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Civil Law Review 2
NOTES
I. OBLIGATIONS
A. In General
1. Definition
Art. 1156. An obligation is a juridical necessity to give, to do or not to do.
Notes:
What is the definition of an obligation? It is best defined by Arias
Ramos which reads as follows, an OBLIGATION is a juridical
relation whereby a person (called the creditor) may demand from
another (called the debtor) the observance of a determinate
conduct, and, in case of breach, may obtain satisfaction from the
assets of the latter . This means that where there is a right or power
to demand, there is a correlative obligation or an imposition upon a
person of a definite conduct.
What are the elements of obligation? It has four definite elements as
follows:
1.
These two, the active and passive subjects are
considered as the personal elements of an
obligation.
b. They could be an individual person or juridical
persons.
c. They must be determinable in some manner.
Exceptions are the following examples: (1)
negotiable instrument payable to bearer, (2)
promise of a prize or a reward for anyone
performing a certain act.
3.
This may pertain not to a thing but to a particular
conduct of the debtor; hence, a prestation which
may consist in giving (prestation consists in the
delivery of a movable or immovable thing) or
doing (all kinds of services) or not doing
(abstaining from some act, may include not to
give) something, e.g. it is not the thing which the
vendor must deliver, but the necessary conduct to
produce the effects of the sale that is the object.
4.
. while obligor is used in an obligation to do
a. This pertains to the juridical or legal tie, which is
the vinculum, that may either be a relation
established by the following:
i. Law (relation to give support)
ii. Bilateral acts (contracts giving rise to
obligation)
iii. Unilateral acts (crimes and quasi-
delict)
** All the above 4 elements are agreed upon by commentators as
essential elements. The following two are being debated.
(i) Causa debendi/ obligationes (Castan) This is what makes the
obligation demandable. This is the proximate why of an obligation.
(ii) Form - This is controversial. This is acceptable only if form
means some manifestation of the intent of the parties.
What are the requisites of a prestation?
1. must be possible, physically and juridically;
2. must be determinable or at least determinable according to
pre-established elements or criteria; and
3. must have a possible equivalent in money (need not be for
one of the parties because it could be for the benefit of third
persons; the criterion to determine whether the
obligation has a pecuniary value is not limited to the
object or prestation thereof, but extends to the sanction
which corresponds to the juridical duty; this is
differentiated with credi or in ere because the latter
need not be economic or patrimonial since it may be
sentimental or ideal but the object of prestation must have
an economic value or in case of nonfulfillment, be
susceptible of substitution in money or something of
patrimonial value)
How will you distinguish an obligation from natural obligations?
Since the definition above only refers to the civil obligation or those
which give a right of action to compel their performance, the same
will not include the natural obligation, which are those which cannot
be enforced by court action but which are binding on the party who
makes them, in conscience and according to equity and natural
justice. The differences between the two include the following:
1. derive their binding force from positive
law while Natural obligations derive their binding effect
from equity and natural justice;
2. can be enforced by court action or the
coercive power of public authority while the fulfillment of
Natural obligations cannot be compelled by court action
but depends exclusively from conscience.
According to Balane: Book IV starts w/ an inaccuracy. It gives the
impression that obligations & contracts are of the same status, w/c
they are not. A contract is only one of the sources of obligations.
Book IV should have been simply titled "Obligations."
Etymology two Latin words, ligare, meaning "to bind"
& ob w/c is a proposition used to intensify a verb.
Literally obligare means "to bind securely."
Hence, a better definition would be that, An obligation is a juridical
relation (because there are 2 parties) whereby a person should
engage or refrain fr. engaging in a certain activity for the satisfaction
of the private interests of another, who in case of non-fulfillment of
such duty may obtain from the patrimony of the former through
proper judicial proceedings the very prestation due or in default
thereof, the economic equivalent (damages) that it represents. (Diaz
Piero)
Characteristics of an Obligation:
1. It represents an exclusively private interest
2. It creates ties that are by nature transitory
3. It involves the power to make the juridical tie effective in
case of non-fulfillment through an economic equivalent
obtained from the debtor's patrimony.
Essential Elements of an Obligation:
(1) Active Subject This refers to the creditor or the obligee.
A creditor generally used in an obligation to give
while obligee is used in an obligation to do
(2) Passive Subject This refers to the debtor or the obligor.
debtor is used in an obligation to give
The first two elements must be determinate or determinable.
The following are possible combinations:
Both parties are determined at the time of the execution
of the obligation.
one party is determined at the constitution of the
obligation & the other to be determined subsequently in
accordance with a criteria that is previously established.
the subject is determined in accordance with his relation
to a thing & therefore it changes where the thing passes
from one person to another. This is a property-linked
obligation.
(3) Object of the obligation- the conduct or activity that must be
observed by the debtor, this is always an activity or conduct, the
prestation.
Requisites of an object:
It must be licit.
It must be possible.
It must be determinate or determinable.
It must have pecuniary value so that if not performed it is
converted into damages.
(4) Vinculum juris- the legal tie, whereby upon default or refusal of the
debtor to perform, the creditor can go to court.
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When a person says "I promise to pay you when I
like to," there is no obligation here because there is
no vinculum juris.
Juridical tie, the efficient cause established by
the various sources of OBLIGATIONS
> by virtue of which the debtor is bound in favor
of the creditor to perform the prestation.
Efficient cause / vinculum may either be relation
established by:
1. Law (e.g. marital relation giving rise to
OBLIGATION for support;
2. Bilateral acts (e.g. contracts give rise to the
OBLIGATIONs stipulated therein)
3. Unilateral acts (e.g. crimes and quasi-delicts)
** All the above 3/4 elements are agreed upon by commentators as
essential elements. The following two are being debated.
(i) Causa debendi/ obligationes (Castan) This is what
makes the obligation demandable. This is the proximate why
of an obligation.
(ii) Form - This is controversial. This is acceptable only if
form means some manifestation of the intent of the parties.
TOLENTINO:
OBLIGATION to give prestation consists in the delivery of a
movable or an immovable thing in order to create a real right, or for
the use of the recipient, or for possession, or to return to its owner;
e.g. OBLIGATION to deliver the thing in a contract of sale, deposit,
lease, antichresis, pledge and donation.
OBLIGATION to do including all kinds of work or services.
E.g. contract of employment or professional services.
OBLIGATION not to do consists in abstaining from some act,
e.g. duty not to create a nuisance;
Requisites of a prestation:
1. it must be possible, physically and juridically
2. it must be determinate, or at least determinable; and
3. it must have a positive equivalent in money. (susceptible of
pecuniary appreciation)
Positive Law valid legal laws enacted by the legislative
department;
Natural OBLIGATION not sanctioned by any action
but have a relative juridical effect;
do not grant the right of action to enforce their
performance but after voluntary fulfillment by
their obligor, they authorize the retention of what
has been delivered or rendered by reason thereof
(Article 1423);
2. KINDS OF OBLIGATIONS AS TO BASIS &
ENFORCEABILITY
(a) NATURAL OBLIGATIONS
(Arts. 1423 1430 not exclusive enumeration; some
others can be)
H. NATURAL OBLIGATIONS ARTS. 1423-1430. 1155
Article 1423. Obligations are civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations, not being based on
positive law but on equity & natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the obligor, they authorize
the retention of what has been delivered or rendered by reason thereof. Some
natural obligations are set forth in the following articles.
Article 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has
rendered.
Article 1425. When without the knowledge or against the will of the debtor, a
third person pays a debt which the obligor is not legally bound to pay because
the action thereon has prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has paid.
Article 1426. When a minor between 18 and 21 years of age who has entered
into a contract without the consent of the parents or guardian, after the
annulment of the contract voluntarily returns the whole thing or price received,
notwithstanding the fact that he has not been benefited thereby, there is no right
to demand the thing or price thus returned.
Note: When the ground for annulment is the incapacity of the plaintiff,
he is not bound to make restitution except to the extent that he was
benefited. However, he has natural obligation to still deliver, and he
cannot thereby recover what he has delivered.
Ratio: Because a minor at such age is deemed to have sufficient mental
and moral development to be aware of his debt of conscience. This is
basically independent on the next provision on Article 1427 below.
Illustrations:
1. A filed an action to compel B to fulfill the latter s obligation to
the former, will the action prosper? Not necessarily because in
natural obligations no court action can compel performance
because it is an action based on equity, conscience and natural
justice. Natural obligations are midway between civil obligations
and the purely moral obligations. In order that there may be a
natural obligation, there must exist a juridical tie (vinculum juris)
which is not prohibited by law and which in itself could give a
cause of action, but because of some special circumstances is
actually without such legal sanction or means of enforcing
compliance by invoking the intervention of the court.
Basis: Art. 1423 Obligations are civil or natural. Civil obligations
give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity
performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in the
following articles.
Article 1427. When a minor between 18 and 21 years of age, who has entered
into a contract without the consent of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of the obligation, there
shall be no right to recover the same from the obligee who has spent or
consumed it in good faith.
Note: It is not the voluntary payment that prevents recovery under this
article, but the fact that the obligee has consumed or spent the thing or
money in GOOD FAITH. Although it is true that the contract can be
annulled, but until it is so annulled, it exists as a civil obligation.
General rule: Upon the annulment of the contract, the party who
contracted with the minor must return whatever he may have received
under the contract.
Exception: If the payment was made although by the minor, but the
thing or money paid was consumed or spent in good faith (belief that
the debtor has the capacity to deliver the object; must exist at the time
that the thing was consumed or money was spent; can be recovered still
by the debtor if the good faith, even if it existed at the time of the
delivery, has ceased to exist at the time of consumption or spending).
Is the thing here always have to be consummable? No, because
although non-consummable, the debtor cannot recover, if the think is
no longer in the possession of the creditor who has acted in good faith,
either he has alienated it or it has been lost, without his fault.
Article 1428. When, after an action to enforce a civil obligation has failed, the
defendant voluntarily performs the obligation, he cannot demand the return of
what he has delivered or the payment of the value of the service he has rendered.
Article 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will or by the
law of intestacy from the estate of the deceased, the payment is valid & cannot
be rescinded by the payer.
Article 1430. When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate heirs,
after the settlement of the debts of the deceased, pays a legacy in compliance
with a clause in the defective will, the payment is effective & irrevocable.
Note: This article includes ever licit obligation which is unenforceable
because of the lack of proper formalities.
Article 1960. If the borrower pays interest when there has been no stipulation
therefor, the provisions of this Code concerning solutio indebiti, or natural
obligations, shall be applied, as the case may be.
Article 1956. No interest shall be due unless it has been expressly stipulated in
writing.
Why would this Natural Obligation be allowed in our jurisdiction? Itr
It is because equality, morality and natural justice as the foundations
of a positive law makes wisdom to this obligation so as the so-called
moral obligation.
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What is the basis of natural obligation? It is from the nature of man What is its implication to natural obligation? Perfect obligation is
and of things, as well as from law and reason, there arises a natural natural obligation in a sense that all those elements have been
law, which is immutable and independent of all human regulations; determined and it is only the performance that is left to the will of the
as sometimes called as rational law. debtor.
What are the types of obligations?
In juridical science, four types of which include the following: Natural OBLIGATION vs. Moral OBLIGATION:
1. Moral obligation- duties of conscience completely outside Natural Moral
of the field of law OBLIGATION OBLIGATION
2. Natural obligation- not sanctioned by any action but have Juridical tie Exists None
relative juridical effect Performance by legal fulfillment of act of pure
3. Civil obligation- juridical obligations which apparently in debtor an liberality which
conformity with positive law but are contrary to juridical OBLIGATION springs from blood,
principles and susceptible of being annulled affection or
4. Mixed obligation- have full juridical effect benevolence
However, jurisprudence makes only two classifications, as follows: Basis of existence Within the domain entirely domain of
1. Natural obligation of OBLIGATION of law morals
2. Civil obligation Enforceability The juridical tie moral duty is
itself produces inexistent in the
Requisites of Natural OBLIGATION: certain civil juridical point of
1. there is a juridical tie between two persons (distinguishes it from effects; True view
moral obligation) OBLIGATION
2. the tie is not given effect by law (distinguishes it from civil but for certain
obligation) causes cannot be
an OBLIGATION without a sanction, enforced by law
susceptible of voluntary performance, but not
through compulsion by legal means. Examples of natural OBLIGATIONS:
Support of a natural child
Voluntary fulfillment may be understood as spontaneous, Indemnification of a woman seduced
free from fraud or coercion or it may be understood as meaning
Support of relatives, by consanguinity or affinity
without knowledge or free from error;
-with knowledge that he cannot be compelled to pay Case: Villaroel vs. Estrada
OBLIGATION; Facts: On May 9, 1912, Alexandra F. Callao, mother of defendant John F.
RATIO: e a i ( c l a ) Villarroel, obtained from the spouses Mariano Estrada and Severina a loan of
-this is being distinguished from payment by mistake P1, 000 payable after seven years. Alexandra died, leaving as the only heir to
(solution indebiti) which constitutes quasi-contract because the defendant. Spouses Mariano Estrada and Severina died too, leaving as the
only heir to the plaintiff Bernardino Estrada. On August 9, 1930, the
payment by mistake is not voluntary and hence may be
defendant signed a document which states in duty to the plaintiff the amount
recovered. of P1, 000, with an interest of 12 percent per year. This action relates to the
-payment here is voluntary when the debtor knew of the collection of this amount. The Court of First Instance of Laguna, which was
obligation to be a natural one. filed this action, condemn the defendant to pay the claimed amount of P1, 000
with legal interest of 12 percent per year from the August 9, 1930 until fully
Case: Ansay vs. National Development Company pay.
Facts: On July 25, 1956, appellants filed against appellees in the Court of Issue: Whether the obligation arising from the original contract of loan, being
First Instance of Manila a complaint praying for a 20% Christmas bonus for prescribed would still be demandable from the only heir of the original debtor.
the years 1954 and 1955. The court a quo does not see how petitioners may Held: Yes because the prescribed debt of the deceased mother of the debtor
have a cause of action to secure such bonus because:(a) A bonus is an act of was held to be a sufficient consideration to make valid and effective the
liberality and the court takes it that it is not within its judicial powers to promise of the son to pay the same. Although the action to recover the original
command respondents to be liberal; debt has prescribed and when the lawsuit was filed in this case, the question
(b) Petitioners admit that respondents are not under legal duty to give such that arises in this appeal is primarily whether, notwithstanding such
bonus but that they had only ask that such bonus be given to them because it is prescription is from the action filed. However, this action is based on the
a moral obligation of respondents to give that but as this Court understands, original obligation contracted by the mother of the defendant, who has
it has no power to compel a party to comply with a moral obligation (Art. 142, prescribed, but in which the defendant contracted on August 9, 1930 to
New Civil Code.). assume the fu lfillment of that obligation, as prescribed. Being the only
Issue: Whether the appellees have the legal obligation to give the claimed defendant of the primitive heir debtor entitled to succeed him in his
bonus despite the fact that the same has been granted arising from a moral inheritance, that debt legally brought by his mother, but lost its effectiveness
obligation or the natural obligation to do the same. by prescription, is now, however, for him a moral obligation, which is
Held: No. Article 1423 of the New Civil Code classifies obligations into civil consideration enough to create and effective and enforceable his
or natural. "Civil obligations are a right of action to compel their performance. obligation voluntarily contracted the August 9, 1930.
Natural obligations, not being based on positive law but on equity and natural
law, do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what has CIVIL NATURAL
been delivered or rendered by reason thereof". OBLIGATIONS OBLIGATIONS
It is thus readily seen that an element of natural obligation before it can be Source of binding from equity and
From positive law
cognizable by the court is voluntary fulfillment by the obligor. Certainly force & effect natural justice
retention can be or dered but only after there has been voluntary cannot be compelled
performance. But here there has been no voluntary performance. In fact, can be enforced by
by court action but
the court cannot order the performance. court action or the
Enforceability depends upon good
At this point, we would like to reiterate what we said in the case of Philippine coercive power of
Education Co. vs. CIR and the Union of Philippine Education Co., Employees
conscience of the
public authority
(NUL) (92 Phil., 381; 48 Off. Gaz., 5278) debtor
xxx xxx xxx
From the legal point of view a bonus is not a demandable and enforceable When can you convert a natural obligation to civil one? This can
obligation. It is so when it is made a part of the wage or salary made through; (1) novation: (2) confirmation or ratification unless
compensation. contrary to law, morals or public order.
And while it is true that the subsequent case of H. E. Heacock vs. National Can you guarantee a natural obligation? In principle, no. because the
Labor Union, et al., 95 Phil., 553; 50 Off. Gaz., 4253, we stated that:
liability of the guarantor presupposes that there must be a prior
Even if a bonus is not demandable for not forming part of the wage, sal ary
or compensation of an employee, the same may nevertheless, be granted on exhaustion of the property of the principal debtor, and that the
equitable consideration as when it was given in the past, though withheld in guarantor after paying can recover from the principal debtor and
succeeding two years from low salaried employees due to salary increases. both of these cannot be legally done when the obligation is natural.
still the facts in said Heacock case are not the same as in the instant one, The legal consequence of having a guaranty for a natural obligation is
and hence the ruling applied in said case cannot be considered in the present to convert the same to a civil obligation because that guaranty will
action. now be subject to some coercive remedies to be enforced against it.
What are imperfect and perfect obligations? Perfect obligation is one
Illicit OBLIGATIONS OBLIGATIONS which are contrary to
where there is a determination of the creditor, debtor and the nature
morals and good customs do not constitute natural OBLIGATIONS,
and value of the obligation while imperfect obligation has no
whatever is paid under such OBLIGATIONS can be recovered,
determination of those above.
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without prejudice to the provisions of Articles 1411 and 1412, but
Article 1414 may apply.
Illustrations:
1. Differentiate civil obligation from natural obligation: In civil
action, the obligation can be enforced by court action; natural
obligations cannot be enforced by court action. Civil obligations
are based on positive law and natural obligations are based on
equity.
2. Example: The debt is 10M, the value of the estate 3M, the
natural obligation is? To pay 7M. The basis of 7M? Under the
law, the heir is liable to the extent of the value which they
actually received from the decedent, therefore, if they received
3M, they will only be liable for 3M, the 7M will be a natural
obligation.
3. Example: Dated feb.1, 1994, I promise to pay X the amount of
1M, signed by Y. To this day, not a single centavo has been
paid. What kind of obligation is the promissory note? It may
be considered as a civil obligation when X demanded in writing
the payment from Y before the action prescribes because
written demand will toll the running of prescription of the
obligation. However, if there was no demand, since the
obligation is a pure obligation, therefore, demandable at once,
the prescriptive period begins to run on feb.2, 1994, 10 years
has already lapsed, the action already prescribed, the obligation
becomes a natural obligation. Is this promissory note a pure
obligation? Yes. Why? Because there is no period stated in the
promissory note. Because no period is stated in the
promissory note, it is a pure obligation? By express provision
of the law, just because the parties failed to state the period in
the promissory note, does not necessarily mean that it pertains
to a pure obligation, because from the circumstances it can be
inferred that the parties shall fix the period, if this is promissory
note is a contract of loan it is possible that there is a period.
What possible contract may the promissory note be that
indeed this may pertain to a pure obligation? A contract of
sale. Now having said that, if this promissory note pertains to
an obligation with a period, therefore today the obligation in
this promissory note, if no demand was made, a natural
obligation? Not necessarily, the period of prescription shall be
counted from the due date where the obligation must be paid.
Because if this is with a period, and the agreement is that the
obligation should be paid after five years, today this is still a
civil obligation, the prescriptive period shall commence to run
from the time the cause of action accrues.
4. IN RELATION TO THE EXAMPLE OF THE HEIR WHO PAID THE
DEBT OF THE FATHER: X died, his heirs are ABC, ABC paid to Y
M fi e da af er X dea h af er mon h hereaf er he
heirs are trying to recover claiming that the estate is only 3M,
can the heirs recover the value from Y? They cannot recover if
the payment is voluntary. In natural obligation, if the payer
voluntarily paid, the creditor has the right to retain what has
been paid. The question here is that whether or not the
payment is voluntary? Incidentally, in natural obligation if the
payer paid without fraud, threat, or any vitiation being
employed upon the heirs, the payment is voluntary payment,
correct? Not necessarily. When will there be payment without
vitiation, yet the payment is not voluntary? What constitutes
voluntary payment in natural obligation? The payer knew that
he is not compelled to pay but the payer paid, it is a voluntary
payment. The more reasonable question here is that is there
such a person who is crazy enough to pay even if he has no
obligation to pay? Yes, why would he do that? Conscience.
Precisely because the obligation is based on justice (but this is
not possible here in the Philippines). The more reasonable
answer is reputation. But under the facts the payment is
voluntary? Not really, because when they paid it was only 5
days after the death of X, by that time normally, they do not
know the estate of the decedent.
5. Obligation is defined under Art. 1156 as an obligation to give,
to do, or not to do. Is it correct to say that the definition is not
accurate; there must be another prestation which is not to
give? No, the prestation not to give is included in not to do.
Obviously in this definition, there are only three obligations as
to prestations, which are? 1. Obligation to give; 2. Obligation to
do; and 3. Obligation not to do. Briefly, this definition is
criticized because it is incomplete, why is it incomplete? It
pertains only to the part of the debtor. To the critics, obligation
is a concept that would include both the debt side and the
credit side. And you agree to that? Yes sir. The credit side and
the debt side are two aspects of an obligation, do you agree to
that? Yes. So a credit is an obligation? No, they are actually
opposite of each other. The difference is that a person who has
a right can compel the other; he cannot be compelled to
perform his right. Thus, in Philippine law, rights and obligations
are different matters. An obligation therefore may not be
waived but a right may be exercised or not.
6. What are obligations without agreement, and 5 situations
giving rise to this obligation? These are obligations arising from
all other sources besides contract. Thus, in answering the
second question, you must cite examples: 1. Payment of
damages to the person who was injured by negligence xxx. This
is because agreement is required only in contracts, it is not
required in all other obligations, is only an essential element of
a contract.
7. Therefore considered as essential elements of obligations are?
1. Active subject (creditor or obligee); 2. Passive Subject (debtor
or obligor); 3. Juridical tie; and 4. Prestation. Therefore, in a
contract of lease, who is active subject and who is the passive
subject? The obligation is a reciprocal contract, hence, the
passive subject is the lessor in the aspect of delivering the
property leased to the lessor, and the active subject is the
lessee in the aspect of demanding for the delivery of the thing
leased. In a contract of sale, who is the passive subject? It
depends, the contract of sale is a bilateral contract, hence as to
payment the buyer is the passive subject and the vendor is the
active subject, while as to the delivery of the thing sold, the
buyer is the active subject while the vendor is the passive
subject. Contract resulting to a reciprocal obligation is called?
A bilateral contract. The question here is, how come the
debtor is considered as the passive subject? He can be
compelled to perform the obligation. He is the one to be
compelled therefore passive? Under Philippine law, the
creditor is the active subject, because if the creditor does not
demand for the performance of the obligation there will be no
compulsion because if there is no demand, there will be no
delay. The debtor is actually favored by law for instance: 1. In
an obligation to pay a sum of money without a stipulation as to
the place of payment, the place of payment will be where? The
place of domicile of debtor.
8. Mentioned as one of the essential requisites is the prestation,
also known as what? The object. Therefore it pertains to a
thing? No. Because? The object pertains to conduct.
9. Another essential requisite is the juridical tie, also known as,
ad vinculum juris or legal tie or efficient cause. When would
there be a juridical tie, what is its purpose? It binds the party
to the obligation; there is a juridical tie when one of the sources
of obligation is present. These sources of obligations, anyone of
them binds the parties. Like for instance, law, it is the law that
will bind the parties. What obligation has no juridical tie?
Moral obligations.
PRESCRIPTION OF ACTIONS
Wh a i e c i Iti is also known
f asa the
c i
limitation of actions which refers to the time within which an action
may be brought, or some act done, to preserve a right.
Wh a a e S a These
e are thef actsLlimiting
i m i thea i
time within which actions shall be brought. They do not confer any
right of action but are enacted to restrict the period within which the
right might be asserted. They can be available as defenses but not
matters of substantive right. The purpose is to protect the diligent and
vigilant not those who sleep on their rights. They are statutes of
repose, the object of which is to suppress fraudulent and stale claims
from springing up at great distances of time and surprising the
parties or their representatives when all the proper vouchers and
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evidence are lost or the facts have become obscure from the lapse of
time or the defect memory or death or removal of witnesses. These
contemplate civil actions not criminal actions.
What is the difference between laches and prescription? Laches is
concerned with the effect of delay while prescription is concerned
with the fact of delay. Laches is principally the question of inequity of
permitting a claim to be enforced while prescription is a matter of
time. Laches applies to equity while prescription is statutory/law.
Article 1139. Actions prescribed by the mere lapse of time fixed by law.
Note: For example, in computing the prescriptive period if it is a leap
year, February 28 and 29 are two separate days.
What is the effect of lapse of time? It has the effect of extinguishing
the action. However, this to be availed of as a defense should be
pleaded in the answer. The right of prescription however can be
waived or renounced. It is deemed waived if not timely raised or
pleaded before or during trial. Exception if it is apparent in the
pleading itself.
Case: Development Bank of the Philippines vs. Spouses Patricio
Confessor
Facts: On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte
obtained an agricultural loan from the Agricultural and Industrial Bank (AIB),
now the Development of the Philippines (DBP), in the sum of P2,000.00,
Philippine Currency, as evidenced by a promissory note of said date whereby
they bound themselves jointly and severally to pay the account in ten (10)
equal yearly amortizations. As the obligation remained outstanding and
unpaid even after the lapse of the aforesaid ten-year period, Confesor, who
was by then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and
promising to pay the same on or before June 15, 1961. Said spouses not
having paid the obligation on the specified date, the DBP filed a complaint
dated September 11, 1970 in the City Court of Iloilo City against the spouses
for the payment of the loan.
Issue: Whether the validity of a promissory note which was executed in
consideration of a previous promissory note, the enforcement of which is
barred by prescription may still be demandable.
Held: Yes. The right to prescription may be waived or renounced. Article
1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of the right
acquired.
There is no doubt that prescription has set in as to the first promissory note of
February 10, 1940. However, when respondent Confesor executed the
second promissory note on April 11, 1961 whereby he promised to pay
the amount covered by the previous promissory note on or before June
15, 1961, and upon failure to do so, agreed to the foreclosure of the
mortgage, said respondent thereby effectively and expressly renounced
and waived his right to the prescription of the action covering the first
promissory note.
This Court had ruled in a similar case that
... when a debt is already barred by prescription, it cannot be enforced by the
creditor. But a new contract recognizing and assuming the prescribed debt
would be valid and enforceable ... .
