severally, to pay P50,000.00
as death indemnity to the heirs of Armando; P50,000.00 as death indemnity to
the heirs of Mabansag; and P90,083.93 as actual damages to the private
complainants.
The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed
as CA-G.R. CR No. 25522. The CA, in its decision dated November 20, 2009,
affirmed the RTC decision in toto. The CA ruled that petitioner Calang failed to
exercise due care and precaution in driving the Philtranco bus. According to the
CA, various eyewitnesses testified that the bus was traveling fast and
encroached into the opposite lane when it evaded a pushcart that was on the
side of the road. In addition, he failed to slacken his speed, despite admitting
that he had already seen the jeep coming from the opposite direction when it
was still half a kilometer away. The CA further ruled that Calang demonstrated a
reckless attitude when he drove the bus, despite knowing that it was suffering
from loose compression, hence, not roadworthy.
The CA added that the RTC correctly held Philtranco jointly and
severally liable with petitioner Calang, for failing to prove that it had
exercised the diligence of a good father of the family to prevent the
accident.
Issue: Whether or not Calang and Philtranco will be correctly held jointly and
solidarily liable to the victims of the collision.
Held: NO. We, however, hold that the RTC and the CA both erred in holding
Philtranco jointly and severally liable with Calang. We emphasize that Calang
was charged criminally before the RTC. Undisputedly, Philtranco was not a direct
party in this case. Since the cause of action against Calang was based on delict,
both the RTC and the CA erred in holding Philtranco jointly and severally liable
with Calang, based on quasi-delict under Articles 21761 and 21802 of the Civil
Code. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of
an employer for quasi-delicts that an employee has committed. Such provision
of law does not apply to civil liability arising from delict.
If at all, Philtrancos liability may only be subsidiary. Article 102 of the
Revised Penal Code states the subsidiary civil liabilities of innkeepers,
tavernkeepers and proprietors of establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any
other persons or corporations shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of municipal ordinances or some
general or special police regulations shall have been committed by them or their
employees.
Innkeepers are also subsidiary liable for the restitution of goods taken by
robbery or theft within their houses from guests lodging therein, or for the
payment of the value thereof, provided that such guests shall have notified in
advance the innkeeper himself, or the person representing him, of the deposit of
such goods within the inn; and shall furthermore have followed the directions
which such innkeeper or his representative may have given them with respect to
the care of and vigilance over such goods. No liability shall attach in case of
robbery with violence against or intimidation of persons unless committed by the
innkeepers employees.
The foregoing subsidiary liability applies to employers, according to Article 103
of the Revised Penal Code, which reads:
The subsidiary liability established in the next preceding article shall also apply
to employers, teachers, persons, and corporations engaged in any kind of

Rojano, Queennie Compiled


industry for felonies committed by their servants, pupils, workmen, apprentices,
or employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability Articles 102
and 103 are deemed written into the judgments in cases to which they are
applicable. Thus, in the dispositive portion of its decision, the trial court need not
expressly pronounce the subsidiary liability of the employer. Nonetheless, before
the employers subsidiary liability is enforced, adequate evidence must exist
establishing that (1) they are indeed the employers of the convicted employees;
(2) they are engaged in some kind of industry; (3) the crime was committed by
the employees in the discharge of their duties; and (4) the execution against the
latter has not been satisfied due to insolvency. The determination of these
conditions may be done in the same criminal action in which the employees
liability, criminal and civil, has been pronounced, in a hearing set for that precise
purpose, with due notice to the employer, as part of the proceedings for the
execution of the judgment.
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: In a collection case, parties entered into a compromise agreement
wherein the plaintiff Antonio So areed to reduce its total claim of P117, 498.95 to
only P110,000 and defendants Ernesto Ronquillo, Offshore Catertrade Inc., Johnny
Tan and Pilar Tan agreed to acknowledge the validity of such claim and further
bind themselves to initially pay out of the total indebtedness, the amount of
P55,000 on or before December 24, 1979, the balance of P55,000, defendants,
individually and jointly agree to pay within a period of 6 months from January
30, 1980. However, defendants failed to pay the initial sum on December 24,
1979. Ronquillo asked that his share of P13, 750 be accepted as payment. But
So nevertheless asked for the execution of the decision in its entirety against all
defendants, jointly and severally. Ronquillo opposed it by saying that it was not
expressly declared that it was solidary. The trial court ruled that liability was
solidary.
ISSUE: Whether the nature of liability as termed jointly and severally of the
defendants means being solidary; hence the full payment can be demanded by
anyone of the defendant and thereby correctly rejecting the tender of payment of
Ronquillo of his share only.
HELD: YES.
In this regard, Article 1207 and 1208 of the Civil Code provides
Art. 1207. The concurrence of two or more debtors in one and 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 with the prestation. Then is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the
obligation to which 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 and debtors, the credits or debts
being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement,
provides:

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00


and defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P110,000.00, the
amount of P5,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay within a period of
six months from January 1980 or before June 30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the
decision based upon it, the defendants obligated themselves to pay their
obligation "individually and jointly".
The term "individually" has the same meaning as "collectively",
"separately", "distinctively", respectively or "severally". An agreement
to be "individually liable" undoubtedly creates a several obligation, and
a "several obligation is one by which one individual binds himself to
perform the whole obligation.
In the case of Parot vs. Gemora, We therein ruled that "the phrase juntos or
separadamente or in the promissory note is an express statement making each
of the persons who signed it individually liable for the payment of the fun
amount of the obligation contained therein." Likewise in Un Pak Leung vs.
Negorra, We held that "in the absence of a finding of facts that the defendants
made themselves individually hable for the debt incurred they are each liable
only for one-half of said amount
The obligation in the case at bar being described as "individually and jointly",
the same is therefore enforceable against one of the numerous obligors.
CASE DOCTRINE: The direct liability of the insurer under indemnity
contracts against Third Party Liability does not mean that the insurer
can be held solidarily liable with the insured &/ or the other parties
found at fault.
MALAYAN INSURANCE V. CA [165 SCRA 536]
Facts: Malayan Insurance on March 29, 1967 issued in favor of Sio Choy, a
Private Car Comprehensive Policy effective from April 18, 1967 to April 18, 1968
covering a Willys jeep. The insurance coverage for third-party liability was
P20,000. During the effectivity of the said policy, the insured jeep while being
driven by one Juan Campollo, an employee of San Leon Rice Mill, collided with a
passenger bus owned by Pangasinan Transportation Co. (Pantranco) causing
damage to the insured vehicle and injuries to the driver and Martin Vallejos who
was riding in an ill-fated jeep. Vallejos sued for damages against Sio Choy,
Malayan Insurance and Pantranco. However the trial court only ordered Sio
Choy, Malayan and San Leon to pay Vallejos a total of P29,103 (jointly and
severally liable) but Malayan will be liable only up to P20,000, the consideration
in the policy. CA affirmed the judgment of the trial court that Sio Choy, the San
Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally
liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled,
however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or
reimburse the petitioner insurance company for whatever amount it has been
ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to
the contract of insurance between Sio Choy and the insurance company.
Issue: Whether or not Malayan Insurance is solidarily liable with Sio Choy and
San Leon Rice Mill to Vallejos.

Rojano, Queennie Compiled


Held: NO. We hold instead that it is only respondents Sio Choy and San Leon
Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as
owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which
provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver,
if the former, who was in the vehicle, could have, by the use of due diligence,
prevented the misfortune it is disputably presumed that a driver was negligent,
if he had been found guilty of reckless driving or violating traffic regulations at
least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon
Rice Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver of
the Willys jeep at the time of the motor vehicle mishap, is Article 2180 of the
Civil Code which reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a
family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the
principal tortfeasors who are primarily liable to respondent Vallejos. The law
states that the responsibility of two or more persons who are liable for a quasidelict is solidarily.
On the other hand, the basis of petitioner's liability is its insurance contract with
respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the
amount of not more than P20,000.00, this is on account of its being the insurer
of respondent Sio Choy under the third party liability clause included in the
private car comprehensive policy existing between petitioner and respondent Sio
Choy at the time of the complained vehicular accident.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer,
however, the direct liability of the insurer under indemnity contracts against
third party liability does not mean that the insurer can be held solidarily liable
with the insured and/or the other parties found at fault. The liability of the
insurer is based on contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent
Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily"
liable with the two principal tortfeasors namely respondents Sio Choy and San
Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said two (2)
respondents by reason of the indemnity contract against third party liabilityunder which an insurer can be directly sued by a third party this will result in a
violation of the principles underlying solidary obligation and insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one
of the solidary debtors. On the other hand, insurance is defined as "a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio
Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a
total amount of P29,103.00, with the qualification that petitioner's liability is only
up to P20,000.00. In the context of a solidary obligation, petitioner may be
compelled by respondent Vallejos to pay the entire obligation of P29,013.00,
notwithstanding the qualification made by the trial court. But, how can
petitioner be obliged to pay the entire obligation when the amount
stated in its insurance policy with respondent Sio Choy for indemnity
against third party liability is only P20,000.00? Moreover, the qualification
made in the decision of the trial court to the effect that petitioner is sentenced
to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made
solidary, is an evident breach of the concept of a solidary obligation. Thus, we
hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc.
to respondent Vallejos.
Discussion on Reimbursement in solidary liability.
As to the second issue, the Court of Appeals, in affirming the decision of the trial
court, ruled that petitioner is not entitled to be reimbursed by respondent San
Leon Rice Mill, Inc. on the ground that said respondent is not privy to the
contract of insurance existing between petitioner and respondent Sio Choy. We
disagree.
The appellate court overlooked the principle of subrogation in insurance
contracts. Thus
... Subrogation is a normal incident of indemnity insurance
(Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon
payment of the loss, the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have against
the third person whose negligence or wrongful act caused the
loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs.
Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed.
1037).
The right of subrogation is of the highest equity. The loss in the
first instance is that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer (44 Am. Jur. 2d,
746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St.
382).
Although many policies including policies in the standard form,
now provide for subrogation, and thus determine the rights of
the insurer in this respect, the equitable right of subrogation as
the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in the
policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the
insurance company pays for the loss, such payment operates as
an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery
thereof. That right is not dependent upon , nor does it grow out
of any privity of contract (emphasis supplied) or upon written

Rojano, Queennie Compiled


assignment of claim, and payment to the insured makes the
insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing
and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9
It follows, therefore, that petitioner, upon paying respondent Vallejos the amount
of riot exceeding P20,000.00, shall become the subrogee of the insured, the
respondent Sio Choy; as such, it is subrogated to whatever rights the latter has
against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to
a solidary debtor who has paid the entire obligation the right to be reimbursed
by his co-debtors for the share which corresponds to each.
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 which offer to accept.
He who made the payment may claim from his co-debtors only
the share which corresponds to each, with 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.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to respondent Vallejos
and thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to
reimbursement from respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice
Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount
of P29,103.00. Vallejos may enforce the entire obligation on only one of said
solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire
obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to
pay P20,000.00 of said entire obligation, petitioner would be entitled, as
subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by
the latter in the amount of P14,551.50 (which is 1/2 of P29,103.00 )
Article 1212. Each one of the solidary creditors may do whatever may be useful
to the others, but not anything which may be prejudicial to the latter.
Acts beneficial: each solidary debtor may,

interrupt prescription,

constitute a debtor in default,

bring suit so that OBLIGATION may produce interest


Acts prejudicial: Solidary creditor cannot do anything prejudicial to the others,
like remission, novation, compensation, merger or confusion but such provision
in Article 1212 conflicts with Article 1215;
Tolentino: What will be done then? Harmonize Articles 1212 & 1215 by
such acts of extinguishment, which is prejudicial to co-creditors, will be valid so as
to extinguish the claim against the debtors, but not with respect to the rights of
co-creditors which subsists and may be enforced against such creditor who
performed the act alone.
Balane:
There is an apparent conflict between Article 1212 & 1215.
Article 1212 states that the agency extends only to things which will benefit all cocreditors. But not anything which is prejudicial to the latter. In Article 1215, he
can do an acts prejudicial to the other creditors, like remission for instance.

Article 1213. A solidary creditor cannot assign his rights without the consent of
the others.
Article 1214. The debtor may pay any one of the solidary creditors; but if any
demand, judicial or extrajudicial, has been made by one of them, payment should
be made to him.
Tolentino: This is in line with the concept of Mutual agency which is the
essence of active solidarity, implies mutual confidence, thus one creditor cannot
assign/transfer his rights to another without consent of the others.
Effects of Unauthorized Transfer: No effect, no rights 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 OBLIGATION; suit filed
by him may not interrupt the rights.

EXCEPT, if the assignee is also one of the co-creditors, because mutual


confidence is incumbent.
Justice JBL REYES: Article 1213 places unjustifiable and unnecessary burden on
the rights of solidary creditors upon his own share. The article should have read
as:

A solidary creditor who assigns his rights without the consent of his cocreditors shall answer subsidiarily for any prejudice caused by the
assignee in connection with d credit assigned.

Liability was compared to agent & principal.


Balane:
General Rule A debtor may pay any of the solidary creditors.
Exception If demand is made by one creditor upon the debtor, in which case
the latter must pay the demanding creditor only.
Tolentino:
Judicial Demand when such is made by one of solidary creditors, tacit
mutual representation is deemed revoked.

