B.

Obligations with a Period – Article 1193, 1180

“SC ruled that a mere estimate of a period of project completion does not fall under the definition of a fixed period or
day certain as defined in law. Art. 1193 of the Civil Code provides that: “Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when that day comes; Obligations with a resolutory period take
effect at once, but terminate upon arrival of the day certain; A day certain is understood to be that which must
necessarily come, although it may not be known when; If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section.”

The lapse of the estimated 6-year period did not deem the project completed much less bring about the fulfillment of
the condition stipulated in the MOA (on the shift of ownership over the demolished properties). As it were, the
Mandaue-F.F.Cruz MOA states that the structures built by F .F. Cruz on the property of the city will belong to the
latter only upon the completion of the project. Clearly, the completion of the project is a suspensive condition that
has yet to be fulfilled. Until the condition arises, ownership of the structures properly pertains to F.F. Cruz. Petition is
granted.” (Solante v. COA, G.R. No. 207348, 19 August 2014)

Presumption – Article 1196

In order that consignation may be effective, the debtor must first comply with certain requirements prescribed
by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had
been made bacause the creditor to whom tender of payment was made refused to accept it, or because he was
absent for incapacitated, or because several persons claimed to be entitled to receive the amount due (Art.
1176, Civil Code); (3) that previous notice of the consignation has been given to the person interested in the
performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the
court (Art 1178, Civil Code); and (5) that after the consignation had been made the person interested was
notified thereof (Art. 1178, Civil Code). In the instant case, while it is admitted a debt existed, that the
consignation was made because of the refusal of the creditor to accept it, and the filing of the complaint to
compel its acceptance on the part of the creditor can be considered sufficient notice of the consignation to the
creditor, nevertheless, it appears that at least two of the above requirements have not been complied with.
Thus, it appears that plaintiff, before making the consignation with the clerk of the court, failed to give
previous notice thereof to the person interested in the performance of the obligation. It also appears that the
obligation was not yet due and demandable when the money was consigned, because, as already stated, by the
very express provisions of the document evidencing the same, the obligation was to be paid within one year
after May 5, 1948, and the consignation was made before this period matured. The failure of these two
requirements is enough ground to render the consignation ineffective. And it cannot be contended that
plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests
due up to the date of its maturity, because, under the law, in a monetary obligation contracted with a period,
the presumption is that the same is deemed constituted in favor of both the creditor and the debtor unless
from its tenor or from other circumstances it appears that the period has been established for the benefit of
either one of them (Art. 1127, Civil Code). Here no such exception or circumstance exists. (Ponce de Leon v.
Syjuco, G.R. No. L-3316, 31 October 1951)

In the given case of contract of lease, it is given to the lessor. As a general rule under Article 1196 of the Civil
Code, the period of the lease contract is deemed to have been set for the benefit of both parties. Renewal of the
contract may be had only upon their mutual agreement or at the will of both of them. In the given case, “this
lease shall be for a period of fifteen years effective June 1, 1979, subject to renewal for another ten (10) years,
under the same terms and conditions” does not mean an autmoctic extension of the contract. The fact that the
lessee was allowed to introduce improvements on the property is not indicative of the intention of the lessors
to automatically extend the contract. However, in the given case, Tionco were not amenable to a renewal, they

1
cannot be compelled to execute a new contract when the old contract terminated on 1 June 1994. It is the
owner-lessors prerogative to terminate the lease at its expiration. The fulfillment of a contract of lease cannot
be made to depend exclusively upon the free and uncontrolled choice of the lessee and completely depriving
the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract would be dictated solely by the lessee. (
Buce v. CA, G.R. No. 136913, 12 May 2000)

When court may fix a period – Art. 1197

If the contract so provided, then there was a period fixed, a “reasonable time;” and all that the court should
have done was to determine if that reasonable time had already elapsed when suit was filed if it had passed,
then the court should declare that petitioner had breached the contract, as averred in the complaint, and fix the
resulting damages. On the other hand, if the reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature.

Article 1197 of the Civil Code involves a two-step process. The Court must first determine that “the obligation
does not fix a period but from the nature and the circumstances it can be inferred that a period was intended”.
The Court must then proceed to the second step, and decide what period was “probably contemplated by the
parties” So the Court cannot fix a period merely because in its opinion it is or should be reasonable, but must
set the time that the parties are shown to have intended.