Thus, it has been held
Where, therefore, a party acknowledges the correctness of a debt and
promises to pay it after the same has prescribed and with full knowledge of
the prescription he thereby waives the benefit of prescription.
This is not a mere case of acknowledgment of a debt that has prescribed
but a new promise to pay the debt. The consideration of the new
promissory note is the pre-existing obligation under the first promissory
note. The statutory limitation bars the remedy but does not discharge the
debt.
A new express promise to pay a debt barred ... will take the case from the
operation of the statute of limitations as this proceeds upon the ground that as
a statutory limitation merely bars the remedy and does not discharge the debt,
there is something more than a mere moral obligation to support a promise, to
wit a pre-existing debt which is a sufficient consideration for the new the
new promise; upon this sufficient consideration constitutes, in fact, a new
cause of action.
... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as
reanimating the old promise, or as imparting vitality to the remedy (which by
lapse of time had become extinct) and thus enabling the creditor to recover
upon his original contract.
Under Article 165 of the Civil Code, the husband is the administrator of the
conjugal partnership. As such administrator, all debts and obligations
contracted by the husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership. 5No doubt, in this case, respondent
Confesor signed the second promissory note for the benefit of the conjugal
partnership. Hence the conjugal partnership is liable for this obligation.
Article 1140. Actions to recover movables shall prescribe 8 years from the
time the possession thereof is lost, unless the possessor has acquired the
ownership by prescription for a less period, according to Article 1132 and
without prejudice to Articles 559, 1505 and 1133.
Article 1132. The ownership of movables prescribes through uninterrupted
possession for four years in good faith.
The ownership of personal property also prescribed through uninterrupted
possession for 8 years, without need of any other condition.
With regard to the right of the owner to recover personal property lost or of
which he has been illegally deprived, as well as with respect to movables
a c i e d i a b l i c a l e , f a i ,
provisions of Article 559 and 1505 shall be observed.
Article 1141. Real actions over immovables prescribe after 30 years. This
provision is without prejudice to what is established for the acquisition of
ownership and other real rights by prescription.
Note: While an action for reformation of instrument, such as a
contract of sale with pacto de retro alleged to be merely an equitable
mortgage, is an action based upon a written contract which must be
brought within 10 years form the time the right of action accrues
(Article 1144), where however, the accrual of such right could not be
established it is more logical to apply this provision, Article 1141
b e c a e i e a l i h e a c i e
over the real property, not to recover the same.
Article 1142. A mortgage action prescribes after 10 years.
Note: The fact that the mortgage is registered does not make its
action to foreclose imprescriptible.
Article 1143. The following rights, among others specified elsewhere in this
Code, are not extinguished by prescription :
1. To demand a right of way, regulated in Article 649;
2. To bring action to abate a public or private nuisance.
Note: Also included in the list is that provided for in Article 494 of
the Civil Code which allows no prescription to run in favor of a co-
owner or co-heir against co-owners or co-heirs so long as he
expressly or impliedly recognize the co-ownership because the
possession of each of the co-owner or co-heir is in the nature of a
subsisting trust and considered to be in the name of the other.
Exception: It will prescribe if the co-owner or co-heir has possessed
the property as exclusive owner for a period sufficient to acquire the
property by prescription.
Other imprescriptible actions:
1. Action by the government or a governmental entity;
2. Action for mandamus;
3. Action to enforce an express trust as long as the trustee
does not repudiate the trust;
4. A c i i e i l e f h e
5. Action or defense to declare a contract or judgment void ab
initio;
6. Action of the registered owner to recover his land.
Article 1144. The following actions must be brought within 10 years from the
time the right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law; and
3. Upon a judgment.
Note: Remember that the action for reconveyance of the title to the
rightful owner prescribes in 10 years from the issuance of the title.
But is fraud has been committed, and this is the basis of action, not
implied trust, the action will be barred after four years from the
discovery of the fraudulent act.
Article 1145. The following actions must be commenced within 6 years:
1. Upon an oral contract;
2. Upon a quasi-contract.
Article 1146. The following actions must be instituted within 4 years:
1. Upon an injury to the rights of the plaintiff;
2. Upon a tort or quasi-delict.
*An action based on fraud.
Note: Example of injury to the rights of the plaintiff is when there is
an unjustified separation from employment. Example of actions of
tort or quasi-delict is; where real property belongs in ownership to D
and over which he was and has always been in possession but by
mistake of the cadastral clerk came to be titled in 1935 in the name of
L, who had never claimed it and knew all along that he was not the
owner but only had a paper title thereto, never bothered to disturb
the possession of D until 1948 when he sought to do so, thereafter
filing his reinvindicatory action to recover the land from D in 1949,
the counterclaim for reconveyance contained in the answer of D has
been filed within the period to recover on a quasi-delict.
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Article 1147. The following actions must be filed within one year:
1. For forcible entry and detainer;
2. For defamation.
Article 1148. The limitations of actions mentioned in Articles 1140 to 1142
and 1144 and 1147 are without prejudice to those specified in other parts of
this Code, in the Code of Commerce, and in special laws.
Article 1149. All other actions whose periods are not fixed in this Code or in
other laws must be brought within 5 years from the time the right of action
accrues.
Note: The right to collect taxes is imprescriptible.
Article 1150. The time for prescription for all kinds of actions, when there is
no special provision which ordains otherwise, shall be counted from the day
they may be brought.
Note: It is to be computed from the day on which the corresponding
action could have been instituted. It is the legal possibility of bringing
the action which determined the starting point for the computation of
the period. The period should not be made to retroact to the date
of execution of contract.
The commencement of cause of actions:
1. Closing of windows- the period of prescription for the
action to close must be counted from the day they were
opened.
2. Obligation to pay upon receipt of an inheritance by the
debtor- from the date of such receipt because when the
obligation is subject to a suspensive condition, prescription
begins to run from the happening of the condition.
3. Obligation without maturity date or note payable on
demand- from the date of the note or obligation NOT from
demand.
4. Unpaid balance of a subscription to shares of a corporation-
from the date of call or demand.
5. Payment of money within a year but with privilege of
extension- from the end of the first year.
6. Action based on fraud- from the discovery of fraud.
7. Quasi-delict- from the day the quasi-delict accrued or was
committed.
8. Action for partition and reconveyance based on implied or
constructive trust- from the date of issuance of the original
certificate of title because registration is notice to the
world.
9. Period to claim inheritance- until a 3rd person claims a right
under such instrument.
10. To set aside simulated written deed of pacto de retro sale-
when the alleged vendees made known their intention by
overt acts not to abide by the true agreement NOT from the
date of execution of contract.
Article 1151. The time for the prescription of actions which have for their
object the enforcement of obligations to pay principal with interest or annuity
runs from the last payment of the annuity or of the interest.
Note: This is applicable only when the principal debt is already due.
But where there exist a past due mortgage which was recognized by
payments of interest, prescription ran only from the past payment of
interest.
Article 1152. The period for prescription of actions to demand the fulfillment
of obligations declared by a judgment commences from the time the judgment
became final.
Note: Judgment will only become final upon the expiration of the
period for appeal in the trial court. But in the SC or CA, the true
judgment is that entered by the Clerk of that Court pursuant to the
dispositive portion of its decision. The period is 10 years from such
entry or period under Article 1144.
Article 1153. The period for prescription of actions to demand accounting
runs from the day the persons who should render the same cease in their
functions. The period for the action arising from the result of the accounting
runs from the date when said result was recognized by agreement of the
interested parties.
Note: The period of prescription begins to run in an action to compel
an accounting by a joint account partner, from the date of the
retirement of the members. For accounts, the following rules apply:
1. For mutual current accounts, it begins to run on the date of
the last item, no matter how far back the account
commenced.
2. For simple current open accounts, it begins to run from the
date of each particular item.
3. Current account guaranteed by mortgage executed in a
public instrument, it begins to run from the date of the last
payment.
4. When the accounting has been made between the parties in
their current account dealings, the right of action, and
prescription begins to run on the date when the last balance
of prescription was struck and NOT when the business
relations terminated.
Article 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him.
Note: There is only interruption of the running of prescription when
the courts cannot be kept open and are not within the reach of the
people. The Statute of Limitations does not operate against the
Government. An example of interruption is the destruction of records
of the case.
Article 1155. The prescription of actions is interrupted (1) when they are
filed before the court, (2) when there is written extra-judicial demand by
the creditors, and (3) when there is any written acknowledgment of the
debt by the debtor.
Note: For the first interruption, it lasts during the pendency of the
action and runs anew after the dismissal of the first action to revive
judgment. When interruption of action is legally commenced? It is
from the time the complaint is docketed in Court. How about if the
prescription is interrupted by a judicial demand? The full period for
the prescription must be reckoned from the cessation of the
interruption.
When there is no suspension in filing of action in court?
1. When the plaintiff desist
2. Amendment of the complaint with new or different cause of
action
3. New or additional defendants
For the second interruption, it is so because since the extinctive
prescription is based on presumed abandonment of a right, it is
obvious that the running of the period should be interrupted when a
demand is made by the creditor upon the debtor before the lapse of
the period fixed by law, with the burden of proof on the former. It
must also be written.
For the third interruption, it is so if the acknowledgment is in writing.
Does it always have to be express? Not so because it can be implied
therein, provided it is written and must apply to a particular or
specific debt. Examples are the following:
1. A promise to pay a debt.
2. Listing of mortgage indebtedness by the debtor in his
schedule of liabilities filed in insolvency proceedings.
3. Statement by one of the maker of a PN that he supposed he
would have to pay it, if the amount could not be gotten out
of the estate of other drawer.
4. Notation in the handwriting of the maker to the effect that
such note was renewed.
* Can be made even by a legal representative.
Instances that there is no acknowledgment of debt
1. Mere offer to compromise a suit upon a supposed debt.
2. Debtor acknowledging receipt of a statement of account but
declines to recognize the correctness of the account being
exorbitant.
3. Acknowledgment of the obligation after it has already
prescribed. There must be a new and positive promise to
pay in order to nullify prescription.
4. Part payment of debt.
5. The death of the debtor.
6. The transfer of right to another.
7. The institution of criminal action cannot have the effect of
interruption the institution of civil action based on quasi-
delict.
8. Order to stay execution of judgment.
9. Confinement in jail.
What is the effect of acknowledgment? It will renew the obligation of
the debtor and interrupts the prescription and make it run only from
such acknowledgment. Example, if the decedent makes a will but
invalid as to its form but in there he acknowledge the debt in favor of
A, the prescription runs against the claim from the date of the making
of invalid will and NOT from the date of death.
(b) CIVIL OBLIGATIONS:
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Article 1157. Obligations arise from:
(1) Law; (OBLIGATIONS ex lege)
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
SOURCES OF OBLIGATIONS:
1. LAW:
Article 1158. Obligations derived from law are not presumed.
Only those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been foreseen, by
the provisions of this Book.
an agreement is not necessary in order that a
party may demand from another the
fulfillment of an OBLIGATION arising from
the application of a law in the circumstances;
Balane: Law as a source of obligation It is my opinion that there
is an overlap in the enumeration because all obligations arise from
law. Law is the only source of obligation, in the ultimate sense. But,
as a proximate source, there are five sources of obligations. Law is
both the ultimate & a proximate source of obligations.
Sources of Obligations according to Sanchez Roman.
Law & Acts. The latter are further classified, as follows:
(1) licit acts created by concurrence of wills (contracts);
(2) licit acts either voluntary or involuntary without concurrence of
wills (quasi-contract);
(3) illicit acts of civil character which are not punishable, voluntary or
involuntary (torts & all damages arising from delay);
(4) illicit acts which are voluntary & are punishable by law (crimes)
Baviera: When the source of the obligation is Law, there is no need for
an act or omission for the obligation to arise.
CASE: Sagrada Orden De Predicadores Del Santismo Rosario De Filipinas
vs. National Coconut Corporation, June 30, 1952, J. Labrador.
Facts: Plaintiff owned disputed property in Pandacan, Manila which was
acquired during the Japanese occupation by Taiwan Tekkosho with TCT. When
the Philippines was ceded to USA, the same was entrusted to Alien Property
Custodian, APC by the US government. APC took possession, control and
custody under the Trading with the Enemy Act. APC allowed Copra Export
Management Co. to occupy the property for a fee. RP (Republic of the
Philippines) later made representation with APC to use the same property with
warehouse which was repaired by NACOCO (National Coconut Corp.) and was
leased to Dioscoro Sarile. The latter failed to pay rentals on the property. In an
action to recover possession of the property, the court nullified the sale to
Taiwan Tekkosho and cancelled its TCT and ordered reversion of title to
plaintiff, and right of recovery from NACOCO of rentals to the property.
ISSUE: WON NACOCO is liable to pay back rentals?
HELD: If defendant-appellant is liable at all, its obligations must arise from any
of the 4 sources of obligations, namely, law, contract or quasi contract, crime, or
negligence. (Article 1089, Old Civil Code.) To determine such, the following
must be understood:
As to crimes: Defendant-appellant is not guilty of any offense at all, because it
entered into the premises & occupied it with the permission of the entity which
had the legal control & administration thereof, the Alien Property
Administration (APA).
As to Quasi-Delict: Neither was there any negligence on its part.
As to Contract: There was also no privity (of contract or obligation) between
the APA & Taiwan Tekkosho, which had secured the possession of the property
from the plaintiff-appellee by the use of duress, such that the Alien Property
Custodian or its permittee (defendant-appellant) may be held responsible for the
supposed illegality of the occupation of the property by said Tekkosho.
The APA had the control & administration of the property not as successor to the
interests of the enemy holder of the title, the Taiwan Tekkosho, but by express
provision of law.
Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a
trustee of the US Govt., in its own right, to the exclusion of, & against the claim
or title of, the enemy owner. From Aug. 1946, when def.-appellant took
possession, to the date of the judgment on 2/28/48, the APA had the absolute
control of the property as trustee of the US Govt., with power to dispose of it by
sale or otherwise, as though it were the absolute owner.
Therefore, even if defendant were liable to the APA for rentals, these would not
accrue to the benefit of the plaintiff the old owner, but the US Govt.
Balane: Is the enumeration in Article 1157 exclusive or merely
illustrative?
Doctrine: The sense that the case of Sagrada Orden tells us is that
the enumeration is exclusive.
In resolving the issue of whether the defendant should be liable to pay
rentals, the SC used the process of exclusion . For there to be an
obligation to pay rentals, that obligation must arise from any of the five
(5) sources of obligations. If it does not, then there is no obligation.
The clear implication of this ruling is that, these five (5) are the
only sources of obligations.
The problem with Article 1157 is that it might not cover all situations.
For example: Carale uses Dove as his soap. He then hears an
advertisement from Proctor & Gamble that it is offering a nice tumbler
for those who can collect 30 wrappers of Tide before Feb. 29, 1996. So,
Carale stopped using Dove & started using Tide. He was able to
consume all 30 wrappers on Feb. 29, 1996. He then went to Proctor &
Gamble (P & G) to exchange the 30 Tide wrappers for a tumbler. But
P & G told Carale that their tumblers run out of stock. Carale
contracted a skin allergy as a result of using Tide in taking a bath. The
question is: Does P & G have any obligation to Carale. If we look at
Article 1157, this situation does not fall in any of the five sources. So,
we know have a problem. The German Civil Code (BGB) covers this
situation. The BGB has a sixth source of obligation, the Auslobung,
which means a unilateral offer.
2. CONTRACTS:
Article 1159. Obligations arising from contracts have the force of
law between the contracting parties and should be complied with in
good faith.
Article 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to
give something or to render some service.
Negotiation of contract is initiated by an OFFER;
Autonomy of Contract supposing the contract is valid and
enforceable, the terms of contract not contrary to law, morals, GC, PP
or PO, the stipulations therewith should be given effect. (One of
fundamental principles of contracts)
Balane: There are two parts in Article 1159.
Obligations derived from contract has the force of
law between the contracting parties (jus civili )
There must be compliance in good faith (jus
gentium .)
CASE: People s Car Inc. vs. Commando Security Service Agency, May 22,
1973, J. Teehankee.
Facts: On April 5, 1970, C m m a d S e c i S e i c e
d a h e e mi e f P e l e
a a l , k l e d g e d e f m P
brought out from the compound a car belonging to a customer and drove said car
for a place or places unknown, abandoning his post as such security guard, and
while so driving, lost control of said car, causing the same to fall into a ditch.
The customer, Joseph Luy h a d e a h e ctual c a . P
d a ma g e f P 8 , 4 8 9 . 1 0 . P e l e Ca
reimbursement.
Issue: WON Commando security is liable to damages in accordance with
provisions of contract
Held: YES. Plaintiff was in law liable to its customer for the damages caused
the customer's car, which had been entrusted into its custody. Plaintiff
therefore was in law justified in making good such damages and relying in
turn on defendant to honor its contract and indemnify it for such undisputed
damages, which had been caused directly by the unlawful and wrongful acts
of defendant's security guard in breach of their contract. As ordained in
Article 1159, Civil Code, "obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good
faith."
Plaintiff in law could not tell its customer, as per the trial court's view, that
"under the Guard Service Contract it was not liable for the damage but the
defendant" since the customer could not hold defendant to account for the
damages as he had no privity of contract with defendant. Such an approach of
telling the adverse party to go to court, notwithstanding his plainly valid
claim, aside from its ethical deficiency among others, could hardly create any
goodwill for plaintiff's business, in the same way that defendant's baseless
attempt to evade fully discharging its contractual liability to plaintiff cannot
be expected to have brought it more business. Worse, the administration of
justice is prejudiced, since the court dockets are unduly burdened with
unnecessary litigation.
Paragraph 4 of the contract, which limits defendant's liability for the
amount of loss or damage to any property of plaintiff to "P1,000.00 per
guard post," is by its own terms applicable only for loss or damage 'through
the negligence of its guards ... during the watch hours " provided that the
same is duly reported by plaintiff within 24 hours of the occurrence and the
guard's negligence is verified after proper investigation with the attendance of
both contracting parties. Said paragraph is manifestly inapplicable to the
stipulated facts of record, which involve neither property of plaintiff that has
been lost or damaged at its premises nor mere negligence of defendant's
security guard on duty.
Here, instead of defendant, through its assigned security guards, complying
with its contractual undertaking 'to safeguard and protect the business
premises of (plaintiff) from theft, robbery, vandalism and all other unlawful
acts of any person or persons," defendant's own guard on duty unlawfully
!"#$%&%'(")*+#,%-(.#/%
and wrongfully drove out of plaintiffs premises a customer's car, lost control
of it on the highway causing it to fall into a ditch, thereby directly causing
plaintiff to incur actual damages in the total amount of P8,489.10.
Defendant is therefore undoubtedly liable to indemnify plaintiff for the
entire damages thus incurred, since under paragraph 5 of their contract it
"assumed the responsibility for the proper performance by the guards
employed of their duties and (contracted to) be solely responsible for the acts
done during their watch hours" and "specifically released (plaintiff) from
any and all liabilities ... to the third parties arising from the acts or
omissions done by the guards during their tour of duty." As plaintiff had
duly discharged its liability to the third party, its customer, Joseph Luy, for the
undisputed damages of P8,489.10 caused said customer, due to the wanton
and unlawful act of defendant's guard, defendant in turn was clearly liable
under the terms of paragraph 5 of their contract to indemnify plaintiff in the
same amount.
Case: Joseph Saludaga vs. far Eastern University and Edilberto De Jesus
(President of FEU), April 30, 2008, J. Ynares-Santiago.
Facts: Petitioner Joseph Saludaga was a sophomore law student of respondent
Far Eastern University when he was shot by Alejandro Rosete, one of the
security guards on duty at the school premises on August 18, 1996. Rosete
was brought to the police station where he explained that the shooting was
accidental. He was eventually released considering that no formal complaint
was filed against him.
Respondents, in turn, filed a Third-Party Complaint against Galaxy
Development and Management Corporation (Galaxy), the agency contracted
by respondent FEU to provide security services within its premises and
Ma i a D. I m e i a l ( Ga l a P e
would be adjudged in favor of petitioner.
Petitioner is suing respondents for damages based on the alleged breach of
student-school contract for a safe and secure environment and an atmosphere
conducive to learning.
Issue: Whether or not FEU could be held liable.
Held: YES. When an academic institution accepts students for enrollment,
there is established a contract between them, resulting in bilate ral
obligations which both parties are bound to comply with. For its part, the
school undertakes to provide the student with an education that would
presumably suffice to equip him with the necessary tools and skills to pursue
higher education or a profession. On the other hand, the student covenants to
a b i d e b h e c h l a c a d e mi c e i a e dm e c
regulations.
Respondent FEU failed to discharge the burden of proving that they exercised
due diligence in providing a safe learning environment for their students. It
failed to show that they undertook steps to ascertain and confirm that the
security guards assigned to them actually possess the qualifications required in
the Security Service Agreement. It was not proven that they examined the
clearances, psychiatric test results, 201 files, and other vital documents
enumerated in its contract with Galaxy. Total reliance on the security
agency about these matters or failure to check the papers stating the
qualifications of the guards is negl igence on the part of respondents. A
learning institution should not be allowed to completely relinquish or
abdicate security matters in its premises to the security agency it hired.
To do so would result to contracting away its inherent obligation to ensure a
safe learning environment for its students.
Respondent FEU is liable to petitioner for damages.
FEU cannot be held liable for damages under Art. 2180 of the Civil Code
because respondents are not the employers of Rosete. The latter was
employed by Galaxy. The instructions issued by respondents Security
Consultant to Galaxy and its security guards are ordinarily no more than
requests commonly envisaged in the contract for services entered into by a
principal and a security agency. They cannot be construed as the element of
control as to treat respondents as the employers of Rosete. It had no hand in
selecting thesecurity guards. Thus, the duty to observe the diligence of a good
father of a family cannot be demanded from the said client
FALLO
F cts hofenegligence
e a and for having supplied respondent FEU with an
unqualified security guard, which resulted to the latters breach of obligation to
petitioner, it is proper to hold Galaxy liable to respondent FEU for such
damages equivalent to the above-mentioned amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable with
Galaxy for being grossly negligent in directing the affairs of the security
a g e c .
Case: Faustino Cruz vs. J.M. Tuason & Company, Inc. and Gregorio
Araneta, Inc., April 29, 1977, J. Barredo.
Facts: Plaintiff-appellant's complaint below shows that he alleged two
separate causes of action, namely:
(1) that upon request of the Deudors (the family of Telesforo Deudor who laid
claim on the land in question on the strength of an "informacion posesoria")
plaintiff made permanent improvements valued at P30,400.00 on said land
having an area of more or less 20 quinones and for which he also incurred
expenses in the amount of P7,781.74, and since defenda nts-appellees are
being benefited by said improvements, he is entitled to reimbursement from
them of said amounts and
(2) that in 1952, defendants availed of plaintiff's services as an intermediary
with the Deudors to work for the amicable settlement of Civil Case No. Q-
135, then pending also in the Court of First Instance of Quezon City, and
involving 50 quinones of land, of Which the 20 quinones aforementioned
form part, and notwithstanding his having performed his services, as in fact, a
compromise agreement entered into on March 16, 1963 between the Deudors
and the defendants was approved by the court, the latter have refused to
convey to him the 3,000 square meters of land occupied by him, (a part of
the 20 quinones above) which said defendants had pro mised to do "within
ten years from and after date of signing of the compromise agreement", as
consideration for his services.
Issue: Whether or not Faustino Cruz can claim reimbursement for the expenses
and services rendered.
Held: NO. We hold that the allegations in his complaint do not sufficiently
Appellants' reliance on Article 2142 of Civil Code is misplaced. Said article
provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall be unjustly enriched or benefited
at the expense of another.
From the very language of this provision, it is obvious that a presumed qauasi-
contract cannot emerge as against one party when the subject mater thereof is
already covered by an existing contract with another party. Predicated on the
principle that no one should be allowed to unjustly enrich himself at the
expense of another, Article 2124 creates the legal fiction of a quasi-contract
precisely because of the absence of any actual agreement between the parties
concerned. Corollarily, if the one who claims having enriched somebody has
done so pursuant to a contract with a third party, his cause of action should be
against the latter, who in turn may, if there is any ground therefor, seek relief
against the party benefited. It is essential that the act by which the defendant is
benefited must have been voluntary and unilateral on the part of the plaintiff.
As one distinguished civilian puts it, "The act is voluntary because the actor
in quasi -contracts is not bound by any pre -existing obligation to act. It is
unilateral, because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why
the law creates a juridical relations and imposes certain obligation is to
prevent a situation where a person is able to benefit or take advantage of
i d such
e ) , voluntary iand unilateral
lawful, d e m actsi f at the expense
h e mof said
f actor." h a e e
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar,
since appellant has a clearer and more direct recourse against the
Deudors with whom he had entered into an agreement regarding the
improvements and expenditures made by him on the land of appellees it
Cannot be said, in the sense contemplated in Article 2142, that appellees
have been enriched at the expense of appellant.
Case: Gutierrez Hermanos vs. Engracio Orense, December 4, 1914, J.
Torres.
Facts: Engracio Orense is the owner of a parcel of land situated in Albay. On
February 14, 1907, Jose Duran, O e e e h e , i h
ea d, b le d ae di c el e e d a d He
aforementioned land with the reservation of the former the right to repurchase it
for the same price within a period of 4 years. But the same land was not
repurchased by Jose Duran, being insolvent, which correspondingly caused
damage to the firm of Hermanos. Despite repeated demand upon Jose Duran, the
l a e e e a c a e d a f e e d
.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First
Instance of the said province, with estafa , for having represented himself in
the said deed of sale to be the absolute owner of the aforesaid land and
improvements, whereas in reality they did not belong to him, but to the
defendant Orense. However, at the trial of the case Engracio Orense, called as
a witness, being interrogated by the fiscal as to whether he and consented to
Duran's selling the said property under right of redemption to the firm of
Gutierrez Hermanos, replied that he had. In view of this statement by the
defendant, the court acquitted Jose Duran of the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of
his uncle, Engacio Orense, the owner of the property, to the effect that he
had consented to his nephew Duran's selling the property under right of
repurchase to Gutierrez Hermanos, counsel for this firm filed a
complainant praying, among other remedies, that the defendant Orense be
compelled to execute a deed for the transfer and conveyance to the plaintiff
company of all the right, title and interest with Orense had in the property
sold, and to pay to the same the rental of the property due from February 14,
1911.
Issue: Whether or not Orense can be compelled to deliver the property to
Hermanos as premised above.
Held: YES. It having been proven at the trial that he gave his consent to the
said sale, it follows that the defendant conferred verbal, or at least implied,
power of agency upon his nephew Duran, who accepted it in the same way by
selling the said property. The principal must therefore fulfill all the obligations
contracted by the agent, who acted within the scope of his authority. (Civil
Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the
sale, it is unquestionable that the defendant, the owner of the property,
approved the action of his nephew, who in this case acted as the manager of
his uncle's business, and Orense'r ratification produced the effect of an
express authorization to make the said sale. (Civil Code, arts. 1888 and
1892.)
