Civil Law Review 2 Atty.

Crisostomo Uribe
Notes/Class Lectures
PEACHY ANNE APOLO

AS TO RIGHTS & OBLIGATIONS OF MULTIPLE

PARTIES
Usual questions under this topic: Whether the debtor can be
compelled to pay the entire amount.
Answer of course would depend on the rights and obligations of
multiple parties: if it is joint, or if it solidary, or disjunctive
obligation.

In a Partnership: ABC (partners) borrowed money from X. X

delivered to A. A received the money. However, A misappropriated
the amount.
May the partners in ABC Partnership be held solidarily liable?
Can C alone be liable for the entire money?
See: 1822-1824. What is the correct basis?
Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or
with the authority of co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same extent as
the partner so acting or omitting to act.

How would you know if the obligation is a joint or a solidary

obligation?

X & Y bought 500 sacks of rice from A & B.

X & Y demanded. A & B delivered to X.
X did not give anything to Y.
Can Y hold A & B liable? Can Y still compel delivery a portion of the
sacks of rice?
It depends. If it is a joint or solidary obligation. So first,
determine if its a joint or solidary obligation.
There is joint obligation when no law expressly provides,
absence of stipulation and the nature of the obligation does
not provide for solidarity.
It is a solidary obligation: by stipulation of the paties, when
the law so provides, and when the nature of the obligation
requires solidarity.

1822, 1823, 1824, 1911, 1915, 2194. NCC and 94, 101 of
the FC.

Art. 1823. The partnership is bound to make good the loss:

(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of
the partnership.
Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and
1823.

There is no basis to hold the partnership and the partners

liable solidarily because in this case, the money is from a
THIRD PERSON, and not one owned by the partnership.
Exception is when the partners bound themselves solidarily.

Examples which by Nature of Obligation that requires solidarity?

Those under human relations 19, 20, 21 of NCC.? The law
considers this as quasi-delict. Proper Example: Is the case of Because of the negligence of the driver A, a pedestrian dies.. Criminal
complaint was filed ad he was convicted. Re: civil liability, can the convict
Liwanag vs. Workmens Compensation: Since the
driver and his employer be held solidarily liable?
Workmen's Compensation Act was enacted to give full
No, the basis of the liability of the employer is subsidiary. This
protection to the employee, reason demands that the
means that, in order to make the employer liable, you still have to
nature of the obligation of the employers to pay
exhaust the liability of the principal (driver).
compensation to the heirs of their employee who died in
line of duty, should be solidary; otherwise, the purpose of PNB vs. Independent Planters
the law could not be attained.
whether in an action for collection of a sum of money based
on contract against all the solidary debtors, the death of
Examples which by Law, requires solidarity?
one defendant deprives the court of jurisdiction to proceed
with the case against the surviving defendants.

Article 1216 gives the creditor the right to 'proceed against

If it is solidary obligation, it will be dismissed. Prescription is
anyone of the solidary debtors or some or all of them
a total defenseit contributes to weaken or destroy the
simultaneously.' The choice is undoubtedly left to the
vinculum juris existing between the cr and the dr.
solidary, creditor to determine against whom he will enforce
If it is a joint obligation, it will prosper. Because the
collection. In case of the death of one of the solidary
interruption of prescription by the judicial demand of 1 cr
debtors, he (the creditor) may, if he so chooses, proceed
upon a debtor, does not benefit the other creditors nor
against the surviving solidary debtors without necessity of
interrupt the prescription as to the others.
filing a claim in the estate of the deceased debtors. It is not
mandatory for him to have the case dismissed against the Minorityis it a partial or total defense?
surviving debtors and file its claim in the estate of the
If it is a solidary obligation:
deceased solidary debtor.
o Total defense on the part of the minor concerned.
Such minority will serve as a complete exemption of
Calang & Philtranco vs People
the defendant from liability to the creditor.
Calang was charged criminally before the RTC.
o Partial defense on the part of the minors co-debtor,
Undisputedly, Philtranco was not a direct party in this case.
exempting him from payment of the portions of the
Since the cause of action against Calang was based on
obligation corresponding to the other debtors who
delict, both the RTC and the CA erred in holding Philtranco
have such personal defenses.(Partial only as to the
jointly and severally liable with Calang, based on quasishare of the minor)
delict under Articles 2176[1] and 2180[2] of the Civil Code.
If it is a joint obligation:
Articles 2176 and 2180 of the Civil Code pertain to the
o It is a defense as to the minor, but not as to the
vicarious liability of an employer for quasi-delicts that an
other co-debtors. Their obligation is separate and
employee has committed. Such provision of law does not
distinct from each other.
apply to civil liability arising from delict.
If at all, Philtranco liability may only be subsidiary. Article
A borrowed a sum of money P1 million pesos from X or Y.
102 of the Revised Penal Code states the subsidiary civil
Y demanded from A.
liabilities of innkeepers, tavern keepers and proprietors of A paid Y.
establishments.
Does X still have a cause of action against B?
This is an example of a disjunctive obligation.
Debtors ABC Creditors XY
In cases such as this, when there are 2 creditors designated
Amount is P600,000.
disjunctively, the intention of the parties should prevail, in
A is insolvent. Share of B has been remitted.
determining whether the rules on solidary or those on
C paid the obligation
alternative obligations should apply. In case of doubt,
How much can C recover from B?
solidarity shall be favored, as it is more conducive to the
100,000.
fulfillment of the obligation.
Because, the effect of insolvency is that the amount will be
X may still hold A liable despite the fact that X has already
shouldered by the co-debtors, even if one of them has been
paid YIF it is under an agreement between X &Y that X
remitted.
had the right to choose. Bcs, it would then be a payment to
Therefore, As share is P100,000. C P300,000.
a wrong party.
If in their agreement, A had the right to choose, then it
Debtors ABC Creditors XY
does not matter who made the demand. Bcs A clearly can
X filed an action against A.
choose who to pay in the obligation.
It was dismissed on the ground of prescription.
**the right to choose is with the debtor if the intention is
Y filed an action against B. Will the case prosper?
not clear. It is the debtor who is given the right to choose in
Not necessarily.
alternative obligations.

(Tolentinos view: In such case, since the intention of the

parties is not clear in the given situationrules on solidarity
may apply. Such that either of the creditors may demand
payment. If one of the solidary CR was the first to make a
demand, he shal be the one who choose who has the right
to choose. Therefore, payment by A to Y, one of the
creditors is a valid payment. X no longer has a cause of
action.)

AS TO PERFORMANCE OF PRESTATIONS

OBLIGATIONS WITH A PENAL CLAUSE

The usual question: Whether the obligation can be partially

performed.

The case of Robes Francisco vs. CFI: is a classic one. Read it.

As a general rule: Obligations are indivisible.

Partial performance is non-performance.
Exceptions: obligations are divisible when:
1. so agreed upon by the parties
2. the obligation is partially liquidated and partially
unliquidated
3. as to money
4. by their nature, they are divisible.

The corporation was guilty of delay, amounting to non performance of its obligation,
in issuing the transfer certificate of title to vendee Millan who had fully paid up her
installments on the lot bought by her. Article 1170 of the Civil Code expressly
provides that 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.
Petitioner contends that the deed of absolute sale executed between the parties
stipulates that should the vendor fail to issue the transfer certificate of title within
six months from the date of full payment, it shall refund to the vendee the total
amount paid for with interest at the rate of 4% per annum, hence, the vendee is
bound by the terms of the provision and cannot recover more than what is agreed
upon. Presumably, petitioner 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.

A B and C obliged themselves to deliver a specific horse to X,

worth P300,000. The horse died due to the fault of A.

SC agree with petitioner that the clause in question were to be considered

X filed an action against C.
as a penal clause. Nevertheless, for very obvious reasons, said clause does
Will the action prosper?
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
First determine what is the cause of action.
with legal rate of interest which is even more than the 4% provided for in
If it is for specific performance, it can no longer prosper
the clause.
because the horse is already dead. An action to deliver
cannot prosper since it is a finite thing
As a general rule: in obligations with a penal clause, the penalty
If what is filed is action for money claims--the value of the shall substitute the indemnity for damages and the payment of
horse and damages, it will prosper.
interests in case of non-compliance.
o X can be held liable, however, only for up to
P100,000., with respect to his share. This obligation Exceptions:
involves a joint indivisible obligation. Since the
1. There is fraud committed
stipulation is silent as to the debtors share, they
shall share equally.
In the case of Pamintuan vs. CA where fraud was committed
o C can be held liable only for his share and not for the such that what was delivered was of incomplete quantity and of
damages. It is only A who can be liable for damages inferior quality:
because the thing was lost due to his fault.
Acdg to Pamintuan, the buyer is entitled only to recover liquidated damages. That
(Remember, solidarity is not presumed. In the contention is based on the stipulation that any violation if the provisions of this
of sale shall entitle the aggrieved party to collect from the offending party
absence of stipulation, lawit is joint) (if it is contract
liquidated damages in the sum of P10,000.
a solidary indivisible obligationX may claim
We hold that appellant's contention cannot be sustained because the
the entire P300,00o plus damages.
second sentence of article 1226 itself provides that I nevertheless,
damages shall be paid if the obligor ... is guilty of fraud in the fulfillment of
NOTE: when the obligation is a joint and indivisible obligation, and
the obligation". "Responsibility arising from fraud is demandable in all
the obligation become impossible of performance, the obligation is
obligations" (Art. 1171, Civil Code). "In case of fraud, bad faith, malice or
converted into a monetary obligation, and each of the debtor shall
wanton attitude, the obligor shall be responsible for an damages which
be responsible for his share in the absence of designation of his
may be reasonably attributed to the non-performance of the obligation" Sc
held that "the penalty clause is strictly penal or cumulative in character
share and the one at fault shall be liable for damages.
and does not partake of the nature of liquidated damages

2. It was so stipulated of non-compliance

In the case of Bachrach Motors vs. Espiritu
It was agreed in the sale contracts that 12% interest will be paid on the unpaid
price, and in case of the non-payment of the total debt at maturity, 25% shall be
the penalty.
It was contended that the 25 per cent penalty upon the debt, in addition to the
interest of 12 per cent per annum, makes the contract usurious.

SC: Such a contention is not well founded. Article 1152 of the Civil Code
permits the agreement upon a penalty apart from the interest. Should
there be such an agreement, the penalty, does not include the interest,
and which may be demanded separetely.

According to this, the penalty is not to be added to the interest for the
determination of whether the interest exceeds the rate fixed by the law,
since said rate was fixed only for the interest.

But considering that the obligation was partly performed, and making use
of the power given to the court by article 1154 of the Civil Code, this
penalty is reduced to 10 per cent of the unpaid debt.

BREACH OF OBLIGATIONS
If theres an obligation, may one of the parties be held liable?
Not necessarily.

3. If the debtor refused to pay the penalty.

In an obligation with a penal clause, can the DR compel the CR to
accept the penalty instead the DR performing the obligation?
As a rule , the debtor cannot compel the creditor to acceot
the penalty instead of performing the obligation, the
creditor can compel the debtor to perform the obligation.
EXCEPTION: the debtor can compel the creditor where his
right has been expressly reserved for him as provided in
Art 1227 of NCC.

First, bcs maybe both of the parties are obliged to comply

with an obligation.
Pangalawa, even if one of them or the debtor in an
obligation failed to comply with the obligation, maybe there
was no fault on his part, maybe it was due to the fault of
the creditor, or the fortuitous event that was unforeseen, or
though foreseen are inevitable under 1174.
There are also one other reason why not every time there is
an obligation, a party thereto may be held liable. Bcs under
1170 only those who are guilty of fraud, negligence or
delay, but also those who in any manner contravene the
tenor thereof shall be held liable for damages.
In other words, from this article, it is clear that not only
debtors can be held liable. Kaya nga the law starts with the
word those. Even creditors, can be guilty of fraud, hindi
lang ang debtor. Pwede rin sya maging guilty ng negligence
and in delay, known as mora accipiendi. But it is not only
bcs there was fraud, negligence or delay, in general, yung
last phrase in contravention of the tenor of the obligation
in whatever manner, would cover performance. Is there
complete or imperfect performance, can be the basis of
liability.