Defendant-debtor should pay to the 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 should not be
nullified;
Extra-judicial Demand same as above; demand by several creditors
separately, debtor should pay the one who notified him 1 st ; if they demand at d
same time, or collectively, debtor may choose to whom to pay.
Other Instances:
Debtor upon whom demand was made pays to a creditor other than the
one who made the demand in violation of Article 1214 This is
considered payment to a third person (Article 1241, par. 2) & the debtor can
still be made to pay the debt. The only concession given to the debtor is that

Rojano, Queennie Compiled


he is allowed to deduct the share of the receiving creditor from the total
amount due even if he paid the entire amount due to that creditor.
Creditor A makes demand on debtor Y Does it mean that he cannot pay
the share pertaining to creditor B?
A: According to commentators he can. But this is dangerous because there may
already be an agreement on the part of the creditors.
-Tolentino warns that to make the debtors pay for the whole amount to the
demanding creditor even if partial payment has already been made to
another creditor might amount to unjust enrichment. This rule/restriction has
already been scrapped in some modern civil codes allowing freedom of choice
to the debtor even after demand.
Q: There are three creditors A, B & C & there are three debtors X, Y & Z. A
makes a demand on Y. X pays B.
A: This is not covered by Article 1214.
Article 1215. Novation, compensation, confusion or remission of the debt, made
by any of the solidary creditors or with any of the solidary debtors, shall extinguish
the obligation, without 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 which affects one
of the solidary debtors does not release the latter from his responsibility towards
the co-debtors, in case the debt had been totally paid by anyone of them before
the remission was effected.
Article 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 without the
consent of others.
-If creditor makes the novation without the debtor and does not secure consent of
other debtors, the latter is released. The new contract binds only the debtor who
secured the novation.
-Mere extension of time given by creditor to a solidary debtor does not release
others from the OBLIGATION no novation here.
Dation in payment by one debtor extinguishes as in payment if made
immediately, otherwise if promised only, this is a novation.
When merger & compensation, there is total extinguishment of the
OBLIGATIONS; only reimbursements remain; if partial, then application of
payments should govern;

A surety who is bound in solidum will be released by any material alteration in


the principal contract made without knowledge & consent of surety, e.g.
extension of time, unless suretys liability is varied, as in installment payments.
When 1 creditor makes a remission, the extent of that particular OBLIGATION is
extinguish, this creditor is liable to co-creditors for their shares.
When remission favors only one debtor, in full share, this debtor is released fr
solidary OBLIGATION, if partial, he retains the solidary OBLIGATION & becomes a
surety of the whole OBLIGATION;
Factors to consider in effects of acts under Article 1215:
1. the relation between Creditors and that of debtors;
2. the relation among co-debtors themselves.
Baviera:

Principals are always liable solidarily;


Agents are not liable solidarily unless expressly stipulated (res inter alios
acta)
b. Passive Solidarity
Article 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 which may subsequently be directed against the
others, so long as the debt has not been fully collected.
Q: If a judgment made in an action brought by a solidary creditor against a
solidary debtor will it be res judicata against 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 plaintiffcreditor is not founded on a cause personal to him, but actually consolidates in
him all the rights as well of his co-creditors. (Tolentino) similarly translated as
to co-debtors;

Since in solidarity, there is unity of legal tie, notwithstanding plurality of


subjects;

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

Extent
Liability
Liability
Effects
Extension
time granted
creditor

of
of
of
by

PASSIVE
SOLIDARITY
Solidary debtors
whole
OBLIGATION
Primary
solidary
OBLIGATION
remains

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

contract

Rojano, Queennie Compiled


CASE: If one of the alleged solidary debtor dies during the pendency of
the collection case, the court where said case is pending retains
jurisdiction to continue hearing the charge as against the surviving
defendants. (1216)
PNB V. INDEPENDENT PLANTERS [122 SCRA 113]
Facts: Appeal by the Philippine National Bank (PNB) from the Order of the
defunct Court of First Instance of Manila (Branch XX) in its Civil Case No. 46741
dismissing PNB's complaint against several solidary debtors for the collection of
a sum of money on the ground that one of the defendants (Ceferino Valencia)
died during the pendency of the case (i.e., after the plaintiff had presented its
evidence) and therefore the complaint, being a money claim based on contract,
should be prosecuted in the testate or intestate proceeding for the settlement of
the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the
Rules of Court which reads:
SEC. 6. Solidary obligation of decedent. the obligation of the decedent is
solidary with another debtor, the claim shall be filed against the decedent as if
he were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. In a joint obligation of the decedent, the
claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against
one, some or all of its solidary debtors under Article 1216 of the Civil Code
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 which may subsequently be directed against the
others, so long as the debt has not been fully collected.
Issue: Whether in an action for collection of a sum of money based on contract
against all the solidary debtors, the death of one of the defendants deprives the
court of jurisdiction to proceed with the case against the surviving defendants.
Held: It is now settled that the quoted Article 1216 grants the creditor the
substantive right to seek satisfaction of his credit from one, some or all of his
solidary debtors, as he deems fit or convenient for the protection of his interests;
and if, after instituting a collection suit based on contract against some or all of
them and, during its pendency, one of the defendants dies, the court retains
jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants.
Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil.
891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that
where two persons are bound in solidum for the same debt and one of
them dies, the whole indebtedness can be proved against the estate of
the latter, the decedent's liability being absolute and primary; and if the
claim is not presented within the time provided by the rules, the same
will be barred as against the estate. It is evident from the foregoing that
Section 6 of Rule 87 (now Rule 86) provides the procedure should the
creditor desire to go against the deceased debtor, but there is certainly
nothing in the said provision making compliance with such procedure a
condition precedent before an ordinary action against the surviving
solidary debtors, should the creditor choose to demand payment from

the latter, could be entertained to the extent that failure to observe the
same would deprive the court jurisdiction to take cognizance of the
action against the surviving debtors. Upon the other hand, the Civil Code
expressly allows the creditor to proceed against any one of the solidary
debtors or some or all of them simultaneously. There is, therefore,
nothing improper in the creditor's filing of an action against the
surviving solidary debtors alone, instead of instituting a proceeding for
the settlement of the estate of the deceased debtor wherein his claim
could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court,
speaking thru Mr. Justice Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court
reveals that nothing therein prevents a creditor from proceeding against
the surviving solidary debtors. Said provision merely sets up the
procedure in enforcing collection in case a creditor chooses to pursue
his claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable
provision in this matter. Said provision gives the creditor the 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 one of the solidary debtors, he (the creditor) may, if he so
chooses, proceed against the surviving solidary debtors without
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 and file its claim in the estate of the deceased solidary debtor . .
.
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised
Rules of Court were applied literally, Article 1216 of the New Civil Code
would, in effect, be repealed since under the Rules of Court, petitioner
has no choice but to proceed against the estate of Manuel Barredo only.
Obviously, this provision diminishes the Bank's right under the New Civil,
Code to proceed against any one, some or all of the solidary debtors.
Such a construction is not sanctioned by the principle, which is too well
settled to require citation, that a substantive law cannot be amended by
a procedural rule. Otherwise stared, Section 6, Rule 86 of the Revised
Rules of Court cannot be made to prevail over Article 1216 of the New
Civil Code, the former being merely procedural, while the latter,
substantive.
WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case
No. 46741 is hereby set aside in respect of the surviving defendants; and the
case is remanded to the corresponding Regional Trial Court for proceedings.
Tolentino: Passive Solidarity vs. Suretyship
Similarity:
(1) both stands for some other person;
(2) both may require reimbursement

If surety binds itself in solidum, creditor may go against anyone of them.


Distinctions

Passive
Solidarity

Suretyship

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Solidary debtor
is liable for his
own OBLIGATION
& that of his codebtors
Primary liability
Extension
of does not release
Time given by a solidary debtor
creditor
(novation)

liable only as
OBLIGATION

to

his

own

Subsidiary liability
releases a solidary guarantor or
surety (extinguishment)

Article 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
which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with 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, because 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.
Article 1218.
Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the obligation
has prescribed or become illegal.
Article 1219. The remission made by the creditor of the share which affects one
of the solidary debtors does not release the latter from his responsibility towards
the co-debtors, in case the debt has been totally paid by anyone of them before
the remission was effected.
Tolentino:
Payment by one solidary debtor in whole extinguishes the
OBLIGATION and releases the credit gives rise to a new OBLIGATION for
reimbursement by the other debtors to this one debtor who paid (JOINT
OBLIGATION); plaintiff creditor may be properly substituted by the debtor who
paid;
EXCEPT: If payment was made after the OBLIGATION prescribed or become
illegal (mistake or not). (Article 1218)

After the OBLIGATION 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 from his co-debtors


because his action will not revive the inexistent OBLIGATION;

Generally, neither could he recover from the creditor to whom he paid


(Article 1424); except perhaps under solutio indebiti.
Balane:
Effect of Remission.
Problem: Solidary debtors W, X, Y & Z are indebted to A for P12,000. A remits the
share of Y (P3,000).

Q: Can Y be sued?
A: Yes, for the P9,000 (P12,000 less P3,000 share of Y) his share was remitted but
not the solidary OBLIGATION.
Q: Supposing X is insolvent?
A: Y can still be made to contribute. Remission will benefit Y only in so far as his
share is concerned. His liability in case of insolvency of one co-creditor is not
affected.
Q: Can A demand the P9,000 from Y?
A: Yes. But he can recover the same from 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, Article 1219, Y will not be released from his solidary OBLIGATION. Upon Ws
full payment the entire OBLIGATION 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 should be construed restrictively as
to permit the least transmission of rights (Article1378). Thus, if W paid 9,000 and
X and Z were suppose to reimburse him 3000 each, Y could be compelled to
contribute 1000 as to the insolvency of X.
Article 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
Article 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price & the payment of damages & interest, without prejudice to
their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the creditor, the provisions of the
preceding paragraph shall apply.
Article 1895. If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of the agency, & for the fault or negligence of
his fellow agents, except in the latter case when the fellow agents acted beyond
the scope of their authority.
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself
of all defenses which are derived from the nature of the obligation & of those
which are personal to him, or pertain to his own share. With respect to those which
personally belong to the others, he may avail himself thereof only as regards that
part of the debt for which the latter are responsible.

Rojano, Queennie Compiled


Effects of Article 1221 is limited to non-performance because of loss of the thing
or impossibility of prestation that is due if such is anchored with a fortuitous
event, without fault or delay on any debtor, then OBLIGATION is extinguished; no
debtor is liable.

If debtor is at fault on the loss/impossibility; Or if in delay even before the


loss/impossibility the OBLIGATION is converted to indemnification (of
the price, damages & interests).

If guilty debtor is made to pay by demand of creditor, he cannot recover


from 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 codebtors;

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 OBLIGATION, 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 OBLIGATION.
Guilty debtor shoulders the amount of damages though.
Balane:
Three Defenses of Solidary Debtor:
1. Those derived from 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 OBLIGATION d/t payment,
remission;
2. Those defenses personal to the debtor-defendant;
e.g., insanity If it involves vitiation of consent, total defense. If it
involves a special term or a condition, a partial defense.
3. Those defenses personal to other co-debtors;
e.g., defense as to the share corresponding to other debtors is a partial
defense, i.e. suspensive condition or period as to the OBLIGATION of one
co-debtor.
4. AS TO PERFORMANCE OF PRESTATION
a. Divisible OBLIGATIONS
Article 1223. The divisibility or indivisibility of the things that are the object of
OBLIGATIONS in which there is only one debtor & only one creditor does not alter
or modify the provisions of Chapter 2 of this Title (Nature & Effect of
OBLIGATIONS).
Balane:

This kind of OBLIGATIONS has something to do with the performance of


the prestation, & not to the thing.

The thing may be divisible but the OBLIGATION may still be indivisible,
e.g. OBLIGATION to deliver 100 sacks of jasmine rice found in Warehouse
of specific address on a fixed date (determinate OBLIGATION);

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 government agency


concerned, performance bonds here may also be termed as such.
Divisible obligation is one susceptible of partial performance.
An indivisible obligation is one that must be performed in one act.
Test of Divisibility: Whether or not it is susceptible of partial performance.
General rule: Obligation is indivisible which means that it has to be
performed in one act singly.
Why? Because the law provides so: Unless there is an express stipulation to that
effect, the creditor cannot be compelled partially to receive the prestations in
which the obligation consists. Neither may the debtor be required to make partial
payments. xxx (Article 1248, par. 1.)
Tolentino:

When division would diminish the value of the whole

QUALITATIVE, when the thing is not really homogeneous, i.e. inheritance;

QUANTITATIVE, when the thing divided is homogeneous and may be


separated into parts if movable, or limits may be set if immovable;

IDEAL, when parts are not separated materially, but assigned to several
persons, as in pro-indiviso co-owners;
Three Exceptions to the Rule on Indivisibility:
1. When the parties so provide. (Article 1248, par. 1.)
2. When the nature of the obligation necessarily entails performance
in parts.
3. Where the law provides otherwise.
Divisibility of Obligation distinguished from 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.
Article 1224. A joint indivisible obligation gives rise to indemnity for damages
from the time anyone of the debtors does not comply with 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 which the obligation consists.
Article 1225. For the purposes of the preceding articles, OBLIGATIONS to give
definite things & those which 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 which by
their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.

Rojano, Queennie Compiled


In OBLIGATIONS not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case.
TOLENTINO: To enforce a Joint Indivisible OBLIGATION, Article 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 OBLIGATION 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.

Consideration

contract
single

Prestation/s
When a part is
illegal
One
void
undertaking
Viz. Statute of
Frauds

whole
contract
unenforceable
void contract
must
writing

be

Solidarity vs. Indivisibility


Solidarity
Refers to vinculum, and
principally to the subjects
of OBLIGATION
Requires
plurality
of
subjects
Solidarity remains even in
case of breach of one, they
all
remain
liable
for
indemnity
Death of debtor terminates
solidarity

Indivisibility
refers to the prestation or the object of
the OBLIGATION
plurality not required
when OBLIGATION is converted to
liability for damages, the indivisibility
ceases to exist, each debtor becomes
liable for his part of indemnity
indivisibility affects the heirs of a
decedent debtor, they remain to be
bound to perform the same prestation

Factors to Determine Whether OBLIGATION is Divisible or not


1. will or intention of the parties, which may be expressed or presumed;
2. objective or purpose of stipulated prestation;
3. nature of the thing;
4. provisions of law affecting the prestation

In OBLIGATIONS 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 OBLIGATION, partial performance is equal to non-performance.
Thus, partial payment based on quantum meruit is not availed. (Articles
1233 and 1248 forbids partial fulfillment) Work half done is worst than
work undone!
Exceptions:
(1) OBLIGATION 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 OBLIGATION is deemed fully
performed.
ENTIRE

SEVERABLE contract

in

apportioned
(expressly/implied)
several,
distinct,
items
partly enforceable

separate

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
sum
total
exceeds,
contract not affected

b. Indivisible OBLIGATIONS
Article 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.
Article 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.
Examples of Indivisible OBLIGATIONS:
(1) By virtue of its object
Article 618. Easements are indivisible. If the servient estate is divided between
two or more persons, the easement is not modified, & each of them must bear it
on the part which 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, without changing the place of its use,
or making it more burdensome in any other way.
(2) Express provision of law
Article 2089. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of the other heirs who have not
been paid.
From these provisions, it is expected the case in which, there being several things
given in mortgage or pledge, each one of them guarantees only a determinate
portion of the credit.