Article 1259 of the Civil Code prescribes: "No one can contract in the name
of another without being authorized by him or without his legal
representation according to law.
A contract executed in the name of another by one who has neither
his authorization nor legal representation shall be void, unless it
should be ratified by the person in whose name it was executed
before being revoked by the other contracting party.
!"#$%&%'(")*+#,%-(.#/%
The sworn statement made by the defendant, Orense, while testifying as a
witness at the trial of Duran for estafa, virtually confirms and ratifies the
sale of his property effected by his nephew, Duran, and, pursuant to
article 1313 of the Civil Code, remedies all defects which the contract
may have contained from the moment of its execution.
The sale of the said property made by Duran to Gutierrez Hermanos was
indeed null and void in the beginning, but afterwards became perfectly valid
and cured of the defect of nullity it bore at its execution by the confirmation
solemnly made by the said owner upon his stating under oath to the judge that
he himself consented to his nephew Jose Duran's making the said sale.
Moreover, pursuant to article 1309 of the Code, the right of action for
nullification that could have been brought became legally extinguished from
the moment the contract was validly confirmed and ratified, and, in the
present case, it is unquestionable that the defendant did confirm the said
contract of sale and consent to its execution.
If the defendant Orense acknowledged and admitted under oath that he had
consented to Jose Duran's selling the property in litiga tion to Gutierrez
Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said
property.
The contract of sale of the said property contained in the notarial instrument
of February 14, 1907, is alleged to be invalid, null and void under the
provisions of paragraph 5 of section 335 of the Code of Civil Procedure,
because the authority which Orense may have given to Duran to make the
said contract of sale is not shown to have been in writing and signed by
Orense, but the record discloses satisfactory and conclusive proof that the
defendant Orense gave his consent to the contract of sale executed in a
public instrument by his nephew Jose Duran. Such consent was proven in a
criminal action by the sworn testimony of the principal and presented in this
civil suit by other sworn testimony of the same principal and by other
evidence to which the defendant made no objection. Therefore the principal is
bound to abide by the consequences of his agency as though it had actually
been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387;
Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22
Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in
two actions, wherein he affirmed that he had given his consent to the sale
of his property, meet the requirements of the law and legally excuse the
lack of written authority, and, as they are a full ratification of the acts
executed by his nephew Jose Duran, they produce the effects of an
express power of agency.
3. QUASI-CONTRACTS:
Article 1160. Obligations derived from quasi-contracts shall be
subject to the provisions of Chapter 1, Title XVII, of this Book.
QUASI-CONTRACT is a juridical relation which arises from
certain unlawful, voluntary and unilateral acts to the end that no one
may be unjustly enriched or benefited at the expense of another.
The act must be:
(1) Lawful thus different from delict which is unlawful;
(2) Voluntary thus different from quasi-delict which is
based on fault or negligence or lack of foresight;
(3) Unilateral thus different from contract, in which
parties agree.
e.g. in Negotiorum Gestio:
Benefits Conferred Voluntarily
For preservation of Property or Business
EXTRA-CONTRACTUAL OBLIGATIONS
(OBLIGATIONS without an agreement / based in IMPLIED
CONSENT)
Q: HOW MANY?
A: In NCC, 2, mi a e a d uasim
Contract.
e i
a. Quasi-contracts
Article 2142. Certain lawful, voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of another.
Article 2143. The provisions for quasi-contracts in this Chapter do
not exclude other quasi-contracts which may come within the
purview of the preceding article.
b. Negotiorum Gestio
Article 2144. Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any
power from the latter, is obliged to continue the same until the
termination of the affair and its incidents, or to require the person
concerned to substitute him, if the owner is in a position to do so.
This juridical relation does not arise in either of these
instances: ELEMENTS
(1) When the property or business is not neglected or
abandoned;
(2) If in fact the manager has been tacitly authorized by
the owner.
In the first case, the provisions of articles 1317, 1403, No.
1, and 1404 regarding unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this
Book shall be applicable.
NEGOTIORUM GESTIO juridical relation which
arises whenever a person voluntarily takes charge of an
agency or management of the business or property of
another without any power or authority from the latter.
Illustration:
1. Scenario: Lumubog na barko, what if this one of the missing persons landed
on a remote island and only one resident is present there or only one family is
living there in the island. Anyway this resident found the dead body of the
missing person, and he found it necessary to bury the dead and he spent a sum
of money of 400php. At any rate this resident, met the aunt of the decease, and
demanded reimbursement for the burial, i h e e i d e Well d e
if you read the provisions of the quasi-contract, there is an obligation to
reimburse the person. In other words, you have the obligation to reimburse.
But back to the question, is there a valid demand? NO. if you know, because
the law on quasi-contract would tell you that he has the right to seek
reimbursement from anyone who is oblige to give support and an aunt Is not
b l i g e d e h e l a g i e
support.
Case: Rustico Adille vs. CA, Asejo s, January 29, 1988, J. Sarmiento.
Facts: Feliza Azul owns a parcel of land. She married twice in her lifetime; the
first, with one Bernabe Adille with whom she had as an only child, herein defendant
Rustico Adille; in her second marriage with one Procopio Asejo, her children were herein
plaintiffs. Sometime in 1939, said Felisa sold the property in pacto de retro to certain 3rd
persons, period of repurchase being 3 years, but she died in 1942 without being able to
redeem and after her death, but during the period of redemption, herein defendant
repurchased, by himself alone, and after that, he executed a deed of extra-judicial
partition representing himself to be the only heir and child of his mother Felisa with the
consequence that he was able to secure title in his name alone also, so that OCT. No.
21137 in the name of his mother was transferred to his name, that was in 1955; that was
why after some efforts of compromise had failed, his half-brothers and sisters, herein
plaintiffs (The Asejo siblings), filed present case for partition with accounting on the
position that he was only a trustee on an implied trust when he redeemed,-and this is the
evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was occupying a
portion, defendant counterclaimed for her to vacate that.
Issue: Whether or not Adille can acquire exclusive ownership over the land.
Held: NO. It is the view of the respondent Court that the petitioner, in taking
over the property, did so either on behalf of his co-heirs, in which event, he
had constit uted himself a negotiorum gestor under Article 2144 of the Civil
Code, or for his exclusive benefit, in which case, he is guilty of fraud, and
must act as trustee, the private respondents being the beneficiaries, under
the Article 1456. The evidence, of course, points to the second alternative the
petitioner having asserted claims of exclusive ownership over the property and
having acted in fraud of his co-heirs. He cannot therefore be said to have
assume the mere management of the property abandoned by his co-heirs,
the situation Article 2144 of the Code contemplates. In any case, as the
respondent Court itself affirms, the result would be the same whether it is one
or the other. The petitioner would remain liable to the Private respondents, his
co-heirs.
c. Solutio indebiti
Article 2154. If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
mi a e Q
SOLUTIO INDEBITI juridical relation which arise
whenever person unduly delivers a thing through or by
mistake of another who has no right to demand it.
Case: Dometila Andres, doing business under the name and style “IRENE S
WEARING APPAREL vs. Manufacturers Hanover & Trust Corporation,
CA, September 15, 1989, J. Cortes.
Facts: Petitioner, using the business name "Irene's Wearing Apparel," was engaged in
the manufacture of ladies garments, children's wear, men's apparel and linens for local
and foreign buyers. Among its foreign buyers was Facets Funwear, Inc. (hereinafter
referred to as FACETS) of the United States. In the course of the business transaction
between the two, FACETS from time to time remitted certain amounts of money to
petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A.
(hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via Philippine
National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover
and Trust Corporation to effect the above- mentioned transfer through its facilities and to
charge the amount to the account of FNSB with private respondent. Although private
respondent was able to send a telex to PNB to pay petitioner $10,000.00 through the
Pilipinas Bank, where petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was only "Wearing Apparel."
Upon query by PNB, private respondent sent PNB another telex dated August 27, 1980
stating that the payment was to be made to "Irene's Wearing Apparel." On August 28,
1980, petitioner received the remittance of $10,000.00 through Demand Draft No.
225654 of the PNB.
!"#$%&%'(")*+#,%-(.#/%
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the
money to petitioner, FACETS informed FNSB about the situation. On September 8,
1980, unaware that petitioner had already received the remittance, FACETS informed
private respondent about the delay and at the same time amended its instruction by asking
it to effect the payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already
received the remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00
to petitioner. Hence, on September 11, 1980, petitioner received a second $10,000.00
remittance.
Private respondent asked petitioner for the return of the second remittance of $10,000.00
but the latter refused to pay.
Issue: Whether or not Mantrust can recover the second remittance worth
$10,000.
Held: YES. The contract of petitioner, as regards the sale of garments and other textile
products, was with FACETS. It was the latter and not private respondent which was
indebted to petitioner. On the other hand, the contract for the transmittal of dollars from
the United States to petitioner was entered into by private respondent with FNSB.
Petitioner, although named as the payee was not privy to the contract of remittance of
dollars. Neither was private respondent a party to the contract of sale between petitioner
and FACETS. There being no contractual relation between them, petitioner has no right
to apply the second $10,000.00 remittance delivered by mistake by private respondent to
the outstanding account of FACETS.
Art. 2154. If something received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through
an error, has been unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice
Bocobo explained the nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable.
This legal provision, which determines the quasi-contract of solution indebiti, is one of
the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was formulated
thus: "Jure naturae acquum est, neminem cum alterius detrimento et injuria fieri
locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Such axiom has grown through the centuries in
legislation, in the science of law and in court decisions. The lawmaker has found it one of
the helpful guides in framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464, 647, 648,
797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored
aphorism has also been adopted by jurists in their study of the conflict of rights. It has
been accepted by the courts, which have not hesitated to apply it when the exigencies of
right and equity demanded its assertion. It is a part of that affluent reservoir of justice
upon which judicial discretion draws whenever the statutory laws are inadequate because
they do not speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was
not under obligation to do so; and, (2) that payment was made by reason of an essential
mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance.
However, petitioner contends that the doctrine of solutio indebiti, does not apply because
its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the latter allegedly still had a
balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being in
payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
Petitioner invokes the equitable principle that when one of two innocent persons must
suffer by the wrongful act of a third person, the loss must be borne by the one whose
negligence was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision of law
specifically applicable to a case. ... The common law principle that where one of two
innocent persons must suffer by a fraud perpetrated by another, the law imposes the loss
upon the party who, by his misplaced confidence, has enabled the fraud to be committed,
cannot be applied in a case which is covered by an express provision of the new Civil
Code, specifically Article 559. Between a common law principle and a statutory
provision, the latter must prevail in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio
indebiti, applies in the case at bar, the Cour t must reject the common law principle
invoked by petitioner.
Case: Gonzalo Puyat & Sons, Inc. vs. City of Manila and Marcelo
Sarmiento, as City Treasurer, April 30, 1963, J. Paredes.
Facts: Gonzalo Puyat & Sons, Inc. is engaged in the business of manufacturing
and selling all kinds of furniture at its factory in Manila. Pursuant to Ordinance
N . 3 3 6 4 , Ma i l a a e e d f m P
without protest in the erroneous belief that it was liable therefore. Puyat
subsequently found that it was exempt from said taxes as provided under
Ordinance No. 3816, Puyat claimed for refund.
Issue: Whether the taxes paid without protest are refundable.
Held: YES. Appellants do not dispute the fact that appellee-companyis
exempted from the payment of the tax in question.This is manifest from the
reply of appellant City Treasurer stating that sales of manufactured products at
the factory site are not taxable either under the Wholesalers Ordinance or
under the Retailers' Ordinance. With this admission, it would seem clear that
the taxes collected from appellee were paid, thru an error or mistake, which
places said act of payment within the pale of the new Civil Code provision on
solutio indebiti. The appellant City of Manila, at the very start,
notwithstanding the Ordinance imposing the Retailer's Tax, had no right to
demand payment thereof..
"If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligationto retun it arises" (Art.
2154, NCC)..
Appelle categorically stated that the payment was not voluntarily made,
(a fact found also by the lower court),but on the erronoues belief, that
they were due. Under this circumstance, the amount paid, even without
protest is recoverable. "If the payer was in doubt whether the debt was
due, he may recover if he proves that it was not due" (Art. 2156, NCC).
Appellee had duly proved that taxes were not lawfully due. There is,
therefore, no doubt that the provisions of solutio indebtiti, the new Civil Code,
apply to the admitted facts of the case.
With all, appellant quoted Manresa as saying: "x x x De la misma opinion son
el Sr. Sanchez Roman y el Sr. Galcon, et cual afirma que si la paga se hizo por
error de derecho, ni existe el cuasi-contrato ni esta obligado a la restitucion el
que cobro, aunque no se debiera lo que se pago" (Manresa, Tomo 12, paginas
611-612). This opinion, however, has already lost its persuasiveness, in view
of the provisions of the Civil Code, recognizing "error de derecho" as a basis
for the quasi-contract, of solutio indebiti. .
"Payment by reason of a mistake in the contruction or application of a
doubtful or difficult question of law may come within the scope of the
preceding article" (Art. 21555)..
There is no gainsaying the fact that the payments made by appellee was due to
a mistake in the construction of a doubtful question of law.
4. ACTS OR OMISSIONS PUNISHED BY LAW (DELICT or
CRIMES but not Felony which is limited only to those punished
under RPC)
Article 1167. If a person obliged to do something fails to do it, the
same shall be executed at his cost. This same rule shall be
observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been
poorly done be undone.
Balane: Crime as a source of obligation There are many crimes
from which, civil liability arises in their commission, in addition to the
criminal penalty attached to them. This underlines the two aspects in a
crime: one, as an offense against the state, & two as an offense
against the victim. It is in the latter case that civil liability is
recoverable.
As far as crime is concerned, civil law is not concerned
with the penal liability but only with the civil liability.
Performance at debtor s cost non-compliance with
OBLIGATION to do, creditor may do it himself or get a 3rd person at
the expense of the debtor;
when OBLIGATION to do can only be performed by
debtor he cannot compelled to do so by force, the only
remedy is damages;
Article 2177. Responsibility for fault or negligence under the
preceding article is entirely separate and distinct from the civil
liability arising from negligence under the Penal Code. But the
plaintiff cannot recover damages twice for the same act or
omission of the defendant.
TITLE V - Civil Liability, RPC: CHAPTER ONE - Persons
Civilly Liable for Felonies
Article 100. Civil liability of a person guilty of felony. - Every
person criminally liable for a felony is also civilly liable.
[CHAPTER 2, RPC: What Civil Liability Includes]
Article 104. What is included in civil liability . The civil liability
established in articles 100, 101, 102, and 103 of this Code
includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
a e a i l d e a l e a h i c h h e l a e
Baviera: Requisites of enforcing the subsidiary obligation of the
employer under the RPC:
-criminal case was filed against the employee
-the act or negligence arose during or in connection with the
performance of he la er emplo men
-the employee is found guilty of criminal negligence
-a writ of execution has been returned unsatisfied, i.e. employee has
been found to be insolvent.
There is no res judicata as regards the Employer as there is a difference
in the Cause of Action. Quasi-delict (QD) differs from an action based
on delict on the following grounds:
QUASI DELICT DELICT
!"#$%&%'(")*+#,%-(.#/%
it is subsidiary (imputed) ER l i a b i l i i i ma
Diligence of good father of the family In RPC, such defense of GFF is not
may be set up by the ER as a defense available
A person while not criminally liable may still be civilly liable
Failure of the plaintiff to reserve in the criminal case his right
to file a separate civil action is not fatal to the civil action after the
acquittal of the accused.
When the acquittal is based on ground that the guilt of the
accused has not been proved beyond reasonable doubt,
plaintiff has the right to institute a civil action for damages
(culpa aquiliana ).
Q: Is it possible that even if there is a contract between the parties, a
quasi-delict can still be committed by one against the other regarding
the area covered by the contract?
A: Yes, according to the case of Araneta v. de Joya, 57 SCRA 59.
The same act can give rise to obligations arising from different sources.
For example, Alinea is the owner of a bus co., the Alinea Bus Co.,
Molina is a driver of one of the buses of Alinea Bus Co. Lagdameo
rode the bus being driven by Molina. As a result of the reckless driving
of Molina, Lagdameo suffered injuries. In this case, Lagdameo has a
choice-- he can sue on either contract, quasi-delict or on crime. If he
decided to sue on the breach of the contract of carriage, all he has to
prove is the (existence of the contract) & that it was not performed. In
this case, he can sue the common carrier but not the driver because he
has no contract with the driver. If he sues on quasi-delict, he can sue
both the common carrier & the driver. The defense of the driver would
be diligence in driving (or fortuitous event.) The defense of the
common carrier would be diligence in the selection & supervision of
employees. If he sues under crime, he has to sue the driver. In case the
driver is convicted & has been sentenced to pay civil liability, the
employer (Alinea Bus Co.) is subsidiarily liable. If Molina is insolvent,
Alinea Bus Co. will pay.
Notice that the choice of cause of action will determine three
things: the theory of the pl aintiff, the defense of the
defendant & the question of whom to sue.
Again, remember that in this case, the victim has a choice.
Provided that he is consistent with his theory & provided,
further, that he cannot recover damages twice for the same
injury.
Baviera: The terms of the contract cannot be against mandatory &
prohibitive laws. And if the contract is valid, it shall have the force of
law between the contracting parties.
5. QUASI-DELICTS: (culpa aquiliana / negligence / torts*)
[NCC, CHAPTER 2 - Quasi-delicts]
Article 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter. (memorize!)
Article 1162. Obligations derived from quasi-delicts shall be
governed by the provisions of Chapter 2, Title XVII of this
Book, and by special laws.
* Torts is seldom used by SC in this jurisdiction, it is broader term
for actionable wrong which may not be negligence, may be malicious
tortuous act which is not anymore Quasi Delict.
QUASI-DELICTS the fault or negligence of a person
who, by his act or omission connected or not with, but
independent from any contractual relation, causes damage
to another person;
The omission to do something which ordinarily reasonable
men guided by those considerations which ordinarily
regulate the conduct of human affairs, would do; or doing
something which prudent and reasonable men would not do.
Liability on Quasi Delict is based on equity, man is
responsible not only for acts conscious and intentional acts
but also for his lack of foresight, care and diligence which
may cause harm to another.
ELEMENTS:
(1) A duty on the part of the defendant to protect the
plaintiff from the injury of which the latter
complains;
(2) A failure to perform that duty, and
i (3) An
R Pinjury
C to the plaintiff through such failure.
TEST OF NEGLIGENCE: Would a prudent man, in the
position of the person on who negligence is attributed,
foresee harm to the person injured as a reasonable
consequence of the course about to be pursued?
KINDS OF NEGLIGENCE:
(1) also known as culpa extra -
contractual , or negligence as a source of
OBLIGATION, QUASI-DELICT;
Governed by Arts. 2176-2194
NO contractual relation at all
(2) or negligence in the
performance of a contractual OBLIGATION.
Governed by Article 1179 (common carrier),
& all on contracts
PERSONS LIABLE: (IMPUTED/vicarious LIABILITY,
2180)
1. father / mother
2. guardians
3. owners/managers
4. employers
5. the State
6. teachers
The responsibility shall cease if they can prove that they
have observed diligence of good father of the family to
prevent damage;
REQUISITES OF LIABILITY (IMPUTED):
1. the fault of negligence of the defendant
2. the damage suffered or incurred by the plaintiff
3. the relation of the fault or negligence and damage
incurred by the plaintiff
Balane:
The Code Commission did not choose to use tort. This is because tort
does not exactly have the same meaning as quasi-delict. Tort
[BROADER] covers intentional torts which in quasi-delict is
considered as civil liability arising from acts or omissions punishable
by law. There are some QD which are not covered by tort. Dean
Bocobo suggested the ancient term culpa aquiliana . But this did not
merit the approval of the Code Commission.
A TORT is a civil wrong (an actionable wrong) consisting of a
violation of a right or a breach of duty for which the law grants a
remedy in damages or other relief. The right is created by law in
favor of a person called a creditor to compel another called a debtor
to observe duty or a prestation either to render what is due him or to
refrain from causing him injury.
Classes of Torts According to Manner of Commission
1. Intentional Torts
a. tortfeasor desires to cause the consequences
of his act, or
b. tortfeasor believes that the consequences are
substantially certain to result from it
c. ex. Article 26, 32 & 33 (CC)
2. Negligent Torts:
d. f e a c d c me
forseeable risk of harm which may or may
not occur
e. Article 2176 (CC)
3. Strict Liability Torts:
f. Ex. Article 2183 & 2187 (CC)
Q: If there is a contract between the parties, can there be a quasi-delict
committed by one against the other regarding the area covered by the
contract?
A: If you look at Article 2176, you get the impression that if there is a
contract between the parties, they cannot be liable for quasi-delict on an
area covered by the contract. The case of Cangco has not really resolve
this controversy.
Case: Jose Cangco vs. Manila Railroad Co., October 14, 1918, J. Fisher.
Facts: Cangco was an employee of Manila Railroad Co. He takes the train going
home from work. That day he alighted from the train while it was still slightly in
motion. He landed on the elevated platform on top of some sacks of watermelon
which made him fall violently, rolled away from the platform under the moving
train where he badly crashed and lacerated his right arm. It happened at night
between 7-8pm and the station was poorly lit. Resulting from such incident,
!"#$%&%'(")*+#,%-(.#/%
Cang c a m a a m a e d i c e . Th e e
[Note: iThere is a little
e f in hCangco.
mistake i iThe jSC said that
m the
a d driver
e h i m f
a case for damages against MRR Co. The latter then interposed the defense that can be sued under culpa contractual. This is wrong. The driver cannot
the direct and proximate cause of the injury suffered by the plaintiff was his be sued as he has no privity of contract with the passenger.]
own contributory neglig ence in failing to wait until the train had come to a
complete stop before alighting.
Issue: Whether or not the conduct of Cangco was characterized by imprudence CASE DOCTRINE: Where there could still be Quasi Delict even
so as to hold him liable because of his contributory negligence. when there is contract of carriage.
Held: NO. can not be doubted that the employees of the railroad company
were guilty of negligence in piling these sacks on the platform in the manner CASE: Narciso Gutierrez vs. Bonifacio Gutierrez, et al., September 23, 1931,
above stated; that their presence caused the plaintiff to fall as he alighted from J. Malcolm.
the train; and that they therefore constituted an effective legal cause of the FACTS: On February 2, 1930, a passenger truck and an automobile of private
injuries sustained by the plaintiff. It necessarily follows that the defendant ownership collided while attempting to pass each other on the Talon bridge on
company is liable for the damage thereby occasioned unless recovery is the Manila South Road in the municipality of Las Piñas, Province of Rizal.
barred by the plaintiff's own contributory negligence. The truck was driven by the chauffeur Abelardo Velasco, and was owned by
It is important to note that the foundation of the legal liability of the Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez,
defendant is the contract of carriage, and that the obligation to respond for a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr.
the damage which plaintiff has suffered arises, if at all, from the breach of that and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in
contract by reason of the failure of defendant to exercise due care in its the car, but the mother, together will several other members of the Gutierrez
performance. That is to say, its liability is direct and immediate, differing family, seven in all, were accommodated therein. A passenger in the autobus,
essentially, in legal viewpoint from that presumptive responsibility for the by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to
negligence of its servants, [RESPONDEAT SUPERIOR] , which can be Manila. The collision between the bus and the automobile resulted in Narciso
rebutted by proof of the exercise of due care in their selection and supervision. Gutierrez suffering a fracture right leg which required medical attendance for
(presumption juris tantum, rebuttable). Imputed liability in NCC is not a considerable period of time, and which even at the date of the trial appears
applicable to obligations arising ex contractu, but only to extra-contractual not to have healed properly.
obligations, or to use the technical form of expression, that article relates only Issue: Wh e h e B i f a c i incident couldf a h e ,
to culpa aquiliana and not to culpa contractual . be held liable for damages to Narciso.
Every legal obligation must of necessity be extra-contractual or HELD: The court found both drivers negligent. The owner of the truck was
contractual. Extra-contractual obligation has its source in the breach or made liable for culpa contractual , under the contract of carriage. The owner of
omission of those mutual duties which civilized society imposes upon it the car was made liable under Article 2180, imputed liability for culpa
members, or which arise from these relations, other than contractual, of aquiliana. In amplification of so much of the above pronouncement as
certain members of society to others, generally embraced in the concept of concerns the Gutierrez family, it may be explained that the youth Bonifacio
status. was in incompetent chauffeur, that he was driving at an excessive rate of
The fundamental distinction between obligations of this character and those speed, and that, on approaching the bridge and the truck, he lost his head and
which arise from contract, rests upon the fact that in cases of non-contractual so contributed by his negligence to the accident. The guaranty given by the
obligation it is the wrongful or negligent act or omission itself which father at the time the son was granted a license to operate motor vehicles made
creates the vinculum juris, whereas in contractual relations the vinculum the father responsible for the acts of his son. Based on these facts, pursuant to
exists independently of the breach of the voluntary duty assumed by the the provisions of article 1903 of the Civil Code, the father alone and not the
parties when entering into the contractual relation. minor or the mother, would be liable for the damages caused by the minor.