In this connection, it is to be borne in mind that the contract shows that the parties were fully aware that the
land described therein was occupied by squatters. As the parties must have known that they could not take the
law into their own hands, but must resort to legal processes in evicting the squatters, they must have realized
that the duration of the suits to be brought would not be under their control nor could the same be determined
in advance. The conclusion is thus forced that the parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly evicted, as contended by the petitioner Gregorio
Araneta, Inc. (Araneta v. Philippine Sugar Estate Development Co., G.R. No. L-22558, 31 May 1967)

C. Alternative Obligation

Article 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking.

In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined
by the choice of the debtor who generally has the right of election.” The right of election is extinguished when
the party who may exercise that option categorically and unequivocally makes his or her choice known. (
Arco Pulp and Paper Co, v. Lim, G.R. No. 206806, 25 June 2014)

D. Solidary Obligation

Art. 1211
The contract of May 12, 1911 does not constitute a novation of the former one of Aug.12, 1909, with respect to
the other debtors who executed this contract. First, “in order that an obligation may be extinguished by

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another which substitutes it, it is necessary that it should be so expressly declared or that the old and the new
be incompatible in all points(art. 1292). It is always necessary to state that it is the intentionof the contracting
parties to extinguish the former obligation by the new one.” The obligation to pay a sum of money is not
novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding
other obligations not incompatible with the old one.

The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more
of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance
with the provision of Art. 1215, 1222, the defendant has the right to enjoy the benefits of the partial remission.
At present judgment can be rendered only as to P112,500. (Inchausti v. Yulo, G.R. No. L-7721, 25 March 1914)

Art. 1217 to 1220

A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt, and
each creditor is entitled only to a proportionate part of the credit. A solidary obligation is one in which each
debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. Hence, in
the former, each creditor can recover only his share of the obligation, and each debtor can be made to pay only
his part; whereas, in the latter, each creditor may enforce the entire obligation, and each debtor may be obliged
to pay it in full.

The essence of active solidarity consists in the authority of each creditor to claim and enforce the rights of all,
with the resulting obligation of paying every one what belongs to him; there is no merger, much less a
renunciation of rights, but only mutual representation.

The question of who should sue the private respondents was a personal issue between Quiombing and
Biscocho in which the spouses Saligo had no right to interfere. It did not matter who as between them filed the
complaint because the private respondents were liable to either of the two as a solidary creditor for the full
amount of the debt. Full satisfaction of a judgment obtained against them by Quiombing would discharge their
obligation to Biscocho, and vice versa; hence, it was not necessary for both Quiombing and Biscocho to file the
complaint. Inclusion of Biscocho as a co-plaintiff, when Quiombing was competent to sue by himself alone,
would be a useless formality.

Parenthetically, it must be observed that the complaint having been filed by the petitioner, whatever amount is
awarded against the debtor must be paid exclusively to him, pursuant to Article 1214. This provision states
that “the debtor may pay any of the solidary creditors; but if any demand, judicial or extrajudicial, has been
made by any one of them, payment should be made to him.

If Quiombing eventually collects the amount due from the solidary debtors, Biscocho may later claim his share
thereof, but that decision is for him alone to make. It will affect only the petitioner as the other solidary
creditor and not the private respondents, who have absolutely nothing to do with this matter. As far as they
are concerned, payment of the judgment debt to the complainant will be considered payment to the other
solidary creditor even if the latter was not a party to the suit.

Although he signed the original Construction and Service Agreement, Biscocho need not be included as a co-
plaintiff in the complaint filed by the petitioner against the private respondents. Quiombing as solidary

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creditor can by himself alone enforce payment of the construction costs by the private respondents and as a
solidary debtor may by himself alone be held liable for any possible breach of contract that may be proved by
the private respondents. In either case, the participation of Biscocho is not at all necessary, much less
indispensable. (Quiombing v. CA, G.R. No. 93010, 30 August 1990)

A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-debtor to
all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety).
The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has
been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights than those bestowed upon him.