Can the CR both demand for the performance of the obligation and
the payment of the penalty agreed upon?
Lets start with factors affecting obligations:
GR: the creditor cannot
EXCEPT: when such right is clearly granted to him.
1. FRAUD
Not necessarily expressly granted bcs it may be inferred by Fraud can be classified generally into two.
the acts of the parties.
Example: If A offered a RING for sale to B, misrepresenting that it is
If the obligation is void and there is a penal clause, may a party be a 24 Karat gold, where in fact it was just gold-plated.
held liable under the penal clause?
Is there fraud? YES.
GR: No. bcs a penal clause is an accessory undertaking. If
Is this fraud under 1170, 71? No. Bcs fraud under 1171
the obligation is void, any accessory undertaking is also
involves fraud in the performance.
void.
A while ago, ang scenario involving the ring, pertains to
EXC: If the nullity of the obligation would give rise to the
fraud in obtaining consent. If you notice, yung fraud na ito
enforcement of the penal clause, then party thereto can be
is known as Causal Fraud or Dolo Causante, which is already
held liable under the penal clause.
under 1338, under contracts.
In other words, there can only be fraud in obtaining
consent, if it is in relation to Contracts. Whereas yung fraud

in the performance under 1171, it doesnt matter from what

source of the obligation, it can be from law, or others.
Of course, in contracts, it need not only be causal fraud, it
may also be incidental fraud under 1344. This fraud, will not
affect the validity of the contract, but it can be the basis to
hold the party who commit the fraud liable for damages.
If you remember in causal fraud, it would result to a
voidable contract, then annulment would be the remedy.
Again in 1171, the fraud is in the performance. Example,
would be culpa-contractual, fraud in the performance of an
obligation arising from contract.

The answer is definitely not, if only bcs under 1126, what

would constitute quasi delict is fault OR negligence. In other
words, fault is not the same as negligence.
Also, the SC would make this distinction by saying that, in
fault, there can be an intention to cause harm to another,
while negligence is by mere omission which, I fully support,
bcs in tagalog, pag sinabi nating its your fault, it means
kasalanan mo yan. Does it mean negligence mo yan? Not
necessarily. Pag sinabi nating fault, pwedeng malicious,
pwedeng intentional. Diba?

Culpa, what is this word? Is it synonymous to negligence?

Question: If an action for specific performance was filed, on the
Hindi din. Bcs culpa is considered to be more
ground that fraud was committed by the defendant in the
encompassing, covered nya ang fault and negligence. So
performance of an obligation. However, the defendant was able to
when you say culpa, kasama na ang negligence dyan. Kaya
prove to the court that the plaintiff executed a waiver, stating that
culpa contractual, covered ang fault and negligence.
despite fraud on the part of either parties, no action would be filed
by either. With this waiver, the question is, will the action prosper? But the main issue here is, when would an act be considered a
The answer depends on WHEN the waiver was executed in negligent act? Read again the case of CANGCO vs MRR, is the
relation to the fraudulent act.
act of Cangco, alighting from a moving vehicle, is that a negligent
Bcs if the waiver was executed BEFORE the fraudulent act, act?
that would be considered as a waiver to future fraud, and
As I said, 2 justices considered the ruling from the US that
under the law, a waiver to future fraud is void. Simple lang
alighting from a moving vehicle is a negligent act. I have
naman ang reason dyan, bcs it is considered against public
to remind you pala, ang definition ng negligence ditto ay
policy, otherwise. The party to this contract would invite the
made applicable to quasi-delict, kaya impt not only in the
other party to commit fraud, cause either way he will not be
performance of obligation, but also in relation to negligence
liable.
as constituting an independent source of obligation.
If the waiver was executed after the fraudulent act, it would
Now, again, sa 2 justices, parang tama. Kasi had he not
amount to condonation, therefore the action will no longer
alighted from a moving train, had he waited for the train to
prosper.
stop, he would not have been injured. It is a good argument
Walang tanong masyado sa fraud, lalo na problem type na tanong,
meron but very objective. Cause ang fraud subjective, and minsan
sobrang haba ng tanong. Negligence also, for similar resosns.
Whether an act is a negligent act or not, is also subjective ang
determination.
If you remember CANGO vs MRR, hindi unanimous ang decision 2
of the justices considered the act as negligent act. But..first.. lets
go to negligence.
2. NEGLIGENCE
Is negligence synonymous as to fault?

diba? Kaya lang, mali talaga yung argument eh. Precisely

he did not wait for the train to be in full stop. We are not
talking about that scenario, we are in a scenario that he
alighted from a moving train. Bcs, ang mas maganda sana,
he should have waited, non siquetor, it doesnt follow the
position of the majority. Buttama ba ang majority of the
justice, that the act was not a negligent act? Eh tumatakbo
pa ang sasakyan eh. Well the majority based on a rule, now
enshrined in Article 1173. To be able to determine whether
the act is a negligent act or not, we have to consider the
NATURE of the obligation which corresponds to the
circumstance as to the person, the time and the place.
Consider the circumstances surrounding this act.

If you read the case, even without considering 1173, I would

already support the decision of the majority. Before Cangco
alighted, there was another person who alighted first, so ahead of
Cangco. Considering the scenario, the train was about to stop, so
pabagal ng pabagal, therefore, dapat nung si Cangco na bumaba,
mas mabagal na, pero bat etong taong to was not injured. Si
Cangco was injured? Therefore, it was not bcs of the alighting from
the moving vehicle per se which was the negligent act. Something
must have happened somewhere else.

Also, the fact that the place was poorly lit. If may watermelon tas
well-lit naman, makikita nya. Di na sya siguro tatalon.
Well kaya pala hindi na injure yung other person na tumalon, bcs
sa tinalunan nya, walang watermelon. So it was really the
employees of MRR who were negligent.
Again, the person, time and the place.

One last. SLEEPING while at work. Is that a negligent act?

Again, determine the nature of the obligation. Kung
obligasyon mong mag bantay ng goods, ng bata, baka
Applying 1173 as applied in this case, the nature of the obligation,
yaya, or para mas maganda, governess. Naman. Makatulog
I would say that it is impt bcs we have to consider the degree of
ka lang 30 seconds, hulog na ang bata sa stairs. Or
diligence that have to be observed. Lalo na eto, common carrier
nanakaw na lahat ng binabantayan mo diba. But if abogado
ito. They must exercise the highest degree of diligence. By law,
ka, ang obligasyon mo naman ay gumawa ng pleadings,
andyan ung common carriers to exercise highest degree of
naman, kahit matulog ka ng 5hours okay lang, basta ma
diligence like public utility. Gaya ng PLDT, Meralco (Meralco vs.
pasa mo diba.
Ramos?), of course, doctors, banks. Also, realty firms, like DMCI
MDC.
How impt yung nature of the obligation sa determination? Kung
But in Minadanao Terminal vs. Phoenix Assurance:
driver ka ng bus, nako, kung 5 seconds ka lang maiglip, patay agad
Stevedoring companies are not required to exercise another
lahat ng pasahero mo diba? Kaya I fully appreciate the drivers
degree of diligence. Just ordinary diligence.
papuntang baguio, bicol, kahit at least 3 inches na lang parang
bangin na, at least, wala ka sa bangin diba? Yung negligence
As to the circumstances as to the time and place, this really was
nakakamaty. Kaya wag masyado. Yung kay Robredo, di sa
the basis of the justices. Of course, under the circumstances nga nangangampanya k okay Robredo ha, pero pagisipan nyo din. Last
na the train was about to stop. Otherwise, kung 150 kph pa ang
year mga 40 govt employees talsik sa trabaho. Bcs if you would
takbo, tas you would alight, siguro naman sobra sobrang
sign a certification that air worthy ang eroplano, pero di man lang
negligence na yan.
pinalipad ang eroplano to check.
It cannot be said that Cango was negligent. Why? Bcs Cangco was
at his prime at the time it was committed.In other words, tama
One other, basically there are 2 kinds of negligence.
naman. He was around 20 at the time, eh kung 92 years old ka, tas
May negiligence in the performance of obligation, Example
pa stop na, tatalon ka padin, may negligence talaga.
dyan, culpa-contractual.
In fact the SC even considered the fact that Cango was a male in
May negligence that constitute as independent source of
concluding that the act was not a negligent act, what has the
obligation, ang example naman dyan ay quasi-delict. Or
gender got to do with this? It was bcs at the time the incident
culpa-aquialana. Or culpa-criminal. Wala silang pre-existing
happened, mga 1920s to, women was wearing Kimono. So it has
obligation, but the obligation would arise due to the
something to do with the apparel. If naka-Kimono ka tas tatalon ka,
negligent act.
siguro naman talagang maddisgrasya ka. Ang negligence is a
function of time.
Finally, I would have to emphasize the kinds of negligence as to the
Into the place, he was very much familiar with the place, bcs
extent.
everyday he will ride the train, but ang isang factor ditto in
May simple negligent act, and grossly negligent act.
determining who is the negligent is the TIME. It was nighttime,
How impt is this?
ultimately, the employees of MRR are negligent bcs they placed
In the case of TELEFAST vs. CASTRO, makikita nyo ang
sacks of watermelon near the train. Kaya nga his arm had to be
relevance nayan. Dito, for the sending of a message
amputated cos bumaba sya, and sumabit sya don sa sacks.
through a telegram, claiming moral damages. In contracts,

in order for the party to be held liable for moral damages,

that party must have acted in bad faith or was in wanton
disregard of his obligations. So bad faith is not easy to
prove. In fact, good faith is the one presumed by law. Kaya
ang cause of action dito sa TELEFAST was breach of
contract. Ang telegram na ito is to inform the children and
the husband of the deceased, that this person was already
dead. Imagine, telegram ito, you can just imagine kelan pa
ito ngyare. So, the message was not received. Hindi
napadala, kaya this deceased was buried by Sofia, one of
the daughters. The rest nalaman nila after na. So they sued
Telefast. Telefasts defense was that it was due to
atmospheric pressure that was beyond their control.
Mukang tama naman, you cant control that naman. But
nakahanap ng lusot ang SC, it turned out that the TELEFAST
did not inform Sofia that they failed to send the message.
SC considered this as a grossly negligent act. Hindi mo
nagawa, sabihin mo sakin, so I couldve done something
diba. In our law, gross negligence amounts to fraud.

3rd, if the demand would be useless. If due to the fault of the

debtor. Example, napaka mamahaling babasagingvase, for
whatever reason, nabasag yung vase, even before the due
date, dina kelangan demand, the debtor is already liable for
damages even if thereis no demand.

Last paragraph 1169 in relation to reciprocal obligations, if one of

the parties has already fulfilled his obligation, that one party who
did not is already in delay. Again this is what the law provides.
However, this is subject to the stipulation of the parties.
IF the seller had already delivered the thing in a contract of sale,
but the buyer has not paid the price. Does it mean that the buyer
is already in delay?
Not necessarily, bcs pwede naming nag usap sila that he
will pay within 6 months. 1169 pertains to pure obligations,
demandable at once.