Rojano, Queennie Compiled


The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable is
satisfied.
Article 2090. The indivisibility of a pledge or mortgage is not affected by the fact
that the debtors are not solidarily liable.
Article 1612. If several persons, jointly & in the same contract, should sell an
undivided immovable with a right of repurchase, none of them may exercise this
right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left
several heirs, in which case each of the latter may only redeem the part which he
may have acquired.
Article 1613. In the case of the preceding article, the vendee may demand of all
the vendors or co-heirs that they come to an agreement upon the repurchase of
the whole thing sold; and should they fail to do so, the vendee cannot be
compelled to consent to a partial redemption.

2.

Article 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which 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 without waiting
for the liquidation of the latter.
Article 1583. Unless otherwise agreed, the buyer of goods is not bound to
accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated installments,
which are to be separately paid for, & the seller makes defective deliveries in
respect of one or more installments, or the buyer neglects or refuses without just
cause to take delivery of or pay for one or more installments, it depends in each
case on the terms of the contract & the circumstances of the case, whether the
breach of contract is so material as to justify the injured party in refusing to
proceed further & suing for damages for breach of the entire contract, or whether
the breach is severable, giving rise to a claim for compensation but not to a right
to treat the whole contract as broken.
(3) Express agreement
Article 1714. If the contractor agrees to produce the work from 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.
Illustrations:
1. Obligations involving different parties; in other words, in a problem

3.

involving two or more debtors and or two or more creditors. Usual


scenario: There are two or more debtors but only one creditor but lately
there would be scenarios 2 or more creditors even only one debtor
(consider this possibility) The usual question: how much can one of the
debtor compelled to pay if this is an obligation to pay a sum of money?
Or how much can a creditor validly demand from the debtors? Clearly
the question pertains to whether it is joint or solidary because if this is
joint each debtor can only be compelled to pay his share and each
creditor entitled to demand also as to his share. Basis: There are as
many debts as there are debtors and as many credits as there
are creditors. That is why in an example if there are 3 debtors and 2
creditors, in a joint obligation, there are how many debts? Other authors
say, 3 debts, this is WRONG because this three debtors, each of them
would have two debtors. These debts are separate and distinct from
each other. In other words, we would divide the entire obligation into
three debtors, as each debtor has two creditors. Effectively there are
six debts.
Ex. (BAR EXAM QUESTION) Foreign medical students rented an
apartment unit from Thelma. In the contract it was stipulated that the
students would be responsible for the payment involving the bills in
utilities. Now after one semester, three of the students went back home
to their country. And only one was left and in fact, this foreign student
transferred to another apartment unit that is smaller in size. But the
lessor Thelma actually discovered that there is an unpaid telephone bill
in the amount of P80,000.00. So Thelma demanded payment of the
entire 80k from the foreign student who was left in the country. The
student said that I can only be compelled to pay 1/4 of the 80k. Who is
correct? The foreign student is correct. Common reason that is wrong:
That there is no stipulation that the obligation is solidary so therefore it
is joint. This is wrong argument; inaccurate. Wrong because the
implication of the answer is solidarity would only arise if it is so
stipulated. This is wrong, because under 1207 there are three
exceptional circumstances when an obligation would be
considered solidary:
a. If so stipulated.
b. The law on the matter requires solidarity.
c. Because the nature of the obligation requires solidarity.
Thats why if you are confronted with a problem whether an obligation is
joint or solidary, do not just base it on the stipulations. It may not be
stipulated but the law may provide for such. But the more
fundamental matter is that I have to emphasize, just because the
problem pertains to a contract of lease doesnt mean that the answer
could be found at the provisions of lease. Bear in mind that the general
principles in obligations-contracts are applicable to these contracts.
Thus, the correct answer is the student is correct because the
obligation is a Joint Obligation. Because there was no stipulation
for solidarity, the law on the matter does not require solidarity
and the third, the nature of the obligation does not require
solidarity. Common wrong: because the law presumes that the
obligation is joint. First, the law did not so provide, you didnt see any
word presume in relation to that. If there is really a presumption, it is
not a conclusive presumption. Do not stop and claim that it is presumed.

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Read the facts in relation with the applicability of laws.
4. Example: the problem pertains to succession and after the death of X,
the heirs found out that in the will a certain car was given to grandchild
A. But B and C took possession of the car after the death of X and they
took the car out for a joy ride. So while driving, the driver, B cause the
total destruction of the car. C on the other hand was only a passenger. B
died while C got injured. Can C be held liable for the incident? Probably
with damages? Answer: YES. Even if it was not Cs fault. Because the
nature of the obligation requires solidarity this is base on an
express provision of the law Article 927. Under this provision,
if two or more heirs take possession of a property which is given
to another heir and it was lost or destroyed because of one of
them, they will be held solidarily liable.
5. Before going into the law, how will you know if the party so stipulated
that it is solidary? what if the word solidary was not use, does it mean
that it is not solidary? No. jointly and collectively- Ronquillo vs CA ;
jointly and severally- used in banking section; in solidum;
individually and jointly; distinctively; separately; collectively.
6. Ex. I promise to pay X followed by two or more signatures of the
debtors, this is considered to be solidary. WE does not connote that it
is JOINT, it may be solidary. Should read the whole contract or PN, maybe
it is in the end that there is a stipulation that it is solidary.
7. Article 2194 joint tortfeasors. Two or more persons liable under quasidelict will be held solidarily liable.
8. Ex. In agency, if you will be asked as to who will be liable. Do not just
say agent and principal. It is not all the time that the agent and principal
are solidarily liable. But you should complete the scenario, like: If the
agents acted in excess of his authority and the principal
contributed in making the person believe that the agent had full
power, the principal and the agent would be held solidarily
liable this is under 1911. But also expressly provided two or more
principals, in relation to a transaction involving an agent they are held
solidarily liable by law.
9. In relation to partners, ordinarily for partners obligations arising from
contracts, JOINT only. Unlike in code of commerce or commercial
transactions, it is SOLIDARY. Ex: if the obligation arising from quasidelict, maybe one of the partners was in the performance of his
obligations, another suffered damage because of the wrongful act by his
partner. The law provides under Article 1824 in relation to Article 1822,
that the partners will be held solidarily liable among themselves
and with the partnership. Ex: in the course of the partnership, one of
the partners misappropriated the sum of money received from a client
for the partnership. Under the law, all the partners are held
solidarily liable among themselves and with the partnership.
10. Even in Solutio Indebiti if two or more persons received a thing which
they dont have the right to demand and which was delivered to them by
mistake, they can be held solidarily liable. As you read the provisions
of the law, bear in mind that some of this provisions, two or
more persons may be held solidarily liable. Ex. In the Family Code,
are there provisions where the spouses will be held solidarily liable? YES.
As to those obligations where conjugal properties will be charged with
expenses.

11. So what if the obligation, aside from their particular rights and
obligations as to their shares, take note again if the obligation is 150k
there 3 creditors, in a joint obligation, each one is entitled to 50k if
there is no designation as to respective shares. This claim is very
wrong: The share is equal because it is joint. As if the debtors will always
share equally because it is joint or the creditors will receive equally
because it is joint. Not true. Rather in Article 1208, if there is no
designation as to the respective shares, they will share equally.
Thats why even if it is joint, they can talk about it and have an
agreement as to the shares each of them will receive it may be
differently or the same. What if one of the debtors became insolvent, will
that result to an increase in liability of the other debtors? Will that
prejudice other debtors? Answer: again, it will depend on whether
the obligation is joint or solidary.
a. If it is a solidary obligation, e.g. A, B, C debtors and C became
insolvent. How much can A be held liable if the debt is 100k? If C
became insolvent, how much will A be liable? B will be liable for
the entire amount because the obligation is solidary. This is not
a proper answer because you just repeated the facts. The
question there is, why would A be held liable for the whole 100k
if one of them is insolvent? Reason here is, this debtor can still
be compelled to pay despite one of the debtors is insolvent
because in solidary obligations the share of the insolvent will
have to be shouldered by the other debtors who are not
insolvent, because each one of them as the law says which
is wrong, because it should be any one of them may be
held liable for the entire amount. So A may still be held liable
despite the insolvency of one of the debtors.
b. If the obligation is joint, if one of them is insolvent would that
result in the increase of liability of the others? NEVER. Because a
very important principle in joint obligations, these debts are
separate and distinct from each other. Thats why even if one of
the debtors is insolvent it will not affect/ prejudice the other
debtors. On the other hand, if one of the debt was condoned,
can there be partial condonation? YES. Can there be even partial
condonation even in solidary obligation? YES. The word
condone does not mean the obligation is extinguished. In
joint, if one of the debts of the debtor was condoned, would that
benefit the other debtors? No, again their debts are separate
and distinct from each other. If the creditor demanded from A
and condoned the share of B. A cannot invoke the condonation
in favour of B to benefit him.
c. In a solidary obligation, if the creditor condoned one of the
share of the debtors, can the condonation benefit the other
debtors? In a way, because the other debtor can only be
compelled to pay less than the share of the debtor whose share
was condoned. In other words, if A, B, and C = 300k. As share
was condoned. But this is a solidary obligation, how much can B
be compelled to pay? Only 200k because he can raise the
condonation of A as a partial defense. If C was insolvent,
it doesnt matter, it is still 200k because it is a solidary
obligation, the share of C will have to be shouldered by

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the other debtors who are not insolvent that is why B can
still be compelled to pay 50k. Why? B can still be compelled
or be held liable as he is still not exempt from his obligation to
his co-debtors.
12. Distribution of share in insolvency: proportion to the share of the
debtors.
13. I forgot to mention the nature of obligation in solidary: nature, insofar as
SC had ruled in this case xxx: that the obligations of two or more
employers under the workers compensation act on the premise
that there are two or more employers. Their obligation to the
employee is solidary, not because it is stipulated in the contract, not
because the law the workers compensation act provides, but the court
said but because of the NATURE of the obligation, it is solidary.
14. But in this one last scenario, in Gutierrez vs. Gutierrez, 3 persons
were held liable, 1. father of the minor driver, 2. driver of the passenger
truck/bus and 3. the owner of the passenger truck. If you remember, the
driver of the truck and the owner were held liable under contract of
carriage. The father was held liable, because the minor was negligent,
and the one injured is a passenger of the bus, the father can be held in
vicarious case and be held liable under quasi-delict, nonetheless the
three of them were held SOLIDARILY liable, was there a stipulation? NO.
Is there a law? NO. If I have to support this ruling, it may only be
supported on this ground: by the nature of the obligation requires
solidarity. Not a good ruling but because of the nature, it can now be
considered as a good one.
15. MALAYAN INSURANCE vs. CA similar facts in the sense that, 3
persons were held liable, 1. Owner of the jeepney who was not even
present when the accident happened, 2. Insurance company, 3. Ricemill
owner. The rice mill owner was correctly held liable because it was his
driver who caused the injury through his negligence, vicarious
liability. Malayan is really liable in insurance contract, because the
jeepney was insured. The owner of the jeepney was held liable but he
was not held liable in the SC. As owner of the jeepney he can only be
held liable only if he was present there during the mishap and if he
didnt exercise due diligence where by the exercise of due diligence he
could have prevented the mishap. He also cannot be held liable because
he is not the employer of the driver. Malayan said they cannot be held
solidarily liable because the other two is under quasi-delict and their
liability is under contract. xxxx If we apply this ruling, in Gutierrez,
although theres a substantial distinction as they are held liable under
different causes. Thats why I can accept a ruling in regular mishaps
even if they are held under different causes of action they may validly
held solidarily liable on the ground that the nature of the
obligation requires solidarity.
16. Into the rights and obligations: favorite in the bar.
a. In relation to this: Defenses: We have already discussed the
insolvency as a defense. INSOLVENCY whether it is in a joint
obligation or in solidary obligation, in joint, the insolvency of
one cannot be invoke by the others because their
obligation is distinct and individual. In solidary, it also
cannot be invoked because it will be shouldered by the other
debtors. Personal defense of MINORITY: if one of the debtors

was a minor at the time the contract was entered into. This is an
obligation arising from a contract. Is minority a defense? If it is a
defense, who can invoke such? If he can invoke the defense, is it
a total or partial defense? As to the minor himself, it is
always a defense, it doesnt matter if the obligation is
joint or solidary, it is always a TOTAL defense. Contract is
voidable. If the minor wants the contract to be annulled, he must
return whatever he has received from the other party- Mutual
restitution. He wants to annul then he must return what he has
received. If the one invoking minority is not the minor himself,
can he invoke? It DEPENDS. If it is JOINT, cannot invoke because
it is separate and distinct. If it is Solidary, YES but is it a total or
partial defense? Only PARTIAL. Example: 5 debtors one of
them is a minor. 50k debt. Creditor demanded payment to the
other creditors like to B, how much can B be compelled to pay
despite one of them is a minor? Only 40k because he can only
invoke minority as to the share of the minor.
b. There can be a defense: Total Defense in any kind of obligation
that you can invoke in whether joint or solidary and can be
invoked by anyone. That defense goes into the NATURE OF
THE OBLIGATION. E.g. if an action was filed against one of the
debtors, but the action was dismissed but thereafter the creditor
filed another action against another debtor, is it possible that the
action will not prosper, that it will be dismissed? YES. If the
ground for the dismissal of the first action is because the
contract is void, then yes cause theres no obligation to speak
of.
17. PNB CASE: During the pendency of the action for the recovery of sum of
money, one of the debtors died may this action still be prosecuted
despite the death of one of the debtors? The effect of this rather would
the debt of one of the debtors result in the court losing jurisdiction of the
case? Others claim in this case that the claim should be filed with the
estate of the deceased, is that correct? Regardless if joint or solidary,
xxx if joint, one of the debtors died, the share would be null and void
only with regard to the share of the debtor who died but as to the other
joint debtors they would still be held liable because it is a separate and
distinct obligation. But if this is a solidary obligation, one of them
died, would that result in the court losing jurisdiction over the case? No,
because in solidary obligation, the creditor can demand to any of the
debtors for the fulfilment of the obligation. The trial court can continue
with the proceeding of this case.
18. But a very good case is the CALANG CASE: Negligent act of the driver.
The driver and the owner were held liable. Can they be held solidarily
liable? Yes, they can be held solidarily liable if the source of the
obligation is quasi-delict. In quasi-delict xxxx liability of the employer
is also a direct and primary liability. And persons held liable under quasidelict can be held solidarily liable. In this case, this is a criminal
complaint filed against the driver because he injured and killed someone
and he was convicted. And in the conviction there is a civil liability. If
someone died as a result of a crime or quasi-delict, Article 2206 theres
a so-called indemnity and there is also what you call actual
damage. Even without proof, the minimum that should be given