Because the promissory note involved in this case expressly states that the three signatories therein are jointly
and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The
choice is left to the solidary creditor (PBC) to determine against whom he will enforce collection.
Consequently, the dismissal of the case against Pontanosas may not be deemed as having discharged Inciong
from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him.
Inciong, therefore, may only have recourse against his co-makers, as provided by law. (Inciong v. CA, G.R. No.
96405, 26 June 1996)

It also pointed out D.O. No. 18-A, s. 2011 section 27 providing for the effects of labor-only contracting “where
upon the finding by competent authority of labor-only contracting shall render the principal jointly and
severally liable with the contractor to the latter’s employees, in the same manner and extent that the principal
is liable to employees directly hired by him/her, as provided in Article 106 of the Labor Code.”

Hence, the PCCr’s solidary liability was already expunged by virtue of the releases, waivers and quitclaims
executed by the petitioners in favor of MBMSI by virtue of Article 1217 of the Civil Code providing that
“payment made by one of the solidary debtors extinguishes the obligation.” (Vigilla v. Phil. College of
Criminology, Inc., G.R. No. 200094, 10 June 2013)

Art. 1217 of the Civil Code recognizes the right of reimbursement from a co-debtor (principal co-debtor in case
of suretyship) in favor of one who paid the surety.

Only payments made after the obligation has prescribed or became illegal shall not entitle a solidary debtor for
reimbursement (in accordance with Art. 1218). (Diamond Builders v. Country Bankers, G.R. No. 171820, 13
December 2007)

Defenses available to a solidary debtor against the creditor – Art. 1222

The obligation is joint. Indeed, if from the law or the nature or the wording of the obligation the contrary does
not appear, an obligation is presumed to be only joint, i.e., the debt is divided into as many equal shares as
there are debtors, each debt being considered distinct from one another. Clearly, the liability of the sublessees
is merely joint. Since the obligation of the Manuel and Alipio spouses is chargeable against their respective
conjugal partnerships, the unpaid balance of P50,600.00 should be divided into two so that each couple is liable
to pay the amount of P25,300.00. (Alipio v. CA, G.R. No. 134100, 29 September 2000)

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Joint & Solidary character of their counterclaim against CCC, Lim & Mariano. The solidary character of Lim &
Mariano alleged liability is precisely why credence cannot be given to petitioners’ assertion. According to such
assertion, Respondent CCC cannot move to dismiss the counterclaims on grounds that pertain solely to its
individual co-debtors.

In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the obligation,
from circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code
provides:
“A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived
from the nature of the obligation and of those which are personal to him, or pertain to his own share.
With respect to those which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible.”

The ambiguity in petitioners’ counterclaims notwithstanding, respondents’ liability, if proven, is solidary. This
characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are generally
considered joint, except when otherwise expressly stated or when the law or the nature of the obligation
requires solidarity. However, obligations arising from tort are, by their nature, always solidary. (Lafarge
Cement Phil v. Continental Cement, G.R. No. 155173, 23 November 2004)

E. Divisible and Indivisible Obligations

Based on the AES Contract, the Court sustained the parties’ right to amend the same by extending the option
period. Considering that the performance security had not been released to Smartmatic-TIM, the contract was
still effective which can still be amended by the mutual agreement of the parties, such amendment being
reduced in writing. To be sure, the option contract is embodied in the AES Contract whereby the Comelec was
given the right to decide whether or not to buy the subject goods listed therein under the terms and conditions
also agreed upon by the parties.

Clearly, under the AES Contract, the Comelec was given until December 31, 2010 within which to exercise the
OTP the subject goods listed therein including the PCOS machines. The option was, however, not exercised
within said period. But the parties later entered into an extension agreement giving the Comelec until March
31, 2012 within which to exercise it. With the extension of the period, the Comelec validly exercised the option
and eventually entered into a contract of sale of the subject goods. The extension of the option period, the
subsequent exercise thereof, and the eventual execution of the Deed of Sale became the subjects of the petitions
challenging their validity in light of the contractual stipulations of respondents and the provisions of RA 9184.