The contract of defendant to transport plaintiff carried with it, by The liability of Saturnino Cortez, the owner of the truck, and of his
implication, the duty to carry him in safety and to provide safe means of chauffeur Abelardo Velasco rests on a different basis, namely, that of
entering and leaving its trains (contract of carriage). That duty, being contract which, we think, has been sufficiently demonstrated by the
contractual, was direct and immediate, and its non-performance could not be allegations of the complaint, not controverted, and the evidence. The reason
excused by proof that the fault was morally imputable to defendant's servants. for this conclusion reaches to the findings of the trial court concerning the
The railroad company's defense involves the assumption that even position of the truck on the bridge, the speed in operating the machine, and the
granting that the negligent conduct of its servants in placing an obstruction lack of care employed by the chauffeur. While these facts are not as clearly
upon the platform was a breach of its contractual obligation to maintain safe evidenced as are those which convict the other defendant, we nevertheless
means of approaching and leaving its trains, the direct and proximate cause hesitate to disregard the points emphasized by the trial judge. In its broader
of the injury suffered by plaintiff was his own contributory negligence in aspects, the case is one of two drivers approaching a narrow bridge from
failing to wait until the train had come to a complete stop before alighting opposite directions, with neither being willing to slow up and give the right of
(Doctrine of comparative negligence, Rakes doctrine). If the accident was way to the other, with the inevitable result of a collision and an accident.
caused by plaintiff's own negligence, no liability is imposed upon defendant's The defendants Velasco and Cortez further contend that there existed
negligence and plaintiff's negligence merely contributed to his injury, the contributory negligence on the part of the plaintiff, consisting principally of
damages should be apportioned. It is, therefore, important to ascertain if his keeping his foot outside the truck, which occasioned his injury. In this
defendant was in fact guilty of negligence. connection, it is sufficient to state that, aside from the fact that the defense of
The test by which to determine whether the passenger contributory negligence was not pleaded, the evidence bearing out this theory
has been guilty of negligence in attempting to alight from a of the case is contradictory in the extreme and leads us far afield into
moving railway train, is that of ordinary or reasonable care. It speculative matters.
is to be considered whether an ordinarily prudent person, of the
age, sex and condition of the passenger, would have acted as FRAUD NEGLIGENCE
the passenger acted under the circumstances disclosed by the dolo Culpa
evidence. This care has been defined to be, not the care which may Nature of Act involves willfulness or mere want of care or
or should be used by the prudent man generally, but the care which deliberate intent to diligence, not voluntary
a man of ordinary prudence would use under similar cause damage or injury act or omission
circumstances, to avoid injury." (Thompson, Commentaries on to another
Negligence, vol. 3, sec. 3010.) Gives rise to the act itself the want or care or
RULING: h a h e a i a b a e l m i g h e
OBLIGATION l a i i f f a l i g hdiligence
e d i h
conclusively by the fact that it came to stop within six meters from the place A single act may be a crime and a QD at the
where he stepped from it. Thousands of person alight from trains under these same time; (Article 100, RPC)
conditions every day of the year, and sustain no injury where the company has
Injured party cannot recover damages twice
kept its platform free from dangerous obstructions. There is no reason to
believe that plaintiff would have suffered any injury whatever in alighting as for the same act or omission of defendant;
he did had it not been for defendant's negligent failure to perform its duty to (must choose 1 Remedy)
provide a safe alighting place.
QUASI-DELICT CRIME
Balane: There are two important principles that we learn from this As to nature of Right private right public right
case: violated
Is a Wrong against the individual the State
Criminal Intent not needed Necessary
The difference in concept between contract & quasi-delict is
Legal Basis for Broad penal law necessary
that in a contract, there is a pre-existing juridical tie between liability
the parties. Violation of the contract gives rise to liability but Liability for Damages every QD gives rise to there are crimes without civil
not to the juridical tie. Juridical tie is not borne by a violation. liability for damages liability
In quasi-delict, it is precisely the wrongful act which gives Form of Redress reparation for injury punishment/fine/imprisonment
rise to the juridical tie. Liability & juridical tie are suffered/indemnification/co
simultaneous. mpensation
Quantum of Evidence Preponderance Beyond reasonable doubt
Contracts & quasi-delicts create two concentric circles with quasi- Compromise can be compromised criminal liability can never be
delict as the bigger circle. compromised

REQUISITES FOR LIABILITY: (onus)

(1) Wrongful act or omission imputable to the defendant by
reason of his fault or negligence;
!"#$%&%'(")*+#,%-(.#/%
(2) Damage or injury proven by the person claiming recovery;
(3) A direct causal connection between the negligent act and the
injury.
DOCTRINE OF PROXIMATE CAUSE is that which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces injury and without which the result
would not have occurred.
The exemplification by the Court in one case is simple and explicit;
viz: "(T)he proximate legal cause is that acting first and producing
the injury, either immediately or by setting other events in motion, all
constituting a natural and continuous chain of events, each having a
close causal connection with its immediate predecessor, the final
event in the chain immediately affecting the injury as a natural and
probable result of the cause which first acted under such
circumstances that the person responsible for the first event should,
as an ordinarily prudent and intelligent person, have reasonable
ground to expect at the moment of his act or default that an injury to
some person might probably result therefrom."
Illustrations:
1. Sources of obligations: 1157: Are there other sources of
obligations aside from those provided by law? No. Art. 1157 is
exclusive based on the case of Sagrada.
2. Who may be considered privy to the contract? Heirs,
successors in interest.
3. There are certain facts which need not be proven, there is no
need to allege such facts because the law presumes the
existence of a right and presumes the existence of a fact,
hence, it is not always true that whoever alleges the fact must
prove the existence of such fact.
4. Contracts: How would you know if there are obligations
arising from a contract? By considering the terms and
conditions of contract, by reading the terms and conditions of
the contract, you will determine whether or not there is an
obligation arising from such contract. Incidentally, does it mean
that there is no stipulation, therefore an agreement is not part
of the contract? Not necessarily, an obligation may arise even
without a stipulation like warranty against eviction. A limitation
provided by law as to terms and conditions? It must not be
contrary to law, morals, public policy. But before an obligation
arises, what transpires? Negotiation. Negotiation is initiated
by what? Offer. During the negotiation, the offeror withdrew
the offer, will there be an obligation? Yes. What source? It
depends if there is bad faith, if there is negligence on the part
of the offeror in not communicating as soon as possible the
same is quasi-delict. If bad faith, Art. 19, 20, and 21 I which is
law, but the SC generally would consider the source of
obligation as tort.
5. People car Ca e I e Whether or not commando is liable
for the entire amount of damages instead of only 1,000.00
6. The owner of the house left the house for a short vacation,
the very night, they left, their house was burned, the
neighbors saved some of their appliances, what is the
relationship? Negotiorum gestio, do you agree? No, these
appliances are not managed; this will fall under quasi-delict
because in negotiorum gestio there must be abandonment or
neglect of the property. Another reason why this is not
negotiorum gestio, this falls under the other quasi-contracts.
An obligation arising from quasi-contract, even if the obligor
was not unjustly enriched, or is it required that he must be
unjustly enriched if he will not perform an obligation under
quasi-contract? Despite 2142, is it possible that in a quasi-
contract there will be no unjust enrichment? Yes, read the
provisions on negotiorum gestio, expressly provided by law,
even if the owner is not enriched or unjustly enriched, if he has
an obligation. It will appear therefore that the principles
behind quasi-contracts are not really the principle of unjust
enrichment. Thus, in other countries, the principle behind this
obligations is, like in the U.S. law and quasi-contracts are
considered to fall under one source only implied contracts,
from that alone the basis is consent given by the obligor.
7. A bought a sack of rice from B, P625, A gave 1K to B, B gave
the sack of rice to A, B gave 475 to A, what relationship was
created? Solutio indebiti. What is the obligation? To return the
excess P100.
8. The quasi-contracts are provided for in article 2165-2175, is
this exclusive? No. it is not exclusive as provided for in article
2143.
9. Act or omission punishable by law? These are crimes or delicts.
As to this source, once a person in criminally liable, he is also
civilly liable? Not necessarily, because are crimes that does not
make the criminal civilly liable such as treason and rebellion.
The kinds of civil liability arising from this source? Restitution,
reparation, and indemnification. Every time there is this civil
liability, all of these are present? Not necessarily. Example:
what will be lacking? Restitution is lacking in rape. When is
restitution present? Theft. But even in murder or homicide,
restitution is not possible. If a person committed an act
punished by law and there is sufficient evidence to prove such
fact beyond reasonable doubt, nonetheless, is it possible for
him not to be committed? Yes, if the law exempts him from
liability, when there is an exempting circumstance, such as
minority, so if there is exempting circumstance there is civil
liability? Yes. Of those enumerated, generally, is there civil
liability? Yes, when will there be no civil liability, and what will
be the basis thereof? Quasi-delict, why not delict? Because
there is no conviction. If there is no conviction, there is no civil
liability under delict. In justifying circumstance, can there be
civil liability? As a rule no civil liability, except paragraph 4.
10. Torts, culpa acquiliana, culpa extra contractual, quasi delict:
Under 2176 is simply, Fault or Negligence, is there a
difference? Yes. Culpa extra contractual is a good name for
quasi delict? This is outside of the contract, if CEC, quasi delict?
This does not seem right, culpa extra contractual, outside of the
contract, outside of the contract there are how many sources
of obligations, four, necessarily quasi delict? No. Can there be
negligence in the performance of an obligation arising from
law, Yes, can a gestor be negligent, Yes, but is that negligence
quasi delict? NO because it will fall under quasi-contract. The
use of the word torts is criticized because? torts is not the
same as quasi-delict, torts is a much broader term that quasi
delict, because torts include intentional, malicious, while quasi-
delict includes negligence only, is this correct? 2176 first article
in quasi-delict, it provides for fault or negligence, it did not
mention negligence only. The next article 2177, from this
article, may an act be the basis of liability under two sources of
obligation, Yes. the only obligation provided by law is? He
cannot recover twice. So if A was able to recover from one
case, he will not have the right to recover in any other case,
correct? Yes The Supreme Court held that he can recover the
difference if the second award is greater for instance in case 1
100K Case 2 150K, he has the right to recover 50K, but not
250K. Ultimately, the claim of the author that quasi delict
should be limited to negligent act, has not been supported by
the justices of the SC, the SC would always claim, that a single
act may be a basis of an action under delict, under quasi delict,
may be even under contract if there is a pre-existing contract, it
is up to the aggrieved party to choose his cause of action,
however, if he chooses one cause of action, he must comply to
the requirements of the cause of action, for example he chose
delict, then he has to have the accused convicted. But if
contract, the law already presumes that there is negligence in
case of non performance. This recommendation that quasi
delict should be limited to negligent act has no basis under the
law, and has no application here in our country, the best
arguments to this issue is this, if the act is punished by law,
you should have the right to recover civil liability only be
ensuring that the accused will be convicted, otherwise, that
will encourage the people to commit crime, people will think
that it is okay to commit a crime because they can pay their
way out of it, however, in the situation where the husband is
killed the mother is the only one left with five kids, will you
fault them by accepting the damages? I think not.
!"#$%&%'(")*+#,%-(.#/%
11. A man buried a victim of princess of the stars, the relative of
the victim appeared the man demanded payment, from the
relative P300, can he demand from the relative payment for
burying the victim? The obligation created here is quasi delict,
however, the man cannot demand payment from the relative
because the persons who may be compelled is the persons who
is liable to give the victim support.
C. COMPLIANCE WITH
OBLIGATIONS:
Article 19. Every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith.
Article 1163. Every person obliged to give something is also
obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the parties
requires another standard of care.
Article 1164. The creditor has a right to the fruits of the thing
from the time the obligation to deliver it arises. However, he
shall acquire no real right over it until the same has been
delivered to him.
Article 1165. When what is to be delivered is a determinate
thing, the creditor, in addition to the right granted him by article
1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing
to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event until he has
effected the delivery.
Article 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and accessories,
even though they may not have been mentioned.
According to Balane:
Three types of obligations- (1) obligation to give; (2) obligation to do;
& (3) obligation not to do.
I. Obligation to give
A. Specific thing
B. Generic thing
II. To do
III. Not to do (this includes all negative obligations like
obligation not to give.)
1. A determinate thing
a. Specific performance
b. Equivalent performance
2. A generic thing, all remedies are available
B. In an obligation to do, make a distinction:
In obligation to do, which is purely personal only equivalent
performance is available
In an obligation to do which is not personal:
a. substitute performance
b. equivalent performance
Note: In obligations to do, specific performance is not available.
The reason for this is that specific performance will give rise to
involuntary servitude.
C. Obligation not to do
1. substitute performance
2. equivalent performance.
In all these cases, the creditor has the option of resolution or
rescission under Article 1191. In addition, he can also
claim damages.
Article 1244. The debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same value
as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
Article 1245. Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed by
the law of sales.
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into
consideration.
Article 1460. A thing is determinate when it is particularly
designated or physical segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made
determinate without the necessity of a new or further agreement
between the parties
Article 442. Natural fruits are the spontaneous products of the soil,
and the young and other products of animals.
Industrial fruits are those produced by lands of any kind through
cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of lands and
other property and the amount of perpetual or life annuities or other
similar income

Kinds of performance.-- NATURE AND EFFECTS OF OBLIGATIONS

1. - performance by the debtor
himself (applies only to OBLIGATION to give ) OBJECT OF THE OBLIGATION:
2. - performance at the 1. to give real OBLIGATION determinate (specific)
expense of the debtor or indeterminate (generic)
3. - grant of damages 2. to do
3. not to do personal OBLIGATION positive (to do)
Articles 1163 - 1166 cover obligation to give. or negative (not to do)
Three Accessory Obligations: REAL OBLIGATION:
1. Article 1163- To take care of the thing with the diligence of a a. DETERMINATE OBLIGATION particularly designated from
good father of a family until actual delivery. a particular class;
2. Article 1164- To deliver the fruits to the creditor (fruits PRINCIPAL OBLIGATION to give (to deliver) a
produced after obligation to deliver arises.) determinate thing;
3. Article 1166- To deliver accessions & accessories. ACCESSORY OBLIGATION exists even when not
expressly stipulated;
Balane: (1) Article 1163 to take care of the thing with
From the time the obligation arises, the creditor has a proper diligence of a good father of the family;
personal right against the debtor as to the fruits. But he (2) Article 1164 to deliver the fruits;
has no real right over them until actual delivery. (441) natural / industrial / civil
Real right is a right which is enforceable against the the OBLIGATION to deliver arises
whole world. He has only the personal right against the only if the creditor is entitled;
debtor with regard to the undelivered fruits. (3) Article 1166 delivery of the accessions and
This is because of the principle Non nudis pactis, sed of the accessories (Art 440);
traditione, dominia rerum transferentur (It is not by mere b. GENERIC THING is one that is indicated only by its kinds,
agreement, but by delivery, is ownership transferred.) without being distinguished from others of the same kind.
Personal right arises from the time the obligation to deliver (indeterminate)
arises whereas the real right does not arise until actual In an OBLIGATION to deliver a generic thing, the object
delivery. is determinable; when delivered it becomes
Articles 1165 1167- Remedies Available to the Creditor (specific determinate.
performance, substitute performance, equivalent performance.)
DELIMITED GENERIC not totally generic nor specific;
A. In obligations to give obligation to deliver one of SEVERAL things; does not have
!"#$%&%'(")*+#,%-(.#/%
designation nor physical segregation; Rule re Fortuitous Events still
apply.
DETERMINATION OF DILIGENCE REQUIRED:
(1) LAW e.g. extra ordinary diligence required in Common
carriers
(2) Stipulation of Parties
(3) Presumed: diligence of a Good father of the Family if none is
specified/expressed by law or agreement.
REAL RIGHT is the power by a person over a specific thing,
susceptible of being exercised against the whole world.
PERSONAL RIGHT belongs to a person who may demand from
another, as a definite passive subject, the fulfillment of a prestation.
From the moment the OBLIGATION to deliver a
determinate thing arises, the creditors earns a personal right
over the thing and its fruits, but only delivery or tradition
transfers ownership that is a real right over the thing against
the whole world.
F f a i l e d e l i e ,
reivindicacion but specific performance.
[CHAPTER 2: Right of Accession GENERAL
PROVISIONS]
Article 440. The ownership of property gives the right by
accession to everything which is produced thereby, or which is
incorporated or attached thereto, either naturally or artificially.
Kinds of Fruits;
1) CIVIL derived by virtue of juridical relation
2) Natural spontaneous products of the soil and the young and
other products of animals;
3) Industrial produced by lands of any kind through cultivation or
labor or by reason of human labor.
Illustrations:
1. Which article is enshrined with the compliance of the obligation?
Article 19 of the Civil Code.
2. How should an obligation be complied with? To answer, I would
ask you after reading Article 19, to know what is the source of the
obligation. Because if you know the source then you will know
how such obligation should be complied with. If the source of
obligation is a contract, then may be the party has already
stipulated as to how the obligation should be complied with.
3. Obligation arising from law, the law itself will provide the manner
of compliance of the obligation. But in recent years, thus the
common law specially on economic matters, is that congress will
just set the policies, and the IRR will have to be formulated by the
executive dept., and as a rule you should know the IRR. Even if we
know the source of the obligation, we may still not know on how
to comply the obligation, because the parties did not stipulate or
the law did not provide, so how should we perform? Finally, the
civil code will tell us on how to comply in relation to the kind of
obligation as to prestation. But most of the provision is on the
prestation to give so I will focus on that. In relation to this
obligations, how should this obligations be complied with, first
you should know as to what kind of thing is to be delivered. If it is
a determinate thing or a generic thing.
4. Generic Thing: How should this obligation be complied with?
There is a rule that should be followed. What a debtor cannot
compel the creditor to accept a thing that is inferior of quality. A
thing of such kind the debtor also cannot demand which is of
superior quality. In other words, the thing that is to be delivered to
the creditor is not of inferior nor superior quality. What should be
delivered depends on the purpose of the constitution of the
obligation.
5. Determinate Thing: if A has an obligation to deliver to B, KIA
PRIDE 1996, but instead of delivering that car, the creditor offered
to deliver a brand new BMW, series 9 black convertible. May the
obligation be extinguished? Yes. If the creditor accepts the BMW.
Why? Because when the law said that the creditor cannot be
compelled to accept but he may want to accept. In fact if the
creditor accepts, what is the mode of extinguishment? The mode of
extinguishment is Dacion En Pago, an act of thing was delivered
by the debtor to the creditor in satisfaction of his death.
6. Last question, why would anyone refuse to accept the BMW?
Maybe there are gems in the old car.
7. The accessory obligations, the debtor should preserve the
thing. This obligation starts from the constitution of the obligation
until the delivery of the thing. Not all obligations have this
accessory the obligations. E.g. to deliver a generic thing.
8. As to the fruits of the thing. Who is entitled to the fruits of the
thing accrued after the constitution of the obligation? The Code
provides: he will be entitled to the fruits of the thing from the time
the obligation to deliver arises. Art 1164
D. KINDS OF CIVIL OBLIGATIONS:
1. AS TO PERFECTION & EXTINGUISHMENT:
a. PURE
(CHAPTER 3) Different Kinds of OBLIGATIONS
SECTION 1 - Pure and Conditional OBLIGATIONS
Article 1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also
be demandable, without prejudice to the effects of the happening
of the event.
Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the court may fix the duration thereof.
The court shall also fix the duration of the period when it depends
upon the will of the debtor.
h e c e d iIn every case, the court
e shall
m e determine
d i such period as may under
the circumstances have been probably contemplated by the parties.
Once fixed by the court, the period cannot be changed by them.
A pure obligation is one which is not subject to a condition
or a term and it is immediately demandable that there is
nothing to exempt the debtor from compliance therewith.
(Floriano vs. Delgado)
What is a demand note? It is subject to neither a suspensive
condition nor a suspensive period. The demand is not a
condition precedent , since the effectivity and binding effect
of the note does not depend upon the making of the demand:
the note is binding even before the demand is made. Neither
does the demand constitute an implied suspensive period
since there is nothing to prevent the creditor from making a
demand.
Case: Hongkong and Shanghai Banking Corp., Ltd. Staff Retirement
Plan vs. Spouses Bienvenido and Editha Broqueza, November 17, 2012, J.
Carpio.
Facts: Spouses Broqueza, as employees of HSBC and members of Petitioner
HSBC-SRP (purposely for the benefit of the employees), obtained loans
specifically, car and appliance loan which are to be paid through automatic
salary deduction. The promissory note appears to have this period for which
the employees can pay for the loan: on or before until fully paid
Meanwhile, when a labor dispute arose between HSBC and its employees,
majority of the employees of the former were terminated including herein
respondent (with supposed co-respondent Gerong who was eventually
withdrawn through a manifestation because she settled her OBLIGATIONS to
the company). Because of such dismissal, herein respondents were not able to
pay the monthly amortizations of their loans. Thus, the HSBC-SRP considered
the accounts for respondents as delinquent. Demand to pay the obligation
were made upon respondents but failed to pay the same. In a civil suit for
recovery and collection of sum of money against respondents, MeTC ruled
that the nature of HSBC-S R P d e ma d f a me
connection to the labor dispute and that by reason of the re d e
termination from employment, it resulted in the loss of continued benefits
under the retirement plan. Thus, the loans secured by their future retirement
benefits to which they are no longer entitled are reduced to unsecured and
pure civil OBLIGATIONS. As unsecured and pure OBLIGATIONS, the
loans are immediately demandable. RTC affirmed the MeTC. But CA
reversed the same saying that HSBC-S R P c m l a i f
money against respondents are premature as the loan OBLIGATIONS have
not yet matured. Thus, no cause of action accrued in favor of HSBC-SRP.
Hence, this appeal.
Issue: Whether or not the interpretation of the subject promissory note is
correctly classified by MeTC and RTC as being a pure obligation.
Held: YES. In ruling for HSBCL-SRP, we apply the first paragraph of Article
1179 of the Civil Code:
Aright 1179. Every obligation whose performance does not depend upon
a future or uncertain event, or upon a past event unknown to the parties,
is demandable at once.
x x x. (Emphasis supplied.)
We affirm the findings of the MeTC and the RTC that there is no date of
payment indicated in the Promissory Notes. The RTC is correct in ruling
that since the Promissory Notes do not contain a period, HSBCL -SRP has
the right to demand immedia te payment. Article 1179 of the Civil Code
applies. The spouses Broqueza s obligation to pay HSBCL-SRP is a pure
obligation. The fact that HSBCL-SRP was content with the prior monthly
check- f f f m Ed i h a B e a a l a
Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to
enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha
B e a d i mi a l f m HS BC i De
loan amortizations, which HSBC collected through payroll check-
ofollowing:" A definite amount is paid to HSBCL-SRP on a specific date.
Editha Broqueza authorized HSBCL-SRP to make deductions from her
payroll until her loans are fully paid. Editha Broqueza, however, defaulted in
her monthly loan payment due to her dismissal. Despite the spouses
!"#$%&%'(")*+#,%-(.#/%
Broqueza’s protestations, the payroll deduction is merely a convenient mode Potestative Condition is one which depends solely on the will of
either one party.
EXAMPLE: "I will give you my plantation in Davao
Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an
provided you reside in Davao permanently."
employee of HSBC, her obligation to pay the loans will be suspended.
HSBCL-SRP can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Moreover, the spouses Broqueza Casual Condition is one where the condition is made to depend
have already incurred in default in paying the monthly installments. upon a third person or upon chance.
EXAMPLE: "I will give you my land in Floridablanca if Mt.
CASE: re Article 1179, par. 1 Pinatubo erupts this year."
Case: In the matter of the Intestate Estate of Justo Palanca, deceased,
George Pay vs. Segundina Chua Vda. De Palanca, June 28, 1974, J. Mixed Condition is one which depends partly upon the will of one
Fernando. of the parties & partly on either chance or the will of a third person.
Facts: George Pay as creditor of the late Justo Palanca (who died in Manila
on July 3, 1963) claimed payment from the latter premised from a promissory
note dated January 30, 1952, which has the following deta i l For: value Q: What if the condition is suspensive, potestative & depends
received from time to time since 1947, we jointly and severally promise to pay solely on the will of the creditor, is the conditional obligation valid?
to Mr. George Pay at his office the sum of P26, 900 with 12% interest rate per A: Yes. In fact, the obligation is not even a condition obligation. It is
annum upon receipt by either of the undersigned of cash payment from the a pure obligation, binding at once.
Estate of the late Don Carlos Palanca and Justo Palanca or upon demand .
Then came this paragraph: "The Court has inquired whether any cash payment CASE: the term which parties attempted to fix were so uncertain it
has been received by either of the signers of this promissory note from the must be regarded as condition
Estate of the late Carlos Palanca. Petitioner informed that he does not insist on
this provision but that petitioner is only claiming on his right under the
Case: Smith Bell & Co., Ltd. vs. Vicente Sotelo Matti, March 9, 1922, J/
promissory note." After which, came the ruling that the wording of the
Romualdez.
promissory note being "upon demand," the obligation was immediately
Facts: In August 1918, plaintiff corporation and defendant entered into
due. Since it was dated January 30, 1952, it was clear that more "than ten
contracts whereby the former obligated itself to sell and the latter to purchase
(10) years has already transpired from that time until to date. The action,
from it the following which accordingly delivered with dates below:
therefore, of the creditor has definitely prescribed." The result, as above
noted, was the dismissal of the petition.
Issue: Wh e h e P a c l a i m a g a i Items/Products
h e e Prices
a e f Delivery
h e d e date
c e a Actual
e d date h g h
the promissory note has already prescribed. under the of delivery
promissory note
Held: YES. The obligation being due and demandable, it would appear that
the filing of the suit after fifteen years was mu ch too late. For again, 2 steel tanks P21,000 b e April
h i 27,
e d
according to the Civil Code, which is based on Section 43 of Act No. 190, the from New York to 1919
prescriptive period for a written contract is that of ten years. From the manner Manila within 3
in which the promissory note was executed, it would appear that petitioner or 4 months
was hopeful that the satisfaction of his credit could he realized either through 2 expellers P25,000/each b e October
h i 26,
e d
the debtor sued receiving cash payment from the estate of the late Carlos from San 1918
Palanca presumptively as one of the heirs, or, as expressed therein, "upon Francisco in the
demand." There is nothing in the record that would indicate whether or month of
not the first alternative was fulfilled. What is undeniable is that on September, 1918
August 26, 1967, more than fifteen years after the execution of the or as soon as
promissory note on January 30, 1952, this petition was filed. The defense possible
interposed was prescription. Its merit is rather obvious. Article 1179 of the 2 electric motors P2,000/each Approximate February 27,
Civil Code provides: "Every obligation whose performance does not depend delivery within 1919
upon a future or uncertain event, or upon a past event unknown to the parties, 90 days This is
is demandable at once." This used to be Article 1113 of the Spanish Civil not guaranteed
Code of 1889. In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires,
riots on land or on the sea, strikes or other causes known
Q: Does the happening of a condition give rise to the
as "Force Majeure" entirely beyond the control of the
OBLIGATION? sellers or their representatives.
A: Not necessarily, only if suspensive condition; if resolutory Smith Bell notified Mr. Sotelo of the arrival of these goods but th e latter
condition, the happening extinguishes the OBLIGATION; refused to receive and pay the pay prices stipulated. The plaintiff brought suit
against the defendant, based on four separate causes of action, alleging, among
Q: In an OBLIGATION with a TERM will the answer above be the other facts, that it immediately notified the defendant of the arrival of the goods,
same? and asked instructions from him as to the delivery thereof, and that the defendant
A: Yes. refused to receive any of them and to pay their price. The case having been tried,
the court below absolved the defendants from the complaint insofar as the tanks
and the electric motors were concerned, but rendered judgment against them,
b. CONDITIONAL ordering them to "receive the aforesaid expellers and pay the plaintiff the sum
of fifty thousand pesos (P50,00), the price of the said goods, with legal interest
Article 1181. In conditional OBLIGATIONS, the acquisition of thereon from July 26, 1919, and costs." Both parties appeal from this judgment.
rights, as well as the extinguishment or loss of those already Issue: Whether or not under the contract being entered into by the parties, the
acquired, shall depend upon the happening of the event which plaintiff corporation is held in delay by reason of the period stipulated in the
constitutes the condition. contract.