DELAY ON THE PART OF CR: Mora accipiendi

Bakit sya in delay?
Okay na yan. Most of the bar exam questions ay nasa DELAY.
Maybe the creditor does not want to accept the payment of
the debtor.
3. DELAY
Eh bakit naman hindi tatanggapin ni creditor?
Delay is also known as DEFAULT or MORA.
Maybe bcs, it is not in compliance with the quantity agreed
upon.
When a person is in delay, does it mean that he did not perform
o General rule is: Partial performance is nonthe obligation?
performance subject to stipulation. A
Hindi naman. He may have informed pero maybe, days or
lso, maybe bcs the goods are of inferior quality, or maybe
months after the obligation was due and demandable. This
the goods are damaged, so bakit mo tatanggapin or any
is why its also called Non-Performance with Respect to
other conditions?
Time.
So again, to be in mora accepiendi it must be without just
cause. So dahil in delay sya, anong damage ma-ccause nun
When would a person be considered in delay?
sa debtor? Maraming possible reasons. Pano kung gumamit
An impt reqt is Demand. At least as a rule. No demand, no
pa sya ng barko, eroplano and the expenses of the
delay.
transportation, mahal, pag hindi tinanggap in some
But there are exceptions to this rule. Madali lang naman.
instances, kelangan pa nya mag rent ng warehouse. Thus,
If so stipulated, na din a kelangan ng demand. Example, sa
malaking gastos if hindi tanggapin ng creditor.
Credit Card nyo, you will be liable in case you fail to pay on
due date, without need of demand.
But in the case of Agcaoili vs. GSIS, this pertains to another kind
If the law so provides. Ecample ditto, Agency and
of delay, this is in relation to a housing unit na inapply ni Agacaoili
partnership. Sa partnership to make good his promises to with GSIS, na gagawa ng bahay, through its contractors (now wala
the contribution if he did not perform, he is already in
ng housing orojects ang GSISmangutang ka nalang sa iba) ang
delay.
ngangyare, based on the agreement, dineliver ng gSIS ang
house but it was just a structure actally, walang dingding, tubig,

basta roof lang. thus, Agcaoili knew that he cannot live with that
structure, he suspended the payments of monthly amortizations.
To which, GSIS cancelled the agreement. Obviously, ang ground in
default si Agcaoli.
The SC said that even if Agacoili was in delay in the
performance of his obligation, which is to pay, GSIS was
also in delay in the performance of his obligation, to deliver
a habitable house. Therefore, both parties are in delay. In
contemplation of law, no one is in delay, hence, GSIS has no
right to cancel the agreement.
In relation to demand. When a person would follow up, or remind
the other party. Is that sufficient to constitute demand in order for
delay to set in?
No. Ang reminder is not a demand. Kamusta na ang utang
ko?
Another impt point, sagot ng mga kaklase niyo parati: pumapasok
to, an obligation would become due upon demandpag ganyan
ang naisagot, papasok na ang discussion na: in the first place, will
there be a valid demand If the obligation is not yet due and
demandable?
Diba hindi? There can never be a valid demand if the
obligation is not yet due and demandable. Obviously
therefore, an obligation does not become due and
demandable dahil sa demand. To the contrary, kailangan
due and demandable bago ka makapag demand.

1174. However, may exceptions don ha. Hindi papasok ang

stipulation, Nature of the obligation involves contract of
risk, bcs the law so provides. BAKA. Anong law ito? In
connection with the obligation to deliver a determinate
thing, such thing is lost or destroyed due to a fortuitous
event, the debtor shall be held liable if at the time of the
losshe was already in delay. Was the lessee already in
delay? Again, in mar15 ang demand. Valid ba ang demand?
Hindi. Why, 1 month under art 13 of civil code, 1 month is
30 days. So. Demandable pa sya on march 17, dahil
February only has 28 days.
As mentioned earlier, even if the debtor failed to comply with his
obligation, if the reason for this non-compliance was due to a
fortuitous eventhe cannot be held liable. But only as a rule. Bcs
there are exceptions. Isipin mo parati may stipulation ba,
assumption of risk, ask yourselfis there a law which would
consider this person liable or responsible despite the fact that
there was a fortuitous event under the circumstances? Ang sagot
dito. Alamin ang laws, 1165 example.

When a debtor, promised to deliver the same thing to two or more

persons who does not have the same interests, and thereafter, the
thing was lost due to a FE, liable pa din sya.
As you read laws tignan niyo ang mga gantong provision, which a
person can still be held liable despite a fortuitous event because
the law so provides.
Ex. an Obligation is to due and demandable on Jan 31. Aba Jan 28 But out of this, ang isang paborito ay nasa commodatum, sa aticle
palang nag demand na si creditor for the delivery of the goods. Eh 1954.
Diba ang general rule nga if the thing while in the
on feb 2 all the goods were destroyed due to a fortuitous event,
possession of the bailee/borrower was lost or destroyed due
while still in the possession of the debtor. Can the debtor be held
to a fortuitous event while in the possession of the bailee,
liable for the loss?
the borrower cannot be held liable. That is the general rule.
No. He can only be held liable, if he was only in delay at the
But by way of exception, that article would tell us the
time of the loss. Since the demand was not a valid demand,
scenarios. The instances when the bailee can be held liable.
he was not in delay. Its as if there was no demand.
Kung lima ang naka-enumerate dyan, tatlo na ang nagappear sa bar exam. That is how favorite that article is.
Bar question, with regards to the contract of lease:
Yung isang libong article nga hidni pa natatanong eh. Pero
1 month ang kontrata pero nag start ang feb 15, on march 15, the
ito, three times na. Example: Bcs the borrower used the
lessor demanded for the return of the thing, but the lessee failed to
thing for another purpose than that agreed upon by the
comply due to a mechanical failure on his truck. The next day, it
parties, tama nga naman din, libe na nga eh nanghihiram
was burned through a fire started from a neighbor establishment.
ka na rin lang tapos gagamitin mo sa bagay diba, its a very
Wala syang kasalanan. But ang tanong, can he be held liable?
reasonable exception sa general rule. Check niyo sa
Again pag ganyan ang problem, ang isipin mo.. Loss of the
syllabus.
thing due to a fortuitous event. Ang general rule dyan ay

which could not been foreseenalamo naman pala, kaya nga kayo
Sa cases, andito ang NTC VS. Court of Appeals. Napaka
nag agree na ilagay don kasi talaga naming maraming robberies.
interisado ng case na to, and consistent ang Supereme Court dito. So in a way, this cannot be considered an unforeseen event due to
In order for one to invoke fortuitous event as a defense, there
the nature of the business. In other words, robbery is not a
should be no concurrent negligence nor bad faith on his part, so he fortuitous event per se. It depends on the circumstances.
can invoke the defense of FE. Ang nangyare dito, NAPOCOR
released water from a certain dam, as a result of the release of the 2nd negligent act dito, kinclaim niya, because afternoon ang
water, the properties of the plaintiff at the foot of the dam was
robbery, it was unexpected kaya hindi nakasara ang vault.
destroyed. Obviously, ang defense ng NTC was fortuitous event
kasi nga naman may bagyo. They had to release the water kasi
mappuno na ang dam. Pag napuno ang dam, baka sumabog yung
dam, magkkaron ng problem sa integrity ng dam, and masisira ng
buong buo. But, tama ba ang defense? Was NAPOCOR held liable?

NAPOCOR was held liable because there was concurrent

negligence on NAPOCOR. When they released the water, it
was only when the dam was full. Nung punong puno na.
dapat, bago pa mapuno yun dam, they should have slowly
released the water. Bcs there had been previous typhoon,
much stronger than that typhoon pero no damages naman
sa property ng plaintiff. In other words, it was because of
the negligence of the typhoon thats why damage was
caused to the plaintiff.

If the reason of the non-performance was due to the act of the

creditor, walang bago dyan.
SICAM vs. JORGE is about a contract, the owners of these pieces
of jewelry sued the owners of the pawnshop bcs they could not
return the jewelries to the owner. Well ang defense nya, there was
a robbery. Claiming that it is a fortuitous eventhe should not be
held liable. Anong naging ruling dito?
SC: They are liable.
Ang unusual dito sa case, he was the only on who testified
that there was a robberyang mga empleyado niya wala.
Even the security guardhindi nagtestify anong nangyari.
Kung wala kang security guard is already a negligent act.
And for that, that is already a concurring negligent act and
he cannot invoke fortuitous event as a defense. But also,
maganda ang theory ng plaintiffs.
1st: It was proven that itong defendant already contemplated na
ang mga pieces of jewelry ay ilalagay sa vault sa bangko,
obviously hindi niya ginawa. Second, robbery is not an event that

10

REMEDIES FOR BREACH OF OBLIGATIONS

To compel a person to do something against his will,

constitutes involuntary servitude.

Usual questions in the bar under this topic: WILL THE ACTION
PROSPER?
And the premise here is that: there is already a pending action
filed. Unusual ang if you are a lawyer, what action will you file?

3. WHAT ARE THE REMEDIES?

VIP is 1191, majority f the questions in the bar covered ng 1191.
In 1191, there are 2 remedies mentioned:
1. Fulfillment with damages, and
2. Rescission with damages.
In answering questions such as this, always consider the following:
Question:
1. WHO FILED THE CASE? Is he the injured party?
If one who sued is not the injured partythe action will not 1. If CR already invoked fulfillment as a remedy, may he thereafter
be allowed to invoke rescission? YES! By express provision of 1191
prosper. Bcs remedies are granted only to the
which states: he may also seek rescission, even after he has
agrrieved/injured.
chosen fulfillment, if the latter should become impossible.
Note however that, plaintiff is NOT always the injured party.
Note: the impossibility should be due to the fault of the
o Being the plaintiff does not necessarily make you the
debtor, since the premise of this provision is that the CR is injured.
CR or the DR. Minsan inuunahan lang nung isa yung
proper party.
2. If CR has already invoked Rescission, can he be allowed to
IF the plaintiff is the injured party, take note a distinction:
invoke Fulfillment later on? 1191 does not provide because it
o There was harm incurred, there is a principle known cannot happen. As discussed in the case of Magdalena Estate
as Damnum Absque Injuria (he suffered a damage
vs. Myrick:
when the other party was exercising a right) in this
(In that case, it was ruled that: Under article 1124 (now 1191) of the Civil
Code, petitioner may choose between demanding the fulfillment of the
instance, even if the plaintiff is the injured party,
contract or its resolution. These remedies are alternative and not
action will not necessarily prosper.
cumulative, and the petitioner in this case, having to cancel the contract,
o There was harm incurredwill the action prosper?
cannot avail himself of the other remedy of exacting performance. As a
Not necessarily. Madami pang reason. Next step..
consequence of the resolution, the parties should be restored, as far as
practicable, to their original situation (which can be approximated only by

ordering, as we do now, the return of the things which were the object of
2. WHAT IS THE CAUSE OF ACTION FILED?
the contract, with their fruits and of the price, with its interest (article
Determine if the Cause of Action is correct.
1295, Civil Code), computed from the date of the institution of the action
Because, even if you have a right under the law, and you are
positions, or, in the letter of the Scotch law, to "approbate and reprobate.")
injured, if the cause of action filed is wrong, it will not prosper.
Just like in the ff cases:
1. RESCISSION AS A REMEDY
o In Batchelder vs. Central Bank, RA 1529 in relation to
In one case (look for it), an action for rescission was filed, but the
foreign currency was in effect. any person in this country defendant filed a motion to dismiss on the ground that since the
who receives a foreign currency is required to surrender
action was filed more than 4 years from the date of the contract
such currency with the Central Bank within 24 hours. Not a therefore, the action has already prescribed. In a particular case,
confiscation, but papalitan naman. Cause of Action filed was the motion was denied.
based on a contract where in fact, it was based on a BSP
Circular, hence based on law. Case dismissed.
Reason: bcs ang premise niya, that the law requires such
o In Araneta vs. Phil Sugar Estates: in the agreement to
action within 4 years is based on a kind of rescission. It
turned out that yung cause of action niya is not under
construct a road and the action is for specific
rescissible contracts, that requirement that should be filed
performancewill the action prosper? No, bcs specific
within 4 years is applicable only in rescissible contracts. In
performance is not the proper remedy bcs the obligation is
other words, 1191 when should the action be filed
an obligation to do. Case dismissed.