As the Court simply held in the assailed decision that the moment the performance security is released, the
contract would have ceased to exist. However, since it is without prejudice to the surviving provisions of the
contract, the warranty provision and the period of the option to purchase survive even after the release of the
performance security. While these surviving provisions may have different terms, in no way can we then
consider the provision on the OTP separate from the main contract of lease such that it cannot be amended
under Article 19. Thus, not only the option and warranty provisions survive but the entire contract as well. In
light of the contractual provisions, the SC sustained the amendment of the option period. (Capalla v.
COMELEC (G.R. No. 201112, 23 October 2012)

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F. Obligation with a Penal Clause

The so-called “special condition” in the deed of sale is, in reality, an obligation1 — to build a house at least 50
percent of which must be finished within two years. It was to secure the performance of this obligation that a
penal clause was inserted. Here the trial court found that Juan Carlos had finished more than 50 percent of his
house or barely a month after the expiration of the stipulated period. There was, therefore, a partial
performance of the obligation within the meaning and intendment of article 1229. The penal clause, in this
case, was inserted not to indemnify the Makati Development Corporation for any damage it might suffer as a
result of a breach of the contract but rather compel performance of the so-called “special condition” and thus
encourage home building among lot owners in the Urdaneta Village.

Considering that a house had been built shortly after the period stipulated, the substantial, if tardy,
performance of the obligation, having in view the purpose of the penal clause, fully justified the trial court in
reducing the penalty. (Makati Dev’t Corp. v. Empire Insurance Co., G.R. No. L-21780, 30 June 1967)

The repossession of the leased premises by OVEC after the cancellation and termination of the lease was in
accordance with the stipulation of the parties in the said agreement and the law applicable thereto and that the
consequent forfeiture of Sy's cash deposit in favor of OVEC was clearly agreed upon by them in the lease
agreement. The court found no ambiguity in the provisions of the lease agreement. It held that the provisions
are fair and reasonable and therefore, should be respected and enforced as the law between the parties. It held
that the cancellation or termination of the agreement prior to its expiration period is justified as it was brought
about by Sy's own default in his compliance with the terms of the agreement and not motivated by fraud or
greed. (Country Bankers Insurance vs. CA, G.R. No. 85161, 9 September 1991)

Chapter 4 Extinguishment of Obligation

Art. 1249

While it is true that the delivery of check produces payment only when encashed (pursuant to Art. 1249, Civil
Code), the rule is otherwise if the debtor is prejudiced by the delay in presentment. In this case, the petitioner
alleges that he did not present the check, ten years after the same was paid to him as part of the purchase price
of the property.

Check acceptance implied an undertaking of due diligence in presenting it for payment. If the person who
receives it sustains loss by want of this diligence, this will operate as the actual payment of the debt or
obligation for which the check was given. The debtor cannot now be held liable if non-presentment of the
check was through the fault of the creditor. (Papa v. Valencia, G.R. No. 105188, 23 January 1998)

Payment must be made to the obligee himself or to an agent having authority, express or implied, to receive
the particular payment. The payment made by the petitioner to the absconding sheriff was not in cash or legal
tender but in checks. The checks were not payable to Amelia Tan or Able Printing Press but to the absconding
sheriff. In the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money and unless the parties so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as a medium of payment of his debt. Strictly speaking, the acceptance by

6
the sheriff of the petitioner’s checks, in the case at bar, does not, per se, operate as a discharge of the judgment
debt. The check as a negotiable instrument is only a substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment. A check, whether a manager’s check or ordinary check,
is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by the commercial
document is actually realized (Art. 1249, Civil Code, par. 3). (PAL v. Court of Appeals, G.R. No. L-49188, 30
January 1990)

Application of Payments

Surety company, under Article 1254 of judgment, Civil Code, where there is no imputation of payment made
by either judgment, debtor or creditor, The debt which is the most onerous to the debtor shall be deemed to
have been satisfied.

The rules contained in Articles 1252 to 1254 of judgment, Civil Code apply to a person owing several debts of
judgment, same kind to a single creditor. They cannot be made applicable to a person whose obligation as a
mere surety is both contingent and singular, which in this case is the full and faithful compliance with the
terms of the contract of conditional purchase and sale of reparations goods. The obligation included the
payment, not only of the first installment but also of the ten (10) equal yearly installments. The amount of
P10,000.00 was, indeed, deducted from judgment, amount of P53,643.00, but then judgment, first of judgment,
ten (10) equal yearly installments had also accrued, hence, no error was committed to holding judgment,
surety company to judgment, the full extent of its undertaking. (Reparations Commission v. Universal Deep
Sea Fishing, A.M. No. 21901-96, 27 June 1978)

As provided in Article 1252 of the Civil Code, the right to specify which among his various obligations to the
same creditor is to be satisfied first rest with the debtor.