Article 1182. When the fulfillment of the condition depends upon Held: NO. Under these stipulations, it cannot be said that any definite date
the sole will of the debtor, the conditional obligation shall be void. was fixed for the delivery of the goods. As to the tanks, the agreement was
If it depends upon chance or upon the will of a third person, the that the delivery was to be made "within 3 or 4 months," but that period was
obligation shall take effect in conformity with the provisions of this subject to the contingencies referred to in a subsequent clause. With regard to
Code. the expellers, the contract says "within the month of September, 1918," but to
this is added "or as soon as possible." And with reference to the motors, the
Balane: We are talking here of a suspensive condition. contract contains this expression, "Approximate delivery within ninety days,"
but right after this, it is noted that "this is not guaranteed." The oral evidence
First sentence of Article 1182. falls short of fixing such period.
The condition must be suspensive, potestative & depends From the record it appears that these contracts were executed at the time of the
world war when there existed rigid restrictions on the export from the United
on the sole will of the debtor.
States of articles like the machinery in question, and maritime, as well as
railroad, transportation was difficult, which fact was known to the parties;
EXAMPLE: "I promise to sell you my car for P1.00 hence clauses were inserted in the contracts, regarding "Government
whenever I like." regulations, railroad embargoes, lack of vessel space, the exigencies of the
requirements of the United States Government," in connection with the tanks
Q: Why does it make the obligation void? and "Priority Certificate, subject to the United State Government
A: Because such an obligation lacks one of the essential elements of an requirements," with respect to the motors. At the time of the execution of the
obligation, the vinculum juris, the binding force- the means by which it contracts, the parties were not unmindful of the contingency of the United
States Government not allowing the export of the goods, nor of the fact that
is enforceable in couright In this case, there is no binding force. There
the other foreseen circumstances therein stated might prevent it.
is no obligation. It is a joke. Considering these contracts in the light of the civil law, we cannot but
conclude that the term which the parties attempted to fix is so uncertain
that one cannot tell just whether, as a matter of fact, those articles could
!"#$%&%'(")*+#,%-(.#/%
be brought to Manila or not. If that is the case, as we think it is, the
OBLIGATIONS must be regarded as conditional.
OBLIGATIONS for the performance of which a day certain has been fixed
shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even
though its date be unknown.
If the uncertainty should consist in the arrival or non -arrival of the day, the
obligation is conditional and shall be governed by the rules of the next
preceding section. (referring to pure and conditional OBL IGATIONS).
(Aright 1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the contract,
contingent upon the sellers obtaining certificate of priority and permission of
the United States Government, subject to the rules and regulations, as well as
to railroad embargoes, then the delivery was subject to a condition the
fulfillment of which depended not only upon the effort of the herein plaintiff,
but upon the will of third persons who could in no way be compelled to fulfill
the condition. In cases like this, which are not expressly provided for, but
impliedly covered, by the Civil Code, the obligor will be deemed to have
sufficiently performed his part of the obligation, if he has done all that
was in his power, even if the condition has not been fulfilled in reality.
Article 1183. Impossible conditions, those contrary to good
customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible,
that part thereof which is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing shall be considered
as not having been agreed upon.
Balane:
This refers to a suspensive condition.
There are 2 classes of impossible conditions:
1. Impossible in fact
EXAMPLE: "I promise to sell my car to Mr. M for P2 if he
can swim across the Pacific Ocean for 2 hours."
2. Impossible in law or one which attaches an illegal
condition
EXAMPLE: "I promise to sell my car to Mr. M for P2 on
condition that he burns the College of Law."
Effect of Impossible Condition It annuls the obligation which
depends upon them.
The entire juridical tie is tainted by the impossible condition.
Correlate this with Articles 727 & 873.
Article 727. Illegal or impossible conditions in simple &
remuneratory donations shall be considered as not imposed.
Article 873. Impossible conditions & those contrary to law or good
customs shall be considered as not imposed & shall in no manner
prejudice the heir, even if the testator should otherwise provide.
Tolentino:
In contracts, an impossible condition annuls the contract.
In gratuitous dispositions, the impossible condition is simply
disregarded.
Balane: The first statement is inaccurate because donation is a contract
& in a donation, the impossible condition does not annul the contract.
It is simply disregarded. The proper way to say it is that:
In an onerous transaction, an impossible condition annuls
the condition obligation.
In a gratuitous disposition, as in a donation or
testamentary disposition, an impossible condition
attached to the disposition is simply considered as not
imposed.
Q: Why is there a difference?
A: Because in a donation as well as in a testamentary disposition, the
causa or consideration is the liberality of the donor or testator, as the
case may be. Even if you take away the impossible condition, there is
still a reason for the disposition to exist- liberality. They (donation &
testamentary disposition) have both their underpinnings, liberality. But
in an onerous transaction, since an onerous prestation which is
reciprocal requires concomitant performances, that impossible
condition becomes part of the causa. Therefore, if the condition is
impossible, there is failure of causa. In no causa, there is also no
contract.
Paras:
Positive suspensive condition to do an impossible/ illegal
thing The obligation is void (Article 1183, par. 1.)
A negative condition (not to do an impossible thing)
Just disregard the condition (Article 1183, par. 2.)
A condition not to do an illegal thing (negative) This is
not expressly provided for in the provision but is implied.
The obligation is valid.
EXAMPLE: "I will sell you a piece of land provided you do
not plant marijuana on it."
Article 1184. The condition that some event happen at a determinate
time shall extinguish the obligation as soon as the time expires or if it
has become indubitable that the event will not take place.
Balane: This article refers to suspensive conditions. If the condition is
resolutory, the effect is the opposite.
Article 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become evident
that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at
such time as may have probably been contemplated, bearing in mind
the nature of the obligation.
Balane: This article refers to a suspensive condition.
Article 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Balane: This article refers to a suspensive condition.
Doctrine of Constructive Compliance There are three requisites
in order that this article may apply:
1. Intent on the part of the obligor to prevent fulfillment of the
condition. The intent does not have to be malicious.
2. Actual prevention of compliance (by the obligor)
3. Constructive compliance can have application only if the
condition is potestative. It can also apply to mixed condition
as to that part which the obligor should perform.
.
Kinds of Conditional OBLIGATIONS:
a. Suspensive Condition (Condition precedent)
Article 1187. The effects of a conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution
of the obligation. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the pendency
of the condition shall be deemed to have been mutually compensated. If
the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the
obligation it should be inferred that the intention of the person
constituting the same was different.
In OBLIGATIONS to do and not to do, the court shall
determine, in each case, the retroactive effect of the
condition that has been complied with.
Balane:
This article refers to suspensive condition. This article sets forth the
rule of retroactivity in an obligation to give. This rule is logical but
impractical. Many modern Civil Codes have discarded it.
No Retroactivity as to the Fruits Notice that there is no
retroactivity with respect to the fruits. The fruits are deemed to cancel
out each other. If only one of the thing produces fruits, there is no
obligation to deliver the fruits.
Article 1188. The creditor may, before the fulfillment of the condition, bring
the appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in
case of a suspensive condition.
Balane: This article refers to suspensive conditions.
Bring the appropriate actions According to JBL Reyes, the phrase
"may xxx bring the appropriate actions" is inaccurate. To bring
action is to file a suit. But the creditor is not restricted to filing a
suit.
The proper verb is not "bring" but "take." For example, in a sale of
land subject to suspensive condition, the creditor should have the
suspensive condition annotated on the title of the land. This is not
bringing an appropriate action but taking an appropriate action.
!"#$%&%'(")*+#,%-(.#/%

The principle in this article is: Vigilantibus et non dormientibus jura Article 1180. When the debtor binds himself to pay when his
subveniunt which means that the laws aid those who are vigilant, means permit him to do so, the obligation shall be deemed to be
not those who sleep upon their rights. one with a period, subject to the provisions of article 1197.

Q: Why does Article 1188 give the creditor a recourse although
technically the creditor still have no right?
A: Because as a matter of fact, although technically the creditor still
have no right, he is already expecting a right. You cannot let the
creditor sit & fold his arms & wait for his right of expectancy to be
rendered illusory.
Article 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during
the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost when
it perishes, or goes out of commerce, or disappears in such a way
that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor
may choose between the rescission of the obligation and its
fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary. (1122)
(b) Resolutory Condition (Condition subsequent)
Balane: A term is a future and certain event upon which the
demandability (or extinguishment) of an obligation depends.
Tolentino: Period must be (1) future (2) certain and (3) possible.
A term can either be:
1. Suspensive term (ex die- from the day) or one the arrival of
which will make the obligation demandable;
2. Resolutory term (in die- into the day) or one the arrival of
which will extinguish the obligation. The period after which
the performance must terminate.
Terms classified according to source;
1. Legal, period fixed by law
2. voluntary, stipulated by parties
3. judicial, fixed/allowed by court
May also be, (a) express, specified
(b) tacit, e.g. stipulated to do some work which may only
be done at a particular season.
Or,
1. Original period
2. Grace period, extension fixed by parties
Or
a. definite, fixed known date or time,
b. indefinite, event will happen but not known when

Balane: Article 1190 refers to resolutory conditions. This is just the Effect of Period: OBLIGATION with term are demandable only
opposite of Article 1189. when day fixed for performance arrive; right of action arises only
when date fixed arrives;
Article 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the \Article 1193. OBLIGATIONS for whose fulfillment a day certain
fulfillment of said conditions, shall return to each other what they has been fixed, shall be demandable only when that day comes.
have received.
OBLIGATIONS with a resolutory period take effect at once, but
In case of the loss, deterioration or improvement of the thing, the terminate upon arrival of the day certain.
provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to return. A day certain is understood to be that which must necessarily
come, although it may not be known when.
As for the OBLIGATIONS to do and not to do, the provisions of the
second paragraph of article 1187 shall be observed as regards the If the uncertainty consists in whether the day will come or not, the
effect of the extinguishment of the obligation. obligation is conditional, and it shall be regulated by the rules of
the preceding Section.
Balane: A condition is a future & uncertain event upon which an
obligation or provision is made to depend. MANRESA: A term or period is an interval of time, which, exerting
an influence on an obligation as a consequence of a juridical act, either
suspends its demandability or produces its extinguishment.
Tolentino: Futurity & uncertainty must concur as characteristics of the
event.
Distinguished from Condition:
CONDITION TERM / PERIOD
A past thing can never be a condition. A condition is always uncertain event an event that must necessarily
future & uncertain. come, whether on a date known
before hand or at a time which
Past event unknown to the parties It is really the knowledge of the cannot be predetermined
event which constitutes the future. It is the knowledge which is future a condition gives has no effect upon the existence of
& uncertain. rise to an obligation OBLIGATIONS, but only their
or extinguishes one demandability or performance
EXAMPLE: "I will treat you for lunch if you get the highest already existing
May have NO retroactive effect, except
score in the Civil Law Final Exams (on the assumption that
retroactive effect when there is a special agreement
Prof. Balane has already finished checking the papers.)" may refer to a past always refer to the future
Here, the event (getting the highest score) is already a past event unknown to
event, yet the knowledge is future & uncertain. the parties
a condition which a period left to the debtor's will
Condition compared to a term depends exclusively merely empowers the court to fix
on the will of the such period
Condition Term debtor annuls the
obligation
As to element of Same, may be past Same, always future
futurity event unknown to
parties Balane: In a (suspensive) term, the obligation has already arisen
in the aspect of except that it is not yet demandable.
uncertain certain
certainty
Article 1194. In case of loss, deterioration or improvement of the thing before
the arrival of the day certain, the rules in article 1189 shall be observed.
Conditions can either be:
1. Suspensive condition (condition precedent) wherein the Balane: There are three requisites in order for Article 1189 to apply-
happening of the event gives birth to an obligation -
2. Resolutory condition (condition subsequent) wherein 1. There is loss, deterioration or delay
the happening of the event will extinguish the obligation. 2. There is an obligation to deliver a determinate thing (on the
part of the debtor)
c. WITH A TERM OR PERIOD:
!"#$%&%'(")*+#,%-(.#/%
3. There is loss, deterioration or improvement before the
happening of the condition.
4. The condition happens.
Article 1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation has
become due and demandable, may be recovered, with the fruits and interests.
Article 1195 applies only in OBLIGATION to give;
Balane:
Mistaken Premature Delivery This article assumes 2 things:
(1) the delivery was by mistake;
(2) the mistake was discovered before the term arrives.
Both the things & the fruits can be recovered.
If the term has already arrived, the question is moot & academic. But
can he recover the fruits produced during the meantime? It depends on
what school of thought you follow:
Tolentino: According to one school of thought, the debtor is entitled to
the fruits produced in the meantime.
Caguioa: According to another school of thought, all the fruits
received during the pendency of the term belong to the creditor.
When fruits & interests cannot be recovered notwithstanding
premature delivery:
1. When the obligation is reciprocal & there has been premature
performance (by both parties);
2. When the obligation is a loan in which the debtor is bound to
pay interest;
3. When the period is for the creditor's exclusive benefit;
4. When the debtor is aware of the period & pays anyway.
(Knowledge, tacit waiver of benefit of term)
2. Presumed for whose benefit: BOTH
Article 1196. Whenever in an obligation a period is designated, it is presumed
to have been established for the benefit of both the creditor and the debtor,
unless from the tenor of the same or other circumstances it should appear that
the period has been established in favor of one or of the other.
Balane:
General rule: If a period is attached in an obligation, the presumption
is that it is for the benefit of both parties.
The consequence is that the creditor cannot compel the
performance before the arrival of the term; the debtor cannot
compel acceptance before the arrival of the term.
If the term is for the benefit of the creditor The creditor can
demand performance anytime; but the debtor cannot insist on payment
before the period.
If the term is for the benefit of the debtor The creditor cannot
demand performance anytime; but the debtor can insist on performance
anytime.
EXAMPLE:
"I promise to pay within 60 days." This is a term for the benefit of the
debtor.
"I promise to pay Clara the sum of P100, 000 on or before Oct. 31,
1996." This is a term for the benefit of the debtor.
-In contract of Loan, without interest, term is usually for benefit of
debtor, thus he may pay in advance;
-If there is stipulation as to interest, period is generally for both parties,
debtor cannot pay in advance vs. will of creditor; unless he also pays
interest in full.
3. When NO period is fixed
Balane:
Cases where the Court may fix a period
1. Article 1197, par. 1
Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the court may fix the duration thereof.
The court shall also fix the duration of the period when it depends
upon the will of the debtor.
In every case, the court shall determine such period as may under
the circumstances have been probably contemplated by the parties.
Once fixed by the court, the period cannot be changed by them.
Exceptions:
Article 1682. The lease of a piece of rural land, when its duration
has not been fixed, is understood to have been made for all the
time necessary for the gathering of the fruits which the whole
estate leased may yield in one year, or which it may yield once,
although two or more years may have to elapse for the purpose.
Article 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week,
if the rent is weekly; & from day to day, if the rent is to be paid
daily. xxx
Article 1606 in pacto de retro sale where the period is not specified by the parties
Article 1606. The right referred to in article 1601 (the right of
conventional redemption on the part of the vendor a retro), in the
absence of an express agreement, shall last four years from the
date of the contract.
XXX
contract of services for an indefinite term (because fixing of a period
by the court may amount to involuntary servitude)
Article 1197. Xxx
The court shall also fix the duration of the period when it depends
upon the will of the debtor.
Article 1191. Xxx
the court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
Article 1687. xxx
However, even though a monthly rent is paid, & no period for the
lease has been set, the court may fix a longer term for the lease
after the lessee has occupied the premises for over one year. If
the rent is weekly, the court may likewise determine a longer
period after the lessee has been in possession for over six months.
In case of daily rent, the court may also fix a longer period after the
lessee has stayed in the place for over one month.
Article 1180. When the debtor binds himself to pay when his
means permit him to do so, the obligation shall be deemed to be
one with a period, subject to the provisions of article 1197.
CASE: Where obligation does not fix a period; When fixing a period
is mere formality
Case: Chavez vs. Gonzales, 32 SCRA 547.
Facts: In the early part of July 1963, Rosendo Chavez delivered to Fructuoso
Gonzales, who is a typewriter repairer, a portable typewriter for routine
cleaning and servicing. Gonzales was not able to finish job after some time
despite repeated reminder. Gonzales merely gave assurances but failed to
comply with the same. In October 1963, Gonzales asked from Chavez the sum
of P6.00 for the purchase of spare parts which amount was duly given to the
former. On October 26, 1963, Chavez asked for the return of the typewriter.
Gonzales just delivered it in a wrapped package. And it was only upon
reaching home that Chavez found out that the typewriter was in shambles,
with the interior cover and some parts and screws missing. On October 29,
1963, Chavez demanded the return of the missing parts and the P6.00 which
was heeded to. Thereafter, Chavez had the typewriter repaired for P89.85.
Chavez sued for damages.
Issue: Whether or not Gonzales is liable for damages for the subsequent repair
of the typewriter of Chavez.
Held: YES. The SC found that both Chavez and Gonzales had a perfected
contract for cleaning and servicing of typewriter intending for Gonzales to
finish the work at some future time although such time was not specified and
that such time had passed without the work having been accomplished, for
Gonzales returned the typewriter cannibalized and unrepaired, which in itself
is a breach of obligation, without demanding that he should be given more
time to finish the job or compensation for the work he had already done. The
time for compliance having evidently expired and there being a breach of
contract by non -compliance, Gonzales cannot invoke Article 1197 for he
admitted non -performance by returning the typewriter that he was obliged
to repair. The fixing of a period would thus be a mere formality and
would serve no purpose than to delay. For such, Gonzales is liable under
!"#$%&%'(")*+#,%-(.#/%
Article 1167 for the cost of the execution of the obligation in a proper
manner.
Case: Vicente Singson Encarnacion vs. Jacinta Baldomar, Oct. 4, 1946, J.
Hilado.
Facts: Vicente Singson Encarnacion, owner of the house numbered 589
Legarda Street, Manila, some six years ago leased said house to Jacinto
Baldomar and her son, Lefrado Fernando, upon a month -to-month basis for
the monthly rental of P35. After Manila was liberated in the last war,
specifically on March 16, 1945, and on April 7, of the same year, plaintiff
Singson Encarnacion notified defendants, the said mother and son, to vacate
the house above-mentioned on or before April 15, 1945, because plaintif f
needed it for his offices as a result of the destruction of the building where
said plaintiff had said offices before. Despite this demand, defendants
insisted on continuing their occupancy. When the original action was lodged
with the Municipal Court of Manila on April 20, 1945, defendants were in
arrears in the payment of the rental corresponding to said month, the agrees
rental being payable within the first five days of each month. That rental was
paid prior to the hearing of the case in the municipal court, as a consequence
of which said court entered judgment for restitution and payment of rentals at
the rate of P35 a month from May 1, 1945, until defendants completely vacate
the premises. In the Court of First Instance, the defendants interposed defense
that the contract which they had celebrated with plaintiff since the beginning
authorized them to continue occupying the house indefinitely and while they
should faithfully fulfill their OBLIGATIONS as respects the payment of the
rentals . However, Vicente Singson Encarnacion, jr., contended that the lease
had always and since the beginning been upon a month-to-month basis. The
Court of First Instance gave more credence to the lessor.
Issue: Whether the contract can be interpreted as a month-to-month basis
thereby giving more credence to the effect that herein lessor can eject lessee at
anytime possible.
Held: YES. We think that the Court of First Instance was right in so
declaring. Furthermore, carried to its logical conclusion, the defense thus set
up by defendant Lefrado Fernando would leave to the sole and exclusive will
of one of the contracting parties (defendants in this case) the validity and
fulfillment of the contract of lease, within the meaning of article 1256 of the
Civil Code, since the continuance and fulfillment of the contract would then
depend solely and exclusively upon their free and uncontrolled choice
between continuing paying the rentals or not, completely depriving the owner
of all say in the matter. If this defense were to be allowed, so long as
defendants elected to continue the lease by continuing the payment of the
rentals, the owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate the
contract by the simple expedient of stopping payment of the rentals. This,
of course, is prohibited by the aforesaid article of the Civil Code. (8
Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil., 100.)
Case: Dario and Gaudencio Eleizegui vs. Manila Lawn Tennis Club, May
19, 1903, J. Arellano.
Facts: This suit concerns the lease of a piece of land for a fixed consideration
and to endure at the will of the lessee. By the contract of lease the lessee is
expressly authorized to make improvements upon the land, by erecting
buildings of both permanent and temporary character, by making fills, laying
pipes, and making such other improvements as might be considered desirable
for the comfort and amusement of the members. "The court is of the opinion
that the contract of lease was terminated by the notice given by the plaintiff on
August 28 of last year . . . ." And such is the theory maintained by the
plaintiffs, which expressly rests upon article 1581 of the Civil Code, the law
which was in force at the time the contract was entered into (January 25,
1890). The judge, in giving to this notice the effect of terminating the lease,
undoubtedly considers that it is governed by the article relied upon by the
plaintiffs, which is of the following tenor: "When the term has not been fixed
for the lease, it is understood to be for years when an annual rental has been
fixed, for months when the rent is monthly. . . ." The second clause of the
contract provides as follows: "The rent of the said land is fixed at 25 pesos per
month." (P. 11, Bill of Exceptions.)
In accordance with such a theory, the plaintiffs might have terminated the
lease the month following the making of the contract at any time after the
first month, which, strictly speaking, would be the only month with respect to
which they were expressly bound, they not being bound for each successive
month except by a tacit renewal (aright 1566) an effect which they might
prevent by giving the required notice. The OBLIGATIONS which, with the
force of law, the lessors assumed by the contract entered into, so far as
pertaining to the issues, are the following: "First. . . . They lease the above-
described land to Mr. Williamson, who takes it on lease, . . . for all the time
the members of the said club may desire to use it . . . Third. . . . the owners of
the land undertake to maintain the club as tenant as long as the latter shall see
fit, without altering in the slightest degree the conditions of this contract, even
though the estate be sold."
It is evident that they had no intention of stipulating that they reserved the
right to give such notice. Clause 3 begins as follows: "Mr. Williamson, or
whoever may succeed him as secretary of said club, may terminate this lease
whenever desired without other formality than that of giving a month's notice.
The owners of the land undertake to maintain the club as tenant as long as the
latter shall see fit."
Although the relief asked for in the complaint, drawn in accordance with the
new form of procedure established by the prevailing Code, is the restitution of
the land to the plaintiffs (a formula common to various actions), nevertheless
the action which is maintained can be no other than that of desahucio, in
accordance with the substantive law governing the contract. The lessor
says article 1569 of the Civil Code may judicially dispossess the lessee
upon the expiration of the conventional term or of the legal term; the
conventional term that is, the one agreed upon by the parties; the legal
term, in defect of the conventional, fixed for leases by articles 1577 and 1581.
Issue: Whether or not the duration of the term of lease can be fixed by the
couright
Held: The Civil Code has made provision for such a case in all kinds of
OBLIGATIONS. In speaking in general of OBLIGATIONS with a term it has
supplied the deficiency of the former law with respect to the "duration of the
term when it has been left to the will of the debtor," and provides that in this
case the term shall be fixed by the court. (Aright 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is
entitled to demand the performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral contracts the contracting
parties are mutually creditors and debtors. Thus, in this contract of lease, the
lessee is the creditor with respect to the rights enumerated in article 1554, and
is the debtor with respect to the OBLIGATIONS imposed by articles 1555 and
1561. The term within which performance of the latter obligation is due is
what has been left to the will of the debtor. This term it is which must be fixed
by the court.
Case: Philippine Banking Corporation representing the estate of Justina
Santos Y Canon Faustino, deceased vs. Lui She in her own behalf and as
administratrix of the intestate estate of Wong Heng, deceased., 21 SCRA
53.
Facts: Justina Santos y Canon Faustino and her sister Lorenzo were the
owners in common of a piece of land in Manila. This parcel, with an area of
2,582.30 square meters, is located on Rizal Avenue and opens into Florentino
Torres street at the back and Katubusan street on one side. In it are two
residential houses with entrance on Florentino Torres street and the Hen Wah
Restaurant with entrance on Rizal Avenue. The sisters lived in one of the
houses, while Wong Heng, a Chinese, lived with his family in the restaurant.
Wong had been a long-time lessee of a portion of the property, paying a
monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire
property as her sister died with no other heir. Then already well advanced in
years, being at the time 90 years old, blind, crippled and an invalid, she was
left with no other relative to live with. Her only companions in the house were
her 17 dogs and 8 maids. Her otherwise dreary existence was brightened now
and then by the visits of Wong's four children who had become the joy of her
life. Wong himself was the trusted man to whom she delivered various
amounts for safekeeping, including rentals from her property at the corner of
Ongpin and Salazar streets and the rentals which Wong himself paid as lessee
of a part of the Rizal Avenue property. Wong also took care of the payment;
in her behalf, of taxes, lawyers' fees, funeral expenses, masses, salaries of
maids and security guard, and her household expenses.
"In grateful acknowledgment of the personal services of the lessee to
her," Justina Santos executed on November 15, 1957 a contract of lease (Plff
Exh. 3) in favor of Wong, covering the portion then already leased to him and
another portion fronting Florentino Torres street. The lease was for 50 years,
although the lessee was given the right to withdraw at any time from the
agreement; the monthly rental was P3,120. The contract covered an area of
1,124 square meters. Ten days later (November 25), the contract was amended
(Plff Exh. 4) so as to make it cover the entire property, including the portion
on which the house of Justina Santos stood, at an additional monthly rental of
P360. For his part Wong undertook to pay, out of the rental due from him, an
amount not exceeding P1,000 a month for the food of her dogs and the
salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving
Wong the option to buy the leased premises for P120,000, payable within ten
years at a monthly installment of P1,000. The option, written in Tagalog,
imposed on him the obligation to pay for the food of the dogs and the salaries
of the maids in her household, the charge not to exceed P1,800 a month. The
option was conditioned on his obtaining Philippine citizenship, a petition for
which was then pending in the Court of First Instance of Rizal. It appears,
however, that this application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28, 1958 she filed a
petition to adopt him and his children on the erroneous belief that adoption
would confer on them Philippine citizenship. The error was discovered and
the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff Exh.
5) extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing
the term of the option of 50 years.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she
bade her legatees to respect the contracts she had entered into with Wong, but
in a codicil (Plff Exh. 17) of a later date (November 4, 1959) she appears to
have a change of hearight Claiming that the various contracts were made by
her because of machinations and inducements practiced by him, she now
directed her executor to secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First
Instance of Manila. The complaint alleged that the contracts were obtained by
Wong "through fraud, misrepresentation, inequitable conduct, undue influence
and abuse of confidence and trust of and (by) taking advantage of the
helplessness of the plaintiff and were made to circumvent the constitutional
provision prohibiting aliens from acquiring lands in the Philippines and also
of the Philippine Naturalization Laws."
