OBLIGATIONS AND CONTRACTS

Sections 1C and 1D
2nd Semester, S.Y. 2019-2020
May A. Caniba-Llona

COURSE DESCRIPTION : This is a course on the fundamentals of obligations and contracts law in
the Philippines as provided under Book IV of the New Civil Code.

COURSE REQUIREMENTS :
Recitation/ Quizzes - 45%
Examinations - 45%
Attendance - 10% (with 15-min. grace period)

REFERENCE : Jurado, Desiderio P., COMMENTS AND JURISPRUDENCE ON

OBLIGATIONS AND CONTRACTS (2010).

COURSE OUTLINE :
PART I – OBLIGATIONS
I. General Provisions
A. Concept of Obligation (Art. 1156)
Makati Stock Exchange, Inc. v. Campos, G.R. No. 138814, 16 April 2009
Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, 2 December 1994

B. Sources of Obligations (Art. 1157)

1. Law (Art. 1158)
OSG v. Ayala Land, Inc., G.R. No. 177056, 18 September 2009

2. Contracts (Arts. 1159, 1305)

3. Quasi-Contracts (Arts. 1160, 2142)

4. Acts or Omissions punished by law (Art. 1161)

5. Quasi-Delicts (Arts. 1162, 2176)

Barredo v. Garcia, G.R. No. 48006, 8 July 1942
Mendoza v. Court of Appeals, G.R. No. L-32599, 29 June 1979
Elcano v. Hill, G.R. L-24803, 26 May 1977

C. Transmissibility (Art. 1178)

Stronghold Insurance Co., Inc. v. Republic-Asahi, G.R. No.147561, 22 June 2006

II. Nature and Effect

A. Obligation to give
1. Obligation to deliver (Arts. 1165, Art. 1244, par.1)
2. Obligation to take care of the thing (Art. 1163)
3. Obligation to deliver fruits (Art. 1164)
4. Obligation to deliver accessions and accessories (Art. 1166)

B. Obligation to do (Art. 1167)

C. Obligation not to do (Art. 1168)

III. Non-performance of obligation (breach)
A. Kinds of Non-performance (Art. 1170)
1. Delay or Mora (Art. 1169)
a. Concept of Delay
Santos v. Santos, G.R. No. 153004, 4 November 2004
Gilat Satellite Networks v. UCPB General Insurance, G.R. No. 189563, 7 April
2004
RCBC v. Court of Appeals, G.R. No. 133107, 25 March 1999

b. Necessity of Demand
Rivera v. Spouses Chua, G.R. Nos. 184458 and 184472, 14 January 2015
Cetus Development v. Court of Appeals, G.R. No. 77647, 7 August 1989
Aerospace v. Court of Appeals, G.R. No. 108129, 23 September 1999
Santos v. Santos, G.R. No. 153004, 4 November 2004

c. Special Rule for Reciprocal Obligations (Art. 1169)

2. Fraud or dolo (Art. 1171)

Legaspi Oil Co., Inc. v. Court of Appeals, G.R. No. 96505, 1 July 1993
Woodhouse v. Halili, G.R. No. L-4811, 31 July 1953
Geraldez v. Court of Appeals, G.R. No. 108253, 23 February 1994.

3. Negligence or culpa (Arts. 1172-1173)

Picart v. Smith, Jr., G.R. No. 12219, 15 March 1918
Philippine National Bank v. Santos, G.R. No. 208293 and 208295, 10 December
2014

4. Contravention of the Tenor (Arts. 1170, 1167)

Arrieta v. NARIC, G.R. No. L-15645, 31 January 1964
Chavez v. Gonzales, G.R. No. L-27454, 30 April 1970

B. Effects of Fortuitous Event (Art. 1174, Art. 1165 par. 3)

Tanguilig v. Court of Appeals, G.R. No. 117190, 2 January 1997
Nakpil & Sons v. Court of Appeals, G.R. No. L-47851, 3 October 1986
Dioquino v Laureano, G.R. No. L-25906, 28 May 1970
Austria v. Court of Appeals, G.R. No. L-29640, 10 June 1971
Phil. Communications v. Globe, G.R. No. 147324, 25 May 2004

C. Subsidiary Remedies of Creditor (Art. 1177)

Adorable v. Court of Appeals, G.R. No. 119466, 25 November 1999
Khe Hong Cheng v. Court of Appeals, G.R. No. 144169, 28 March 2001