In the case at bar, at the time petitioner made the payment, he made it clear to the respondent that they were to
be applied to his rental obligations on the Fairview wet market property. Though he entered into various
contracts and obligations with respondent, all the payments made, were to be applied to rental and security
deposit on the Fairview wet market property. However, respondent applied a big portion of the amount paid
by petitioner to the satisfaction of an obligation which was not yet due and demandable which is the payment
of heavy equipment.

Under the law, if the debtor did not declare at the time he made the payment to which of his debts with the
creditor the payment is to be applied, the law provided the guideline; i.e. no payment is to be applied to a debt
which is not yet due and the payment has to be applied first to the debt which is most onerous to the debtor.
(Paculdo v. Regalado, G.R. No. 123855, 20 November 2000)

Payment by Cession / Dation in Payment

The act of DBP under condition no. 12 of the Assignment of Leasehold Rights did not constitute as a case of
pactum commissorium, when appropriated for itself Cuba’s leasehold rights over the subject fishpond,

7
because condition no. 12 only gave DBP the authority to sell the said property and use the proceeds of the sale
to satisfy Cuba’s obligation, it did not operate as an automatic transfer of the said property to DBP.
However DBP exceeded its authority granted under condition no. 12 when it appropriated for itself
such rights without judicial or extra judicial foreclosure, thereby making his acts violative of Article 2088 of the
Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the
payment of a debt. (Development Bank of the Philippines v. Court of Appeal, G.R. No. 118342, 5 January 1998)

Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of obligation. In dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of
the debtor, payment for which is to be charged against the debtor’s debt. As such, the essential elements of a
contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern
concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract
of sale, while the debt is considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation.

The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at least
intended, 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. (Filinvest Credit Corporation v. Philippine Acetylene, G.R. No. L-50449, 10 January
1982)

Tender of Payment and Consignation

The private respondent had substantially complied with the terms and conditions of the compromise
agreement. Her failure to deliver to the petitioners the full amount on January 27, 1978, was not her fault. The
blame lies with the petitioners. The deposit of the balance of the purchase price was made in good faith and
that the failure of the private respondent to deposit the purchase price on the date specified was due to the
petitioners who also make no claim that they had sustained damages because of the two days delay, there was
substantial compliance with the terms and conditions of the compromise agreement. (De Guzman v. Court of
Appeals, G.R. No. L-52733, 23 July 1985)

the case was dismissed before the amount deposited was either accepted by the creditor or a declaration made
by the Court approving such consignation. The dismissal rendered the consignation ineffectual. Under such
circumstances, it was incumbent upon the respondent to have allowed the withdrawal by TLG of the money
deposited with the CFI.

8
Art. 1260 – Before the creditor has accepted the consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the
obligation to remain in force. (TLG International Continental Enterprising, Inc. v. Flores, G.R. No. L-35381, 31
October 1972)

The tender made by private respondent of a certified bank manager’s check payable to petitioner was a valid
tender of payment. The certified check covered not only the balance of the purchase price in the amount of
P69,059.71, but also the arrears in the rental payments from June to December 1980 in the amount of P7,000.00,
or a total of P76,059.71. But he is not released from the responsibility to pay the vendor. The vendee must first
consign the amount to the court. According to Article 1256 of the Civil Code of the Philippines, if the creditor
to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due, and that consignation alone shall produce the
same effect in the five cases enumerated therein; Article 1257 provides that in order that the consignation of
the thing (or sum) due may release the obligor, it must first be announced to the persons interested in the
fulfillment of the obligation; and Article 1258 provides that consignation shall be made by depositing the thing
(or sum) due at the disposal of the judicial authority and that the interested parties shall also be notified
thereof. (McLaughlin v. Court of Appeals, G.R. No. L-57552, 10 October 1986)

In order that consignation may be effective, the debtor must first comply with certain requirements prescribed
by law. The debtor must show:
1. that there was a debt due;
2. that the consignation of the obligation had been made because the creditor to whom tender of
payment was made refused to accept it, or because he was absent or incapacitated, or because
several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code);
3. that previous notice of the consignation had been given to the person interested in the performance
of the obligation (Art. 1177, Civil Code);
4. that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and
5. that after the consignation had been made the person interested was notified thereof (Art. 1178,
Civil Code).