From this judgment both parties appealed directly to this Couright After the
case was submitted for decision, both parties died, Wong Heng on October 21,
1962 and Justina Santos on December 28, 1964. Wong was substituted by his
wife, Lui She, the other defendant in this case, while Justina Santos was
substituted by the Philippine Banking Corporation.
Justina Santos maintained now reiterated by the Philippine Banking
Corporation that the lease contract (Plff Exh. 3) should have been annulled
along with the four other contracts (Plff Exhs. 4-7) because it lacks mutuality;
!"#$%&%'(")*+#,%-(.#/%
because it included a portion which, at the time, was in custodia legis; because
the contract was obtained in violation of the fiduciary relations of the parties;
because her consent was obtained through undue influence, fraud and
misrepresentation; and because the lease contract, like the rest of the
contracts, is absolutely simulated.
Paragraph 5 of the lease contract states that "The lessee may at any time
withdraw from this agreement." It is claimed that this stipulation offends
article 1308 of the Civil Code which provides that "the contract must bind
both contracting parties; its validity or compliance cannot be left to the will of
one of them."
Issue: Whether or not the option given to Wong to buy the property despite
him being an alien is valid.
Held: NO. Taken singly, the contracts show nothing that is necessarily illegal,
but considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease to an
alien for a reasonable period is valid. So is an option giving an alien the right
to buy real property on condition that he is granted Philippine citizenship. As
this Court said in Krivenko v. Register of Deeds:20
[A]liens are not completely excluded by the Constitution from the
use of lands for residential purposes. Since their residence in the
Philippines is temporary, they may be granted temporary rights
such as a lease contract which is not forbidden by the Constitution.
Should they desire to remain here forever and share our fortunes
and misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or otherwise
dispose of his property,21 this to last for 50 years, then it becomes clear that
the arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land ( jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it ( jus
disponendi) rights the sum total of which make up ownership. It is just as if
today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is
made up are consolidated in an alien. And yet this is just exactly what the
parties in this case did within the space of one year, with the result that Justina
Santos' ownership of her property was reduced to a hollow concept. If this can
be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in
grave peril.
Case: Lim vs. People
Facts: Lourdes Lim is a businesswoman who went to Maria Ayroso and
prop e d h e l a e e l l
proposition to sell her tobacco consisting of 615 kilos at P1.30/kilo. The
a g e e m e This is toe certify a d that: I have received from Maria Ayroso of
Nueva Ecija, 615 kilos of leaf tobacco to be sold at P1.30/kilo. The proceed in
the amount of P799.50 will be given to her as soon as it was sold”. Of the
P799.50, only P240 was paid by Lim. Lim failed to pay the balance. Ayroso
filed an Estafa case against Lim.
Issue: Wh e h e L iionmto pay Ayroso
b l isi immediately
g a demandable as
soon as the tobacco was disposed of.
Held: YES. The SC ruled that it was clear in the agreement that the proceeds
of the sale of the tobacco should be turned over to the complainant as soon as
the same was sold, or, that the obligation was immediately demandable as
soon as the tobacco was disposed of. Hence, Article 1197 of the NCC, which
provides that the court may fix the duration of the obligation if it does not fix
a period, does not apply. The agreement cannot be understood to mean that
the duration of the period depends upon the will of the debtor which the court
can fix the duration thereof. Instead the agreement between them was one of
agency with the OBLIGATION to return the unsold tobacco and the proceeds of
the sale demandable.
Case: Gregorio Araneta, Inc. vs. Phil. Sugar Estates Dev., May 31, 1967,
J.B.L. Reyes.
Facts: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in
Quezon City, otherwise known as the Sta. Mesa Heights Subdivision, and
covered by a Torrens title in its name. On July 28, 1950, through Gregorio
Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area of
43,034.4 square meters, more or less, for the sum of P430,514.00, to
Philippine Sugar Estates Development Co., Ltd. The parties stipulated, among
in the contract of purchase and sale with mortgage, that the buyer will
Build on the said parcel land the Sto. Domingo Church and
Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of the land
herein sold so that the latter will be a block surrounded by streets
on all four sides; and the street on the NE side shall be named
"Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the
construction of Sto. Domingo Church and Convent, but the seller, Gregorio
Araneta, Inc., which began constructing the streets, is unable to finish the
construction of the street in the Northeast side named (Sto. Domingo Avenue)
because a certain third-party, by the name of Manuel Abundo, who has been
physically occupying a middle part thereof, refused to vacate the same; hence,
on May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its
complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel
the latter to comply with their obligation, as stipulated in the above-mentioned
deed of sale, and/or to pay damages in the event they failed or refused to
perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered
the complaint, the latter particularly setting up the principal defense that the
action was premature since its obligation to construct the streets in question
was without a definite period which needs to he fixed first by the court in a
proper suit for that purpose before a complaint for specific performance will
prosper.
Plaintiff moved to reconsider and modify the above decision, praying that the
court fix a period within which defendants will comply with their obligation to
construct the streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that
plaintiff's complaint did not expressly or impliedly allege and pray for the
fixing of a period to comply with its obligation and that the evidence
presented at the trial was insufficient to warrant the fixing of such a period.
Issue: Whether the period fixed by the court is proper.
Held: We agree with the petitioner that the decision of the Court of Appeals,
affirming that of the Court of First Instance is legally untenable. The fixing of
a period by the court under Article 1197 of the Civil Code of the Philippines is
sought to be justified on the basis that petitioner (defendant below) placed the
absence of a period in issue by pleading in its answer that the contract with
respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner
Gregorio Araneta, Inc. "reasonable time within which to comply with its
obligation to construct and complete the streets." Neither of the court below
seems to have noticed that, on the hypothesis stated, what the answer put in
issue was not whether the court should fix the time of performance, but
whether or not the parties agreed that the petitioner should have reasonable
time to perform its part of the bargain. If the contract so provided, then there
was a period fixed, a "reasonable time;" and all that the court should have
done was to determine if that reasonable time had already elapsed when suit
was filed if it had passed, then the court should declare that petitioner had
breached the contract, as averred in the complaint, and fix the resulting
damages. On the other hand, if the reasonable time had not yet elapsed, the
court perforce was bound to dismiss the action for being premature. But in no
case can it be logically held that under the plea above quoted, the intervention
of the court to fix the period for performance was warranted, for Article 1197
is precisely predicated on the absence of any period fixed by the parties.
Even on the assumption that the court should have found that no reasonable
time or no period at all had been fixed (and the trial court's amended decision
nowhere declared any such fact) still, the complaint not having sought that the
Court should set a period, the court could not proceed to do so unless the
complaint in as first amended; for the original decision is clear that the
complaint proceeded on the theory that the period for performance had
already elapsed, that the contract had been breached and defendant was
already answerable in damages.
Granting, however, that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is stated
A to support the conclusion
b a c c that. the period
A should be setaatgtwo eyears
e dafter h e
finality of the judgment. The list paragraph of Article 1197 is clear that the
period can not be set arbitrarily. The law expressly prescribes that
the Court shall determine such period as may under the
circumstances been probably contemplated by the parties.
All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this
respect is that "the proven facts precisely warrant the fixing of such a period,"
a statement manifestly insufficient to explain how the two period given to
petitioner herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a two -step
process. The Court must first determine that "the obligation does not fix a
period" (or that the period is made to depend upon the will of the debtor),"
but from the nature and the c ircumstances it can be inferred that a period
was intended" (Aright 1197, pars. 1 and 2). This preliminary point settled,
the Court must then proceed to the second step, and decide what period was
"probably contemplated by the parties" (Do., par. 3). So th at, ultimately, the
Court can not fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to have pulled the two-
year period set in its decision out of thin air, since no circumstances are
mentioned to support it. Plainly, this is not warranted by the Civil Code.
Case: Pacifica Millare vs. Hon. Hernando, Antonio Co and Elsa Co., June
30, 1987, J. Feliciano.
Facts: Pacifica Millare, lessor and spouses Co lessee in a 5-year contract of
l e a e f P e l e Re a a , a c mme
McKinley and Pratt Streets in Bangued, Abra. At the last week of the 5-year
period, the lessor offered to extend the lease if spouses Co will agree to increase
rental from P350 to P1200 a month. The spouses counter-offered the rental to
P700 but this discussion was set aside. Later, a demand letter was issued by
lessor to vacate premises without renewal of expired contract which the lessor
disagreed and filed an ejectment case. The spouses Co filed a separate case for
the court to order renewal of contract and fix rental at P700 a month. Spouses
deposited monthly rental in court while the plaintiff filed Motion to Dismiss for
lack of jurisdiction and no cause of action but the same was denied.
Issue: Whether the Spouses Co have valid cause of action in claiming renewal
of lease contract.
Held: YES. There was implied renewal of lease contract but only on a month-
to-month basis, but not for another 5 years. Hence, par. 1 of Article 1197 is
clearly inapplicable, since the Contract of Lease did in fact fix an original period
of 5 years, which had expired. It is also clear from par. 13 of the contract that the
parties reserved to themselves the faculty of agreeing upon the period of the
renewal contract. The 2nd par. of Article 1197 is equally inapplicable since the
duration of the renewal period was not left to the will of the lessee alone, but
rather to the will of both the lessor & the lessee. Most importantly, Article 1197
applies only where a contract of lease clearly exists. Here, the contract was not
renewed at all, there was in fact no contract at all the period of which could have
been fixed. SC agreed the TRO and injunction.
!"#$%&%'(")*+#,%-(.#/%
Article 1180. When the debtor binds himself to pay when his *Thus a contract may be perfected but its demandability suspended.
means permit him to do so, the obligation shall be deemed to be
one with a period, subject to the provisions of article 1197. Article 1186 deemed constructively fulfilled; applied only to
suspensive not to resolutory condition
4. When debtor loses the benefit of period
Article 1187 effects of conditional OBLIGATION to give;
Article 1198. The debtor shall lose every right to make use of the period: E.g. A sold a house & lot to B, 1M
(1) When after the obligation has been contracted, he becomes Condition: if B will pass the bar exam
insolvent, unless he gives a guaranty or security for the debt; Term: effect retroacts after the passing is announced on April;
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised; Jan.2004 Sept. 2004 Oct.04 Apr.05
(3) When by his own acts he has impaired said guaranties or
perfection (without condition/ condition
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives Pure)
new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period; [1544] Retroactive effect
(5) When the debtor attempts to abscond. Article 1188 preserve his interest

(6) Article 2109 - If the creditor is deceived on the substance or PROTECT HIS EXPECTANCY
quality of the thing pledged, he may either claim another thing in 1. Register with the Registry of Property
its stead, or demand immediate payment of the principal 2. witness
obligation. (The sixth ground was added by Prof. Balane.) 3. possession in good faith
4. Injunction if the sell was not consummated or not for
Effects of Loss of Term (Article 1198): sale
OBLIGATION becomes immediately due & demandable
even if period has not yet expired. RESOLUTORY CONDITION
OBLIGATION is converted to a pure OBLIGATION Article 1190 no exception, nothing will be left.
Insolvency of DEBTOR need not be judicially declared;
state of financial difficulty is enough. SUSPENSIVE CONDITION upon the happening of the
condition, the OBLIGATION e i ( OBLIGATION
e i e c e
Balane: In number one, factual insolvency is enough. A judicial i a f f e c e d )
declaration of insolvency is not required.
CLASSIFICATION OF CONDITION:
Summary of the Different Kinds of OBLIGATIONS As to 1. POTESTATIVE when the fulfillment of the condition
Perfection and Extinguishment depends upon the will of the party to the OBLIGATION;
2. CAUSAL depends upon chance 2nd or 3rd person
3. MIXED depends partly upon the will of the party &
DIFFERENT KINDS OF OBLIGATIONS: partly upon chance or a 3rd person
PURE AND CONDITIONAL OBLIGATIONS when the
OBLIGATION contains no terms or conditions; Article 1182: Potestative sole will of the debtor
Potestative suspensive is VOID.
CONDITIONAL OBLIGATIONS one which is subject to Example. A will give 5% commission to B, but it depends on
condition; the will of A, void;
CONDITION – every future and uncertain event upon All other potestative conditions, valid.
which an OBLIGATION or provision is made to depend;
Article 1183 impossible condition
FUTURE & UNCERTAIN EVENT the acquisition or resolution 1. physical impossibility
of the rights is made to depend by those who execute the juridical act; 2. legal impossibility
Article 873 impossible testamentary conditions
CLASSIFICATION OF CONDITIONS: disregard
1. SUSPENSIVE the happening of the former gives rise to Ex. Article 727 donation
an OBLIGATION;
2. RESOLUTORY the happening of the latter extinguishes
rights already existing. 1. future & uncertain event 1. future &certain
PAST BUT UNKNOWN a condition may refer to past event 2. suspensive condition 2.suspensive
unknown to the parties; e i d / d e ma d a b i l
IMPOSSIBLE CONDITION : 3. resolutory condition 3. resolutory period
1. PHYSICALLY IMPOSSIBLE when it is contrary to law
of nature; SUSPENSIVE PERIOD prior to the period, there is already an
2. JUDICIALLY IMPOSSIBLE when contrary to law, OBLIGATION, but it is suspensive by the period;
morals, good customs and public safety
Article 1164- the OBLIGATION to deliver arises upon the
PURE OBLIGATIONS when it is not subject to a term, period perfection of the contract if subject to suspensive period & not
and no condition; suspensive condition
- demandable at once
- it is immediate demandability, give time for debtor to comply RESOLUTORY PERIOD e mi a e d b
accrued in the past will remain;
PERIOD- is an event that is future but certain (just a matter of time); RESOLUTORY CONDITION e i hg e a i f
e.g. passing this class (Civil law Review 2) happens; retroactive effect of OBLIGATION;

PAST EVENT cannot be future event, cannot be considered EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM:
uncertain; -the contract shall be deemed suspended but the Fortuitous Event
shall not stop the running of the term or period agreed upon;
SUSPENSIVE CONDITION:
*rights are acquired, upon the happening of a condition. Article 1195 advanced payment
Article 1196 benefit of period
Article 1181 OBLIGATION created upon the happening of a
condition Presumption if the period is designated, the benefit is for both the
creditor & debtor
RESOLUTORY- extinguished, or loss of existing rights, upon the
happening of a condition
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Exception: the tenor of the same or other circumstances, it should
appear that the period has been established in favor of one or the
other;
Article 1197 3 reasons why the court will fix the period:
1. if the OBLIGATION does not fix a period, but from
its nature & circumstances it can be inferred that a
period was intended by the parties;
2. in the duration of the time depends upon the will of
the debtor
3. if the debtor binds himself to pay when his means
permit him to do so
Article 1198 memorize!
Article 1198. The debtor shall lose every right to make use of the
period WHEN:
(1) after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
(2) he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event
they disappear, unless he immediately gives new ones equally
satisfactory;
(4) the debtor violates any undertaking, in consideration of which
the creditor agreed to the period;
(5) the debtor attempts to abscond.
Q: How could there be guaranty when debtor is insolvent?
A: 3rd person (surety)
Q: when is OBLIGATION due & demandable even if period has
expired?
A: if debtor has lost right to make use of such period (Article 1198)
Illustrations:
1. As to when the obligation will arise? It will depend on the
nature of the obligation. How would you know what kind of
obligation? It depends on the stipulation of the party, if the
source of obligation is the law then the law may provide how
the obligation may be complied with. Having said that another
important consideration, we should go to the nature of the
obligation as to prestation whether it is an obligation to give,
to do, or not to do because whatever may be the cause of
prestation there will be general rules as to how the obligation
are to be complied with.
2. Specifically xxx a valid obligation, an obligation to give a
generic thing what would be the source of this obligation?
What contract? Would that be a valid obligation as to the sale
of the car? CAN THERE BE A VALID OBLIGATION ARISING
FROM A CONTRACT OF SALE INVOLVING A GENERIC THING?
No specific thing has been agreed by a party. When would
there be a valid sale of a car which is a generic car? When a
thing, though generic is capable of being determined without a
need of a new agreement. Therefore, a car per se as an object
of a sale cannot be a valid sale. Therefore, may there be a
valid obligation to deliver a generic thing as generic as a car or
a condo unit, if there is such obligation it will arise from what
source? Yes, it may arise from other sources like a legacy, in a
will a car is given to an heir, maybe a donation involving a car,
no particular, the law does not require a specific thing in order
for an obligation to arise.
3. Assuming in the will of X a car was given, I hereby give a car to
my favorite grandchild A, now upon the death of X, the
executor delivered to A a brand new Toyota Yaris, A refused
to accept the car and demanded for a brand new Mitsubishi
lancer, who is correct? In an obligation to deliver a generic
thing and the features of the thing has not been determined,
the law provides that the debtor cannot deliver an inferior kind
neither the creditor can demand for a superior thing. The
problem in this rule is that how would we know if the thing
being offered is just the appropriate thing, what is superior
and inferior is very subjective? The purpose of the testator.
What do you think would be the purpose of the testator that
the grandchild is entitled to a better car? When for instance
the purpose of the testator is to give the grandchild a race car.
Having said that, therefore the child may be entitled to a car
better than Yaris? Not necessarily. So what possible
circumstances would affect the claim? If the estate cannot
afford the car, the legitimes might be affected. So what is the
solution? May be the executor may deliver a cheaper car like
an altis not an evolution. Again sec. 1246 is very much relevant
rule as regards obligation to deliver a generic thing.
4. A obliged himself to deliver a brand new Mitsubishi lancer dlx
2008 black, due October 30, October 25, the B creditor
demanded for the delivery of the car, A did not deliver until
Nov. 1, the car he intended to deliver to B was destroyed
probably of earthquake, can A be compelled to deliver the
car? Yes the debtor can be compelled to deliver the thing. Is A
already in default? The demand here is premature; demand
should be made when the obligation is already due for a person
to incur in delay. Having said that can A be compelled to
perform the obligation? Yes because the reason here is the
object involved is a generic thing and when a generic thing is
lost because of fortuitous event, the obligation is not
extinguished because generic things do not perish. In other
words, in OBLIGATIONS to give a very important consideration
is whether a thing to be delivered is generic or determinate.
5. Obligation to deliver a limited generic thing, like one of the
horses of A, 5 of the horses of A died, what is the effect? It
depends on the number of horses that A has, because if A still
has other horses then there are other horses that may be
delivered, the obligation is not extinguished. An obligation to
deliver a limited generic thing will only be extinguished if all of
the thing belonging to that group will perish due to fortuitous
event.
6. An obligation to deliver a determinate thing, the principal
obligation of the debtor here is? The very thing which he
promised to deliver in other words if A the debtor promised to
deliver to B his Toyota Yaris, but instead, he offered to deliver
brand new MB sporights car worth 4M, will the obligation be
extinguished? It may be extinguished; while the creditor may
not be compelled to he may accept the delivery of another
thing. Now in this scenario, what is the mode of
extinguishment? Novation, more specifically, dacion in
payment which shall be governed by law on sales.
7. What are the accessory OBLIGATIONS of an obligation to
deliver a generic thing? An obligation to preserve and to take
good care of the thing with the diligence of a father of a good
family. If the debtor xxx however, the creditor wanted to hold
the debtor liable for the loss, but the creditor was not able to
prove that the debtor failed to exercise due care, can the
debtor be held liable? Yes, if there is another standard of care
required, also known as utmost diligence. Therefore, if there is
no stipulation as to degree of diligence, therefore the degree
of diligence is diligence of a good father of a family? Not
necessarily, the law may provide for the degree of diligence
necessary, like what law, like the law on common carrier.
8. A obliged himself to deliver and to transfer ownership to B a
female pig, the agreement was entered January 1, the delivery
was made May 1, however, when the pig was delivered to B,
he demanded for the delivery of piglets, the piglets was born
in February 15, does A have the right over the piglet? It will
depend when the time the obligation to deliver arises because
the law provides that the creditor has the right to the fruits of
the thing from the time the obligation to deliver arises,
however, he will only have real rights over the fruits when the
same has been delivered. This reasonable because for example
A owns the pig, if he was aware that in feb 15 the pig is
pregnant, therefore he would want to deliver the pig only
after 4 months when the pig has already gave birth. Therefore
the obligation as to when to deliver will depend on? First as to
the answer that the obligation will become due upon demand
in what aspect will demand affect the time the obligation will
become due? Do you agree that an obligation becomes
demandable upon demand? As I mentioned earlier, you cannot
demand if the obligation is not yet due, therefore demand has
nothing to do with being due, because if it is not yet due you
cannot demand validly, therefore the effect of demand is
what? To suspend the running of the prescriptive period.
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Therefore an obligation becomes due when? It depends on the
obligation. What kind of obligation? Whether the obligation is
pure, conditional, or with a term. Thus, in which obligation or
OBLIGATIONS would the obligation be due and demandable at
once? Pure obligation and conditional obligation when the
condition is resolutory because upon the happening of the
resolutory condition it will extinguish the obligation.
9. When would therefore an obligation be considered a pure
obligation? A pure obligation is considered as such when it
does not depend upon a future and uncertain event this is
apparently correct, do you agree with this? This is wrong, why
wrong? It should be future or uncertain event, why or where
lies the difference in or and and? if and it can pertain to only
condition and you are not pertaining to term, while if you use
or future will pertain to a term, thus, if or is used, both the term
and condition is excluded.
10. A promissory note is what kind of obligation as to perfection
and extinguishment? According to the SC in the case of Pay v.
Palanca, it appears to be an alternative obligation, it may be
considered as a pure or conditional obligation, because as
worded there appears to be a condition but it also appears that
it is demandable at once. What was the phrase in that
promissory note which is the basis that the same is with
condition? Upon receipt of the share from the estate of Don
Palanca. On the other hand, the phrase UPON DEMAND is the
basis why the PN seemed to be a pure obligation. The trial
court ruled that the PN was a pure obligation, the judge here
asked the plaintiff, under what cause of action have you filed
this case, upon receipt or upon demand? The plaintiff said
upon demand, the trial court here held that the action for
compel performance has already prescribed. A PROMISSORY
NOTE IS CONSIDERED A PURE OBLIGATION, therefore it is
demandable at once, the prescriptive period begins to run
from the time the cause of action accrued, in this case the
period of prescription began to run at the time of execution.
11. BAR EXAM QUESTION: A grandfather promised the grandchild
that he will give the GC a brand new car if he passed the bar
examination, thereafter the GC passed the bar exam, the GC
demanded the GF said that his obligation is void because it
depends upon a potestative condition, is the GF correct? In
this case, the condition is passing the bar exam, and therefore
the answer is the obligation is valid because the condition is not
purely potestative, the condition does not purely depend on
the will of the debtor. The rule relative in this case is if the
happening of the condition depends upon the sole will of the
debtor the obligation is void. Having said this, aright 1182, in a
conditional obligation when the condition depends solely
upon the will of the debtor it is always void correct? Not
necessarily. When may it be a valid obligation? When the
condition is resolutory. What is the rationale behind this, why
would the law consider an obligation void when it depends on
a suspensive condition, the happening of which depends
solely on the will of the debtor? Because then the debtor may
make sure that the obligation will not happen. What if the
debtor said, I will give you my car if I go to Baguio, this is void,
but what if he went to Baguio 2 days after, can he be
compelled to deliver his car? The obligation is void; a
supervening event that makes the obligation valid will not make
the void obligation valid. Passing the bar exam is a mixed
obligation, CASUAL, in other words passing the bar is not
dependent upon the will of the examinee, why? Because it will
also depend upon the SC, or it depends upon the examiner.
Le a ume that passing the bar is a potestative condition,
therefore the GF was correct that his obligation is void? No,
why not? Because in order that the obligation to be void, the
happening of the event must depend solely on the will of the
debtor, here, the GF will not take the exam, the GC, so the
happning of the condition does not depend on his own will.
12. If he deb or promi ed o pa if hi on doe no die of cancer
i hin one ear ha i he a of he obliga ion There
are two important provisions in relation to effect conditions
to OBLIGATIONS are aright 1182 or the provision about
impossible obligation. When the condition is an impossible
condition, it will annul the obligation, however the SC will not
use the phrase shall annul because in fact the obligation is
void, shall annul presupposes valid but it shall be annulled,
which is wrong in the first place the obligation is impossible,
the obligation will never arise. The more accurate statement is
THE OBLIGATION IS VOID. In this problem what kind of
condition is involved? If the son does not die of cancer within 1
year. This condition is? Suspensive. Passing the bar exam, give
me an example when it would be a resolutory condition? I will
give continuous support until you pass the bar exam. In the
first problem, if his son does not die, what kind of condition?
Aside from suspensive, it is possible, it is negative, and mixed
condition not only dependent on the will of the debtor but
other factors as well. Having said this, if the obligation is an
impossible condition, therefore the obligation may not be a
valid obligation? It may, if the condition is negative impossible
condition, because under the law, the law provides that the
negative impossible condition is deemed not written, therefore
the effect is? The obligation becomes a pure obligation because
no condition is attached to the obligation. In this discussion
therefore, the happening of the condition does not depend
solely on the will of the debtor, the condition is also possible,
so when will the obligation become due? If the son does not
die of cancer after 1 year. Even before the expiration of period
may the son be compelled to pay? Yes when the son recovers
from cancer or when the son dies of other causes not cancer.
13. A agreed with B, he promised to give his condo unit to B if B
will not become a priest in 10 years. 2 weeks after the
agreement, B entered the seminary; therefore it is already
certain the obligation will not arise? The condition is
suspensive; the condition may still be demandable. Because
when B entered the seminary it does not necessarily confirm
that he will become a priest because he might still get out of
the seminary. The condition here is that B will not become a
priest, this is a negative condition, in a negative condition,
ordinarily, and when will it be certain that the condition will
th
not arise? If within the 10 year he already becomes a priest.
Therefore, in relation to the obligation, if 2 weeks after the
obligation B entered the seminary? Not necessarily.
14. The debtor prevented the happening of the condition; he may
be compelled to perform the obligation? Not necessarily, it
must be an intention of the debtor. Assuming he voluntarily
prevented, does this mean that he is compelled? Not
necessarily. When will the debtor voluntarily prevent the
happening of the condition and the performance of obligation
will not arise? When he prevented the happening of the
condition as matter of a right.