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is P25,000.00 by way of temperate damages. In addition to
indemnity. BUT in this case, by way of damages the driver and
Philtranco was held solidarily liable. BUT the SC said this is wrong, these
two persons cannot be held solidarily liable. Why? Because in death,
the liability involved is only a subsidiary liability. In other words,
the employer cannot be held liable until the properties of the convict
have been exhausted. Solidary is direct, that you do not need to exhaust
the properties of another. That is why it can never be solidary. I think this
is a good ruling.
OTHER KINDS OF OBLIGATIONS
19. An obligation to pay 1M, can the debtor compel the creditor to accept a
100k? What if the creditor refuses to accept does it mean that he can be
considered in delay in relation to 100k? As a rule, NO. A creditor
cannot be compelled to accept a partial performance. As a rule,
partial performance is none performance. He cannot be compelled
to accept therefore he cannot be considered in delay. Debtor will be the
one who will be in delay. But of course there are exceptions to this rule:
INSTALLMENT. Why would the creditor accept the partial payment?
Because it has been agreed by both the creditor and the debtor. In
other words, such obligation is called a DIVISIBLE OBLIGATION.
20. Are there obligations which are in a way are divisible even they are not
stipulated b y the parties? YES. As provided by law these are obligations
that requires the performance for a number of days or in metric
units. On the other hand, are there obligations which by their nature are
indivisible? Not even the parties would stipulate for solidarity? The law
would also tell us YES. A good example would be an obligation to
deliver a definite thing. Obligation to deliver a horse. It cannot be
that the obligation is divisible. By its very nature it is indivisible.
Example, if A, B and C obliged themselves to deliver to X a specific
horse, the value of the horse is 90k. However before the obligation
became due, the horse died due to the fault of A. if X creditor, filed an
action against C. May the action prosper? Decide the case. First, there
are those who would say that the action would not prosper because not
all the debtors were impleaded in this case. This is wrong. First, if the
question is may the action prosper, you should first see who is the
aggrieved party or the injured party. It doesnt mean that X is the
plaintiff he is the injured party. But if he is really the injured party and
this is clear under the law, he has a remedy or remedies available to
him. Next question would be: what was the remedy invoked? If the
remedy invoked is wrong then the case would be dismissed. In the
problem, that would have been correct that the all debtors should have
been impleaded only if the action is for specific performance. But under
the circumstances, if you are the lawyer, would you file an action for
specific performance? NO. Because the horse already died. If you are the
creditors lawyer, you would advice your client to ask for an amount of
money which is equivalent to the value of the horse. Will the action
prosper against C? To answer the question, you should know the
nature of the problem. The problem here pertains to joint
indivisible obligation (JIO). Why joint? Because there is no stipulation,
law on the matter does not require solidarity, and the nature of the
obligation does not require solidarity. It is also indivisible because it
involved the delivery of a determinate thing, a definite thing. Knowing

that this is JIO, and cannot be fulfilled due to the fault of one of the
debtors, law says this obligation would be converted into a
monetary obligation with each debtor only be held liable to each
of his share and only the debtor at fault be the only one liable
for damages. In other words, how much can C be held liable in the
problem? Only 30k. But if this is a Solidary Indivisible Obligation ?
How much will C be held liable? 90k plus damages. But of course C can
seek reimbursement to B for 30k only. But only to A can C seek
reimbursement for the damages as A is the one who was at fault.
21. Maybe for midterms: In a problem, A obliged himself, promise to pay X
or Y. when the obligation was already due, X demanded the payment
from A but thereafter Y also demanded payment from A. A then paid Y
instead of X even though X demanded first. May X have a cause of
action against A? Does A still have a liability to X? First, start with what
kind of obligation is involved. This is neither joint nor solidary because of
the word OR had this been and then maybe it can be a joint or
solidary obligation. Second, conjunctive or alternative, this is also wrong
because there is only one prestation involve, in those kinds of
obligations, there should be two or more prestations involved. In other
words, what kind of obligation is involved here? DISJUNCTIVE
OBLIGATION. The problem with this, in this scenario, there is no express
provision or article which would provide us with this rule in relation to
this problem as to whether X would still have a cause of action against A.
But the answer to the question would be if the intention of the
parties is clear as to who has the right to choose to whom
payment should be made. If A has the right to choose, does it
matter if X demanded the payment first, no it doesnt matter. If
X and Y has the right to choose and it was clear that X has the
right to receive or recover the amount, A should have paid X
instead of Y so X would still have a cause of action against A. So
the problem here would be: That the intentions of the parties were not
clear as to whom payment should be made. Then who has the right to
choose, since no express provision we have to apply other provisions by
analogy. Tolentino would want us to apply rules in SOLIDARY
obligations. So would X have a cause of action against A? YES, because
is solidary obligations, if there are two or more creditors, the debtor
should pay the creditor who has first made the demand. Atty Uribe
cannot agree with Tolentino. Why? Because the three exceptional rules
are not present in the case. Rather I would support the answer that we
should apply the rules on Alternative Obligations. There is a semblance
as there is an alternative subjects. If in alternative obligations, would X
still have a cause of action against A? No more because in alternative,
the law provides that the debtor has the right to choose unless
otherwise expressly granted to the creditor.
5. AS TO THE PRESENCE OF AN ACCESSORY UNDERTAKING IN CASE OF
BREACH
a. OBLIGATIONS with a Penal Clause
Article 1226. In OBLIGATIONS with a penal clause, the penalty shall substitute
the indemnity for damages & the payment of interests in case of non-compliance,

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if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
Balane: Articles 1226 to 1230 on obligation with a penal clause is the same as
liquidated damages found in Articles 2226 to 2228 by authority of Lambert v.
Fox, 26 Phil. 588.
(Tolentino) Penal Clause- A penal clause is an accessory undertaking to
assume greater liability in case of breach. The purpose is to strengthen the
coercive force of the obligation. When a penal clause is present, damages do not
have to be proved.
Thus, DUAL FUNCTION OF PENAL CLAUSE:
(1) To provide for liquidated damages
(2) To strengthen the coercive force of the OBLIGATION by threat of greater
responsibility in case of breach.
Characteristics of Penal Clause:
1. Subsidiary (also called alternative) upon non-performance, only the
penalty may be demanded.
Exception: Where penalty is joint (cumulative), where both the principal
undertaking & penalty may be demanded under Article 1227, second sentence:
"xxx unless this right has been clearly granted him."
Notice the word clearly (not explicitly) which means that the right can be clearly
granted by implication.
2. Exclusive penal clause is for reparation. It takes the place of damages.
Exception: When it is for punishment in which case both penalty & damages
may be demanded, namely- If there is a stipulation that both penalty & damages are recoverable in
case of breach
If the obligor refuses to pay the penalty
If the obligor is guilty of fraud in the fulfillment of his obligation.
Balane: The SC considered the 4% interest as not a penal clause
because it does not strengthen the coercive force of the obligation.
ROBES-FRANCISCO V. CFI [86 SCRA 59]
Facts: In May 1962 Robes-Francisco Realty & Development Corporation, now
petitioner, agreed to sell to private respondent Lolita Millan for and in
consideration of the sum of P3,864.00, payable in installments, a parcel of land
containing an area of approximately 276 square meters, situated in Barrio
Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its Franville
Subdivision. 2
Millan complied with her obligation under the contract and paid the installments
stipulated therein, the final payment having been made on December 22, 1971.

The vendee made a total payment of P5,193.63 including interests and expenses
for registration of title. 3
Thereafter, Lolita Millan made repeated demands upon the corporation for the
execution of the final deed of sale and the issuance to her of the transfer
certificate of title over the lot. On March 2, 1973, the parties executed a deed of
absolute sale of the aforementioned parcel of land. The deed of absolute sale
contained, among others, this particular provision:
That the VENDOR further warrants that the transfer certificate of title of
the above-described parcel of land shall be transferred in the name of
the VENDEE within the period of six (6) months from the date of full
payment and in case the VENDOR fails to issue said transfer certificate
of title, it shall bear the obligation to refund to the VENDEE the total
amount already paid for, plus an interest at the rate of 4% per annum.
(record on appeal, p. 9)
Notwithstanding the lapse of the above-mentioned stipulated period of six (6)
months, the corporation failed to cause the issuance of the corresponding
transfer certificate of title over the lot sold to Millan, hence, the latter filed on
August 14, 1974 a complaint for specific performance and damages against
Robes-Francisco Realty & Development Corporation.
Issue: Whether or not the petitioner is correct in invoking Article 1226 of the
Civil Code which provides that in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests in case
of noncompliance, if there is no stipulation to the contrary.
Held: NO. We would agree with 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 without it, pursuant to Article 2209
of the Civil Code, the vendee would be entitled to recover the amount paid by
her with legal rate of interest which is even more than the 4% provided for in the
clause.
It is therefore inconceivable that the afore-cited provision in the deed of sale is a
penal clause which will preclude an award of damages to the vendee Millan. In
fact the clause is so worded as to work to the advantage of petitioner
corporation.
CASE DOCTRINES: The theory that penal and liquidated damages are the same
cannot be sustained where obligor is guilty of fraud in fulfillment of OBLIGATION;

The penalty clause does not partake of the nature of liquidated damages.

Party to a contract which was breached by the other, may be given the
right 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 between the proven damages & such stipulated
penalty.
PAMINTUAN V. CA [94 SCRA 556]
FACTS: This is a case for Recovery of compensatory damages for breach of
contract of sale in addition to liquidated damages.
In 1960, MARIANO C. PAMINTUAN, with his barter license, was authorized to export
to Japan 1000 metric tons of white flint corn valued at USD 47K, in exchange for
collateral importation of plastic sheetings of equal value. As such he entered into
contract with TOKYO MENKA KAISHA, LTD. of OSAKA, JAPAN. He also entered into a
contract 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.

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It was further agreed that Pamintuan would deliver the plastic sheetings to
bodegas of Yu Ping in Manila and suburbs within one month upon arrival of
carrying vessels; & that upon breach, aggrieved party may collect liquidated
damages of Php 10K.
Pamintuan made incomplete deliveries, and then asked the President of the Co.
for cash payment and adjustments in price, which the company agreed to. When
Pamintuan refused to complete his deliveries, he invoked that the contract was
novated and Co. failed to comply thereto.
Co. filed for damages against Pamintuan. The lower court awarded actual
damages, liquidated damages as stipulated, and moral damages.
Pamintuan appealed and assert that Yu Ping is only entitled to recover liquidated
damages. CA found Pamintuan guilty of fraud, and sustained the Lower court.
ISSUE: Whether or not the Co. is entitled only to liquidated damages as appearing
in the contract of sale.
HELD: We hold that appellant's contention cannot be sustained because the
second sentence of Article 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 because he did not make a complete delivery of the plastic sheeting & he
overpriced the same. Xxx There is no justification for the Civil Code to make an
apparent distinction between penalty and liquidated damages because the settled
rule is that there is no difference between penalty and liquidated damages insofar
as legal results are concerned and that either may be recovered without the
necessity of proving actual damages and both may be reduced when proper (Arts.
1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L. Reyes, cited in
4 Tolentino's Civil Code, p. 251). The penalty clause is strictly penal or
cumulative in character and does not partake of the nature of liquidated
damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir,
en el supuesto incumplimiento o mero retardo de la obligacion principal, ademas
de la pena, los danos y perjuicios. Se habla en este caso de pena cumulativa, a
differencia de aquellos otros ordinarios, en que la pena es sustitutiva de la
reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).
After a conscientious consideration of the facts of the case, as found by Court of
Appeals and the trial court, and after reflecting on the/tenor of the stipulation for
liquidated damages herein, the true nature of which is not easy to categorize, 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 and not to award to it the
stipulated liquidated damages of ten thousand pesos for any breach of the
contract. The proven damages supersede the stipulated liquidated damages.
This view finds support in the opinion of Manresa (whose comments were the
bases of the new matter found in article 1226, not found in article 1152 of the old
Civil Code) that in case of fraud the difference between the proven damages and
the stipulated penalty may be recovered (Vol. 8, part. 1, Codigo Civil, 5th Ed.,
1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety thousand
five hundred fifty-nine pesos and twenty-eight centavos (P90,559.28), with six
percent interest a year from the filing of the complaint.
Penalty & Liquidated damages:

There is no justification for the NCC to make an apparent distinction


between penalty & liquidated damages because the settled rule is that
there is no difference between penalty & liquidated damages insofar as
legal results are concerned & either may be recovered without the

necessity of proving actual damages & both may be reduced when proper.
Xxx
We further hold that justice would be adequately done in this case by
allowing Yu Ping Kun Co., Inc. to recover only the actual damages proven,
& not to award to it the stipulated liquidated damages of P10,000 for any
breach of the contract. The proven damages supersede the stipulated
liquidated damages.
This view finds support in the opinion of Manresa that in cases of fraud the
difference between the proven damages & the stipulated penalty may be
recovered.