Failure in any of these requirements is enough ground to render a consignation ineffective. The respondent
lessee has utterly failed to prove the following requisites of a valid consignation.

First, failed to prove tender of payment of the monthly rentals to the lessor.

Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation. Evidently,
from this arrangement, it was the lessee’s duty to send someone to get the cashier’s check from the bank and
logically, the lessee has the obligation to make and tender the check to the lessor. This the lessee failed to do,
which is fatal to his defense.

Third, respondent lessee likewise failed to prove the second notice, that is, after consignation has been made,
to the lessor.

9
And, lastly, respondent lessee failed to prove the actual deposit or consignation of the monthly rentals.
(Soco v. Militante, G.R. No. L-58961, 28 June 1983, 123 SCRA 160)

Whether or not to deposit at all the amount of an admitted indebtedness, or to do so under certain conditions,
is a right which belongs to the debtor exclusively. If he refuses he may not be compelled to do so, and the
creditor must fall back on the proper coercive processes provided by law to secure or satisfy his credit, as by
attachment, judgment, and execution. From the viewpoint of the debtor, a deposit such as the one involved
here is in the nature of consignation, and consignation is a facultative remedy which he may or may not avail
himself of. If made by the debtor, the creditor merely accepts it, if he wishes; or the court declares that it has
been properly made, in either of which events the obligation is ordered canceled. Indeed, the law says that
“before the creditor has accepted the consignation or before a judicial declaration that the consignation has
been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to
remain in force.” 2 If the debtor has such right of withdrawal, he surely has the right to refuse to make the
deposit in the first place. For the court to compel him to do so was a grave abuse of discretion amounting to
excess of jurisdiction. (Sotto v. Mijares, G.R. No. L-23563, 8 May 1969)

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment, and it generally requires a prior tender of payment. Tender is the
antecedent of consignation. 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. Tender and consignation, where validly made, produces the effect of payment and extinguishes
the obligation.

Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the consignation of the thing or sum due.

There was prior tender by PCGG for payment of the rentals in arrears. MPCP’s refusal to accept the same on
the ground merely that its lease-purchase agreement with PIMECO had been rescinded was unjustified.
PIMECO paid, and GSIS/MPCP received several amounts due under the lease-purchase agreement. Certainly,
the acceptance by MPCP and GSIS of such payments negates any rescission of the lease-purchase agreement.
Under the terms of the lease-purchase agreement, the amount of arrears in rentals or amortizations must be
equivalent to the cumulative sum of three annual installments, in order to warrant the rescission of the
contract. (Meat Packing Corp vs. Sandiganbayan, G.R. No. 103068, 22 June 2001)

As testified by the counsel for respondent, the reasons why his client did not accept petitioners tender of
payment were (1) the check mentioned in the August 5, 1994 letter of petitioner manifesting that he is settling
the obligation was not attached to the said letter; and (2) the amount tendered was insufficient to cover the
obligation. It is obvious that the reason for respondents non-acceptance of the tender of payment was the
alleged insufficiency thereof and not because the said check was not tendered to respondent, or because it was
in the form of managers check. While it is true that in general, a manager’s check is not legal tender, the
creditor has the option of refusing or accepting it. Payment in check by the debtor may be acceptable as valid,
if no prompt objection to said payment is made.

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The amount consigned with the trial court can no longer be withdrawn by petitioner because respondent’s
prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the
consignation, which has the effect of extinguishing petitioner’s obligation. Petitioner failed to manifest his
intention to comply with the Agreement and Undertaking by delivering the necessary documents and the lot
subject of the sale to respondent in exchange for the amount deposited. Withdrawal of the money consigned
would enrich petitioner and unjustly prejudice respondent. (Pabugais v. Sahijwani, G.R. No. 156846, 23
February 2004)

Impossibility of Performance

SC ruled that Article 1267 of the Civil Code which states that: “When the service has become so difficult as to
be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or
in part” is only applicable if the remedy sought is the release from the compliance of the obligation not a
modification of the same.