15. BAR EXAM QUESTION: In 2001 A obliged himself to deliver a
house and lot to B upon B pa ing he bar e am B pa ed
the bar exam in 2005, however when B passed the bar exam it
so happen that A already sold the house and lot to C in 2003,
who has the better right over the house and lot? B the effect
of the happening of the condition in a conditional obligation
will retroact to the time of the constitution of the agreement as
if the condition has already happened before the property was
sold to C, this does not have an exception? The exception is
when C is a buyer in good faith, when would C be a buyer in
good faith? when the agreement between A and B is not
registered. Assuming that B has a better right, therefore B
demanded for the delivery of the property and he also
demanded for the rental, is it a valid claim? this may seem a
unilateral obligation, although a good answer is if the obligation
of A is unilateral obligation, who is entitled to the fruits if this
problem pertains to a unilateral obligation, in the first place
what transaction may have been entered into by A and B in
the obligation to give? it may be xxx so who will be entitled?
the donor, why the donor absolutely? No it is very clear from
the agreement of the party that the fruits will pertain to the
creditor from the time of constitution. If this is donation when
will the creditor be entitled to the fruits? Upon the happening
of the condition unless it is shown that the intention of the
debtor is to give to the creditor even the fruits of the property.
However, if the obligation is reciprocal? In the contract of sale,
and therefore what is considered the fruits in relation to the
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obligation of B, as to A the fruit is the rental, in the first place if
the obligation is sale what is obligation of B, payment and
interest. The payment and interest are the fruits.
16. Before the happening of the condition, what is the
implication, did the condition happen or not? Not yet. Before
the happening of the condition what if an action was filed by
the creditor against the debtor will that action prosper? Yes it
may prosper it will depend on the action, whether it is xxx even
if the right of the creditor is an inchoate right such right is
already protected. Example of this action: Annotation so that
third persons will be bound by their agreement.
17. Obligation to deliver a condo unit, before of the happening of
the condition, the debtor had the condo renovated, the
condition happened, the creditor demanded for the delivery
of the condo unit, the debtor claimed that he can only be
compelled to deliver if he is reimbursed for the expenses of
the renovation, until then he has the right to retain the condo
unit, is the contention correct? The debtor has the right to
remove those that may be removed without damaging the
property.
18. A term pertain to an event, correct? Yes. When may a term
pertain to an event? When the event is uncertain, like what?
Death. But the definite term example? Dec. 25, 2009. Now, is
it correct to say that just like a conditional obligation, in
obligation with a term, depending whether the term is
suspensive or resolutory the obligation will arise or the
obligation will be extinguished? The error in the statement is
when it provides that upon the arrival of the period the
obligation arises because in an obligation with a term there is
already an obligation, the arrival of the period will result in the
demandability of the obligation, because since this is a term IT
IS CERTAIN TO HAPPEN, THE PERIOD WILL ARRIVE BUT THE
TIME OF HAPPENING IS JUST UNCERTAIN.
19. The kinds of periods discussed in the case of Eleizegui: Legal,
voluntary. There will always be a period in contract of sale?
No. when will there be a period in a contract of sale? Period as
to payment of the price which is known as sale on credit, if it is
installment sale on installment. This is correct because even on
lease there is a period. Legal – a period fixed by law, Example:
Period provided by law like in contracts of lease if the parties
failed to agree as to the period, depends on the manner of
payment if annually 1 year and if monthly 30 days. Judicial
period Aright 1180 if the obligor will pay if his means permits
him to do so.
20. BAR EXAM QUESTION: A borrowed money from B in Jan 1
payable at the end of the year, the same was secured by a real
estate mortgage, they agreed that B can occupy the house and
lot during the period agreed upon, however, by June 30 of
that year, A offered to pay the entire indebtedness and
demanded B vacate the house, can the creditor be compelled
to accept the payment? Can the creditor be compelled to
vacate the house? It depends whether the period is solely for
the benefit of the debtor or both the debtor or the creditor. If
the same is for the benefit of the debtor what is the right? Xxx
(2) OBLIGATIONS according to plurality of objects:
A. Simple
B. Multiple
C. Conjunctive where the debtor must perform more than one
prestation
Q: A promised to deliver to B his carabao, dog & goat. What kind of
OBLIGATION is this?
A: conjunctive obligation.
D. Alternative OBLIGATIONS where the debtor must perform
any of several prestations, when several objects due, the
fulfillment of one is sufficient, generally the debtor chooses which
one.
E. Facultative where only one thing is due but the debtor has
reserved the right to substitute it with another (Article 1206)
-election here is never granted to creditor
Q: In conjunctive, right to choose is always with debtor?
A: NO. No right to choose because all must be performed.
Q: In Alternative, right to choose can be given to 3rd person?
A: YES. (Article 1000) as long as it is not contrary to law, morals,
public order, public policy and etc.
Q: In an agreement where there is no stipulation as to who has right to
choose?
A: It depends. If Alternative, generally debtor chooses; if facultative,
only with debtor
Q: What if debtor has right to choose and he delays?
A: right is not lost by mere delay; (before creditor files his action)
(b) Alternative OBLIGATIONS
Article 1199. A person alternatively bound by different prestations
shall completely perform one of them.
The creditor cannot be compelled to receive part of one & part of
the other undertaking.
Tolentino: The characteristic of alternative OBLIGATIONS is that,
several objects being due, the fulfillment of one is sufficient xxx.
Article 1200. The right of choice belongs to the debtor, unless it
has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which
are impossible, unlawful or which could not have been the object
of the obligation.
Balane:
Q: To whom does the right of choice belong?
A: General rule: To the debtor (Article 1200)
Exception: When expressly granted to the creditor (cannot be
implied).
* There is a third possibility where the choice may be made by a third
person upon agreement of the parties. (expressed)
Q: What is the technical term of the act of making a choice in
alternative OBLIGATIONS?
A: Concentration.
The right to choose is indivisible d e b c a c h
one prestation and part of another;
He e , l a i i f f ve form;
a c i m b
Article 1201. The choice shall produce no effect except from the
time it has been communicated.
Balane:
Requirement of Communication of choice If the choice belongs to
the creditor, of course, he has to communicate his choice to the debtor.
The debtor is not a prophet.
No required form may be ORAL, IN WRITING, TACITLY, OR
OTHER UNEQUIVOCAL MEANS.
Q: If the choice belongs to the debtor, why require communication
before performance if the choice belongs to him anyway?
A: To give the creditor an opportunity to consent to the choice or
impugn it. (Ong v. Sempio-Dy, 46 P 592.)
BUT how can the creditor impugn it if the choice belongs to the
debtor? The better reason would be to give the creditor a chance to
prepare for the performance.
Not CONSENT: Only declaration of choice made, communicated to
the other party, unilateral declaration will;
Articles 1202 to 1205 talk of the loss of some of the prestations before
performance.
1. If the choice is to the debtor's
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a. When only one prestation is left (whether or not the rest of the
prestations have been lost through fortuitous event or through the fault
of the debtor), the debtor may perform the one that is left.- Article
1202.
Article 1202. The debtor shall lose the right of choice when among
the prestations whereby he is alternatively bound, only one is
practicable.
d. If some are lost through the creditor's fault, the creditor may
choose from the remainder.
e. If all are lost through fortuitous event, the obligation is
extinguished.
f. If all are lost through the creditor's fault, the obligation is
extinguished.

b. If the choice is limited through the creditor's own acts, the Distinguished from Facultative OBLIGATIONS:
debtor can ask for resolution plus damages.
Article 1206. When only one prestation has been agreed upon, but
Article 1203. If through the creditor's acts the debtor cannot make the obligor may render another in substitution, the obligation is
a choice according to the terms of the obligation, the latter may called facultative.
rescind the contract with damages.
The loss or deterioration of the thing intended as a substitute,
c. If everything is lost through the debtor's fault, the latter is liable through the negligence of the obligor, does not render him liable.
to indemnify the creditor for damages. But once the substitution has been made, the obligor is liable for
the loss of the substitute on account of his delay, negligence or
Article 1204. The creditor shall have a right to indemnity for fraud.
damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost,
or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last
thing which disappeared, or that of the service which last became Tolentino: Facultative vs. Alternative -
impossible.
Damages other than the value of the last thing or service may also Alternative Facultative
be awarded. OBLIGATION OBLIGATION
As to contents of the there are various only ONE principal
obligation prestations all of which prestation constitutes the
d. If some things are lost through the debtor's fault, the debtor can constitute parts of the obligation, the accessory
still choose from those remaining. obligation being only a means to
facilitate payment.
e. If all are lost through fortuitous event, the obligation is As to nullity the nullity of one the nullity of the
extinguished. prestation does not principal prestation
invalidate the obligation, invalidates the obligation
which is still in force & the creditor cannot
f. If all prestations but one are lost through fortuitous event, & the with respect to those demand the substitute
remaining prestation was lost through the debtor's fault, the latter which have no vice even when this is valid
is liable to indemnify the creditor for damages. As to choice the right to choose may only the debtor can
be given to the creditor choose the substitute
g. If all but one are lost through the fault of the debtor & the last prestation.
one was lost through fortuitous event, the obligation is As to effect of loss only the impossibility of the impossibility of the
extinguished. all the prestations due principal prestation is
without fault of the sufficient to extinguish
debtor extinguishes the the obligation, even if
2. Choice is the creditor's obligation the substitute is possible
Article 1205. When the choice has been expressly given to the
Balane:
creditor, the obligation shall cease to be alternative from the day
when the selection has been communicated to the debtor.
Facultative OBLIGATIONS always involve choice by the debtor.
Until then the responsibility of the debtor shall be governed by the In theory, it is easy to distinguish a facultative obligation
following rules: from an alternative one. But in practice, it is difficult to
distinguish the two. You just have to find out what the
(1) If one of the things is lost through a fortuitous event, he shall parties really intended.
perform the obligation by delivering that which the creditor should Only One prestation is DUE and enforceable by the creditor
choose from among the remainder, or that which remains if only at the time of choice; if the substitute becomes impossible d/t
one subsists; fault of debtor the OBLIGATION is not affected, thus no
(2) If the loss of one of the things occurs through the fault of the damages;
debtor, the creditor may claim any of those subsisting, or the price If after choosing the substitute and choice is communicated
of that which, through the fault of the former, has disappeared, to creditor, the principal prestation becomes impossible,
with a right to damages; OBLIGATION is not extinguished but has become a simple
OBLIGATION that must be performed; and he will be liable
for damages in delay, neglect or bad faith.
(3) If all the things are lost through the fault of the debtor, the If principal OBLIGATION becomes impossible by fault or
choice by the creditor shall fall upon the price of any one of them, negligence of creditor, debtor cannot be compelled to
also with indemnity for damages. perform the substitute (no more substitute, becomes simple)
extinguished.
The same rules shall be applied to OBLIGATIONS to do or not to do
in case one, some or all of the prestations should become 3. AS TO RIGHTS & OBLIGATIONS OF MULTIPLE
impossible. PARTIES:
[Joint & Solidary OBLIGATIONS, Articles 1207-1222]
a. If one or some are lost through fortuitous event, the creditor may a. Joint OBLIGATIONS
choose from those remaining.- Article 1205 (1)
Balane: A joint obligation is one in which each of the debtors is liable
b. If one or some are lost through the debtor's fault, the creditor has only for a proportionate part of the debt or each creditor is entitled only
choice from the remainder or the value of the things lost plus damages.- to a proportionate part of the credit. In joint OBLIGATIONS, there are
Article 1205 (2), supra. as many OBLIGATIONS as there are debtors multiplied by the number
of creditors.
c. If all are lost through the debtor's fault, the choice of the creditor
shall fall upon the price of any of them, with indemnity for damages.-- There are three kinds of joint OBLIGATIONS:
Article 1205 (3), supra. 1) Active joint where the obligation is joint on the creditor's side;
!"#$%&%'(")*+#,%-(.#/%
2) Passive joint where the obligation is joint on the debtor's side;
& INDIVISIBILITY SOLIDARITY
3) Multiple Joint where there are multiple parties on each side of Refers to the
a joint obligation. prestation, which Refers to the legal tie or
is not capable of vinculum defining the
Tolentino: partial extent of liability
The joint obligation has been variously termed mancomunada or performance
mancomunada simple or pro rata ;
Each cannot
Effects to Joint Each may demand the full
demand more
In the PROMISSORY NOTE the phrase "We promise to pay," used by creditors prestation
than his share
2 or more signers, creates a pro rata liability (JOINT);
Wh i l e I mi e a f l l e dEffects i g Each
b to joint a is noteliable Each
f 2 has the m duty e to e
solidary; individually and collectively; individually and jointly. for more than his comply with entire
debtors
share prestation
JOINT character is PRESUMED: WHEN no stipulation as to
liability of several debtors, presumption is joint, and each is liable only
Article 1224. A joint indivisible obligation gives rise to indemnity
for his proportionate part of the OBLIGATION; for damages from the time anyone of the debtors does not comply
with his undertaking. The debtors who may have been ready to
J/FO of court as to several defendants when solidarity has not been fulfill their promises shall not contribute to the indemnity beyond
specified, the liability of the defendants is joint; court cannot amend. the corresponding portion of the price of the thing or of the value of
the service in which the obligation consists.
Effects of Joint Liability:
1. The demand by one creditor upon one debtor, produces the
effects of default only with respect to the creditor who If there is plurality of creditors to only one debtor, the OBLIGATION
demanded & the debtor on whom the demand was made, but can be performed by delivery of the object to all the creditors jointly;
not with respect to the others; Delivery to only one creditor makes the debtor liable for
2. The interruption of prescription by the judicial demand of damages to the other debtors for non-performance, unless
one creditor upon a debtor does not benefit the other they have authorized this one creditor to collect in their
creditors nor interrupt the prescription as to other debtors. behalf;
On the same principle, a partial payment or If only one or some, not all creditors demand fulfillment the
acknowledgement made by one of several joint debtors does debtor may refuse to deliver and insist that all the creditors
not stop the running of the statute of limitations as to the together receive the thing, if not consignation to the court
others; may be had;
3. The vices of each obligation arising from the personal defect In non-performance, debtor is liable for damages here
of a particular debtor or creditor does not affect the with respect to damages, the prestation becomes divisible,
obligation or rights of the others; each creditor may recover proportionately.
4. The insolvency of a debtor does not increase the Q: Is an OBLIGATION-not do divisible or not?
responsibility of his co-debtors, nor does it authorize a A: No (Tolentino)
creditor to demand anything from his co-creditors; A: OBLIGATION-not do when there are several debtors, is a joint
5. In the joint divisible obligation, the defense of res judicata is indivisible OBLIGATION.
not extended from one debtor to another. (Manresa)
c. Solidary OBLIGATIONS
Article 1208. If from the law, or the nature or the wording of the
OBLIGATIONS to which the preceding article refers the contrary Balane:
does not appear, the credit or debt shall be presumed to be divided A solidary obligation is one in which the debtor is liable for the entire
into as many equal shares as there are creditors or debtors, the obligation or each creditor is entitled to demand the whole obligation.
credits or debts being considered distinct from one another, If there is only one obligation, it is a solidary obligation.
subject to the Rules of Court governing the multiplicity of suits.
There are three kinds of solidarity:
(1) Active solidarity where there are several creditors with one
Disjunctive OBLIGATION: This is not covered by New Civil Code; debtor in a solidary obligation;
there are 2 or more creditors and 2 or more debtors but they are named (2) Passive solidarity where there is one creditor with several
disjunctively as debtors and creditors in the alternative. debtors solidary bound;
*The rules on solidary OBLIGATIONS must apply because if rules (3) Mixed Solidarity where there are several creditors & several
on alternative OBLIGATIONS will be applied then the debtor will debtors in a solidary obligation.
generally be given the choice to whom shall he give payment.
According to Tolentino:
Example: A binds himself to pay P100 either to X or Y A or B will
Solidary OBLIGATIONS may also be referred to as
pay 100 to X.
mancomunada solidaria or joint & several or in solidum .
It has also been held that the terms "juntos o separadamente" in a
b. Indivisible OBLIGATIONS
promissory note creates a solidary responsibility;
Article 1209. If the division is impossible, the right of the creditors Where there are no words used to indicate the character of a
may be prejudiced only by their collective acts, & the debt can be liability, the phrase "I promise to pay," followed by the signatures
enforced only by proceeding against all the debtors. If one of the of 2 or more persons, gives rise to an individual or solidary
latter should be insolvent, the other shall not be liable for his responsibility.
share. The words "individually & collectively" also create a solidary
liability. So does an agreement to be "individually liable" or
"individually & jointly liable."
Article 1210. The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility. c.1. Active Solidarity

The OBLIGATION here is joint, even if the performance is Article 1211. Solidarity may exist although the creditors & the
indivisible; debtors may not be bound in the same manner & by the same
periods & conditions.

Joint Indivisible OBLIGATION: There are several debtors or

Article 1207. The concurrence of two or more creditors or of two or
creditors but the prestation is indivisible Example: Delivery of a
more debtors in one & the same obligation does not imply that
house or a determinate thing;
each one of the former has a right to demand, or that each one of
Fulfillment requires the concurrence of ALL debtors, although they
the latter is bound to render, entire compliance with the prestation.
are each for his part; and on side of creditors, collective action required
There is solidary liability only when the obligation expressly so
for acts which may be prejudicial;
states, or when the law or the nature of the obligation requires
Consent required, must still communicate choice after consensus.
solidarity.
!"#$%&%'(")*+#,%-(.#/%
Balane:
Q: When is an obligation with several parties on either side Joint or
Solidary?
A: The presumption is that an obligation is joint because a joint
obligation is less onerous that a solidary one.
There is solidary obligation in the following::
(1) When the obligation expressly so states stipulation by
parties;
(2) When a will expressly makes charging or a condition in
solidum;
(3) When the law requires crimes, conspiracy, act or one is act
of all; in torts joint tortfeasors
The liability of joint tortfeasors, which include all persons who
command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who
approve of it, after it is done, if done for their benefit.
(Tolentino)
(4) nature of the obligation requires solidarity Article 19-22,
NCC;
A moral wrong cannot be divided into parts, thus must be
solidary; akin to Quasi Delicts/ Quasi Contracts (Articles 2183
& 2187)
Liability may arise from the provisions of Articles 19 to 22 of
the NCC. If 2 or more persons acting jointly become liable
under these provisions, their liability should be solidary because
of the nature of the obligation. xxx The acts giving rise to
liability under these articles have a common element- they are
morally wrong.
Article 10, RPC; Article 2194, & Article 2157, NCC
Art. 10. Offenses not subject to the provision s of this Code. Offenses
which are or in the future may be punishable under special laws are not
subject to the provisions of this Code. This Code shall be supplementary to
such laws, unless the latter should specially provide the contrary.
Article 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary.
Art. 2157. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary. (n)
(5) Imposed by final judgment upon several defendants must
be expressed in the judgement for the obligation, cannot be
amended after finality.
Characteristics of Active Solidarity (solidary creditors): (Tolentino)
ESSENCE Mutual agency, or mutual representation, which consists
in the authority of each creditor to claim & enforce the rights. Of all,
with the resulting OBLIGATION to pay each one what belongs to him.
1. Since it is a reciprocal agency, the death of a solidary creditor
does not transmit the solidarity to each of his heirs but to all
of them taken together;
(Similar to Article 1005 where brothers & sisters
of decedent inherit in their own right per
capita while nephews & nieces, per stirpes by right
of representation.)
2. Each creditor represents others in the act of requiring
payment, & in all other acts which tend to secure the credit
or make it more advantageous . Hence, if he receives only a
partial payment, he must divide it among the other creditors.
He can interrupt the period of prescription or render the
debtor in default, for the benefit of all other creditors;
3. A credit once paid is shared equally among the creditors
unless a different intention appears;
4. Debtor may pay any of the creditors but if any demand,
judicial or extrajudicial is made on him, he must pay only to
the one demanding payment (Article 1214);
5. One creditor does not represent the others in such acts as
novation, compensation & remission (even if the credit
becomes more advantageous). In these cases, even if the
debtor is released, the other creditors can still enforce their
rights against the creditor who made the novation,
compensation or remission;
6. Each creditor may renounce his right even against the will of
the debtor, & the latter need not thereafter pay the obligation
to the former.
Characteristics of Passive Solidarity (solidary debtors)
ESSENCE each debtor can be made to answer for the others, with
resulting right to the debtor-payor to recover from others their
respective shares, akin to mutual guaranty (Manresa):
1. Each debtor may be required to pay the entire obligation but
after payment, he can recover from the co-debtors their
respective shares (this is something similar to subrogation);
2. Interruption of prescription as to one debtor affects all the
others; but the renunciation by one debtor of prescription
already had does not prejudice the others, because the
extinguishment of the obligation by prescription
extinguishes also the mutual representation among the
solidary debtors.
3. The debtor who is required to pay may set up by way of
compensation his own claim against the creditor, in this
case, the effect is the same as that of payment;
4. The total remission of the debt in favor of a debtor releases
all the debtors; but when this remission affects only the share
of one debtor, the other debtors are still liable for the
balance of the obligation.
5. All the debtors are liable for the loss of the thing due, even if
such loss is caused by the fault of only one of them, or by
fortuitous event after one of the debtors has incurred in
delay;
6. The interests due by reason of the delay of one of the debtors
are borne by all of them.
Legal Bonds in solidarity may be uniform or varied:
Uniform when debtors are bound by same conditions and
clauses;
Varied where obligors, although liable for the same prestation,
are nevertheless not subject to same terms and conditions;
before fulfillment of such condition or arrival of such term,
an action may be brought against such debtor or any other
solidary debtor for recovery of the entire OBLIGATION,
minus the portion corresponding to the debtor affected by the
varied condition or term; upon happening however, this
portion may be claimed by creditor from any of the debtors.
When one of solidary debtors is bound by varied terms and
conditions, for instance a suspensive condition or a
suspensive period, creditors may still demand for fulfillment
of the whole prestation prior to the happening of the
condition or arrival of the term, minus the share of this
debtor bound by varied condition/term. This latter portion
may be demanded from anyone of the debtors soon as the
term arrives or condition happens.
Example: Is sureties who are solidarily liable without their
debtors but binds themselves to varied conditions distinct
from the principal debtors; BUT, the OBLIGATION of
surety may not be greater than that of ea principal debtor, nor
more burdensome.
An OBLIGATION to pay sum of money is not novated in a new
instrument wherein the old is ratified, by changing only the terms
of payment and adding other OBLIGATIONS not incompatible
with the old one. [Inchausti & Co. v. Yulo, 34 Phil 978, 1908]
Case Doctrine: The owner of the bus is not jointly and severally liable to
the bus driver who was criminally charged for a criminal act but instead
subsidiarily liable thereto.
Case: Rolito Calang and Philtranco Service Enterprises, Inc. vs. People,
August 3, 2010.
Facts: At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving
Philtranco Bus No. 7001, owned by Philtranco along Daang Maharlika
Highway in Barangay Lambao, Sta. Margarita, Samar when its rear left side
hit the front left portion of a Sarao jeep coming from the opposite direction.
A a e l f h e c l l i i , C e e
control of the vehicle, and bumped and killed Jose Mabansag, a bystander
h a a d i g a l g h e h i g h a
(3) times before finally stopping at about 25 meters from the point of impact.
T f h e j e e a e g e , A ma d
were instantly killed, while the other passengers sustained serious physical
injuries.
The prosecution charged Calang with multiple homicide, multiple serious
physical injuries and damage to property thru reckless imprudence before the
Regional Trial Court (RTC), Branch 31, Calbayog City.
The RTC ordered Calang and Philtranco, jointly and severally, to
pay P50,000.00 as death indemnity to the heirs of Armando; P50,000.00 as
death indemnity to the heirs of Mabansag; and P90,083.93 as actual damages
to the private complainants.
The petitioners appealed the RTC decision to the Court of Appeals (CA),
docketed as CA-G.R. CR No. 25522. The CA, in its decision dated November
20, 2009, affirmed the RTC decision in toto. The CA ruled that petitioner
Calang failed to exercise due care and precaution in driving the Philtranco
bus. According to the CA, various eyewitnesses testified that the bus was
traveling fast and encroached into the opposite lane when it evaded a pushcart
that was on the side of the road. In addition, he failed to slacken his speed,
despite admitting that he had already seen the jeep coming from the opposite
direction when it was still half a kilometer away. The CA further ruled that
!"#$%&%'(")*+#,%-(.#/%
Calang demonstrated a reckless attitude when he drove the bus, despite
knowing that it was suffering from loose compression, hence, not roadworthy.
The CA added that the RTC correctly held Philtranco jointly and severally
liable with petitioner Calang, for failing to prove that it had exercised the
diligence of a good father of the family to pre vent the accident.
Issue: Whether or not Calang and Philtranco will be correctly held jointly and
solidarily liable to the victims of the collision.
Held: NO. We, however, hold that the RTC and the CA both erred in holding
Philtranco jointly and severally liable with Calang. We emphasize that Calang
was charged criminally before the RTC. Undisputedly, Philtranco was not a
direct party in this case. Since the cause of action against Calang was based on
delict, both the RTC and the CA erred in holding Philtranco jointly and
severally liable with Calang, based on quasi-delict under Articles 21761 and
2
2180 of the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to
the vicarious liability of an employer for quasi-delicts that an employee has
committed. Such provision of law does not apply to civil liability arising from
delict.
If at all, Philtranco s liability may only be subsidiary. Article 102 of the
Revised Penal Code states the subsidiary civil liabilities of innkeepers,
tavernkeepers and proprietors of establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any
other persons or corporations shall be civilly liable for crimes committed in
their establishments, in all cases where a violation of municipal ordinances or
some general or special police regulations shall have been committed by them
or their employees.
Innkeepers are also subsidiary liable for the restitution of goods taken by
robbery or theft within their houses from guests lodging therein, or for the
payment of the value thereof, provided that such guests shall have notified in
advance the innkeeper himself, or the person representing him, of the deposit
of such goods within the inn; and shall furthermore have followed the
directions which such innkeeper or his representative may have given them
with respect to the care of and vigilance over such goods. No liability shall
attach in case of robbery with violence against or intimidation of persons
l e c mmi e d b h e i k e e
The foregoing subsidiary liability applies to employers, according to Article
103 of the Revised Penal Code, which reads:
The subsidiary liability established in the next preceding article shall also
apply to employers, teachers, persons, and corporations engaged in any kind
of industry for felonies committed by their servants, pupils, workmen,
apprentices, or employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability Articles
102 and 103 are deemed written into the judgments in cases to which they
are applicable. Thus, in the dispositive portion of its decision, the trial court
need not expressly pronounce the subsidiary liability of the employer.
N e h e l e , b e f e h e e m l e b of iP29,103
evidence must exist establishing that (1) they are indeed the employers of the
convicted employees; (2) they are engaged in some kind of industry; (3) the
crime was committed by the employees in the discharge of their duties; and
(4) the execution against the latter has not been satisfied due to insolvency.
The determination of these conditions may be done in the same criminal
a c i i h i c h h e e m l e e
pronounced, in a hearing set for that precise purpose, with due notice to the
employer, as part of the proceedings for the execution of the judgment.
CASE: An agreement to be individually liable or individually and
jointly liable denotes a solidary obligation, not a joint liability.