11

depends on so many factors. If in wrtg, filed within 10 years

from the time the cause of action accrues.
To distinguish these two, the SC said: The remedy of
rescission is not confined to the rescissible contracts under
1389, there are 2 kinds of Rescission, distinguished as
follows:
Rescission under 1381
What is required: LESION, guardian
entered a contract involving the
property of the ward, and the latter
must suffer lesion more than of
the value.
It is a subsidiary* action based on
injury to the plaintiffs economic
interests as described in 1380-1381.
*may only be invoked if there is no
other available remedy.
Prescribes in 4 years from the time
the right of action accrued. (under
1389)

contract, but only for such breaches as are so substantial and fundamental
as to defeat the object of the parties in making the agreement. A delay in
payment for a small quantity of molasses for some twenty days is not such
a violation of an essential condition of the contract was warrants rescission
for non-performance. Not only this, but the Hawaiian-Philippine Co. waived
this condition when it arose by accepting payment of the overdue accounts
and continuing with the contract.

CU: 60% performance. 40% non-performance. Is there substantial

Rescission under 1191
performance? Yes kasi 40% is a serious breach.
What is required: substantial/fundamental
Pag na perform mo 80%, 20% lang hindi, slight breach lang
BREACH
yan.

UFC vs. Court of Appeals, Direct and principal action. See the
Concurring opinion of JBL Reyes. Classic case na tama ang principle
It is a principal action based on the
on the basis that Magdalo had not complied with his obligation,
defendants breach of faith, a violation of the
therefore his action to rescission should not prosper. (to transfer
reciprocity between the parties.
formula) However, even assuming that UFC did not comply with
*direct and principal action.
the obligation, the plaintiff did not also comply, he cannot claim to
be the injured party.
Prescribes in 10 yearsas an action based on
RESCISSON AS A REMEDY, may it be granted by law? Yes. 1191,
the binding force of written contract. (under
1381
1144)
What if it is mutually agreed upon by the parties? Yes.
Gives the injured party an option to choose
Can Rescission be invoked extra-judicially or kelangan ba
between: 1. Fulfillment of the contract, and 2.
parati na judicial?
Rescission of the contract.
o
Yes, may be extra-judicial. However, it is always
subject to court intervention to determine its validity.
In the case of UP vs. De Los Angeles the court
The equivalent of Article 1191 in the old code actually uses the
held that: there is nothing in the law that prohibits the parties
term resolution, rather than the present rescission, that such
from entering into agreement that violation of the terms of the
was the result of an ineffective translation. The court noted that
contract would cause cancellation thereof, even without court
the action involved was an action for Rescission and not
intervention. In other words, it is not always necessary for the
Resolution. Therefore, the prescriptive period was 4 years under
injured party to resort to court for rescission of the contract.
Art 1381.
When would effect of Rescission start? From the time notice
CASE: Heirs of Sofia Quirong vs. DBP 2009
of the rescissory act was given to the other party. The act
of party in treating a contract as cancelled or resolved on
WHEN IS THERE FUNDAMENTAL/SERIOUS BREACH?
account of infractions by the other contracting party must
o In the case of Song Fo vs. Hawaiian Comp.: in relation to
be made known to the other.
sale of molasses, on the date agreed upon the seller is

IF extra judicial rescission is allowed, why is there still a

asking for the price, and the buyer failed to pay. He failed to
need to file an action? 1. To make it final. 2. An action may
pay 19 days from due date. Seller claims for rescission. Is
be necessary in cases even if extrajudicial. Cause if you
the rescission valid? NO. Bcs 19 days is not a fundamental
want to recover something, and the other party does not
breach? Base on circumstances, molasses, hindi naman
return it. (Effect kasi diba mutual restitution?) Court
basta basta nasisira.
intervention is needed to get it back. The party who deems the
SC: The seller has no legal right to rescind the contract of sale due to
failure to pay within the time agreed upon by the parties. The general rule
is that rescission will not be permitted for a slight or casual breach of the

contract violated may consider it resolved or rescinded, and act

accordingly, without previous court action, but it proceeds at its own risk.
For it is only the final judgment of the corresponding court that will

12

conclusively and finally settle whether the action taken was or was not
correct in law.

MODES OF EXTINGUISHMENT

If the obligation involved is a conditional obligation, where the

2. FULFILLMENT AS A REMEDY
condition is suspensiveand the condition is based solely on the
Consider the Nature of Obligation as to PrestationRemedies:
will of the debtor. Will the discussion on dacion en pago be a
a. Specific Performance
relevant discussion in relation to this?
b. Substitute Performance
NO. Bcs if you remember, under 1182 the obligation is void.
c. Equivalent Performance (practically, an action for damages)
Thus, the discussion of modes of extinguishment is
irrelevant.
Problem: A obliged himself to give to B a 9 inch GE Refrigerator
with motor number 12345, located in his store. Also, a 14-inch
In other words: There can only be relevant discussion on the
brand new Sony set TV and also to repair the piano of A.
modes if there is a VALID OBLIGATION.
B did nothing of the three prestations.
In the case of CITIZEN SURETY vs. Court of Appeals:
Can the court compel A any of these obligations? (In
Pascual Enterprises was saying that it cannot be held liable under
questions like this, the question that the examiner is asking: What the Indemnity Agreement bcs the execution of the Deed of
are the remedies of B?) Pag more than 1 ang tanong, answer it in Assignment was made by dacion en pago which extinguished its
the order.
obligation under the Indemnity Agreement.
1. In the obligation to repair the piano NO, since it is an
But it turned out, the indemnity agreement and the deed of
obligation to do, and no one can be compelled to do
assignment were executed on the very same day. Contract of Sale,
anything against his willas it will violate his right against Indemnity Agreement, Deed of Assignment, Suretyshipall
involuntary servitude.
entered into in the same day. The implication is that the surety
IF TO GIVEdetermine what kind of thing.
company at the time the deed of assignment was executedwas
2. In obligation to give the Refrigerator a determinate object, not yet liable under the suretyship agreement. In a suretyship
one particularly designated or physically segregated from agreementyou can only be liable if the principal debtor
the same class.
defaulted. Kung same day yon, may default naba? Syempre hindi,
YES, this being an obligation to deliver a determinate thing. wala pang default. Thus, the indemnity agreement is only to
Specific performance is the remedy. Provided, it is still
indemnify in case he cannot pay in the Suretyship Agreement.
possible to perform.
Since there is no obligation to be extinguished at the time the
3. In obligation to give TV Set a generic object
Deed of Assignment was executed, it cannot be considered as
NO. Under the law, in this kind of obligation, the remedy is dacion en pago. The SC ruled that the Deed of Assignment is
to ask another person to deliver, at the expense of B, plus merely another security.
damages.
1231 mentions 10 Modes of Extinguishment. Tha last four would
include Annulment, Rescission, Fulfillment of the Resolutory
Condition and Prescription.
Question: Is the list exclusive?
No. There are others not mentioned.
In the case of SAURA vs. DBP, the Supreme Court would
tell us that mutual resistance also known as mutuum
disestum is also a mode of extinguishment. The ratio as
discussed by the SC is: if an obligation may arise by the
mutual agreement of the parties then an obligation may
likewise be extinguished by their mutual disagreement.

13

4. Prescription
Other authors would consider/ include the following as the other
modes:
Usual bar exam questions on: Payment, Compensation and
Novation.
DEATH of one of the debtor?
Condonation was asked once. Loss of the thingnever. Confusion
o Does not necessarily extinguish obligations.
never.
o Tolentino: As a rule, death does not extinguish
obligations.
o Uribes view on Tolentinos position: It is true only if
the obligation is arising from contracts. Why? If it is
one arising from law, it would be the law which
would so provide for the effect of the death of the
party to the obligation.
o If purely personal obligationswith the death of the
person, the obligation will be extinguished. However,
this would fall under the impossibility of
performance.
FORTUITOUS EVENTS
o Is it a mode? NO. Though it is relevant in loss of the
thing/ impossibility of performance.
o Fortuitous Event per se, is not a mode of
extinguishment bcs precisely, not every time there is
a fortuitous event, obligations will be extinguished.
COMPROMISE AGREEMENT
o Is it a mode? NO. Because, it would either fall on
Condonation or Novation.
o Ordinarily, a compromise agreement, give and take
yan.
o In Ronquillo vs. Court of Appeals: There was a
compromise agreement entered into. Instead of the
debtor being required to pay P170,000, in the
compromise agreement, P110,000 na lang. Is there
an extinguishment? Yes, partial. Is this a distinct
mode from 1321? No. It would fall under
condonation. The P60,000 was condoned.
NULLITY OF CONTRACTS
o Is it another mode?
NO. How can nullity of contracts be a mode of
extinguishment when there is no valid
obligation? It cannot be a mode.
Under 1231, those that are mentioned:
1. Annulment: this is the remedy of a voidable contracts
2. Rescission: as a subsidiary remedy in rescissible contracts.
3. Fulfillment of a Resolutory Condition

14

1. PAYMENT OR PERFORMANCE
Payment is applicable to any kind of obligation. Even obligations to
do or not to do can be extinguished by this mode because it is
synonymous to performance.
Always consider the classification of 4 Rules:
1. Person who pays
2. Person to whom payment is made
3. Thing to be delivered/ Prestation to be performed
4. Date, time, place and manner of payment

Exceptions to the General Rule that the CR may not be

compelled to accept payment from a third person (both in
to do and to give)
1. When there is a stipulation between the parties.
2. When the third person offering to pay have interest
in the fulfillment of the entire obligation.
Such as those subsidiarily obliged to the
fulfillment: surety, pledgor, mortgagor,
guarantor.
Co-debtor in a joint obligation (damay sya sa
reputation)
Example: A, debtor and B, creditor. If X offered to pay. Accepted by
B.
Even if B, cannot be compelled to accept, he may
accept.

1st rule: WHO PAYS?

Called as the Payor.
Not necessarily the debtor.
Effects, if the offer to pay is made by:
If this obligation is secured by a mortgage, executed by M. Ang
1. MINOR 15 years old.
Voidable obligation (valid until
binayad ni X kay B in relation to obligation of A, is as constituted
annulled)
P100,000. After a year, ang binayaran ni X, P100,000 din.
Is there a valid payment? NO, the CR cannot retain
Is the CR bound to accept the payment of X?
the amount paid.
o The answer would depend on whether X has an interest in
Why not? Lack of capacity.
the fulfillment of this obligation. (This is the second scenario
where the CR is bound to accept, by way of exceptionif
2. A DEBTOR who is in Bilibid Prison.
surety sya, pledgor, mortgagor. The CR is bound to accept
Is there a valid payment? NO.
the payment offered by X)
Why? He has no free disposal of his properties.
o Since C is a third person who has no interest, the CR is not
bound/cannot be compelled to accept.
3. A THIRD PERSON/STRANGER to the contract
Person who pay is not the debtor. Called as: third-party
How much can X validly demand from A by way of
payment
reimbursement?
Will the obligation be extinguished if the offer to pay
o Not necessarily the entire P100,000. Bcs he can only
came from a third person.
recover from the debtor to the extent that the DR was
Example: A, debtor and B, creditor. If X offered to pay.
benefited.
Question:
For all you know, dahil isang taon na ang utang, nag
bayad na si A ng P40,000. In other words, A may have
Will the obligation be extinguished?
only been benefitted P60k. So, X may only ask
o It depends. If B will accept what was being offered.
reimbursement P60k.
Why? Bcs the General Rule is that the CR
cannot be compelled to accept performance
Same premise: X doesnt have interest in the fulfillment of the
from a third person.
obligation. X paid B and when he demanded from A, A couldnt
Is the CR bound to accept/can CR be compelled to
pay. Can X run after the mortgage? Can X foreclose this mortgage?
accept? No.
If X paid B without the knowledge and consent of A, will the
If the CR accepts, will there be a valid payment? Yes.
obligation be extinguished?

15

o
o

Yes, because there was payment. There was an

acceptance by the creditor.
Under the law, he cannot foreclose because he will
never be subrogated in the rights of the creditor.
Therefore, he cannot exercise whatever right the CR
had not only against the debtor but every one of
those subsidiarily liable.