Legality of Penal clause: not contrary lo law, morals, public order


(e.g. usurious, immoral, unjust, merciless)
How construed: strictly construed, in accord with stipulation. (effecting minimal
rights)
When there could be damages aside from Penalty:
(1) Express provision: ex. legal interest of 12% p.a. aside from penalty may
be had, plus attorneys fees of 20%
(2) Debtor refused to pay penalty
(3) Theres fraud in debtors non-performance

Non-performance gives rise to presumption of fault, debtor has


burden of proof: defenses may be force majeure, or act of creditor
himself;
CASE:
BACHRACH V. ESPIRITU [52 Phil. 346]
RE: Chattel Mortgage with PENAL CLAUSE
FACTS: Faustino Espiritu purchased from Bachrach Motor in JULY 1925 a two-ton
White truck on installment basis. This truck was mortgaged, including two other
white trucks owned by defendant which are fully paid for, to secure the loan.
In FEBRUARY 1925 defendant also purchased another one-ton white truck from
same plaintiff corp. with down-payment balance on installment basis also, placing
this truck on mortgage for security and including the 2 above mortgaged trucks
also. Again, defendant failed to pay this debt.
In both sales, a 12% annual interest was agreed upon the unpaid portion of the
contracts, and upon maturity, when due, non-payment of total remaining debt
would give rise to 25% penalty; aside from mortgage deed, there was a
Promissory Note, co-signed by defendant brother Rosario Espiritu solidarily. Thus,
Rosario appeared as intervenor in the collection suits alleging to be the sole owner
of the two other trucks mortgaged. He alleged that he did not sign the mortgage
and did not consent to the inclusion of his two trucks therein.
While the cases were pending in lower court, the trucks were sold by virtue of the
mortgage and brought in a net sum not enough to settle the debts due. The 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 defendants alleged that these
amounts to usury.
ISSUE: Whether or not the 12% interest p.a. plus additional penalty of 25% makes
the contract usurious?

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HELD: NO. Article 1152 of the Old Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreement, the penalty
xxx does not include the interest, & as such the two are different &
distinct things which may be demanded separately. The penalty is not to be
added to the interest for the determination of whether the interest exceeds the
rate fixed by law, since said rate was fixed only for the interest.
BUT, considering partial performance, SC reduced penalty to 10% in
accord with Article 1154. (Article 1229, NCC)
Article 1227. The debtor cannot exempt himself from 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 without his fault, the penalty may be enforced.
General Rule: Debtor cannot avoid performance by paying the penalty; except
when expressly granted to debtor.
General Rule as to creditor: may not demand both fulfillment and payment of
penalty at the same time; except if such right is granted clearly.
As to the last sentence, when it becomes impossible without creditors fault it
will happen only if through debtors fault or delay, for penalty to become
enforceable; because if through fortuitous event without creditors nor debtors
fault, principal OBLIGATION would be extinguished and so will the penal clause.
Article 1228. Proof of actual damages suffered by the creditor is not necessary
in order that the penalty may be demanded.
Baviera: Courts can enforce contracts according to their terms.
Article 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the court if it is
iniquitous or unconscionable.
Article 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.
The nullity of the principal obligation carries with it that of the penal clause.
Partial Performance refers to extent or quantity of fulfillment
Irregular Performance refers to the form

Doctrine of Strict Construction will apply as against the enforcement


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

Thus penalty is mitigated in:


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

1. Distinguished from OBLIGATION with suspensive condition:

Happening of the condition gives rise to the OBLIGATION; in penal there is


already a principal OBLIGATION

The principal OBLIGATION itself is dependent upon a future and uncertain


event; in penal, only the accessory OBLIGATION (the penalty) depends
upon non-performance or breach.
2. Distinguished from alternative OBLIGATIONS
Article 1227. The debtor cannot exempt himself from 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
without his fault, the penalty may be enforced.
Article 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 which are impossible,
unlawful or which could not have been the object of the obligation.
ALTERNATIVE
OBLIGATION
2 or more OBLIGATIONS
are due but performance
of 1 is enough
Impossibility of one of
OBLIGATIONS, the other/s
subsists
Debtor can choose which
prestation to fulfill
X obliged to deliver a
horse to Y or pay him P500

OBLIGATION WITHPENAL CLAUSE


theres only 1 principal OBLIGATION, only in
case of non-performance shall the penal
clause be enforceable
impossibility of principal OBLIGATION, 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 from Facultative OBLIGATIONS


Article 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.
Article 1227. The debtor cannot exempt himself from 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

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fulfillment of the obligation, the performance thereof should become impossible
without his fault, the penalty may be enforced.
FACULTATIVE
OBLIGATION
Debtor has power to make
substitution
Creditor cannot demand
both prestations

OBLIGATION with PENAL CLAUSE

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

OBLIGATION with PENAL CLAUSE


OBLIGATION to pay penalty is different from
the principal OBLIGATION, but also paid in
lieu of debtors non-performance

General Rule, none; except when expressed


such right to demand both may be given

Intended to insure performance of principal


OBLIGATION
Accessory & subsidiary OBLIGATION
both OBLIGATIONS 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 with what is
incumbent upon him.
2. For Reciprocal OBLIGATIONS which are not simultaneous
General Rule: Demand is necessary (Article 1169, par.
(1) This is called mora solvendi ex persona.
Exception: When demand is not necessary (the exceptions are found in Article
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 without 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
which explicitly states that the demand is not necessary in order that delay
may set in.

When from 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.
Illustrations:
1. ROBLES-FRANCISCO vs. CFI CASE: This case would tell you the
nature of a penal clause. Spouses bought a parcel of land payable in
instalment and in the contract it was stipulated that if despite full
payment Robles-Francisco the (developer) would not be able to give to
the partners the certificate of title over the land the seller is obliged to
return all the amounts paid plus four percent interest. Now when the
spouses were already paid of the entire amount of the purchase price,
Robles-Francisco could not deliver the certificate of title over such parcel
of land because the mother title was being mortgaged with the GSIS,
hence, the condition cannot be satisfied, and thats why the spouses
filed this case to recover all the amounts paid plus 4% interest plus
damages. Actual amount paid + 4% + nominal damages. But
Robles-Francisco would question this decision claiming that, the 4%
interest stipulation is a penal clause and under the law the
clause shall substitute the indemnity for damages and the
payment of interest. In other words, the court should have not
awarded the nominal damages in addition to the penalty. Is the ruling in
Robles-Francisco correct? WRONG. Because the 4% interest stipulation
said the court cannot be considered as a penal clause; because a
penal clause by its nature should provide for a greater liability
in case of non-performance and even under the law at that time, if a
person fails to pay a sum of money it is already in delay, he will be liable
for interest, if you have any agreement as to the rate it would have to be
6% at that time, now 12%, if by law you will be liable for 6% and by
stipulation only 4%, how could that be considered a penal clause ? When
again a penal clause should provide for a greater liability. So what
happened? The trial court then ruled that Robles-Francisco should return
all the amount received plus 4% penalty plus nominal damages.
However, I said as a rule that penalty shall substitute as indemnity for
damages and payment of interest as this admits exceptions. In other
words, aside from the penalty agreed upon, the debtor may be
held liable for other amounts. 3 reasons:
a. Because it is so stipulated. E.g. Credit cards agreement. In
other words here, penalty shall not be a substitute for indemnity
for damages and the payment of interest. May interest ka na,
may penalty ka pa. Which was in the ruling in the case of

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Bachrach vs. Espiritu stipulated penalty of 25% there is still
an interest of 12% although if you read the case, ordinarily are
courts bound to the penalty agreed upon by the parties? YES
because it is so stipulated. But of course there are
exceptions, there are instances when the court would have the
power to reduce the penalty agreed upon:
i. there was irregular in the performance (Bachrach vs.
Espiritu; Macalinao vs. BPI);
ii. when the penalty is unconscionable. When will it be
unconscionable? A 25% penalty would have been
unconscionable? Not necessarily, it would depend on the
principal amount involved.
b. Fraud. Instead of just penalty the person liable of fraud can be
held liable of other amounts for damages suffered by the other
party. Problem: Spouses BK ordered from a furniture company
set of furniture and it was so agreed upon that these sets of
furniture would be made of Narra and this furniture company
delivered furniture sets not made of Narra to spouses BK. In that
contract it was stipulated that in case of non-performance, will
be liable for penalty of 100k. Spouses BK filed an action claiming
for the 100k by way of stipulated penalty plus 300k for actual
damage suffered by them. Is he correct in claiming such? He
would have been correct if Bettys furniture xxxx with
qualification, in a way partially correct, in that the furniture
company committed fraud in delivering the sets of furniture not
made of Narra, but did the company commit fraud already when
they delivered the furniture? No. Just because that the furniture
delivered were not made of Narra it is already fraud, it could
have been that it was made by mistake. Fraud is not
presumed. Good faith is presumed. Unless the circumstance
warrants that fraud was committed by making it appear that the
furniture was made of Narra when it was not. Then fraud is
committed. Why did I say only partially correct lang si Mr. BK?
Because in Pamintuan case, there was fraud that is why
creditor was able to recover an amount greater than the amount
they have agreed upon. Back to the problem, assuming there
was fraud, is Mr. BK right in claiming both the penalty and the
actual amount? NO. If he would have recovered already the
penalty the actual amount will be minus to the penalty.
Hindi pwede penalty + actual amount, because if ganito,
Mr. BK would enrich himself.
2. Refuses to pay penalty this is consistent with Delay, therefore he will be
liable for other amounts like by way of interest. If theres compliance,
like an obligation to deliver a horse, with the penalty of 300k in case of
non-compliance and on the day that the obligation is due, the debtor
failed to deliver the horse. Would specific performance be the proper
remedy? YES. As long as the debtor is still in the position to deliver the
horse he can still be compelled to deliver such. But can the creditor
recover both the horse and the penalty? Ordinarily, NO, it is either the
demand for the horse or just the recovery of the penalty because that is
the rule. Except: unless the recovery of both is CLEARLY GRANTED
TO HIM. clearly granted to him under the law it says, it need

3.

4.

5.

6.

not be stipulated as long as it can be shown that it is clearly the


right of the creditor to have both or recover both penalty and
the horse then the creditor can do so.
E.g. in a real estate contract, if the obligation to build a building is for
the period of 365 days, and if after the period has already expired, and
the project would not have been completed, the contractor would be
liable to developer for 50k per every date of delay. The period of 365
days have already lapsed or expired, can the creditor still compel the
debtor to perform? Of course if he refuses he cannot, the demand will
be a valid demand, but he cannot be compelled to continue because it
is an obligation to do. Plus is he entitled to the penalty? Yes even if it
was not stipulated as it is clear here that he has a right to
recover. He has the right to demand the performance of both.
E.g. With that example of the horse with a penalty of 300k. The debtor
said here is the 300k which we agreed as the penalty, I would not deliver
the horse anymore, I will just pay you the penalty instead. Can the
creditor be compelled to accept? NO, unless this time the debtor
reserves such right to himself. If it is clear that instead of performing
the obligation he can just pay the penalty then such it is possible.
Otherwise, he would still be compelled to deliver the horse.
LAST, if the principal obligation is void, can the debtor be compelled to
pay penalty? NEVER. Penal clause is just an accessory clause. The
payment of the penalty is just an accessory therefore if the principal
obligation is void then the penalty will also be void. But if the penal
clause is void would that affect the obligation? NO. E.g. A promise to
deliver B his horse, if he fails to do so he would have to give B 3 kilos of
shabu. Void is the penal clause, but the principal obligation still subsists.
If the principal obligation is void, may that give rise to the enforcement
of the penal clause? YES. If it is clear in the agreement that if it is a void
obligation then one of the parties will be liable to pay a sum of money
the other parties. This can easily be understood in relation to contracts
entered into by a Filipino and a foreigner. Because if the negotiation of
the contract would be made in the Philippines, and if the project would
have to be performed here in the Philippines, thats why the foreigner
would always demand that if this contract or there would be a stipulation
that if the contract would be declared void or the contract in general
declared void by our courts, the other party, the Filipino would be liable
for 10M. Can the Filipino be held liable? Yes if it was declared void
and it is reasonable because in the negotiation the foreigners
has already incurred expenses like the plane fare and for hotel
accommodations.