The cited article does not grant the courts authority to remake, modify or revise the contract or to fix the
division of shares between the parties as contractually stipulated with the force of law between the parties, so
as to substitute its own terms for those covenanted by the parties themselves. Respondent’s complaint for
modification of contract manifestly has no basis in law and therefore states no cause of action. Petition granted.
(Occeña v. CA, G.R. No. L-44349, 29 October 1976)

However, the allegations in private respondent’s complaint and the evidence it has presented sufficiently
made out a cause of action under Article 1267. The Court, therefore, released the parties from their correlative
obligations under the contract. However, the Court has to take into account the possible consequences of such
condition—disruption of electric services to the public and prejudice to business of petitoners.

Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part. (Naga Telephone Co. v. CA, G.R. No.
107112, 24 February 1994)

The petitioner cannot take refuge of the said article. Article 1267 of the New Civil Code provides that when the
service has become so difficult as to manifestly beyond the contemplation of the parties, the obligor may also
be released therefrom, in whole or in part. This article, which enunciates the doctrine of unforeseen events, is
not, however an absolute application of the principle of rebus sic stantibus, which would endanger the security
of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional chances of circumstances that equity demands
assistance for the debtor. The principle of rebus sic stantibus neither fits in with the facts of the case. Under this
this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to
exist, the contract also ceases to exist.

In this case, petitioner averred that three (3) abrupt changes in the political climate of the country after the
EDSA Revolution and its poor financial condition rendered the performance of the lease contract impractical
and inimical to the corporate survival of the petitioner. However, as held in Central Bank v. CA, mere

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pecuniary inability to fulfill an engagement does not discharge a contractual obligation, nor does it constitute a
defense of an action for specific performance. (PNCC vs. CA, G.R. No. 116896, 5 May 1997)

Condonation or Remission

Art. 1270, par. 2 of the Civil Code provides that express condonation must comply with the forms of donation.
Art. 748, par. 3 provides that the donation and acceptance of a movable, the value of which exceeds P5,000.00,
must be made in writing, otherwise the same shall be void.

Moreover, it is to be noted that the alleged agreement to condone the amount in question was supposedly
entered into by the parties sometime in July 1986, that is, after respondent corporation had been placed under
receivership on November 4, 1985. As held in. Thus, Sobrepeas had no authority to condone the debt. (YAM
vs. CA, G.R. No. 104726, 11 February 1999)

It may not be amiss to add that Article 1271 of the Civil Code raises a presumption, not of payment, but of the
renunciation of the credit where more convincing evidence would be required than what normally would be
called for to prove payment. The rationale for allowing the presumption of renunciation in the delivery of a
private instrument is that, unlike that of a public instrument, there could be just one copy of the evidence of
credit. Where several originals are made out of a private document, the intendment of the law would thus be
to refer to the delivery only of the original original rather than to the original duplicate of which the debtor
would normally retain a copy. It would thus be absurd if Article 1271 were to be applied differently. (Trans-
Pacific Industrial Supplies, Inc. v. Court of Appeals, G.R. No. 109172, 19 August 1994)

Compensation

In the instant case, there can be no valid compensation of the purchase price with the obligations of Cheng
Kim Heng reflected in the promissory notes, for the reason that CKH and Century-Well the principal
contracting parties, are not mutually bound as creditors and debtors in their own name. A close scrutiny of the
promissory notes does not indicate the late Cheng, as then president of CKH, acknowledging any
indebtedness to Century-Well. As worded, the promissory notes reveal CKHs indebtedness to Chong Tak
Choi and Chong Tak Kei.

Thus, their interest in the promissory notes cannot be offset against the obligations between CKH and
Century-Well arising out of the deed of absolute sale, absent any allegation, much less, even a scintilla of
substantiation, that Choi and Keis interest in Century-Well are so considerable as to merit a declaration of
unity of their civil personalities. Under present law, corporations, such as Century-Well, have personalities
separate and distinct from their stockholders, except only when the law sees it fit to pierce the veil of corporate
identity, particularly when the corporate fiction is shown to be used to defeat public convenience, justify
wrong, protect fraud or defend crime, or where a corporation the mere alter ego or business conduit of a
person. The Court cannot, in this instance make such a ruling absent a demonstration of the merit of such a
disposition. (CKH Industrial Development Corp. v. Court of Appeals, G.R. No. 111890, 7 May 1997)