IV. Classification of Obligations

A. Pure (Art. 1179)
HSBC v. Spouses Broqueza, G.R. No. 178610, 17 November 2010

B. Conditional (Art. 1179)

1. Definition of condition
a. Future and uncertain
b. Unknown past event
Gonzales v. Heirs of Cruz, G.R. No. 131784, 16 September 1999

2. Kinds of Conditional Obligations

a. Suspensive or resolutory (Art. 1181)
Gaite v. Fonacier, G.R. No. L-11827, 31 July 1961
Gonzales v. Heirs of Cruz, G.R. No. 131784, 16 September 1999
i. Rules governing suspensive conditions (Arts. 1187, 1188, 1189)
ii. Rules governing resolutory conditions (Art. 1190)
 MCIAA v. Tudtud, G.R. No. 174012, 14 November 2008

b. Potestative, Casual, or Mixed (Art. 1182)

Lim v. CA, G.R. No. 87047, 30 October 1990
Naga Telephone v. CA, G.R. No. 107112, 24 February 1994
Rustan Pulp v. IAC, G.R. No. 70789, 19 October 1992

c. Impossible (Art. 1183)

d. Positive or Negative (Arts. 1184-1185)

3. Constructive Fulfillment (Art. 1186)

International Hotel Corp. v. Joaquin, Jr., G.R. No. 158361, 10 April 2013
Federal Express Corp. v. Antonino, G.R. No. 199455, 27 June 2018
Villamil v. Spouses Erguiza, G.R. No. 195999, 20 June 2018

C. Reciprocal Obligations
1. Definition
Vermen Realty Development Corp. v. CA, G.R. No. 101762, 6 July 1993
Integrated Packaging Corp. v. CA, G.R. No. 115117, 8 June 2000

2. Implied Power to Rescind (Art. 1191)

a. Trigger
b. Breach contemplated
Ong v. CA, G.R. No. 97347, 6 July 1999
Vda. De Mistica v. Naguiat, G.R. No. 137909, 11 December 2003
Sps. Cannu v. Sps. Galang, G.R. No. 139523, 26 May 2005
Nolasco v. Cuerpo, G.R. No. 210215, 9 December 2015

3. Distinguished from other types of rescission

Pryce Corp. v. PAGCOR, G.R. No. 157480, 6 May 2005
Ong v. CA, G.R. No. 97347, 6 July 1999
Sps. Cannu v. Sps. Galang, G.R. No. 139523, 26 May 2005
Deiparine v. CA, G.R. No. 96643, 23 April 1993
Laperal v. Solid Homes, G.R. No. 130913, 21 June 2005
PEZA v. Pilhino Sales Corp., G.R. No. 185765, 28 September 2016

4. Judicial or extrajudicial
UP v. De los Angeles, G.R. No. L-28602, 29 September 1970
Angeles v. Calasanz. G.R. No. L-42283, 18 March 1985
Iringan v. CA, G.R. No. 129107, 26 September 2001
Sps. Cannu v. Sps. Galang, G.R. No. 139523, 26 May 2005
Sps. Lam v. Kodak Phils., Ltd., G.R. No. 167615, 11 January 2016
Nissan Car Lease Phils. v. Lica Management, G.R. No. 176986, 13 January 2016

5. Subject to rights of third party acquirers (Arts. 1385, 1388)

6. Both parties are in breach (Art. 1192)

Yao v. Matela, G.R. No. 167767, 29 August 2006
Ong v. Batongbacal, G.R. No. 149140, 12 September 2006

D. Obligations with a Period

1. Definition (Art. 1193)
Lirag Textile Mills, Inc. v. CA, G.R. No. L-30736, 14 April 1975
Solante v. COA, G.R. No. 207348, 19 August 2014

2. When courts may fix period (Arts. 1197, 1180)

Araneta v. Phil Sugar, G.R. No. L-22558, 31 May 1967
 Macasaet v. Macasaet, G.R. Nos. 154391-92, 30 September 2004

3. Beneficiary of period (Art. 1196)

LL and Co. v. Huang Chao, G.R. No. 142378, 7 March 2002

4. When debtor loses right to make use of period (Art. 1198)

5. In case of loss, deterioration, or improvement of thing (Art. 1194)

6. In case of premature payment/ delivery (Art. 1195)

E. Alternative and Facultative Obligations

1. Definition
a. Alternative (Art. 1199)
Arco Pulp and Paper Co., Inc. v. Lim, G.R. No. 206806, 25 June 2014

b. Facultative (Art. 1206)