E. BREACH OF OBLIGATIONS (ARTICLE 1170)


Article 1170. Those who in the performance of their obligation are guilty of
fraud, negligence or delay, & those who in any manner contravene the tenor
thereof, are liable for damages.
Irregularity of Performance [Articles 1169 - 1174]

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Article 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from 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 from 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 with what is incumbent upon
him. From the moment one of the parties fulfills his obligation, delay by the other
begins.
Balane: Two Classes of Irregularity of Performance:
1. Attributable to the debtor
A. Fraud
B. Negligence
C. Delay
2. Not attributable to the debtor
A. Fortuitous event
Illustrations:
22. If there is an obligation, does it mean that one of the parties would be
liable for the damages? Common answer: YES and this is VERY
WRONG. Just because theres an obligation one will be liable for
damages because the best scenario is both parties did not comply with
their respective obligations if this is reciprocal obligation. Who would be
liable? No one. But if one of the parties failed to perform therefore liable
for damages? Not necessarily because there are EXCUSES to nonperformance. Fail to perform easiest reason: because it was the
fault of the creditor. But this scenario is not usual.
23. Usual defense in real life and in bar exam: FORTUITOUS EVENT. I fail
to perform my obligation because of this Fortuitous event (FE). Under
the law, FE could not have been foreseen or though foreseen it is
inevitable.
a. Robbery is it unforeseen? If your business is pawnshop, robbery
is not a FE.
b. Typhoon is FE, though foreseen it is inevitable.
c. Asian Financial Crisis in the case of Filinvest: Spouses bought
a condo unit in a pre-selling stage, but even after the full
payment of the price still there was no condo. So the spouses
sued Filinvest, Filinvest in its defense was FE. They were not able
to complete the project because of FE thats why we cannot be
held liable. Was Filinvests contention is correct? NO, because
the Asian financial crisis is not a fortuitous event. This is
because it is man-made. There is a financial crisis because of the
greed of the people, so this is man-made. But even if the reason
was due to Fortuitous event can it be possible that the debtor
will still be liable? YES. In other words there are exceptions as

to the general rule that in case of fortuitous event the


debtor may not be held liable. These are:
i. Because it is so stipulated. e.g. depositarium
ii. Because the law so provides e.g. 1165. The
obligation to give a determinate thing, if the loss due to
the debtors fault can still be held liable to thing lost if at
that time of the lost he was already in delay. Or before
the lost he promised to deliver such thing to two or more
persons and after it was lost xxxxx, liable because the
law so provides. e.g. commodatum
MANNER OF BREACH
(1) Fraud
Article 1171.
Responsibility arising from fraud is demandable
OBLIGATIONS. Any waiver of an action for future fraud is void.

in

all

Article 1338. There is fraud when, through insidious words or


machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to.
Article 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
Balane: Is it correct to say that fraud in Article 1170 means deceit or insidious
machinations? No.
LEGASPI OIL VS. CA [224 SCRA 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
which naturally & necessarily arise from such act or omission;

The fraud referred to in Article 1170 is the deliberate & intentional


evasion of the normal fulfillment of obligation;

It is distinguished from negligence by the presence of deliberate intent,


which is lacking in the latter.
Fraud as used in Article 1170 is different from fraud as a cause for vitiation of
consent in contracts (more properly called deceit which prevents the contract from
arising; this is found in Article 1380, et seq.)
Fraud as referred here is the deliberate and intentional evasion of normal
fulfillment of OBLIGATIONS; thus, as ground for damages from this article,
implies some kind of malice or dishonesty, which does not cover mistake,
errors of judgment made in good faith.
Evasion of a legitimate OBLIGATION for benefits admittedly received
constitutes unjust enrichment.
Q: What is a synonym for fraud as used in Article 1170?
A: Malice.
Effects of Fraud:

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1. Creditor may insist on performance, specific or substitute (Article 1233.)
2. Creditor may resolve/ rescind (Article 1191.)
3. Damages in either case (Article 1170.)
(2) Negligence
Article 1171.
Responsibility arising from fraud is demandable
OBLIGATIONS. Any waiver of an action for future fraud is void.

in all

Article 1172. Responsibility arising from 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.
Article 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation & corresponds with
the circumstances of the persons, of the time & of the place. When negligence
shows bad faith, the provisions of articles 1171 & 2201, paragraph 2, shall apply.

Negligence is the absence of something that should be there due


diligence.

Measure of Due Diligence


There are two guides:
1. Diligence demanded by circumstances of person, place & time
2. Care required of a good father of a family (fictional bonus pater familias
who was the embodiment of care, caution & protection in Roman law.)
In common law, the degree of care required is the diligence of a prudent
businessman. This is actually the same as the diligence of a good father of a
family.
Effects of Negligence:
1. Creditor may insist on performance, specific or substitute (Article 1233.)
2. Creditor may resolve/ rescind (Article 1191.)
3. Damages in either case (Article 1170.)
From 1173 = culpa contractual
from 2176 = culpa aquiliana or extra-contractual
** In both cases, for liability to attach, such negligence must be the proximate
cause of the injury to plaintiff.
(3) Delay
See Article 1169.
= default / mora, in the fulfillment of OBLIGATIONS;
REQUISITES to be in Default:
OBLIGATION is demandable and liquidated
debtor delays performance
creditor requires performance, judicial or extrajudicial demand

Article 1165. xxx. If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.
Article 1786. Every partner is a debtor of the partnership for whatever
he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to
specific and determinate things which he may have contributed to the
partnership, in the same cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered, without the need
of any demand.
Article 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and damages
from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use.
Article 1896. The agent owes interest on the sums he has applied to his own use
from the day on which he did so, and on those which he still owes after the
extinguishment of the agency.
Article 1942. The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it
has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility in
case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member
of his household;
(5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter. (OBLIGATIONS OF THE BAILEE)
Delay is the non-fulfillment of the obligation with respect to time.
Kinds of Delay:
1. Mora Solvendi- delay in the performance (on the part of the debtor);
2. Mora Accipiendi- delay in the acceptance (on the part of the
creditor);
3. Compensation Morae- mutual delay
Article 2201. xxx
(2) In contracts & quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural & probable consequences of
the breach of the obligation, & which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation.
(4) ANY OTHER MANNER OF CONTRAVENTION:

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Includes any illicit acts which impair the strict and faithful fulfillment of
OBLIGATION, or every kind of defective performance;
CASE: in any manner contravene the tenor of contract
AGCAOILI VS. GSIS [165 SCRA 1]
FACTS: GSIS approved application of Marcelo Agcaoili for purchase of House and
Lot in Marikina, subject to the condition that latter should forthwith occupy the
house.
If you fail to occupy the same within 3 days from receipt of this notice, your
application will be considered automatically disapproved & said House & Lot will
be awarded to another.
Agcaoili could not stay in the house which was only a shell. It did not have a
ceiling, stairs, double walling, lights, water, CR, drainage. He asked a homeless
friend instead to stay and watch over the property. After paying 1 st installment &
other fees, he refused to make further payments until GSIS would make d house
habitable. Instead of heeding to Agcaolis condition, GSIS cancelled the contract
and demanded Agcaoili to vacate.
Agcaoili filed a 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 between them. It is axiomatic that "In
reciprocal OBLIGATIONS, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him.
ISSUE: Whether or not Agcaoili breached the contract by failing to occupy the
house within 3 days as stipulated?
HELD: NO, argument of GSIS is devoid of merit. There being a perfected
contract 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. There was then a perfected contract of sale between 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., & from 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.

CASE DOCTRINE: One who assumes a contractual obligation & fails to


perform the same on account of his inability to meet certain bank
requirements which inability he knew & was aware of when he entered
into the contract, should be held liable in damages for breach of
contract.

ARRIETA VS. NARIC [10 SCRA 79] (PAZ ARRIETA AND VITALIADO ARRIETA
VS. NATIONAL RICE & CORN CORP.)
FACTS: On May 1952, Arrieta took part in public bidding called by NARIC to supply
20K metric tons of Burmese rice, being the lowest bidder she was awarded the
contract. In the contract of sale, Arrietas OBLIGATION was to deliver the rice at
the price of her bid, while NARICs OBLIGATION was to pay her in letter of credit,
irrevocable, confirmed and assignable, in USD in favor of Arrieta and/or supplier in
Burma, immediately.
NARIC knew that it did not have enough deposit in PNB to cover the OBLIGATION,
thus it wrote a letter of request to accommodate the application for Letter Of
Credit despite such fact in lieu of this contract with Arrieta. This application was
made by PNB on July 30, 1952, a month after it entered in the contract with Arrieta
and promised to open the Letter Of Credit immediately. By this time Arrieta has
made a 5% tender to her supplier in Burma, which will be confiscated if the
required Letter Of Credit will not be received before August 4, 1952. Such fact
was apprised by Arrieta to NARIC in a letter through counsel.
PNB required NARIC to make a marginal deposit of 50% of the amount of Letter Of
Credit before such will be released in favor of Arrietas supplier in Burma. Such
condition NARIC is not in any financial position to meet. PNB consequently
approved & released the LOC 2-months in delay. The Burmese supplier had
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 with Thailand rice, but NARIC rejected. Thus, Arrieta demanded for
payment of damages of USD 286K representing unrealized profits. Again rejected.
Thus, this case.
ISSUE: WON NARIC was in breach of contract?
HELD: YES. NARICs culpability arises from its willful and deliberate
assumption of contractual OBLIGATIONS even as it was well aware of its
own financial incapacity to undertake the prestation.
Under Article 1170, not only debtors guilty of fraud, negligence or
default but also every debtor, in general, who fails the performance of
his obligation is bound to indemnify for the losses & damages caused
thereby.
Meaning of phrase "in any manner contravene the tenor" of the
obligation in Article 1170 The phrase includes any illicit task which 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 which is not covered by fraud, negligence or delay. In this case, the
SC was apparently not sure as to what category the breach fell. This phrase is not
really an independent ground.
TIME IS OF THE ESSENCE

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TELEFAST Communications/Phil. Wireless, Inc. VS. IGNACIO CASTRO [158
SCRA 445]
FACTS: Consolacion Bravo-Castro, the wife of herein respondent Ignacio died in
Lingayen, Pangasinan. Thus, that same day, her daughter Sofia sent a telegram to
her father in the USA via TELEFAST. Her mother was interred without her father nor
siblings in attendance. When Sofia went back to the USA she learned that her
telegram never reached her father. She sued TELEFAST for damages due to breach
of contract. While TELEFASTs defense was technical and atmospheric factor
beyond its control.
ISSUE: Whether or not TELEFAST is liable only for P31.92 (fee) and not for
damages.
HELD: YES, Article 1170, and also under Article 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. Also, Article 2217 is applicable since Petitioners act or omission amounted
to gross negligence which was precisely the cause of the suffering of herein
private respondents.
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
private respondent 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.

3.

When the nature of the obligation requires the assumption of risk, e.g., an
insurance contract.

EXAMPLES OF By Express Provision of Law:


IN Depositary
Article 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 without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been authorized
to use the same.
Q: What if a depositor was in the premises of the bank & was robbed of his money
which he was about to deposit?
A: Bank cannot be held liable for fortuitous event (robbery) especially in case
where the money has not yet been actually deposited.
Article 1979 provides for instances wherein depositary is still liable even in cases
of fortuitous event.

EXCUSE FOR NON-PERFORMANCE

Q: What kind of diligence is required of a depositary?


A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a Safety Deposit Box was stolen, rules
on deposit will not apply because the contract governing the transaction is LEASE
of safety deposit box.

1. Loss due to Fortuitous Events

Bailee in Commodatum

Article 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 which could
not be foreseen, or which , though foreseen, were inevitable.

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;
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;
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.

To constitute a caso fortuito that will exempt a person from responsibility, it is


necessary that: [Austria vs. Abad, June 10, 1971]
1. the event must be independent of human will;
2. the occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner;
3. that the obligor must be free of participation in, or aggravation of, the
injury to the creditor.
Balane:
General Rule: The happening of a fortuitous event exonerates the debtor from
liability.
EXEMPTIONS FROM APPLICATION OF General Rule ON Fortuitous Event:
1. When the law so specifies. E.g., if the debtor is already in delay (Article
1165, par. 3.)
2. When the parties so agree

In Negotiorum Gestio
Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which 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.

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Article 2148. Except when the management was assumed to save the property
or business from 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 from taking up
the management.

are not contrary to law, morals, good customs, public order, or public
policy.
(3) when the nature of the OBLIGATION requires the assumption of
risks
Aleatory Contract

Payee in Solutio Indebiti


Article 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 which
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing from
any cause, & for damages to the person who delivered the thing, until it is
recovered.
Lessee
Article 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.
Article 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.
Article 552. xxx.
A possessor in bad faith shall be liable for deterioration or loss in every case, even
if caused by a fortuitous event.
Independent Contractor
Article 1727. The contractor is responsible for the work done by persons
employed by him.
Article 1728. The contractor is liable for all the claims of laborers & others
employed by him, & of third persons for death or physical injuries during the
construction.
Common Carrier
Article 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 (Article 1174)
Express agreement
Article 1306. The contracting parties may establish such stipulations,
clauses, terms & conditions as they may deem convenient, provided they

Article 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 which is uncertain, or which is to occur
at an indeterminate time.
Article 1175. Usurious transactions shall be governed by special laws.
Tolentino:
Usury is the contracting for or receiving something in excess of the amount
allowed by law for the loan or forbearance or money, goods or chattels.
Special law on usury
-The Usury Law was Act No. 2655. This law was repealed during the period of
martial law, leaving parties free to stipulate higher rates.
______________________________________________________
CASES:
Balane: Some of the elements were present in this case. What was absent was
the last element.
National Power Corporation vs. CA and Engineering Construction Inc.
[161 SCRA 334] NPC cannot escape liability because its negligence was
the proximate cause of the loss & damage even though the typhoon was
an act of God.
FACTS:
Typhoon Welming
Plaintiff ECI entered contract with NAWASA on Aug.1964, to construct Ipo-Bicti
Tunnel, Intake and Outlet Structures at Norzagaray, Bulacan within 800 days from
receipt of notice to proceed. It has finished 1 st stage of the excavation works and
was already on the Ipo site phase when typhoon Welming came in November 4,
1967 and hit Central Luzon passing through Angat Dam. 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 construction
work of ECI at Ipo Site with terrific impact washing away and/or destroying
supplies and equipment of ECI.
ECI then sued NPC for damages.
ISSUE: Whether or not NPC is liable for damages.
HELD: It is clear from the appellate court's decision that based on its findings of
fact & that of the trial court's, petitioner NPC was undoubtedly negligent because
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 before it actually struck. And even though the typhoon