If X has an interest in the fulfillment of the obligation, (guarantor

for example) and he offers to pay B who accepted the same. If it is
without the knowledge of A, Can X foreclose the mortgage?
Yes, because upon payment he was subrogated to the rights
of the creditor because this is payment by a person who has
interest.
If X, who has no interest in the fulfillment of the obligation, and he
offers to pay B who accepted the same. This time, with the
knowledge or consent of A, Can X foreclose the mortgage?
Yes, because when he made the payment, there was
consent by A. He can be subrogated to the rights of the
creditor. Thus, he can validly demand the entire amount
paid and can foreclose the mortgage.
If payment was with the consent of A, how much can X
claim from A? The entire amount paid. Does it matter if he
was benefited only for P60k? No. because he consented eh,
not only to the extent he was benefited.

payment is by donation. And by donation, consent of the donee is

needed. Tunay na donee dito ay sino? Si A, pero binigay kay B.
This is what is known as indirect donation. Can B be compelled the
P100,000?
No, the law itself expressly provides that B can retain the
amount paid. It is a valid payment as far as B is concerned.
2nd rule: AS TO WHOM PAYMENT IS MADE

Called as PAYEE
Who is the Payee?
o 1240: Payment shall be made to:
1. The person in whose favor the obligation was
constituted
Not necessarily a party to the constitution of the obligation.
CREDITOR. Sya ang dapat bayaran.
2. Successors in interest of the person

If X and B, had an agreement that upon payment of X to the debt

of A to B, he will be subrogated to the rights of the creditor.
However, X is a person who doesnt have interest and it was made
without the knowledge or against the will of the debtor A. Can X be
subrogated to the rights? Can he foreclose?
Despite the agreement of X and B, he will not be
What
subrogated because this rule in relation to third party
payment was meant to protect debtors. As long as the
payment of a 3rd person who does not have interest and
was made without the knowledge or against the will, he will
not be subrogated.
What if a person, who does not have interest, paid B, but without
the intention of seeking reimbursement from A. However, 2 weeks
after this payment, X demanded from B, the return of the amount.
Argument of X: this payment was not consented to by A. Bcs he
has no intention of seeking reimbursement, the effect of this

Heirs of the creditor

Assignee

3. Any person authorized to receive payment

Not only those authorized by the CR but also by law: such as

Receivers, Liquidators, Administrators, Sheriff, Legal
Representatives, etc.
Agentsas authorized by the creditor. Qstn: Are agents the
creditors? SC: agents are creditors bcs they have the power
to demand fulfillment. Agents are creditors, but they are not
creditors in their own right.

Usual bar exam questions are in the exceptions.

What if the payment was made to a person who is not
enumerated among 1240?
Then payment is not made to a proper party.

if payment was made to a wrong party?

o As a general rule, the payment is a void payment, and
therefore it will not extinguish the obligation.
o Exceptions to the general rule that despite it was
made to a wrong party, it may extinguish the obligation.
1. If the payment redounded to the benefit of the
creditor.
2. If the payment was made in good faith and to a
person in possession of credit.
3. If the payment was made to the creditor after the
assignment of credit to a third person, but
without knowledge of assignment.

16

X debtor Y creditor.
If payment was made to A.
GR: Void payment. Y can still collect from X.
Exc: If the payment redounded to the benefit of Y.

proven that it was indeed As. Can NAPOCOR again be

compelled to pay for the 2nd time?
o SC: No. NAPOCOR paid X in good faith and X appears
to have the right to the credit.

XY
Y assigned his interest to A. But after the assignment, X paid Y.
In such case, as a general rule X has the burden of proving
Is that payment to a proper party?
that the payment made to A redounded to the benefit of Y.
In law, not anymore, he was a successor in interest na. X
Exceptions:
should have paid A. A is now the creditor.
1. If Y ratified the payment.
Will that extinguish his obligation to X even if it was made to a
2. If this payment was made by X to A bcs of the acts of Y that wrong party?
A had the authority to receive payments. Under the
It depends.
principle of Estoppel.
Yes. If at the time of payment, he was not aware of the
3. If A, after payment, acquired the rights of Y, the creditor. Its
assignment, the payment was made to the creditor after
as if nag-benefit din ang creditor.
the assignment but without knowledge of the assignment.
o May remedy ba si A? To hold Y liable. Bcs he no
X debtor Y creditor
longer has a right.
X borrowed money from Y. He executed a promissory note, which
No, if the debtor knew of the assignment, then that would
he delivered to Y, promising to pay a certain amount. For whatever
be a payment to a wrong party, thus, void payment.
reason, the promissory note was with A. Premise: A is a wrong
party.
XY
If A demanded from X, habang hawak niya ang PN. X paid.
X borrowed 20,000 from Y. thereafter, when the obligation became
Will that extinguish the obligation of X to Y?
due, offered to pay Y but only 10,000.
X refused to accept the 10,000.
GR: Ordinarily, no. If the PN is a note which is payable to Y.
When X met the 22- year old son of Y, and offered the 10,000
A will not extinguish his obligation to Y bcs it was not made
which Ys son accepted. But the money was lost.
to a person in possession of the credit.
How much can Y validly demand from X?
*Possession of the credit acdg to the civil code
Can X still be compelled to pay the entire 20,000?
means: he appears to have the right.
What is the effect of payment of 10k to Ys son?
But since hindi naman nakapangalan kay A, he does
not appear to have the right. So, no.
GR: There being no stipulation for partial payment, the creditor is
not bound to accept. (Partial performance is non-performance.)
EXC: If payable to bearer. Yes, provided that when X paid A,
he made in good faith, bcs he paid to a person in
X:
possession of credit. As long as X was not aware of the
1. Stipulation
defect of the title of Athat will extinguish his obligations to
2. The oblgation is partly liquidated and partly unliquidated, so
Y.
the DR can be demanded to pay only the liquidated portion
3. The debt is subject to different terms and conditions
SC decided a case 3, 4 months ago, and cited this article.
The plaintiff was claiming ownership over the land which
As far as the amount which X paid to the son, clearly this is a
was expropriated by Y (NAPOCOR). In that case, no one
payment to a wrong party, and therefore will not extinguish the
intervened for a long time. When the court finally ordered Y entire obligation. This is bcs this situation does not fall under any
to pay X, nagbayad si NAPOCOR. In that short period,
biglang A appeared, saying that he is the real owner. It was

17

of the exceptions. Whether the money was lost in the casino, the
fact that the payment did not redound to the benefit of the CR.

complied with. The fact that she drafted the contract, she
should know the price, and accepted the payment without
stating may balance pa

3rd rule: AS TO THE PRESTATION TO BE PERFORMED OR

THING TO BE DELIVERED
Two favorite rules:
1. Doctrine of Substantial Performance under 1234
In the case of Tuazon vs. Javier the debt was payable in 10 years.
And the debtor already paid the monthly installments for 8th year,
before he defaulted payments. Thus, the creditor invoked
rescission as a remedy.
Is rescission the proper remedy? Bcs if there was already
substantial performance, rescission can no longer be invoked as a
remedy.
This rule is consistent with 1191, if you remember, rescission is
only a remedy if the breach is substantial.

Applying this rule to the facts, 8 years out of 10. In fact, in

the case, the total amount paid already exceeded the
principal amount. Was rescission considered to be a valid
remedy?
NO. Because in this scenario, there was already a
substantial performance.

In one case. Legarda vs. Saldana, 95 payments out of 120. More

or less 80%.
Under the substantial performance rule: since there was
already a substantial performance, rescission is no longer a
remedy.
Remedy nyan? Specific performance plus damages.
2. Irregular/ Incomplete Performance (1235)
In the case of Azcona vs. Jamandre as agreed upon in a contract
of lease, the amount to be paid on annual basis was P7,200.
Lessee paid only P7,000 as evidenced by a receipt issued by the
lessor as per contract. Kulang lang ng 200.
SC ruled that applying 1235, despite the fact that it was
incomplete or irregular, the creditor accepted the payment,
knowing its incompleteness and without any protest or
objection, under that rule, the obligation is deemed fully

18

PAYMENT IN MONETARY OBLIGATIONS

If the check was dated June 1, 2015. Today, Feb 14, 2016, check
VIP: Art. 1249. The payment of debts in money shall be made in was presented for encashment and dishonored. Is the obligation
the currency stipulated, and if it is not possible to deliver such extinguished?
currency, then in the currency which is legal tender in the
No, because there was no valid payment.
Philippines.
The delivery of promissory notes payable to order, or bills of Is it possible to extinguish by other means?
exchange or other mercantile documents shall produce the effect
When check is impaired. STALE CHECKS: does not
of payment only when they have been cashed, or when through
extinguish obligations.
the fault of the creditor they have been impaired.
Art. 1250. In case an extraordinary inflation or deflation of the
Validity of an obligation with a stipulation to pay an obligation
currency stipulated should supervene, the value of the currency at
which is not in Philippine currency?
the time of the establishment of the obligation shall be the basis of
It is a valid obligation. RA 8183 payment to foreign
payment, unless there is an agreement to the contrary.
currencies is allowed, as long as it is agreed upon by the
NOTE: 1250 is applicable only if the source of the obligation
parties.
is contract.
Basis: the law says currency stipulated
If A is a passenger of a jeepney, and as payment for his ride, he
offered to pay the driver 25 cents for P23.00. Can the driver validly Obligation of P1 Million is due and demandable in 1968.
refuse payment?
After the hearing of the case, the decision was finally promulgated
No, bcs it is a valid payment.
in 1997.
Denominations of 5, 10 and 25 cents are legal tender up to Creditor filed a MOTION for the adjustment of the amount, acdg to
P100.
art 1250.
While P5 and P10 coins are legal tender up to P1,000.
Bcs, in 1968 One peso is equal to 24 peso at time of institution of
the obligaton. While today, One peso is equal to 48 peso at the
Court ordered A to pay B P500,000.
time of payment Judge denied the motion.
B offered to pay P250,000 cash and another P250,000 managers
check to the sheriff. Can the CR validly refuse? Is he bound to
Art 1250 will not apply. In order to adjust, there must be an
accept? Can he be compelled to pay?
extraordinary inflation. In the case of Filipino Pipe vs.
No. Bcs, the P250,000 cash would be tantamount to a partial
NAWASA, Extraordinary inflation exists "when there is a decrease or
payment only.
increase in the purchasing power of the Philippine currency which is
Managers check is not a legal tender.

In the case of Roman Catholic Bishop of Malolos vs.

IAC and Tibajia vs. CA, which overturned the earlier case
of New Pacific Timber vs. Seneris. The SC ruled that a
check, whether a managers check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is
not a valid tender of payment and may be refused receipt
by the creditor.

unusual or beyond the common fluctuation in the value said currency, and
such decrease or increase could not have reasonably foreseen or was
manifestly beyond contemplation the parties at the time of the
establishment of the obligation. While appellant's voluminous records and
statistics proved that there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be considered
"extraordinary." It is simply a universal trend that has not spared our
country.

Commissioner vs. Burgos

Article 1250 of the NCC provides that the value of currency at the
LEGAL TENDER and Payment in relation to CHECKS: Checks as
payment will produce effect of payment only when they have been time of the establishment of the obligation shall be the basis of
payment which would be the value of peso at the time of taking of
cashed.

19

the property when the obligation of the government to pay arises. SPECIAL FORMS OF PAYMENT
It is only when there is an agreement that the inflation will make Is consent of the parties required in extinguishment by Special
the value of currency at the time of payment, not at the time of the Forms of Payment?
establishment, the basis for payment.
Not in all forms.
Bar Question: A and B entered into a Contract of Lease
There was a stipulation that rentals will be increased in par to the
valuation of the peso, if there is any.
Action filed: Unlawful detainer
Will the action prosper?
Del Rosario vs. Shell Yes, even when there is no
extraordinary inflation, if there is a stipulation by parties, as
invoked in the contract itself. The rentals were increased
proportionally by their agreement.