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The COA correctly debunked the averment that respondent admitted his indebtedness when he issued a
certification assuming responsibility over the properties turned over by the former Aircraft Maintenance Chief.
To warrant the application of set off under Article 1278 of the Civil Code, the debtors admission of his
obligation must be clear and categorical and not one which merely arise by inference or implication from the
customary execution of official documents in assuming the responsibilities of a predecessor, as in the instant
case. Neither would respondent’s signature in the list of unaccounted properties operate as an
acknowledgement of an obligation. Suffice it to state that said signature alone hardly satisfies the requisite
open and direct recognition of an obligation that would justify the diminution of retirement benefits. There
must be an independent evidence showing the employees intention to unmistakably recognize his
indebtedness which was never shown in the present controversy. On the contrary, respondent categorically
stated in his letter to the BSP that he never admitted any indebtedness nor consented to the retention of his
benefits by the bank.

Furthermore, even assuming that the list of unaccounted items bearing the signature of respondent can be
construed as an admission of indebtedness, still, said purported admission cannot extend to the alleged
unlocated 1,314 spare parts/furnitures/tools with an acquisition cost of P1,007,263.59, for which respondent is
being held responsible. This is so because the latter items were never shown to be included in the inventory
signed by respondent. Hence, the amount allegedly owed by respondent to BSP is contestable and
inconclusive. It cannot thus qualify as a debt for compensation or set off to be operative under Article 1279 of
the Civil Code. (Bangko Sentral v. COA, G.R. No. 168964, 23 January 2006)

The award is made in favor of the litigant, not of his counsel, and is justified by way of indemnity for damages
recoverable by the former in the cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his
counsel, who is the judgment creditor and who may enforce the judgment by execution. Such credit, therefore,
may properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitioner to
pay his debt for P500 when admittedly his creditor is indebted to him for more than P4,000. (Gan Tion v. CA,
G.R. No. L-22490, 21 May 1969)

Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.18
Article 1290 of the Civil Code provides that when all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation. Legal compensation operates even
against the will of the interested parties and even without the consent of them.19 Since this compensation
takes place ipso jure, its effects arise on the very day on which all its requisites concur.20 When used as a
defense, it retroacts to the date when its requisites are fulfilled.

Article 1279 states that in order that compensation may be proper, it is necessary:
1. That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

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The elements of legal compensation are all present in the case at bar. The obligors bound principally are at the
same time creditors of each other. Petitioner bank stands as a debtor of the private respondent, a depositor. At
the same time, said bank is the creditor of the private respondent with respect to the dishonored U.S. Treasury
Warrant which the latter illegally transferred to his joint account. The debts involved consist of a sum of
money. They are due, liquidated, and demandable. They are not claimed by a third person.
(Bank of Philippine Islands v. Reyes, G.R. No. 116792, 29 March 1996)

As to the relationship created by the telexed fund transfers from abroad: A contract between a foreign bank
and local bank asking the latter to pay an amount to a beneficiary is a stipulation pour autrui. the parties are
not both principally bound with respect to the $2,627.11 from Jeddah; neither are they at the same time
principal creditor of the other. Therefore, as matters stand, the parties’ obligations are not subject to
compensation or set off under Art. 1279 of the Civil Code, for the reason that the defendant is not a principal
debtor nor, is the plaintiff a principal creditor insofar as the amount of $2,627.11 is concerned. They are debtor
and creditor only with respect to the double payments; but are trustee-beneficiary as to the fund transfer of
$2,627.11. (PNB v. CA, G.R. No. 108052, 14 July 1996)

Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the amount
of P22,213.75 as contained in its answer. But whether the private respondent is liable to pay the petitioner a
20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This
circumstance prevents legal compensation from taking place.

The Court agrees with respondent appellate court that there is no evidence on record from which it can be
inferred that there was an agreement between the petitioner and private respondent prohibiting the latter from
selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the debit memo was a
contract binding between the parties considering that the same, as correctly found by the appellate court, was
not signed by private respondent nor was there any mention therein of any commitment by the latter to pay
any commission to the former involving the sale of sprockets to Dole Philippines, Inc. in the amount of
P111,000.00. Indeed, such document can be taken as self-serving with no probative value absent a showing or
at the very least an inference, that the party sought to be bound assented to its contents or showed conformity
thereto. (Silahis Marketing Corp vs. IAC, G.R. No. L-74027, 7 December 1989)

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