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was an act of God or what we may call force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss & damage. As we
have said in Juan Nakpil & Sons vs. CA, 144 SCRA 596,
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in
any manner of the tenor of the obligation as provided for in Article 1170,
which 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 from creating or entering into the cause of
the mischief. When the effect, the cause of which is to be considered, is found
to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it was, & removed from the rules applicable to the acts of God.
Thus, it has been held that when the negligence of a person concurs with an act of
God in producing a loss, such person is not exempt from liability by showing that
the immediate cause of the damage was the act of God. To be exempt from
liability for loss because of an act of God, he must be free from any
previous negligence or misconduct by which the loss or damage may
have been occasioned.
(2) ACT OF CREDITOR
CASE: City of Manila failed to exercise the diligence of a good father of a family
which is a defense in quasi-delict.
BERNARDINO JIMENEZ vs. CITY OF MANILA [150 SCRA 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 when the latter was flooded with ankle-deep rainwater. His left leg
was stuck by a rusty 4-inch nail. His leg later on swelled and he was brought for
treatment to Veterans Memorial Hospital. He walked around with crutches for 15
days, unable to work, forced to hire a temporary driver for his school bus he is
operating. Thus, he sued the City of Manila for damages, and the Asiatic
Integrated Corp. (AIC) who had the managing and operating contract to that
market. Lower court dismissed his complaint for insufficiency of evidence. The
appellate court found in his favor and placed sole liability on AIC.
ISSUE: WON the City of Manila should be held solidarily liable with Asiatic
Integrated Corp. for injuries suffered by petitioner.
HELD: YES. As a defense against liability on the basis of quasi-delict, one must
have exercised the diligence of a good father of a family. (Article 1173, NCC)
There is no argument that it is the duty of the City of Manila 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 Manila. Neither was it shown that
any sign had been placed thereabouts to warn passers-by of the
impending danger.
For liability under Article 2189 NCC to attach, it is not necessary that the defective
public works belong to the LGU concerned. What is required is control or
supervision.
CASE: Requisites for exemption from liability due to an "act of God."
Juan F. NAKPIL & SONS vs. CA [144 SCRA 596]- October 3, 1986
To exempt the obligor from liability under Article 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 from 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, Manila was undertaken by United Construction Inc. on an
administration basis on suggestion of United President Juan Carlos. Such was
approved by PBA Board, & Pres. Roman Ozaeta. Plans and specifications were
done by Juan Nakpil & Sons. The Bldg. was completed on June 1966.
On August 2, 1968 an unusually strong earthquake hit Manila. The PBA bldg.
sustained major damage, in which tenants had to vacate. The building was
shored up by UCI at the cost of P13,661.28.
Hence, PBA filed action to recover damages against UCI while the latter sued
Nakpil for damages due to defects on the plans and specifications.
ISSUE: WON AN ACT OF GOD WHICH CAUSED DAMAGE TO THIS BLDG, EXEMPTS
FROM LIABILITY, PARTIES WHO ARE OTHERWISE LIABLE BECAUSE OF
NEGLIGENCE?
HELD:
ARTICLE 1723
To exempt obligor from liability under Article 1174, fortuitous events; or
for a breach of OBLIGATION due to an act of God, the following: must
concur:
1. cause of the breach of OBLIGATION must be independent of the will of the
debtor;
2. the event must be either unforeseeable or unavoidable

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3. the event must be such as to render it impossible for debtor to fulfill
OBLIGATION 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 fortuitous event or an Acts Of God, there concurs
a corresponding fraud, negligence, delay or violation or contravention in any
manner of the tenor of the OBLIGATION as provided in Article 1170, which results
in loss or damage, the obligor cannot escape liability.
To be an Act Of God, 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 Juan F.
Nakpil & Sons were both liable. The defects in the plans & specifications were
proximate cause, the deviations of United for the specs and failure to observe
required workmanship & degree of supervision on both makes them liable.
CASE DOCTRINE: "One who negligently creates a dangerous condition
cannot escape liability for the natural & probable consequences thereof,
although the act of a third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss." (Citing Tucker v. Milan,
49 OG 4379, 4380.)
NAKPIL & SONS VS. CA [160 SCRA 334] - APRIL 15, 1988
FACTS: UCI filed a Motion for Reconsideration on the decision previously disposed
of the SC on Oct. 3, 1986 pointing out that it was PBAs legal duty to provide fulltime and active supervision in the construction of the subject building. Also, UCI
points out that bad faith was not established.
ISSUES RAISED ON THIS MR:
(1) That the building did not collapse on the earthquake of 4/2/68, thus the
premise of the LC findings is negated, Article 1173 cannot apply
HELD: It is not the fact of collapse that was the premise on applying Article 1173
but on who should be responsible for the extreme damage to the bldg.
which inevitably led to its collapse, or demolition. Trial court correctly
found defendants liable;
(2) That court failed to impute liability on PBA or on Ozaeta for failure to provide
legal duty to supervise, as owner.
HELD: There is 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, &
constructions designs is equivalent to Bad Faith in performance of their
respective duties;
(4) Award of 5M had no basis, Commissioners report estimated only 1.1M.
HELD: Such initial report was based on the partial collapse only, after the 4/2/68
earth quake, for repairs; but after total collapse almost 20 yrs later,

unrealized rentals and major reconstructions makes even 5M a very


conservative estimate.
(5) As to award of atty.s fees & damages.
HELD: It was court discretion.
(6) 12% interest p.a. according to CB Circular 416 (PD 116) applies only to (1)
loans; (2) forbearance of money, goods or credit; (3) rate allowed
in JFOs involving 1 & 2.
HELD: True, but, 12% is imposable only when there is delay in payment of
judgment after its finality. (penalty not really interest)
NPC VS. CA [222 S 415] Petitioners cannot be heard to invoke the act of
God or force majeure to escape liability for the loss or damage sustained by the
private 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 from the participation of man. Thus, the whole occurrence was thereby
humanized, as it were, & removed from 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 because the losses & damages sustained by
the private respondent's had been proximately caused by the negligence of the
petitioners, although the typhoon which preceded the flooding could be
considered as a force majeure.
Case: Roberto Sicam and Agencia de R.C. Sicam Inc. Vs. Lulu Jorge and
Cesar Jorge, August 8, 2007.
Facts: On October 19, 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop unit. Such
incident was entered in police blotter in Paranaque. Sicam then sent letter to
Lulu informing the latter of the loss of her jewelry due to the robbery. However,
Lulu wrote a letter expressing her disbelief and asking the return of her jewelry
instead. But Sicam failed to return the same. Hence, Lulu and husband filed a
complaint seeking indemnification for the loss of pawned jewelry. RTC dismissed
the complaint since Sicam cannot be made personally liable for an incident
which is in relation to corporate transaction and so as the corporation because
the loss was occasioned by a fortuitous event. CA reversed the RTC and held
Sicam liable together with the corporation.
Issue: Whether or not the robbery in pawnshop resulting to the loss of pawned
jewelry can be considered as fortuitous event thereby excusing liability of Sicam
and Corporation.
Held: NO. Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible
to foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. 22

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To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be independent of
human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests
on him who invokes it.24 And, in order for a fortuitous event to exempt
one from liability, it is necessary that one has committed no negligence
or misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible adverse consequences of such a
loss. One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a
person's participation -- whether by active intervention, neglect or failure to act
-- the whole occurrence is humanized and removed from the rules applicable to
acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop
at the time of the robbery. He likewise testified that when he started the
pawnshop business in 1983, he thought of opening a vault with the nearby bank
for the purpose of safekeeping the valuables but was discouraged by the Central
Bank since pawned articles should only be stored in a vault inside the pawnshop.
The very measures which petitioners had allegedly adopted show that to them
the possibility of robbery was not only foreseeable, but actually foreseen and
anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners
defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by
which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein
petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically
give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of
another's property. It must be proved and established that the
event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent
has any participation. In accordance with the Rules of Evidence,
the burden of proving that the loss was due to a fortuitous
event rests on him who invokes it which in this case is the
private respondent. However, other than the police report of the
alleged carnapping incident, no other evidence was presented by private

respondent to the effect that the incident was not due to its fault. A
police report of an alleged crime, to which only private respondent is
privy, does not suffice to establish the carnapping. Neither does it prove
that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the possibility of fault or
negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police report of the Paraaque
Police Station on the robbery committed based on the report of petitioners'
employees which is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding
that petitioners are guilty of concurrent or contributory negligence as provided
in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that
the creditor shall take care of the thing pledged with the diligence of a good
father of a family. This means that petitioners must take care of the pawns the
way a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission
of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of time and of the
place. When negligence shows bad faith, the provisions of Articles 1171
and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father of
a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do
something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not do.31 It is want of
care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would have used
in the same situation.
Case: Manila Electric Company vs. Matilde Ramoy, March 4, 2008.
Facts: In 1987, NPC filed with MTC of Quezon City a case for ejectment against
several persons allegedly illegally occupying its properties in Baesa, QC. Among
the defendants were the Ramoys. The MTC ordered the demolition of the
buildings and structures. On June 20, 1990, NPC wrote Meralco requesting the
latter to immediately disconnect electric power supply to all residential and
commercial establishments in the subject land. Hence, Meralco comply with the
same. In due time, the electric service connection of the plaintiffs was
disconnected. Upon the conduct of disconnection, respondents herein were

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contesting that the property were not under NPC properties. The same lead the
respondents to vacate the premises. However, during ocular inspection ordered
by the court, it was found out that the residence of the Ramoys were outside
NPCs properties. RTC dismiss complaint for damages against Meralco but
instead ordered the latter to restore electric power supply to respondents.
Hence, respondents appealed to CA. CA held Meralco liable for damages.
Issue: Whether Meralco is held liable for damages to the Respondents.
Held: YES. MERALCO admits6 that respondents are its customers under a
Service Contract whereby it is obliged to supply respondents with electricity.
Nevertheless, upon request of the NPC, MERALCO disconnected its power supply
to respondents on the ground that they were illegally occupying the NPC's right
of way. Under the Service Contract, "[a] customer of electric service must show
his right or proper interest over the property in order that he will be provided
with and assured a continuous electric service."7 MERALCO argues that since
there is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling
that herein respondents were among the illegal occupants of the NPC's right of
way, MERALCO was justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa
contractual or breach of contract for the latter's discontinuance of its service to
respondents under Article 1170 of the Civil Code which provides:
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.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court
expounded on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding
right of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach upon
the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his "expectation interest," which is
his interest in having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a position as he would have
been in had the contract not been made; or his "restitution interest," which is his
interest in having restored to him any benefit that he has conferred on the other
party. Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every infraction
is to create a new duty, that is, to make recompense to the one who has been
injured by the failure of another to observe his contractual obligation unless he
can show extenuating circumstances, like proof of his exercise of due diligence x
x x or of the attendance of fortuitous event, to excuse him from his ensuing
liability.9 (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in
the omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of the
place. The Court emphasized in Ridjo Tape & Chemical Corporation v. Court of
Appeals10 that "as a public utility, MERALCO has the obligation to discharge its
functions with utmost care and diligence."11

The Court agrees with the CA that under the factual milieu of the
present case, MERALCO failed to exercise the utmost degree of care
and diligence required of it. To repeat, it was not enough for MERALCO
to merely rely on the Decision of the MTC without ascertaining whether
it had become final and executory. Verily, only upon finality of said
Decision can it be said with conclusiveness that respondents have no
right or proper interest over the subject property, thus, are not entitled
to the services of MERALCO.
Case: Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation, July
26, 2010.
Facts: In the first quarter of 1998, Petitioner entered into an agreement with
Davao Corp. for the purchase of corrugated carton boxes specifically designed
for petitioners business of exporting fresh bananas at US1.10 each. The
agreement was not reduced into writing. To get the production underway, the
petitioner deposited to respondents dollar account with Westmont Bank, as full
payment. However, despite payment, petitioner did not receiver any boxes.
Petitioner wrote demand letter for reimbursement from respondent. On February
19, 2001, respondent replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up from the formers
warehouse 30 days from completion, as agreed upon. Respondent mentioned
that petitioner even placed an additional order of 24,000 boxes, out of which,
14,000 had been manufactured without any advanced payment from petitioner.
Respondent then demanded petitioner to remove the boxes from the factory and
to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as
storage fee. On August 17, 2001, petitioner filed a Complaint for sum of money
and damages against respondent. RTC ruled that respondents did not commit
any breach of faith that would justify rescission of the contract and the
consequent reimbursement. CA denied the appeal of petitioner.
Issue: Whether or not the respondent is liable for reimbursement of the
payment made by petitioner.
Held: NO. Petitioners claim for reimbursement is actually one for rescission (or
resolution) of contract under Article 1191 of the Civil Code, which reads:
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 and the
Mortgage Law.
The right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:

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(1) When the obligation or the law expressly so declares; or
(2) When from the nature and 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; or
(3) 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 with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by the
other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties respective obligations should be simultaneous. Hence,
no demand is generally necessary because, once a party fulfills his obligation
and the other party does not fulfill his, the latter automatically incurs in delay.
But when different dates for performance of the obligations are fixed, the default
for each obligation must be determined by the rules given in the first paragraph
of the present article,19 that is, the other party would incur in delay only from
the moment the other party demands fulfillment of the formers obligation. Thus,
even in reciprocal obligations, if the period for the fulfillment of the obligation is
fixed, demand upon the obligee is still necessary before the obligor can be
considered in default and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the
complaint was the lack of demand by petitioner upon respondent to
fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a demand for the
fulfillment of the obligation. Petitioners witness also testified that
they made a follow-up of the boxes, but not a demand. Note is taken of
the fact that, with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a demand letter was
sent to respondent. Without a previous demand for the fulfillment of
the obligation, petitioner would not have a cause of action for
rescission against respondent as the latter would not yet be considered
in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing
the present case, petitioners claim for reimbursement would still fail,
as the circumstances would show that respondent was not guilty of
breach of contract.
The existence of a breach of contract is a factual matter not usually reviewed in
a petition for review under Rule 45.20 The Court, in petitions for review, limits its
inquiry only to questions of law. After all, it is not a trier of facts, and findings of
fact made by the trial court, especially when reiterated by the CA, must be given
great respect if not considered as final.21 In dealing with this petition, we will
not veer away from this doctrine and will thus sustain the factual findings of the
CA, which we find to be adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes
and the production report thereof, there is ample showing that the boxes had
already been manufactured by respondent.
Case: Mindanao Terminal and Brokerage Service, Inc. vs. Phoenix
Assurance Company of New York/MCGEE & Co., Inc., May 8, 2009.