DR
Req

CR
Req

Applicatio
n of
Payment

Req

GR:
Not
Req

Payment
by Cession
or
Assignmen
t
Consignati
on

Req

Req

Req

Not
Req

Dation in
Payment

Why required?
Bcs the Creditor has to accept the
delivery of another thing instead of
the prestation agreed upon. If there
is no consent on the part of the
creditor, there can be no dation in
payment.*
Consent as to the acceptance is
necessary.
Bcs if he doesnt acceptanother
mode may be used: Consignation w/
court.
Bcs if the CR would not agree that
the DR would abandon his
properties for the CR to sell, there
can be no payment by cession.
The consent of CR is not required
even if CR refuses to accept the
thing delivered by the DR to the
court by way of consignationthe
court may declare the consignation
valid.

What is the effect of delivery of the thing from the debtor to the
creditor?
Is there transfer of ownership?
Not necessarily.
Dation in
Payment

Yes

Application of
Payments

YES

Payment by
Cession or
Assignment

No.

Consignation

It
dep

There is transfer of ownership, bcs the

thing being delivered and the
ownership thereof is transferred in
satisfaction of his debt.
There is transfer of ownership
immediatelyif money is delivered by
DR to the CR, ownership passes to the
CR. Bcs the only issue here is to
which debt the payment will apply?
Ownership does not pass bcs the
creditor upon delivery of the things
just accept the things as things to be
sold, and that the proceeds thereof are
to be applied in his indebtedness.
Here ownership does not
automatically pass to the creditors.

20

end
s

If it is void consignation, ownership

does not pass at all.
IF the consignation is valid, or if the
creditor will accept thing consignated,
then ownership passes to the creditor.
NOTE: If declared by court as valid or
acceptance thereof is made by CR,
then ownership passes and retroacts
to the time of the delivery of the court
as if the CR is already the owner of the
thing at the time of delivery.

contracts were all dated/executed earlier than the time he was made liable.
Therefore, there was no obligation yet. The nature of the Deed of Assignment was a
form of security arrangement.

What is the law governing Dation in Payment?

The law on Sales will apply if the obligation is in money.
The law on Novation will apply if the obligation is nonmonetary. Bcs here, there is a change in the object of
prestation/obligation.

B. APPLICATION OF PAYMENT
May the rules on application of payments apply if the debtor has
A. DATION IN PAYMENT
100 creditors?
Yes, as long as to one creditor, he has two or more debts.
The case of FILINVEST vs Phil Acetylene shows that consent of
the creditor is needed in order to apply payment by dacion en
Question: To which debt will the payment be applied?
pago.
The premise of this question is a debtor has two or more debts to
The mere return of the mortgaged motor vehicle by the mortgagor does not
constitute dation in payment in the absence, express or implied of the true intention the creditor.
of the parties. Dacion en pago is the transmission of the ownership of a thing by the Situation: As creditors are XYZ. A owes X P30k, 50k and 100k.
debtor to the creditor as an accepted equivalent of the performance of obligation. In
If A delivers 30k to X, can the creditor be compelled to accept
dacion, the debtor offers another thing to the creditor who accepts it as equivalent
of payment of an outstanding debt. The undertaking really partakes in one sense of payment to the 50k debt?
the nature of sale, that is, the creditor is really buying the thing or property of the
Answer: GR, NO. the rules of payment shall apply, the
debtor, payment for which is to be charged against the debtors debt. As such, the
creditor cannot be compelled to accept partial payment, nor
essential elements of a contract of sale, namely, consent, object certain, and cause
the debtor be compelled to perform partial payment.
or consideration must be present. In its modern concept, what actually takes place
o UNLESS, there is a stipulation giving the debtor a
in dacion en pago is an objective novation of the obligation where the thing offered
as an accepted equivalent of the performance of an obligation is considered as the
right to designate to a debt whc will constitute
object of the contract of sale, while the debt is considered as the purchase price. In
partial payment, he cannot designate payment to
any case, common consent is an essential prerequisite, be it sale or innovation to
wch the payment should apply.
have the effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the Filinvest consented, that
the mere delivery to, and acceptance by him, of the mortgaged motor
vehicle be construed as actual payment, more specifically dation in
payment or dacion en pago. The fact that the mortgaged motor vehicle was
delivered to him does not necessarily mean that ownership thereof, as juridically
contemplated by dacion en pago, was transferred from appellant to appellee. In the
absence of clear consent of appellee to the proferred special mode of payment,
there can be no transfer of ownership of the mortgaged motor vehicle from
appellant to appellee. If at all, only transfer of possession of the mortgaged motor
vehicle took place, for it is quite possible that appellee, as mortgagee, merely
wanted to secure possession to forestall the loss, destruction, fraudulent transfer of
the vehicle to third persons, or its being rendered valueless if left in the hands of
the appellant.

The case of Citizens Surety vs. CA shows that in order that

there be a Dation in Payment, there must be an obligation to be
extinguished.
The facts showed that at the time the deed of Assignment was executed, there was
no obligation under the indemnity agreement nor under the security bond, bcs the

Why would A want to apply the same to the 50k debt?

Bcs maybe is interest bearing while the others are not.
What are the limitations on the right of the debtor to designate the
application for payment?
1. Partial Paymentthe right of the debtor to designate
to which payment shall apply is not absolute. One of the
exception is as to partial payment.
2. Payment of Interest Firstby EXPRESS provision of
the law, payment should always be applied to interest
first. If there are excess then that will be the amount
applied to the principal.
a. Therefore, A cannot compel the debtor to apply
the payment to the principal first, then the
interest later.

21

3. Debts already due and demandablethe law

requires that the debt is already due in order that the
debtor would have the right to designate such payment
to the debt.
a. DUE means the period fixed for the benefit of
the creditor or for both of them.
b. If it is not yet due, but the period is fixed solely
for the benefit of the debtor, the debtor can
designate the payment bcs it is for his benefit,
c. Therefore, A may not designate the 30k for the
payment of the 30k debt, if the 30k debt is not
yet due.
What if A entrusted the creditor X to apply the 40k to 30k debt; the
debt is secured by a mortgage. As instructed, X applied the
payment, and issued a receipt stating that the 30k is applied
therein. Days after, A asked X to apply the amount to the 50k debt
instead. Though the creditor cannot be compelled, he may accept
if he wants to. X then agreed. Thereafter, A was not able to pay X
as to the 30k debt.
Can X foreclose the mortgage?
No. The 30k obligation was revived when he chose the
payment to 50k, the mortgage however was not revived.
Bcs, mortgageis not revived without the consent of the
mortgagor.

As to the most onerous debt, it must be applied to

the most onerous obligation.
NOTE: this rule shall apply if neither the creditor nor the
debtor made designation. And if the limitations are not
present.
WHICH debt is the most onerous? No hard and fast rule.
All factors must be considered in determining which is more
onerous.
o Ex: in one debt he is the guarantor, and in the other
debt he is the principal. The debt in which he is the
principal is more onerous.
o Reason: his liability is not merely inchoate and even
if his liability is only subsidiary, he is already liable.
Bcs for this to apply, the principal debtor should
have defaulted and his properties exhaustedthats
why he is liable. Otherwise, theres no reason to
apply application of payments bcs there will only be
one debt
o Another reason: bcs in guaranty, the guarantor may
be able to recover what he paid to the CR from the
DR; while, in the debt to whc he is a principal, he
cannot recover anything by way of reimbursement.
Bigger amount is more onerous than that of smaller
amount? No basis, amount is not relevant.
Older debt is more onerous? No basis. Older debts may be
less onerousbcs it is abt to prescribe.
o

What if the debtor did not designate the debt to whc the payment
shall apply? Is the debtors consent required in the designation
C. PAYMENT BY CESSION OR ASSIGNMENT
made by the creditor?
The debt designated by the creditor will be followed. The
Is it necessary that the debtor be insolvent?
creditor has the right to designate whc debt the payment
No. Insolvency is not required if you read Art 1256 carefully.
shall apply.
Also the fact that this is agreement by the parties: there
Yes. By express provision of law, if in the receipt the debtor
can only be payment of cessionif the creditor agreed. So
sees that the payment was applied to a particular debt, and
long as the debtor is willing to abandon the properties and
the debtor does not agree to such application, he may
the creditors agree and the proceeds shall be applied to the
refuse to accept the application.
debt. There is cession.

Also, what is transferred to the creditor is up to the amount

The debtor made the payment. The creditor accepted and issued a
of the net proceeds
paymentwithout designating the particular debt. Which debt the
payment shall apply?
Should all the properties of the debtor be delivered and assigned?
It will depend on whether it is a debt of the same nature
No. There are properties which are exempt from execution.
and burden OR whether the debt is most onerous.
o If all debts is of the same nature and burden: the law
requires proportional application.

22

Can the debtor deliver to the creditor properties exempt from

execution?
Yes, bcs that is a right which the debtor cam waive, though
he cannot be compelled, he may abandon those properties
to the creditor. However, there are certain properties whc
cannot be subject of the claim of creditor even w/ consent
of the drlike the family home, when there are
beneficiaries of the family home who can object to the sale
thereof.
What if the debtor is willing to abandon all his properties and the
creditors would refuse, what is the remedy of the debtor?
File for an action for insolvency. Effect? He will be judicially
discharged from the obligation.

Tender of payment by its very nature is

extrajudicial
o if tender of payment is made during the pendency of
the action, the consignation is void.
o Tender of payment should be made prior to
consignation, not during the pendency of the action.
Tender of payment must be distinguished from
consignation. Tender is the antecedent of consignation, that
is, an act preparatory to the consignation, which is the
principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation
is necessarily judicial, and the priority of the first is the
attempt to make a private settlement before proceeding to
the solemnities of consignation.

How do you determine the distribution among the creditors?

1. Stipulation of the parties as to the sharing of
If the debtor sent 3 letters to the creditor saying I am willing to
theproceeds
pay my debt Is this a valid tender of payment?
2. The rules on concurrence and preference of credits will
No. in order for tender of payment to be valid, you have to
be applied, bcs in these rules, there are preferred debts
actually offer the amount to the creditor. It is the act of
and those debts whc are not preferred they shall be paid
offering the amount which constitutes a valid tender of
proportionally.
payment.
D. TENDER OF PAYMENT AND CONSIGNATION

Requisites of consignation:
1. There must be a debt to be extinguished
Art 1256, there are 5 grounds or causes for consignation wherein
Ex: A had the right to redeem , he offered to
the law expressly provides that the tender of payment is not
redeem, the other party refused to accept. When the
required.
action was fled, the defendant claimed that the
1. When the creditor is absent or unknown, or does not appear at the place of
action should be dismissed bcs the redemptioner
payment;
was not sincere, he should have consigned the same
2. When he is incapacitated to receive the payment at the time it is due;
to the courts.
3. When, without just cause, he refuses to give a receipt;
SC in the case of Immaculata vs. Navarro: The
4. When two or more persons claim the same right to collect;
5. When the title of the obligation has been lost.
right to redeem is a RIGHT, not an obligation,
NOTE: Here, there is no tender of payment but consignation is valid.
therefore, there is no consignation required to
preserve the right to redeem.
Grounds or causes of consignation where tender of payment is
o
If the intention is to extinguish an obligation, and the
necessary under the law?
money was refused without just cause, that is when
Where the creditor refuses to accept without just cause.
the debtor has to go to court and deliver the money
As a rule, tender of payment is not required. The only
by way of consignation.
exception is when the creditor refuses to accept without
just cause.
2. The consignation must be based on the ground provided by
SOCO vs. MILITANTE:

lawand those that would be more burdensome to the

debtor by the refusal, like:

23

When without just cause, the creditor refuses to

issue a receipt. In our jurisdiction, receipt is merely
an evidence, but if the creditor refueses to issue a
receipt or does not want to, it is better that the
debtor does not give the payment to him, bcs he can
deny the debtor did not pay.
When two or more persons claim the same right to
collect.