2. In case of loss
a. Alternative
i. Where obligor has right to choose (Art. 1204)
ii. Where oblige has right to choose (Art. 1205)

b. Facultative (Art. 1206)

3. Right to choose
a. Who has the right (Arts. 1200, 1206)
b. Limitations (Arts. 1199, 1200)
c. When right to choose is lost (Arts. 1202, 1203, 1205)
d. When choice is effective (Art. 1201)
e. Necessity of obligee’s consent
Arco Pulp and Paper Co., Inc. v. Lim, G.R. No. 206806, 25 June 2014

F. Joint, Solidary, Divisible, and Indivisible Obligations

PH Credit Corp. v. CA, G.R. No. 109648, 22 November 2001

1. When solidary
a. When expressly stated (Art. 1207)
Lafarge Cement v. Continental Cement, G.R. No. 155173, 23 November 2004
Ronquillo v. CA, G.R. No. L-55138, 28 September 1984
Inciong v. CA, G.R. No. 96405, 26 June 1996

b. Indivisibility does not mean solidarity (Art. 1210)

AFP Retirement v. Sanvictores, G.R. No. 207856, 17 August 2016

c. Solidarity despite differing obligations (Art. 1211)

Lafarge Cement v. Continental Cement, G.R. No. 155173, 23 November 2004
Operators v. American, G.R. No. L-34767, L-35024, L-35073, 23 October 1987

2. When joint (Art. 1208)

PH Credit Corp. v. CA, G.R. No. 109648, 22 November 2001

3. When indivisible or divisible

a. Obligations (Art. 1225)
Sps. Lam v. Kodak Phils., Ltd., G.R. No. 167615, 11 January 2016

b. Things (Art. 1223)

 4. Joint indivisible Obligation (Arts. 1209, 1224)

5. Rights/ obligations of solidary creditors

a. Do useful and non-prejudicial acts (Art. 1212)
Quiombing v. CA, G.R. No. 93010, 30 August 1990

b. Not assign rights (Art. 1213)

6. Who debtor must pay (Art. 1214)

7. When solidary creditor extinguishes obligation (Art. 1215)

8. Who creditor may proceed against (Art. 1216)

PNB v. Independent Planters Association, G.R. No. L-28046, 16 May 1983

9. Payment by solidary debtor (Arts. 1217, 1218)

Vigilla v. Philippine College of Criminology, Inc., G.R. No. 200094, 10 June 2013
Cruz v. Spouses Basister, G.R. No. 196576, 30 January 2012
Escaño v. Ortigas, Jr., G.R. No. 15193, 29 June 2007

10. Remission by creditor (Arts. 1219-1220)

11. In case of loss (Art. 1221)

12. Defenses of solidary debtors (Art. 1222)

G. Obligations with a Penal Clause

1. Purpose of penalty (Arts. 1226, 1227, 1228
Pryce Corp. v. PAGCOR, G.R. No. 157480, 6 May 2005
Florentino v. Supervalue, G.R. No. 172384, 12 September 2007

Art. 1227
Cabarroguis v. Vicente, G.R. No. L-14304, 23 March 1960
Country Bankers v. CA, G.R. No. 85161, 9 September 1991
Pamintuan v. CA, G.R. No. L-26339, 14 December 1979

2. When courts may reduce (Art. 1229)

3. Effect of Nullity (Art. 1230)

V. Extinguishment of Obligations (Art. 1231)

A. Payment or Performance
1. In general
a. Definition (Art. 1232)
b. Requirements (Art 1233)
c. Substantial performance in good faith (Art. 1234)
International Hotel Corp. v. Joaquin, Jr., G.R. No. 158361, 10 April 2013

d. Incomplete/ irregular performance (Art. 1235)

Esguerra v. Villanueva, G.R. No. L-23191, 19 December 1967

e. Partial prestations (Art. 1248)

Barons Marketing Corp. v. CA, G.R. No. 126486, 9 February 1998

f. Payment by third party (Arts. 1236 - 1238)

Sps. Publico v. Bautista, G.R. No. 174096, 20 July 2010
 Moreño-Lentfer v. Jurgen Wolff, G.R. No. 152317, 10 November 2004

g. Incapacity to pay (Art. 1239)

h. Payment recipient (Art. 1240)

Cembrano v. City of Butuan, G.R. No. 163605, 20 September 2006
Sps. Culaba v. CA, G.R. No. 125862, 15 April 2004

i. Payment to incapacitated (Art. 1241)

j. Payment made to third person (Art. 1241)