Facts: Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao
Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green
Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold
of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and
the goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under
an "open cargo policy" with private respondent Phoenix Assurance Company of
New York (Phoenix), a non-life insurance company, and private respondent
McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix.
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The
vessel set sail from the port of Davao City and arrived at the port of Inchon,
Korea. It was then discovered upon discharge that some of the cargo was in bad
condition. Del Monte Produce filed a claim under the open cargo policy for the
damages to its shipment. RTC dismissed the complaint. CA reversed. The same
court ordered Mindanao Terminal to pay Phoenix and McGee "the total amount of
$210,265.45 plus legal interest from the filing of the complaint until fully paid
and attorneys fees of 20% of the claim."11 It sustained Phoenixs and McGees
argument that the damage in the cargoes was the result of improper stowage by
Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the
cargo, the duty to exercise extraordinary diligence in loading and stowing the
cargoes. It further held that even with the absence of a contractual relationship
between Mindanao Terminal and Del Monte Produce, the cause of action of
Phoenix and McGee could be based on quasi-delict under Article 2176 of the
Civil Code.
Issue: Whether or not Mindanao Terminal is liable for damages for its failure to
exercise extraordinary diligence in loading and stowing the cargoes.
Held: NO. We adopt the findings of the RTC, which are not disputed by Phoenix
and McGee. The only participation of Mindanao Terminal was to load the cargoes
on board M/V Mistrau. It was not disputed by Phoenix and McGee that the
materials, such as ropes, pallets, and cardboards, used in lashing and rigging the
cargoes were all provided by M/V Mistrau and these materials meets industry
standard.
The resolution of the two remaining issues is determinative of the
ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract
does not state the degree of diligence which is to be observed in the
performance of an obligation then that which is expected of a good
father of a family or ordinary diligence shall be required. Mindanao
Terminal, a stevedoring company which was charged with the loading and
stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely
as a labor provider in the case at bar. There is no specific provision of law
that imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and
stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee
that Mindanao Terminal was bound by contractual stipulation to observe a higher
degree of diligence than that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal was required to observe
ordinary diligence only in loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau. The case of Summa Insurance Corporation v. CA, which
involved the issue of whether an arrastre operator is legally liable for the loss of

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a shipment in its custody and the extent of its liability, is inapplicable to the
factual circumstances of the case at bar. Therein, a vessel owned by the National
Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila,
carrying a shipment consigned to the order of Caterpillar Far East Ltd. with
Semirara Coal Corporation (Semirara) as "notify party." The shipment, including
a bundle of PC 8 U blades, was discharged from the vessel to the custody of the
private respondent, the exclusive arrastre operator at the South Harbor.
Accordingly, three good-order cargo receipts were issued by NGSC, duly signed
by the ship's checker and a representative of private respondent. When
Semirara inspected the shipment at house, it discovered that the bundle of PC8U
blades was missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that existing
between the consignee or owner of shipped goods and the common carrier, or
that between a depositor and a warehouseman [22 ]. In the performance of its
obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman as
enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good
care of the goods and to turn them over to the party entitled to their
possession. (Emphasis supplied)
There is a distinction between an arrastre and a stevedore. Arrastre, a Spanish
word which refers to hauling of cargo, comprehends the handling of cargo on the
wharf or between the establishment of the consignee or shipper and the ship's
tackle. The responsibility of the arrastre operator lasts until the delivery of the
cargo to the consignee. The service is usually performed by longshoremen. On
the other hand, stevedoring refers to the handling of the cargo in the holds of
the vessel or between the ship's tackle and the holds of the vessel. The
responsibility of the stevedore ends upon the loading and stowing of the cargo in
the vessel.
It is not disputed that Mindanao Terminal was performing purely stevedoring
function while the private respondent in the Summa case was performing
arrastre function. In the present case, Mindanao Terminal, as a stevedore, was
only charged with the loading and stowing of the cargoes from the pier to the
ships cargo hold; it was never the custodian of the shipment of Del Monte
Produce. A stevedore is not a common carrier for it does not transport goods or
passengers; it is not akin to a warehouseman for it does not store goods for
profit. The loading and stowing of cargoes would not have a far reaching public
ramification as that of a common carrier and a warehouseman; the public is
adequately protected by our laws on contract and on quasi-delict. The public
policy considerations in legally imposing upon a common carrier or a
warehouseman a higher degree of diligence is not present in a stevedoring outfit
which mainly provides labor in loading and stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of
evidence25 that Mindanao Terminal had acted negligently. Where the evidence
on an issue of fact is in equipoise or there is any doubt on which side the
evidence preponderates the party having the burden of proof fails upon that
issue. That is to say, if the evidence touching a disputed fact is equally
balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to
such fact must fail.26

It was further established that Mindanao Terminal loaded and stowed the
cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the
stowage plan, a guide for the area assignments of the goods in the vessels hold,
prepared by Del Monte Produce and the officers of M/V Mistrau.
Illustrations:
1. Why would a party to an obligation be liable? If there was FRAUD,
NEGLIGENCE, DELAY or ANY OTHER MATTER OF CONTRAVENTION.
a. ARRIETA vs. NARIC: As long as there is contravention of
the tenor even there was no fraud, negligence or delay
there is liability. But is it correct to say that only debtors may
be held liable for damages? No, even creditors may be held
liable. In Article 1170, the law says that those who are
guilty of fraud. It did not say that debtors who are guilty
of fraud. In fact, in the past bar exams, there was a problem
where the creditor was in delay and this is known as mora
accipiende. How could the creditor be in delay? He is not the
one to perform the obligation? Because if he refuses to accept
without just cause this can be considered in delay. So what
would the damages be suffered by the debtor? Plenty of reasons.
In keeping the thing, in preserving the thing, in the transport of
the thing if it needs to be delivered.
b. FRAUD A sold to B bottles of liquor which appears to be
Fundador but in reality it is originally a Matador Brandy inside
the bottle of Fundador. Was there fraud? YES. But is this fraud
under under Article 1171? NO. This is not, because the fraud
here speaks of in the performance of the obligation. In the
contract there is no fraud, but in the performance of the
obligation there is fraud. In this problem, this is what you call
CAUSAL FRAUD. Dolo Causante under Article 1338. Article
1344 incidental fraud. As to the nature of this fraud- Article
1170, I would not use dolo here, because DOLO is fraud in on
obtaining consent, that pertains to deceit. Article 1170 bad
faith/ malice.
i. The EFFECT OF FRAUD:
1. Article 1170 would result in liability for
damages.
2. Article 1338 would result in the contract being
considered to be VOIDABLE because theres
vitiation of consent but the injured party may be
entitle to damages as well.
3. Article 1334 would not result into a voidable
contract but would only result in the entitlement
of the injured party to damages.
ii. Another example for fraud:
4. If A filed an action against B for damages,
claiming that B committed fraud upon him
causing damaged upon him, however, if B was
able to prove to the court that A executed this
document where he basically would say that I
will not hold B liable for whatever damage may
be cause to me by B waiver. If there is such a

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c.

waiver proven. Will the action still prosper? It


depends. If the waiver was executed before
the fraudulent act, thats a waiver as to future
frauds and such waiver is a void waiver and can
still recover. But if the waiver was executed
after the fraudulent act was committed with
knowledge of the fraudulent act, this of course
would amount to condonation. How would you
know if this is a waiver as to future frauds? See
the dates as to the date of the commission of the
fraud and the date when the waiver was
executed.
NEGLIGENCE- another name fault which is really wrong.
Article 2176- quasi-delict is fault or negligence. So fault is
different from negligence. Negligence is by omission. Fault may
have intention.
i. CULPA ACQUILIANA or Quasi-delict = CULPA is a broad
term covering broad term including fault and negligence.
ii. CULPA = is not intentional. There are four kinds of
culpa. It can be intentional or non-intentional.
iii. How would we know if an act is a negligent act or not?
Negligence Article 1173. Parameters are there as to
whether the act is negligent or not. The degree of
diligence which should be observed in the
performance of the obligation.
iv. If a person is invoking fortuitous event, for it to be a
valid defense, there must not be a concurrent
negligence on his part.
v. Telefast vs. Castro Case This involves negligence
because the heirs are claiming moral damages, but this
is a contract, the sending of the telegram which was not
received by the heirs, but for moral damages to be
awarded resulting from a contract; breach of contract,
the law requires for one to disregard the
obligations. Telefast: we are not negligent because the
failure of sending the telegram was not due to our fault
but due to a fortuitous event, it was due to atmospheric
pressure and its beyond are control. SC: Telefast failed
to notify Sophia, the one who sent the telegram. The
failure to do so was a gross negligence act. And in our
jurisprudence, gross negligence act amounts to bad
faith. Hence, there is already a ground for the award of
moral damages. You have to determine the degree
of negligence whether it is only a simple
negligence or a grossly negligent act in relation to
liabilities.
vi. Negligence in torts and damages is still the same in
Article 1173. In the case of Philippine Bank of
Commerce vs. CA: This plaintiff company authorize a
secretary to deposit a sum of money to its account in a
branch of the PBC. Now, the secretary is not an

vii.

viii.

executive secretary just an ordinary one, however,


instead of depositing the money to the account of the
company, the secretary deposited the sum of money to
her husbands account in the same branch in the PBC.
How did she do it? She filled up the original copy but the
duplicate original has no account name, but the account
number of the husbands was there. Original was fully
filled up with her husbands account name and number.
So the bank would accept the amount of money for the
account of the husband and give back the duplicate
original copy to the secretary. Then the secretary
allegedly would now fill up the original duplicate and fill
the account name with the name of the company to
make it appear that it was deposited in the account of
the company. This happened several times not only
once. Until the company discovered that their account
was empty and so they sued the bank. Obviously it
was the negligence of the bank officers thats why
the company suffered damages. Negligence in not
insuring that the deposit slips were not fully filled
up. Whose negligence is the proximate cause, whether it
was the negligence if the officer of the bank in accepting
slips which are not fully filled up? In this case there was
a defense raised among other defenses, that the
company had the last clear chance in preventing this
injury have they only exercised the diligence. Why? The
banks would give us monthly statement of accounts. The
bank said that if they only bothered to open their
statement if accounts they would have notice that the
money was not deposited to their account therefore
there would be no subsequent acts that followed causing
them further injury. SC: The majority held the bank liable
holding that it was the banks negligence through its
officers which is the direct and proximate cause except
of one justice who supported the doctrine of the last
clear chance. I agree with the majority only for one
reason = because the banks are required to exercise the
highest degree of diligence in the performance of
their obligations.
Who else are required to exercise not the ordinary
diligence or the diligence of a good father of a family?
Anyone if it is so stipulated. If not under the law,
aside from banks, are common carriers. Doctors, public
utilities like Meralco. In one case it was held that: Public
utilities should exercise or are required to
exercise the highest degree of diligence. But the
recent rulings on realty companies: are now
required to exercise highest degree of diligence.
Degree of diligence corresponding to the
circumstances of the persons time and of the
place. MUST REMEMEBER!! The best case: Cangco vs.
MRR. Alighting from the moving vehicle was not a

Rojano, Queennie Compiled


negligent act according to the SC. Majority ruled it was
not a negligent act. I agree with the majority considering
the circumstances as to the person, the time, and the
place. Why? SC ruled that Cangco because he was at his
prime, he was just around 20s, it is okay for him to jump
from the train even when the train is still running. And
not only that, he was every much familiar with the train
and train station for he was riding it every day for years.
Here the time mattered, as to the negligence f the
employees because it turned out that it was the
negligence of the employees of the MRR is the
approximate and direct cause. Why? Because they
placed sacks of melon in the platform of the station near
the doors where the trains are stopping for the
passengers to alight that is why Cangco slipped and one
of his hand went under the train. Cangco wasnt able to
see the sacks of melon because the station was not well
lit. But there was proof here presented by Cangco that,
(On its face the dissenting opinion seems to be
correct that alighting from a moving train per se
is a negligent act, because the argument, had he
not alighted while the train was moving and
waited for the train to go to a full stop then he
would not have been injured, parang tamang
argument dba? But I think this argument is wrong. It was
not a scenario that the train was at a full stop, the
scenario is that the train was still moving so given the
scenario, was the act a negligent act? No. Why? Another
passenger alighted the train ahead of Cangco, the train
was still moving faster even when the train was moving
fast, was this passenger injured? No. So that was not the
reason, alighting form the moving vehicle per se. It was
the negligence of the employees of the MRR who
put the sacks of melon in the platform which
resulted from injury. Cangco was also a male, has he
been a female then that would be a negligent act
because of the clothes the women wear at that time are
kimonos.
ix. Stevedoring company, is it required to exercise? Only
Ordinary Diligence.
d. DELAY is also called mora, default. Delay on the part of both
parties, AGCAOILI CASE even assuming in delay na si Agcaolli
because he refused to accept, GSIS was also in delay because it
failed to deliver habitable house. He was asked to deliver a
house, but instead he delivered a structure with a roof. The court
did not agree even in the agreement it was said a house, it
should be a habitable house. Even assuming that Agcaoilli was in
delay, in contemplation of the law no one was in delay, so was
the GSIS correct in cancelling the contract? No, because Agcaoilli
was not in delay.
x. When would there be delay? As a rule when there is
already DEMAND. NO DEMAND NO DELAY. But there are

Exceptions:
5. If so stipulated. E.g. credit card agreement.
Without need of demand. For a demand to be
valid the demand must be made when the
obligation is already due. If you demand when
the obligation is not yet due not a proper
demand because the obligation is not yet
due and demandable. No particular form as to
how to make a demand. But lawyers will never
make a demand verbally because of evidentiary
purposes. Follow-up is it a valid demand? NO.
Demand is where you require the performance
not just a follow-up. Request not a demand as
well.
6. The law so provides. E.g. Agency. Like if the
agent misappropriated a sum of money, will he
be liable already for interest? From the time he
misappropriated or from the time the demand
was
made?
From
the
time
he
misappropriated because the law so
provides. Even there was not yet any demand.
7. Demand will be useless due to the fault of the
debtor. Due to the fault of the debtor, in order
for the demand not necessary so that delay will
not set in.
8. In reciprocal obligations, the last paragraph
Article 1169, one of the parties had already
complied and the other had not complied, and
the one who had not complied will already be
considered in delay even if there was no
demand having said that, do not read it literally.
SC has held that, this is subject to the
stipulation of the parties.
a. Like in a sale, obligations of the parties
are reciprocal, the seller has already
delivered and the buyer has not yet paid,
does it mean that the buyer is already in
delay? Not necessarily, they may have
agreed that the buyer will only pay after
the period of one year. So before that,
you cannot be considered in delay. This
is one of the exceptions in the rule to
demand under Article 1169.