3. Notices required for consignation to be valid.

How many notices is required? At least two, for each
amount which became due.
o Meaning, every month that the payment is not
accepted, notice prior the consignation must be sent.
o Why? This is to give the creditor the right to change his
mind

Therefore, if the DR withdrew, the CR may still

foreclose the mortgage, bcs the obligation was
never extinguished.
If the withdrawal is not a matter of right, therefore his
withdrawal was with the consent of the creditor.
o In such case, upon the acceptance by the
creditor or the declaration of the court of its
validity, the obligation is extinguished.
o Therefore, when the amount was withdrawn by
the, debtor the obligation was revived, and upon
revival, the debtor failed to pay, the creditor can
no longer foreclose the mortgage.
o Reason? With the extinguishment of the
principal, obligation such as the accessory
contracts are also extinguished.
o

Liability to pay interest, what if:

2005
2009
2014
2016
Is it required that both notices be from the debtor? 2000
Due date
Tender of Payment
Consignation
Promulg. Judgment
No. the first notice should come from the debtor prior
Today
the consignation, and the second notice may come into
the form of summons.
Can the debtor be held liable from 2003 to 2016?
o Yes, when the debtor was in delay, on the premise that
there was a demand and theat demand was necessary for
After the delivery of the money or thing w/ the court, what if
the debtor to incur in delay.
thereafter, the money was withdrawn from the court, and
o Also, if the court considered the consignment to be a void
thereafter the creditor failed to pay the creditor. Can the creditor
consignation.
still go after those who are subsidiarily liable for the debt?
Premise here is: A indebted to B, A delivered sum of money to the Assuming it is a valid consignation, when would the debtor be held
court, however, for some reason, A withdrew the money. The debt liable for interest?
is secured by mortgage, if A failed to pay, can B foreclose the
o From 2000 to 2005. When it is a valid consignation, it
mortgage?
means that the creditor refused to accept the payment
It depends whether the withdrawal was made as a
without just cause. Therefore, it has the effect of retroacting
matter of right or not.
from the date of delivery of the amount with the court. Its
If A withdrew the money as a matter of right:
as if the obligation was extinguished at the time the
o When is withdrawal a matter of right? If the
consignation was made. He is not liable to pay interest from
creditor has not yet accepted and the court has What happensin the period of tender of payment to the
not yet declared the consignation to be valid, the consignation, can he be made liable for payment of interest?
DR can still withdraw anytime.
o No. from the time the tender of payment was made, the
o In such case, the debt has not yet been
debtor is no longer liable for interest. If the creditor refuses
extinguishedbcs in consignation the debt will
to accept, the debtor should go to court for consignation.
only be extinguished either bcs of acceptance by
o BASIS? By reason of justice and equity?
cr or declaration of the court of its validity.
o When the creditor refused to accept without just casue, it is
Absence of the two, o obligation is extinguished.
not that he is in delay whc is aka as compensation morae. If
both parties are already in delay, following the ruling in

24

Agcaoili vs GSIS, no one is in delay. And in contemplation

2. LOSS OF THING DUE
of law, if no one is in delay, no once could be liable to pay
interest.
Issue here is.. Can this mode of extinguishment be invoked in all
kinds of obligations?
Yes, even if the provision says loss of the thing due, there
are still provisions pertaining to obligations to do. Thus
authors would consider a better name for this mode, whc is:
impossibility of performance
In impossibility of performance, it would already include
obligations to give or to deliver. In case of obligations
to give it will be impossible to perform bcs the thing to be
delivered is lost.
In obligations to deliver a generic thing, when extinguished?
The law defines loss as a scenario whereby the thing goes
out of commerce.
Such that if the generic thing goes out of commercethere
is nothing to deliver.
Also, an obligation to deliver a generic thing may be
extinguished bcs of impossibility of performance due to:
Physical impossibilitywhen by its nature, it cannot be
performed, or Legal impossibility, when due to a
subsequent law, the thing became prohibited.
In obligations to deliver a determinate thing, when extinguished?
Acdg to Tolentino, if the loss of the thing was due to the
fault of the debtorthe obligation is not extinguished.
Acdg to De Leon and other authors, even if loss was due to
the fault of the debtorthe obligation is extinguished,
without prejudice to his liability for damages.
I (CU) think mas tama sila de Leon, kasi even if the loss is
due to the fault of the debtorwhat will be delivered? None.
There is a case of physical impossibility and therefore, the
obligation should be extinguished. It will however, be
converted into a monetary obligation.
Do not confuse extinguishment from liability.
The usual issue asked by the examiner or in cases decided
by SC, is not : as to thing delivered lost/destroyed, was the
obligation was extinguished. Ratherwon the debtor can be
held liable for damages or WHETHER THE OBLIGATION IS
CONVERTED INTO AN OBLIGATION TO PAY A SUM OF MONEY.

25

Take note that when you say yes, you take the position that
there was extinguishment.
Parang sa prescription diba, prescription is a mode of
extinguishing an obligation, bcs it converts the civil
obligation to a natural obligation. There is a change in the
obligation, therefore there is extinguishment; in the same
manner that if the obligation to deliver is converted to a
monetary obligation, there is an extinguishment of an
obligation.

Art 1267 provides that when the performance has become so

difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released in whole or in part.
Note that the law grants the court the power to release the debtor
in whole or in part, but it does not vest the court the power to
change, revise or reverse their agreement. (as held in the case of
Occena vs. Jhocson)

What are the reqts in order to apply this concept?

1. That the performance of the obligation has become so
difficult,
Who has the burden of proving that the loss was due to the fault of
(not impossible to de boneotherwise, this concept will not
the debtor?
apply bcs, as a rule, it is already extinguished.) and
As a rule: The plaintiffthe one claiming (the creditor) has
2. That the difficulty to perform must be due to a fortuitous
the burden.
event or beyond the contemplation of the parties
However, by presumption of law: if at the time of loss, the

thing was in the possession of the debtor, the burden

now shifts to the debtor.
o Although remember that this presumption is not
absolutethe debtor can post as a defense that
even if the thing was in his possession at the time of
loss, it was due to the fault of some other person.
Also, this presumption will not arise when the loss
happened during or on the occasion of a natural calamity.
o Effect? The burden again will be shifted to the
creditor or plaintiff if he would claim the the loss was
due to the fault of the debtor.

Two concepts that you must remember:

1. PARTIAL LOSS
If the obligation is to deliver a house and lot. Before delivery, the
house was burned.
Is the obligation extinguished? Can the CR be compelled to accept
the land only? Can the DR refuse to deliver due to the loss of the
house?
The answer depends on the intention of the parties, as to
what was the principal motivation in entering the
transaction.
o It is possible that the house is more valuable than
the land as for sentimental reasons. Therefore, the
delivery of the house was the intention and the
buyer cannot be compelled to accept.
2. DIFFICULTY in the PERFORMANCE

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3. CONDONATION OR REMISSION OF
DEBT
Also known as what? Donation of Credit

If it is voluntary returned to the debtor, the effect is that the

obligation is extinguished. An implied condonation that is
presumed by law only if the document is a private
instrument.
o Bcs, if it is a public instrument: there is no such
presumption bcs a public document has several
copies in custody of several offices/people.
Note however, that this is merely a disputable presumption.

Issue here is: what is the effect of an expressed or implied

condonation?

It depends whether the condonation was made expressly,

or impliedly.
What if a ring was delivered by X to Y, as a security. (What
contract? Pledge.) After the perfection of the pledge, the thing was
If for example, there is a Donation of Credit: an expressed
found in possession of the debtor. Is the obligation of X
condonation for the obligation to deliver transfer of land:
extinguished?
An express condonation has to comply with the formalities
No.
of law as to Donation.
The presumption by law may only arise in case where the
In this case, since the donation involves that of a Real
thing delivered by way of pledge is found in the possession
Propertyit must be made in a public instrument,
of the owner of the thing pledged.
specifying the property donated. The acceptance must also
Take note that the debtor is not necessarily the owner of the
be made in wrtgin the same deed of donation, and made
thing pledged. Pledge may be constituted by a third person,
during the lifetime of the donor. Otherwise, there will not be
so that if the thing was found in possession of the debtor
a valid condonation.
the presumption will not arise.
Again, take note that this is a disputable presumption. Why
Bar Question: X is indebted to his father for P500k, the son paid
would the creditor deliver naman the thing to the debtor?
300k through a check. When the father dies, the executor
Maybe for safekeeping, etc.
demanded for the payment of the balance. X claimed that the
200k was condoned as can be seen at the back of the check, it
states that this is condonation for the full amount. Was there
extinguishment by condonation?
This is an express condonation of the entire obligation.
An express condonation has to comply with the formalities
of the law on donation. This is a Donation of Credit, and
therefore, under the lawif the credit is more than P5,000,
the condonation must be in writing. And that there must be
acceptance in writing.
Since there was no acceptance in wrtg, there was no
acceptance. Hence, it is not a valid condonation.
When will there be an implied condonation?
For example, if the debt is evidenced by a promissory note, and
the promissory note after having been delivered to the creditor,
was found in the possession of the debtor. Was there
extinguishment by condonation?
In this case there is only a presumption, that the
promissory note was voluntarily returned to the debtor.

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4. CONFUSION OR MERGER OF RIGHTS

5. COMPENSATION

Compensation may be:

Here, the characters of the debtor and creditor are merged in 1
1. PARTIAL
person.
When will this happen? By a Merger Agreement or Merger Contract,May there be 2 or 10 debts extinguished as partial compensation?
YES. There can be 2 or 10 debts extinguished by
such as in PNB and Allied Bank. Have you heard of their merger?
compensation but it is still partial compensation.
No questions naman sa bar exams so far, but I think the only issue
WHY? As long as the debts of one are not equal to the debts
here is whether there can be a PARTIAL CONFUSION. If yes, when?
of the other, the compensation will only be to the
When the oblgigation has joint debtorsthe confusion is
concurrent amount and there will be no total
only to the extent of the share of the joint debtor involved.
extinguishment.
Here, what if A has a debt of P3 billion to B. and in:
1998
Due&Demandable

2005
Merger

2014
Rescission

2016
Files Action

2. TOTAL
When does this take place?
When the debts are totally equal. Ex: When the debt is
P100K, and the other is also P100k.

Examples:
It was rescinded bcs A did not comply with the terms, so with the A owes B 100k, but B has several debts to A amtng to 20k, 10k,
rescission, they were converted back to their previous obligations 50k. If you add it up, it will only be 80k. With compensation, all the
prior the merger.
debts will be totally extinguished, bcs the extinguishment is for the
concurrent amount.
Prescription is not a possible defense. Why?
3. In such case, the 80k debt of B will be extinguished, but A
In Sycip vs. Court of Appeals, the time of the merger to
will still have to pay 20k to B.
the time of rescission should not be counted in the
4. This is important as to the liability to pay interest, as to
computation of prescription period, bcs during the 1998whether or not there can be valid foreclosure.
2005, prescription is deemed suspended. RATIO? During
those times, the CR will not file a case bcs it will be absurd A has obligation to B, B has obligation to A. As obligation is
given that he is also a CR of himself.
interest bearing. After compensation, can B still collect interest?
Can A be held liable for interest?
It depends.
It will depend on the amount involved.
If Bs debt is smaller than, 50k, As debt is 100k. Can B collect
interest?
Not anymore, bcs the debt will be totally extinguished, the
100k will be reduced by 50k to the concurrent amount.
What if the 100k is secured by a mortgage. After compensation,
may A foreclose the mortgage?
Yes, bcs there will still be a balance of 50k. a mortgage is an
indivisible contract, until the obligation is not extinguished,
the mortgagee will remain in force. And therefore, if B failed
to pay A 50k, A can still foreclose the mortgage.