Valarao v. CA, G.R. No. 130347, 3 March 1999

k. Payment to possessor of credit (Art. 1242)

Orata v. IAC, G.R. No. 73471, 8 May 1990
National Power Corp. v. Ibrahim, G.R. 175863, 18 February 2015

l. Payment after judicial order to retain (Art. 1243)

m. Substitution of prestation (Art. 1244)

Cathay Pacific v. Sps. Vasquez, G.R. No. 150843, 14 March 2003

n. Dation in payment (Art. 1245)

Tan Shuy v. Sps. Maulawin, G.R. No. 190375, 8 February 2012
Philippine Lawin v. CA, G.R. No. 130972, 23 January 2002
Filinvest Credit Corp. v. Philippine Acetylene, Co., Inc., G.R. No. L-50499, 30 Jan 1982

o. Same quality (Art. 1246)

p. Extrajudicial expenses (Art. 1247)

q. Payment currency and value

(Art. 1249, par. 1)
Union Bank v. Sps. Tiu, G.R. Nos. 173090-91, 7 September 2011

(Art. 1250)
Telengtan Brothers v. United States, G.R. No. 132284, 28 February 2006
Citibank v. Sabeniano, G.R. No. 156132, 6 February 2007
Equitable PCI v. Ng Sheung, G.R. No. 171545, 19 December 2007

r. Payment in negotiable instruments (Art. 1249, pars. 2 and 3)

Papa v. Valencia, G.R. No. 105188, 23 January 1998
PAL v. CA, G.R. No. 49188, 30 January 1990
Tibajia, Jr. v. CA, G.R. No. 100290, 4 June 1993

s. Interest and installments (Art. 1176)

Marquez v. Elisan Credit Corp., G.R. No. 194642, 6 April 2015

t. Place of payment (Art. 1251)

2. Application of Payments
a. Who makes the choice (Art. 1252)
Premiere Development v. Central Surety, G.R. No. 176246, 13 February 2009
Liggett & Myers v. Associated Insurance, G.R. No. L-15643, 31 October 1960

b. Requirements (Art. 1252)

c. In case of interest producing debts (Art. 1253)

 Magdalena Estates, Inc. v. Rodriguez, G.R. No. L-18411, 17 December 1966
Rapanut v. CA, G.R. No. 109680, 14 July 1995

d. Default rule (Art. 1254)

Paculdo v. Regalado, G.R. No. 123855, 20 November 2000

3. Payment by Cession (Art. 1255)

a. Definition
DBP v. CA, G.R. No. 118342, 5 January 1998

b. Effect

c. Compared with dation in payment

4. Tender of Payment and Consignation

a. Definition
Meat Packing v. Sandiganbayan, G.R. No. 103068, 22 June 2001

b. Effect (Arts. 1256; 1260, par. 1)

Sps. Cinco v. CA, G.R. No. 151903, 9 October 2009
Sps. Llobera v. Fernandez, G.R. No. 142882, 2 May 2006

c. Requirements (Arts. 1257-1258)

Soco v. Militante, G.R. No. L-58961, 29 June 1983
Sps. Ercillo v. CA, G.R. No. 55361, 10 December 1990

d. Expenses (Art. 1259)

e. Withdrawal (Arts. 1260, par. 2; 1261)

Pabugais v. Sahijwani, G.R. No. 156846, 23 February 2004

B. Loss of the Thing Due

1. Definition
2. When loss extinguishes
a. Delivery of a determinate thing (Art. 1262, par. 1)
b. Impossibility of service (Art. 1266)
PNCC v. CA, G.R. No. 116896, 5 May 1997

3. When loss does not extinguish

a. By law or stipulation (Art. 1262, par. 2)

b. Obligation to deliver a generic thing (Art. 1263)

Gaisano v. Insurance Company, G.R. No. 147389, 8 June 2006

c. Debt proceeds from a criminal offense (Art. 1268)

4. Partial loss (Art. 1264)

5. Presumption of Fault (Art. 1265)

Jimmy Co v. CA, G.R. No. 124922, 22 June 1998

6. Unforeseen Difficulty (Art. 1267)

Occena v. CA, G.R. No. L-44349, 29 October 1976
PNCC v. CA, G.R. No. 116896, 5 May 1997
Naga Telephone v. CA, G.R. No. 107112, 24 February 1994
Tagaytay Realty Co., Inc. v. Gacutan, G.R. No. 160033, 1 July 2015
Sps. Poon v. Prime Savings Bank, G.R. No. 183794, 13 June 2016
 7. Creditor’s Right (Art. 1269)