28

BAR EXAM QUESTION

A opened a savings account with Y Bank in the amount of P1
Million.
Thereafter, A borrowed money from the same bank. 800k.
A wanted to withdraw the P1 Million. The bank said: no you cannot
withdraw the P1M because ypour obligation to pay the P800k is
already due. We are invoking compensation, and can only
withdraw up to P200k.
A claimed that there can be no compensation bcs under 1287,
there can be no compensation where one of the debts arises from
a deposit.
Who is correct?
The bank is correct. Savings account deposit is not a
deposit. It is a contract of loan. 1287 will not apply. If both
are simple loan, there can be compensation.
This is known as Facultative Compensation.
BASIS: The contract between the bank and its depositor is governed by the

2. Voluntary Compensation
Where the consent of both parties is required.
3. Judicial Compensation
Happens when a case is filed for a sum of money, and the
defendant files a counterclaimso in the end the plaintiff becomes
liable as well on the premise that the claim of both is valid and it
was granted by the court. It is compensated up to the concurrent
amount. Note that the obligations whc are not yet liquidated at the
time of the filing of the action, can be liquidated during the
proceedings.
4. Facultative Compensation
It occurs in depositum, commodatum, gratuitous support, support
in arrears, and civil liability arising from crime.

provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly If one of the debts arises from a depositum, (safekeeping), can
provides that x x x savings x x x deposits of money in banks and similar institutions there compensation?
shall be governed by the provisions concerning simple loan. There is a debtor-creditor GR: NO.
relationship between the bank and its depositor. The bank is the debtor and the
X: When it is the depositor who invokes the compensation.
depositor is the creditor. The depositor lends the bank money and the bank agrees to
The depositary cannot invoke it. WHY? Bcs trust was the
pay the depositor on demand. The savings deposit agreement between the bank and
the depositor is the contract that determines the rights and obligations of the parties.
basis of the contractthat it will be returned to him upon

KINDS OF COMPENSATION:
1. Legal Compensation
--considered the true kind of compensation.
--by operation of law.
--from the moment all the essential requisites are present,
compensation takes place even without the knowledge of the
parties.
REQS:
1. they must be mutual creditors and debtors of each
other
2. both debts must be in sum of money or if they
pertain to goods, they must be of the same kind and
quality.
3. Both parties must be principally bound
4. They must be creditors and debtors of each other in
their own right.
5. Both debts must already be deue and demandable
6. The debts must be liquidates and demandable
7. One of the debts must not arise from Art 1287 and
1288.

his demand. Public Policy.

When one of the debts arise form commodatumcan there be
compensation?
YESonly if the it is the BAILOR, and not the bailee who invokes
the compensation.
SUPPORTcan there be compensation?
Yes, if it is gratuitous support, and not contractual support.
If this is legal support-a person needs to survive, thus it
cannot be subj to compensation.
If it is support in arrears, compensation may take place.
Civil Liability arising from crimecan there be compensation?
YESonly if it is the aggrieved party who invokes the same
and not the convict.
EFFECT OF ASSIGNMENT OF CREDITas to the right to
invoke compensation
What if:
A---- is indebted to B P100,000
Due on July 31, 2015

29

The next day, B assigned his credit to X.

B------ is indebted to A the ff:
P40,000 due Feb1
P30,000 due Aug 15
P15,000 due Oct 31
Question:
1. If on May 5, 2015: How much can X compel A to pay?
o None.
A cannot be compelled to pay X since the obligation is not
yet due and demandable.
If the assignment was made BEFORE the debts became
due, and the assignee demand on that date, he is not yet
entitled to payment.

2. If on Aug 5, 2015, demand was made. Can A validly claim

compensation for the 3 debts? Can X compel A to pay the debt of
P100,000?
It depends. On what? On the ff factors:
First, check the Date of Assignment
Then, determine if Assignment is made with knowledge
of the debtor or not.
If made with knowledge, determine further if
there was consent to the assignment or none.
o If consent is given, determine whether
reservation to the right to compensation
was given or not.
If w/o knowledge.

NO RESERVATION
Php100,000

Assignment
WITH
KNOWLEDGE
of A

Bcs, by agreeing without

reservation, he waived his right to
compensation.
What is Xs remedy from DR? Xs
remedy is to demand the payment of
the debt from DR A.
With knowledge, but
CONSENT NOT GIVEN
Php 60, 000

Php 30,000
Assignment is
made
Without
Knowledge
Of DR

If on Sept 30, X demanded from A?

A can only be compelled to P30k bcs he can invoke
compensation as to those debts whc became due, since the
assignment is w/o his knowledge.

In other words, how much can X compel A???

IF RESERVATION IS MADE
Php 60,000
With knowledge,
CONSENT IS
GIVEN

bcs, since the assignment was with

the knowledge of A, and at the time
of the demand, the debt in Feb 1
(40k) is the only debt due at the
time of demand, he can invoke
compensation only as to such
amount which were already due.
The compensation involving the 2
other debts will take place only Aug
1, 2015,

30

6. NOVATION
What is the relevance of determining whether there is novation or
not?
Bcs if there will be novation, it consequently requires a new
set of reqts to be complied with, since a new obligation
arises.
Will CHANGE OF PERSON amount to novation?
Not necessarily. Not all change of person leads to novation.
Ex: A executed a PN dated 1996 to secure payment of loan to B.
However, in 2001, A died.
2007 case was filed.
Heirs of A as a defense raised prescription was given since it
already lapsed as far as time is concerned.
B argued that there is novation.
No novation. Not all change of person s lead to novation.
Here, it is the same obligation, hence, prescriptive period
was not tolled.

gave the respondent a method and more time to enable him to fully satisfy the
judgment indebtedness. The chattel mortgage agreement in no manner introduced
any substantial modification or alteration of the judgment. Instead of extinguishing
the obligation of the respondent arising from the judgment, the deed of chattel
mortgage expressly ratified and confirmed the existence of the same, amplifying
only the mode and period for compliance by the respondent.
The defense of implied novation requires clear and convincing proof of complete
incompatibility between the two obligations. The law requires no specific form for an
effective novation by implication. The test is whether the two obligations can stand
together. If they cannot, incompatibility arises, and the second obligation novates
the first. If they can stand together, no incompatibility results and novation does not
take place.

CLASSIFICATION OF NOVATION
1. Subjective Novation: pertaining to parties
a. Active Subjectivesubrogation in the rights of the creditor.
b. Passive Subjectivesubstitution in the person of the debtor.

Example:
A is indebted to B.
A had a contract with B, whc was voidable. B assigned his right to X offers to pay B.
Will X subrogate in the rights of B?
C.
No. bcs B did not accept such offer.
Can A invoke vitiation of consent?
No, bcs there was the creation of NEW obligation btwn A
and C. Hence, A cannot raise the defense he had against B. What if this time, B accepted.
But, if the assignment was done without the knowledge of A, can A If X demanded from A, is A bound to reimburse X?
Yes, insofar as A has been benefited under Art 1236.
invoke vitiation against C?
Yes. Bcs this involved in the same obligation, therefore, A
If A failed to reimburse, can X run after the guarantor, if any?
can raise his defense against C.
And if B demanded payment from X, since X offered to pay him
In the case of MILLAR vs. CA, petitioner obtained a favorable judgment. but later on X became insolvent, can he recover from A?
It depends if this is Expromission or Delegacion, and if the
The lower court issued the writ of execution on the basis of which the sheriff seized
the respondent's Willy's Ford jeep. The respondent, however, pleaded with the
insolvency was after or before substitution.
petitioner to release the jeep under an arrangement whereby the respondent, to
secure the payment of the judgment debt, agreed to mortgage the vehicle in favor
of the petitioner. The petitioner agreed to the arrangement; thus, the parties
executed a chattel mortgage on the jeep. Resolution of the controversy posed by
the petition at bar hinges entirely on a determination of whether or not the
subsequent agreement of the parties as embodied in the deed of chattel mortgage
impliedly novated the judgment obligation.

No substantial incompatibility between the mortgage obligation and the judgment

liability of the respondent sufficient to justify a conclusion of implied novation. The
stipulation for the payment of the obligation under the terms of the deed of chattel
mortgage serves only to provide an express and specific method for its
extinguishment payment in two equal installments. The chattel mortgage simply

As to 1st qstn:
If A failed to
reimburse,
can X run
after the
guarantor, if
any?

EXPROMISSION
1. If there is
substitution of the
debtor without
or against the
original
debtors will
X cannot
run after

DELEGACION
Since here, the original
debtor gave consent, X can
run after the guarantor.

31

guilty of breach of contract of carriage as respondent was not able to travel to the United States
due to his own voluntary desistance.5

the
guarantor
bcs he is
not
subrogate
d in the
right of B.
2. If payment was
with consent of
A, X is
subrogated in the
rights of B, hence,
art 1302 applies.

SC: Considering that respondent was forced to get out of the plane and left behind against his
will, he could not have freely consented to be rebooked the next day. In short, he did not agree
to the alleged novation. Since novation implies a waiver of the right the creditor had before the
novation, such waiver must be express.58 It cannot be supposed, without clear proof, that
respondent had willingly done away with his right to fly on July 29, 1992.

b. CHANGE IN THE PRINCIPAL CONDITION

In a JUDGMENT, is there novation by the fact that thereafter, an
agreement btwn the parties to the case as to the:
1. Reduction of the amount
2. Payment in installment
3. Secured with Real Estate Mortgage
4. With order of payment of Attys Fees.

As to 2nd
question:
if B
demanded
payment
from X, since
X offered to
pay himbut
later on X
became
insolvent,
can he
recover from
A?

X can run
after the
guarantor
In the given facts,
in case of
insolvency of X, A
will never be
liable bcs the
substitution was
w/o his consent.

B cannot demand from A,

because the obligation
has already been
extinguished by
novation.
HOWEVER, if A is in bad faith
He can be held liable to B.
If X became insolvent AFTER
substitution, there is no bad
faith.
Also, if A and B were aware
of the insolvency of X but
still allows such substitution,
B cannot hold A liable, bcs in
such case, both are in bad
faith.

2. Objective Novation: pertaining to subject matter

a. CHANGE IN THE OBJECT
In the case of Japan Airlines vs. SIMANGAN

Was there novation? In the case of FUA vs. YAP

SC: Yes there was.
But the Dissenting opinion: NONE, and I quote:
The majority maintains that here there is an implied novation by "reason of incompatibility
resulting from the fact that, whereas the judgment was for P1,538.04 payable at one time, did
not provide for attorney's fees, and was not secured, the new obligation is for P1,200 payable in
installments, stipulates for attorney's fees, and is secured by a mortgage." With respect to the
amount, it should be noted that, "while the obligation under the judgment was reduced to
P1,200, there was, however, a stipulation to the effect that the discount would be recoverable in
the event of appellants' default to comply with the terms of the agreement. And as to attorney's
fees and the security by way of mortgage, the stipulation therefor contained in the agreement is
of no moment, for it is merely incidental to, and anticipatory of, a suit which appellee may
choose to take against appellants. Far, therefore, from extinguishing the obligation under the
judgment, the agreement ratifies it and provides merely a new method and more time for the
judgment debtor to satisfy it. If the judgment debtor fail to comply with the terms of the
agreement, the judgment creditor shall be deemed remitted to his original rights under the
judgment which he may choose to execute or enter, instead, a separate suit on the terms of the
settlement.

If the original obligation is void,

and the parties had an agreement which was also void,
can there be novation?
No novation because there is nothing to extinguish.
Can the new agreement be enforced?
No. Why? bcs, the consideration is void. (cause of the
agreement is the same as the one entered before)

JAL justifies its action by arguing that there was "a need to verify the authenticity of
respondent's travel document."52 It alleged that no one from its airport staff had encountered a
parole visa before.53 It further contended that respondent agreed to fly the next day so that it
could first verify his travel document, hence, there was novation.54 It maintained that it was not

32

Notes from Class Lectures of:

PEACHY ANNE APOLO
2016

33