C. Condonation or Remission of Debt

1. Nature and Requisites (Art. 1270)
Yam v. CA, G.R. No. 104726, 11 February 1999

2. Implied Renunciation (Art. 1271)

Trans-Pacific v. CA, G.R. No. 109172, 19 August 1994
Bognot v. RRI Lending Corp., G.R. No. 180144, 24 September 2014

3. Renunciation of Accessory Obligations (Art. 1273-1274)

D. Confusion or Merger of Rights (Arts. 1275 to 1277)

Valmonte v. CA, G.R. No. L-41621, 18 February 1999

E. Compensation
1. General Rules
a. Definition (Art. 1278)
Bangko Sentral v. COA, G.R. No. 168964, 23 January 2006

b. Nature and effect (Arts. 1281, 1286, 1290)

Trinidad v. Acapulco, G.R. No. 147477, 27 June 2006

c. Requisites (Art. 1279)

Figuera v. Ang, G.R. No. 204264, 29 June 2016
Silahis Marketing v. IAC, G.R. No. 74027, 7 December 1989
Union Bank of the Philippines v. DBP, G.R. No. 191555, 20 January 2014

d. Voluntary Compensation (Art. 1282)

United Planters v. CA, G.R. No. 126890, 2 April 2009

e. Order of compensation (Art. 1289)

2. Specific scenarios
a. When applicable
i. in favor of the guarantor (Art. 1280)
ii. in claim for damages (Art. 1283)
iii. rescissible/ voidable debts (Art. 1284)
iv. assignment before compensation (Art. 1285)
Perez v. CA, G.R. No. L-56101, 20 February 1984

b. When not applicable

i. in case of deposit (Art. 1287)
ii. in case of civil liability from penal offense (Art. 1288)
Metrobank v. Tonda, G.R. No. 134436, 16 August 2000

F. Novation
1. Concept
2. Kinds (Art. 1291)
a. Objective/ Real
California v. State Investment, G.R. No. 147950, 11 December 2003
Ong v. Bognalbal, G.R. No. 149140, 12 September 2006
Millar v. CA, G.R. No. L-29981, 30 April 1971

b. Subjective/ real
Conchingyan v. RB Surety, G.R. No. L-47369, 30 June 1987

c. Mixed
 3. Requisites (Art. 1292)
Tomimbang v. Tomimbang, G.R. No. 165116, 4 August 2009
Rillo v. CA, G.R. No. 125347, 19 June 1997
Cruz v. CA, G.R. No. 126713, 27 July 1998

4. Expromision and Delegacion (Art. 1293)

Garcia v. Llamas, G.R. No. 154217, 8 December 2003
BPI v. Domingo, G.R. No. 169407

a. Consequence of Expromision (Art. 1294)

b. Consequence of Delegacion (Art. 1295)

5. Effect on Accessory Obligation (Art. 1296)

6. Void obligations (Arts. 1297, 1298)

7. Conditional Obligations (Art. 1299)

8. Kinds of Subrogation (Art. 1300)

Ledonio v. Capitol Development Corp., G.R. No. 149040, 4 July 2007

a. Conventional (Art. 1301)

b. Legal (Art. 1302)

Metrobank v. Rural Bank of Gerona, Inc., G.R. No. 159097, 5 July 2010
Figuera v. Ang, G.R. No. 204264, 29 June 2016

9. Effect of Subrogation (Art. 1303)

10. Partial Subrogation (Art. 1304)

VI. Usurious Transactions (Arts. 1175, 1413, 1961, 2209)

A. PD 858, PD 1864

B. Central Bank Circular 416

C. Monetary Board Circular No. 905 (v. Art. 2209)

D. Monetary Board Circular No. 799, effective 1 July 2013

Eastern Shipping Lines v. CA, G.R. No. 97412, 12 July 1994
Security Bank v RTC Makati, G.R. No. 113926, 23 October 1996
Nacar v. Gallery Frames, G.R. No. 189871, 13 August 2013

VII. Natural Obligations

A. Definition (Art. 1423)
Ansay v. Board of Directors, (G.R. No. L-13667, 29 April 1960)

B. Kinds
1. Performance after prescription (Arts. 1424-1425)
2. Contracts of Minors (Arts. 1426-1427)
3. Performance of winning party (Art. 1428)
4. Payment beyond inheritance (Art. 1429)
5. Payment of void legacy (Art. 1430)