RONQUILLO V. CA [132 S 274, Sept. 28, 1983]
FACTS: In a collection case, parties entered into a compromise agreement
wherein the plaintiff Antonio So areed to reduce its total claim of P117, 498.95
to only P110,000 and defendants Ernesto Ronquillo, Offshore Catertrade Inc.,
Johnny Tan and Pilar Tan agreed to acknowledge the validity of such claim and
further bind themselves to initially pay out of the total indebtedness, the amount
of P55,000 on or before December 24, 1979, the balance of P55,000, defendants,
individually and jointly agree to pay within a period of 6 months from January
30, 1980. However, defendants failed to pay the initial sum on December 24,
1979. Ronquillo asked that his ¼ share of P13, 750 be accepted as payment. But
So nevertheless asked for the execution of the decision in its entirety against all
defendants, jointly and severally. Ronquillo opposed it by saying that it was not
expressly declared that it was solidary. The trial court ruled that liability was
solidary.
ISSUE: Wh e h e h e a e f l i a b i l i
defendants means being solidary; hence the full payment can be demanded by
anyone of the defendant and thereby correctly rejecting the tender of payment of
Ronquillo of his ¼ share only.
HELD: YES.
In this regard, Article 1207 and 1208 of the Civil Code provides
Art. 1207. The concurrence of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire
compliance with the prestation. Then is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligation
to which the preceding article refers the contrary does not appear, the
credit or debt shall be presumed to be divided into as many equal shares
as there are creditors and debtors, the credits or debts being considered
distinct from one another, subject to the Rules of Court governing the
multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement,
provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only
P110,000.00 and defendants agree to acknowledge the validity of such claim
and further bind themselves to initially pay out of the total indebtedness of
P110,000.00, the amount of P5,000.00 on or before December 24, 1979, the
balance of P55,000.00, defendants individually and jointly agree to pay within
a period of six months from January 1980 or before June 30, 1980. (Emphasis
supply)
Clearly then, by the express term of the compromise agreement and the
decision based upon it, the defendants obligated themselves to pay their
obligation "individually and jointly".
The term "individually" has the same meaning as "collectively",
"separately", "distinctively", respectively or "severally". An agreement to
be "individually liable" undoubtedly creates a several obligation, and a
"several obligation is one by which one individual binds himself to perform
the whole obligation.
In the case of Parot vs. Gemora, We therein ruled that "the phrase juntos or
separadamente or in the promissory note is an express statement making each
of the persons who signed it individually liable for the payment of the fun
amount of the obligation contained therein." Likewise in Un Pak Leung vs.
Negorra, We held that "in the absence of a finding of facts that the defendants
made themselves individually hable for the debt incurred they are each liable
only for one-half of said amount
The obligation in the case at bar being described as "individually and jointly",
the same is therefore enforceable against one of the numerous obligors.
CASE DOCTRINE: The direct liability of the insurer under
indemnity contracts against Third Party Liability does not mean
that the insurer can be held solidarily liable with the insured &/ or
the other parties found at fault.
e MALAYAN
e m l INSURANCE
e e . V. CA [165 SCRA 536]
Facts: Malayan Insurance on March 29, 1967 issued in favor of Sio Choy, a
Private Car Comprehensive Policy effective from April 18, 1967 to April 18,
1968 covering a Willys jeep. The insurance coverage for third-party liability
was P20,000. During the effectivity of the said policy, the insured jeep while
being driven by one Juan Campollo, an employee of San Leon Rice Mill,
collided with a passenger bus owned by Pangasinan Transportation Co.
(Pantranco) causing damage to the insured vehicle and injuries to the driver
and Martin Vallejos who was riding in an ill-fated jeep. Vallejos sued for
damages against Sio Choy, Malayan Insurance and Pantranco. However the
trial court only ordered Sio Choy, Malayan and San Leon to pay Vallejos a
total d i a (jointly and
l i severally
a b i lliable)
i i
but Malayan ewill fbe liable
c only
e d , a d e
up to P20,000, the consideration in the policy. CA affirmed the judgment of
the trial court that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan
Insurance Co., Inc. are jointly and severally liable for the damages awarded to
the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice
Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance
l i a b i company
l i , whatever
for c i m i
amount ait lhas been
a ordered
d c ito pay
i on
l ,its policy,
h a sinceb e e
the San Leon Rice Mill, Inc. is not a privy to the contract of insurance
between Sio Choy and the insurance company.
Issue: Whether or not Malayan Insurance is solidarily liable with Sio Choy
and San Leon Rice Mill to Vallejos.
Held: NO. We hold instead that it is only respondents Sio Choy and San Leon
Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as
owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code
which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could have, by the use of due
diligence, prevented the misfortune it is disputably presumed that a driver was
negligent, if he had been found guilty of reckless driving or violating traffic
regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon
Rice Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver
of the Willys jeep at the time of the motor vehicle mishap, is Article 2180 of
the Civil Code which reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
aresponsible.
e me d j i l a d e e a l l f
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a
family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the
principal tortfeasors who are primarily liable to respondent Vallejos. The law
states that the responsibility of two or more persons who are liable for a quasi-
delict is solidarily.
On the other hand, the basis of petitioner's liability is its insurance contract
with respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos
in the amount of not more than P20,000.00, this is on account of its being the
insurer of respondent Sio Choy under the third party liability clause included
!"#$%&%'(")*+#,%-(.#/%
in the private car comprehensive policy existing between petitioner and
respondent Sio Choy at the time of the complained vehicular accident.
While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The
liability of the insurer is based on contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent
Vallejos, but it cannot, as incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors namely respondents Sio
Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily
liable with said two (2) respondents by reason of the indemnity contract
against third party liability-under which an insurer can be directly sued by a
third party this will result in a violation of the principles underlying
solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against
one of the solidary debtors. On the other hand, insurance is defined as "a
contract whereby one undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an unknown or contingent
event."
In the case at bar, the trial court held petitioner together with respondents Sio
Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for
a total amount of P29,103.00, with the qualification that petitioner's liability is
only up to P20,000.00. In the context of a solidary obligation, petitioner may
be compelled by respondent Vallejos to pay the entire obligation of
P29,013.00, notwithstanding the qualification made by the trial court. But,
how can petitioner be obliged to pay the entire obligation when the
amount stated in its insurance policy with respondent Sio Choy for
indemnity against third party liability is only P20,000.00? Moreover, the
qualification made in the decision of the trial court to the effect that petitioner
is sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary, is an evident breach of the concept of a solidary
obligation. Thus, we hold that the trial court, as upheld by the Court of
Appeals, erred in holding petitioner, solidarily liable with respondents Sio
Choy and San Leon Rice Mill, Inc. to respondent Vallejos.
Discussion on Reimbursement in solidary liability.
As to the second issue, the Court of Appeals, in affirming the decision of the
trial court, ruled that petitioner is not entitled to be reimbursed by respondent
San Leon Rice Mill, Inc. on the ground that said respondent is not privy to the
contract of insurance existing between petitioner and respondent Sio Choy.
We disagree.
The appellate court overlooked the principle of subrogation in insurance
contracts. Thus
... Subrogation is a normal incident of indemnity
insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530,
77 L. ed. 477). Upon payment of the loss, the insurer is
entitled to be subrogated pro tanto to any right of action
which the insured may have against the third person
whose negligence or wrongful act caused the loss (44
Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs.
Scottish Metropolitan Assurance Co., 283 U.S. 284, 75
L. ed. 1037).
The right of subrogation is of the highest equity. The
loss in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of
the insurer (44 Am. Jur. 2d, 746, note 16, citing
Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).
Although many policies including policies in the
standard form, now provide for subrogation, and thus
determine the rights of the insurer in this respect, the
equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal
assignment or any express stipulation to that effect in
the policy" (44 Am. Jur. 2nd 746). Stated otherwise,
when the insurance company pays for the loss, such
payment operates as an equitable assignment to the
insurer of the property and all remedies which the
insured may have for the recovery thereof. That right is
not dependent upon , nor does it grow out of any privity
of contract (emphasis supplied) or upon written
assignment of claim, and payment to the insured makes
the insurer assignee in equity (Shambley v. Jobe-
Blackley Plumbing and Heating Co., 264 N.C. 456, 142
SE 2d 18). 9
It follows, therefore, that petitioner, upon paying respondent Vallejos the
amount of riot exceeding P20,000.00, shall become the subrogee of the
insured, the respondent Sio Choy; as such, it is subrogated to whatever rights
the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of the
Civil Code gives to a solidary debtor who has paid the entire obligation the
right to be reimbursed by his co-debtors for the share which corresponds to
each.
Art. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which
offer to accept.
He who made the payment may claim from his co-
debtors only the share which corresponds to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to respondent
Vallejos and thereby becoming the subrogee of solidary debtor Sio Choy, is
entitled to reimbursement from respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon
Rice Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for
the amount of P29,103.00. Vallejos may enforce the entire obligation on only
one of said solidary debtors. If Sio Choy as solidary debtor is made to pay for
the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is
compelled to pay P20,000.00 of said entire obligation, petitioner would be
entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be
reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of
P29,103.00 )
Article 1212. Each one of the solidary creditors may do whatever
may be useful to the others, but not anything which may be
prejudicial to the latter.
Acts beneficial: each solidary debtor may,
interrupt prescription,
constitute a debtor in default,
bring suit so that OBLIGATION may produce interest
Acts prejudicial: Solidary creditor cannot do anything prejudicial to
the others, like remission, novation, compensation, merger or confusion
but such provision in Article 1212 conflicts with Article 1215;
Tolentino: What will be done then? Harmonize Articles 1212 &
1215 by such acts of extinguishment, which is prejudicial to co-
creditors, will be valid so as to extinguish the claim against the debtors,
but not with respect to the rights of co-creditors which subsists and may
be enforced against such creditor who performed the act alone.
Balane:
There is an apparent conflict between Article 1212 & 1215.
Article 1212 states that the agency extends only to things which will
benefit all co-creditors. But not anything which is prejudicial to the
latter. In Article 1215, he can do an acts prejudicial to the other
creditors, like remission for instance.
Article 1213. A solidary creditor cannot assign his rights without
the consent of the others.
Article 1214. The debtor may pay any one of the solidary creditors;
but if any demand, judicial or extrajudicial, has been made by one
of them, payment should be made to him.
Tolentino: This is in line with the concept of Mutual agency which is
the essence of active solidarity, implies mutual confidence, thus one
creditor cannot assign/transfer his rights to another without consent of
the others.
Effects of Unauthorized Transfer: No effect, no rights transferred;
assignee does not become solidary creditor, co-creditors and debtor/s
not bound by such transfer;
Payment made by this assignee will not extinguish
OBLIGATION; suit filed by him may not interrupt the
rights.
EXCEPT, if the assignee is also one of the co-creditors,
because mutual confidence is incumbent.
Justice JBL REYES: Article 1213 places unjustifiable and
unnecessary burden on the rights of solidary creditors upon his own
share. The article should have read as:
A solidary creditor who assigns his rights without the
consent of his co-creditors shall answer subsidiarily for any
prejudice caused by the assignee in connection with d credit
assigned.
Liability was compared to agent & principal.
Balane:
General Rule A debtor may pay any of the solidary creditors.
Exception If demand is made by one creditor upon the debtor, in
which case the latter must pay the demanding creditor only.
Tolentino:
Judicial Demand when such is made by one of solidary creditors,
tacit mutual representation is deemed revoked.
Defendant-debtor should pay to the plaintiff-creditor to effect
extinguishment; payment to any of other creditors who did
not sue would be deemed payment to a 3rd person.
!"#$%&%'(")*+#,%-(.#/%
Plaintiff-creditor merely consolidates in himself the
representation of all the others, but the essence of solidarity
of creditors should not be nullified;
Extra-judicial Demand same as above; demand by several
creditors separately, debtor should pay the one who notified him 1st ; if
they demand at d same time, or collectively, debtor may choose to
whom to pay.
Other Instances:
Debtor upon whom demand was made pays to a creditor other
than the one who made the demand in violation of Article
1214 This is considered payment to a third person (Article
1241, par. 2) & the debtor can still be made to pay the debt. The
only concession given to the debtor is that he is allowed to deduct
the share of the receiving creditor from the total amount due even
if he paid the entire amount due to that creditor.
Creditor A makes demand on debtor Y Does it mean that he
cannot pay the share pertaining to creditor B?
A: According to commentators he can. But this is dangerous because
there may already be an agreement on the part of the creditors.
-Tolentino warns that to make the debtors pay for the whole
amount to the demanding creditor even if partial payment has
already been made to another creditor might amount to unjust
enrichment. This rule/restriction has already been scrapped in
some modern civil codes allowing freedom of choice to the debtor
even after demand.
Q: There are three creditors A, B & C & there are three debtors X,
Y & Z. A makes a demand on Y. X pays B.
A: This is not covered by Article 1214.
Article 1215. Novation, compensation, confusion or remission of
the debt, made by any of the solidary creditors or with any of the
solidary debtors, shall extinguish the obligation, without prejudice
to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as
he who collects the debt, shall be liable to the others for the share
in the obligation corresponding to them.
Article 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release the
latter from his responsibility towards the co-debtors, in case the
debt had been totally paid by anyone of them before the remission
was effected.
Article 1915. If two or more persons have appointed an agent for
a common transaction or undertaking, they shall be solidarily
liable to the agent for all the consequences of the agency.
Tolentino:
Novation A solidary debtor binds himself alone, assumes the debt,
releases the other debtors. But this debtor cannot bind himself to a new
debt without the consent of others.
-If creditor makes the novation without the debtor and does not secure
consent of other debtors, the latter is released. The new contract binds
only the debtor who secured the novation.
-Mere extension of time given by creditor to a solidary debtor does not
release others from the OBLIGATION no novation here.
Dation in payment by one debtor extinguishes as in payment if made
immediately, otherwise if promised only, this is a novation.
When merger & compensation, there is total extinguishment of the
OBLIGATIONS; only reimbursements remain; if partial, then
application of payments should govern;
A surety who is bound in solidum will be released by any material
alteration in the principal contract made without knowledge & consent
of surety, e.g. e e i f i me , l e
installment payments.
When 1 creditor makes a remission, the extent of that particular
OBLIGATION is extinguish, this creditor is liable to co-creditors for
their shares.
When remission favors only one debtor, in full share, this debtor is
released fr solidary OBLIGATION, if partial, he retains the solidary
OBLIGATION & becomes a surety of the whole OBLIGATION;
Factors to consider in effects of acts under Article 1215:
1. the relation between Creditors and that of debtors;
2. the relation among co-debtors themselves.
Baviera:
Principals are always liable solidarily;
Agents are not liable solidarily unless expressly stipulated (res
inter alios acta)
b. Passive Solidarity
Article 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
Q: If a judgment made in an action brought by a solidary creditor
against a solidary debtor will it be res judicata against the co-debtors?
A: A favorable judgment that inures to the benefit of the co-creditors
will be res judicata as to the latter;
An adverse judgment would have the same effect if the action of the
plaintiff-creditor is not founded on a cause personal to him, but actually
consolidates in him all the rights as well of his co-creditors.
(Tolentino) similarly translated as to co-debtors;
Since in solidarity, there is unity of legal tie, notwithstanding
plurality of subjects;
A judgment that declares the OBLIGATION does not exist
extinguished the OBLIGATION the defendant-debtor, and
such decision inures to the benefit of co-debtors, unless the
cause is personal to the def-debtor.
PASSIVE SURETY
SOLIDARITY
Solidary debtors solidary guaranty
Extent of whole only to the extent of contract
Liability OBLIGATION stipulations/as expressed
Liability Primary Subsidiary
Effects of solidary releases the surety
Extension of time OBLIGATION
granted by remains
creditor
CASE: If one of the alleged solidary debtor dies during the pendency
of the collection case, the court where said case is pending retains
jurisdiction to continue hearing the charge as against the surviving
defendants. (1216)
PNB V. INDEPENDENT PLANTERS [122 SCRA 113]
Facts: Appeal by the Philippine National Bank (PNB) from the Order of the
defunct Court of First Instance of Manila (Branch XX) in its Civil Case No.
46741 dismissing PNB's complaint against several solidary debtors for the
collection of a sum of money on the ground that one of the defendants
(Ceferino Valencia) died during the pendency of the case (i.e., after the
plaintiff had presented its evidence) and therefore the complaint, being a
money claim based on contract, should be prosecuted in the testate or intestate
proceeding for the settlement of the estate of the deceased defendant pursuant
to Section 6 of Rule 86 of the Rules of Court which reads:
SEC. 6. Solidary obligation of decedent. the obligation of the decedent is
solidary with another debtor, the claim shall be filed against the decedent as if
he were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. In a joint obligation of the decedent, the
claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse
against one, some or all of its solidary debtors under Article 1216 of the Civil
Code
ART. 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against
the others, so long as the debt has not been fully collected.
Issue: Whether in an action for collection of a sum of money based on
contract against all the solidary debtors, the death of one of the defendants
deprivese the court of jurisdiction
l i a btoi proceed
l i with thei case againsta thei e d , a
surviving defendants.
Held: It is now settled that the quoted Article 1216 grants the creditor the
substantive right to seek satisfaction of his credit from one, some or all of his
solidary debtors, as he deems fit or convenient for the protection of his
interests; and if, after instituting a collection suit based on contract against
some or all of them and, during its pendency, one of the defendants dies, the
court retains jurisdiction to continue the proceedings and decide the case in
respect of the surviving defendants.
!"#$%&%'(")*+#,%-(.#/%
Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891
at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from
whence the aforequoted provision (Sec. 6, Rule 86) was taken, this
Court held that where two persons are bound in solidum for the
same debt and one of them dies, the whole indebtedness can be
proved against the estate of the latter, the decedent's liability being
absolute and primary; and if the claim is not presented within the
time provided by the rules, the same will be barred as against the
estate. It is evident from the foregoing that Section 6 of Rule 87
(now Rule 86) provides the procedure should the creditor desire to
go against the deceased debtor, but there is certainly nothing in
the said provision making compliance with such procedure a
condition precedent before an ordinary action against the
surviving solidary debtors, should the creditor choose to demand
payment from the latter, could be entertained to the extent that
failure to observe the same would deprive the court jurisdiction to
take cognizance of the action against the surviving debtors. Upon
the other hand, the Civil Code expressly allows the creditor to
proceed against any one of the solidary debtors or some or all of
them simultaneously. There is, therefore, nothing improper in the
creditor's filing of an action against the surviving solidary debtors
alone, instead of instituting a proceeding for the settlement of the
estate of the deceased debtor wherein his claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323 -324, this Court,
speaking thru Mr. Justice Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of
Court reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. Said provision
merely sets up the procedure in enforcing collection in case a
creditor chooses to pursue his claim against the estate of the
deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the
creditor the right to 'proceed against anyone of the solidary
debtors or some or all of them simultaneously.' The choice is
undoubtedly left to the solidary, creditor to determine against
whom he will enforce collection. In case of the death of one of the
solidary debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors without necessity of filing a
claim in the estate of the deceased debtors. It is not mandatory for
him to have the case dismissed against the surviving debtors and
file its claim in the estate of the deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the
Revised Rules of Court were applied literally, Article 1216 of the
New Civil Code would, in effect, be repealed since under the Rules
of Court, petitioner has no choice but to proceed against the estate
of Manuel Barredo only. Obviously, this provision diminishes the
Bank's right under the New Civil, Code to proceed against any
one, some or all of the solidary debtors. Such a construction is not
sanctioned by the principle, which is too well settled to require
citation, that a substantive law cannot be amended by a procedural
rule. Otherwise stared, Section 6, Rule 86 of the Revised Rules of
Court cannot be made to prevail over Article 1216 of the New Civil
Code, the former being merely procedural, while the latter,
substantive.
WHEREFORE the appealed order of dismissal of the court a quo in its Civil
Case No. 46741 is hereby set aside in respect of the surviving defendants; and
the case is remanded to the corresponding Regional Trial Court for
proceedings.
Tolentino: Passive Solidarity vs. Suretyship
Similarity:
(1) both stands for some other person;
(2) both may require reimbursement
If surety binds itself in solidum, creditor may go against
anyone of them.
Distinctions Passive Solidarity Suretyship
Solidary debtor is liable only as to his own
liable for his own OBLIGATION
OBLIGATION &
that of his co-
d e b
Primary liability Subsidiary liability
Extension of Time does not release a releases a solidary guarantor or
given by creditor solidary debtor surety (extinguishment)
(novation)
Article 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors offer to
pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the
share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the
debt of each.
Article 1218. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after
the obligation has prescribed or become illegal.
Article 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release the
latter from his responsibility towards the co-debtors, in case the
debt has been totally paid by anyone of them before the remission
was effected.
Tolentino: Payment by one solidary debtor in whole extinguishes
the OBLIGATION and releases the credit gives rise to a new
OBLIGATION for reimbursement by the other debtors to this one
debtor who paid (JOINT OBLIGATION); plaintiff creditor may be
properly substituted by the debtor who paid;
EXCEPT: If payment was made after the OBLIGATION prescribed
or become illegal (mistake or not). (Article 1218)
After the OBLIGATION has prescribed or becomes illegal, it
is no longer due & demandable. None of the solidary debtors
can be compelled by the creditors to pay.
Thus, if one debtor pays, he cannot reimburse from his co-
debtors because his action will not revive the inexistent
OBLIGATION;
Generally, neither could he recover from the creditor to
whom he paid (Article 1424); except perhaps under solutio
indebiti.
Balane:
Effect of Remission.
Problem: Solidary debtors W, X, Y & Z are indebted to A for P12,000.
A remits the share of Y (P3,000).
Q: Can Y be sued?
A: Yes, for the P9,000 (P12,000 less P3,000 share of Y) his share was
remitted but not the solidary OBLIGATION.
Q: Supposing X is insolvent?
A: Y can still be made to contribute. Remission will benefit Y only in
so far as his share is concerned. His liability in case of insolvency of
one co-creditor is not affected.
Q: Can A demand the P9,000 from Y?
A: Yes. But he can recover the same from W, X & Z.
Q: I f W a i d h e h l e d e b b e f
d e ma d e i mb e me f Y h a e
A: Yes, Article 1219, Y will not be released from his solidary
OBL I GAT I ON. U W f l l a me
exti g i h e d , h e e h i g m e
Q: After A remits share of Y, W pays in full the remaining 12,000.
X then becomes insolvent. May Y be compelled to contribute to
the share of X?
A: Yes (Manresa and Tolentino), gratuitous acts should be
construed restrictively as to permit the least transmission of rights
(Article1378). Thus, if W paid 9,000 and X and Z were suppose to
reimburse him 3000 each, Y could be compelled to contribute
1000 as to the insolvency of X.
Article 1220. The remission of the whole obligation, obtained by
one of the solidary debtors, does not entitle him to reimbursement
from his co-debtors.
Article 1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary debtors, the
obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be
responsible to the creditor, for the price & the payment of
damages & interest, without prejudice to their action against the
guilty or negligent debtor.
!"#$%&%'(")*+#,%-(.#/%
If through a fortuitous event, the thing is lost or the performance
has become impossible after one of the solidary debtors has
incurred in delay through the judicial or extrajudicial demand upon
him by the creditor, the provisions of the preceding paragraph shall
apply.
Article 1895. If solidarity has been agreed upon, each of the
agents is responsible for the non-fulfillment of the agency, & for
the fault or negligence of his fellow agents, except in the latter
case when the fellow agents acted beyond the scope of their
authority.
Article 1222. A solidary debtor may, in actions filed by the creditor,
avail himself of all defenses which are derived from the nature of
the obligation & of those which are personal to him, or pertain to
his own share. With respect to those which personally belong to
the others, he may avail himself thereof only as regards that part
of the debt for which the latter are responsible.
Effects of Article 1221 is limited to non-performance because of loss of
the thing or impossibility of prestation that is due if such is anchored
with a fortuitous event, without fault or delay on any debtor, then
OBLIGATION is extinguished; no debtor is liable.
If debtor is at fault on the loss/impossibility; Or if in delay
even before the loss/impossibility the OBLIGATION is
converted to indemnification (of the price, damages &
interests).
If guilty debtor is made to pay by demand of creditor, he
cannot recover from his co-debtors (if there was loss/imp), he
will shoulder the whole amount of the loss thing +
indemnity;
If another co-debtor pays the whole amount he could recover
fr his co-debtors;
In case of non-performance without loss of the thing/has
not become impossible: but there is delay, fraud, fault or
negligence, or some other breach of OBLIGATION, creditor
may also recover damages; here, if guilty debtor pays, he will
not shoulder the whole amount, his co-debtors will pay him
their equivalent share in the original OBLIGATION. Guilty
debtor shoulders the amount of damages though.
Balane:
Three Defenses of Solidary Debtor:
1. Those derived from the nature of the obligation is a total
defense;
e.g., prescription, illegality of obligation (illicit object);
vitiated consent; unenforceability under the Statute of
Frauds; non-happening of condition; arrival of resolutory
period; extinguished OBLIGATION d/t payment, remission;
2. Those defenses personal to the debtor-defendant;
e.g., insanity If it involves vitiation of consent, total
defense. If it involves a special term or a condition, a partial
defense.
3. Those defenses personal to other co-debtors;
e.g., defense as to the share corresponding to other debtors is
a partial defense, i.e. suspensive condition or period as to the
OBLIGATION of one co-debtor.
4. AS TO PERFORMANCE OF PRESTATION
a. Divisible OBLIGATIONS
Article 1223. The divisibility or indivisibility of the things that are
the object of OBLIGATIONS in which there is only one debtor & only
one creditor does not alter or modify the provisions of Chapter 2 of
this Title (Nature & Effect of OBLIGATIONS).
Balane:
This kind of OBLIGATIONS has something to do with the
performance of the prestation, & not to the thing.
The thing may be divisible but the OBLIGATION may still
be indivisible, e.g. OBLIGATION to deliver 100 sacks of
jasmine rice found in Warehouse of specific address on a
fixed date (determinate OBLIGATION);
Or thing is indivisible but performance is divisible, i.e. stage-
by-stage construction of a public road where obligor may
deliver every 15% of work done and collect its proportionate
cost from government agency concerned, performance bonds
here may also be termed as such.
Divisible obligation is one susceptible of partial performance.
An indivisible obligation is one that must be performed in one act.
Test of Divisibility: Whether or not it is susceptible of partial
performance.
General rule: Obligation is indivisible which means that it has to be
performed in one act singly.
Why? Because the law provides so: Unless there is an express
stipulation to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists. Neither may
the debtor be required to make partial payments. xxx (Article 1248,
par. 1.)
Tolentino:
When division would diminish the value of the whole
QUALITATIVE, when the thing is not really homogeneous,
i.e. inheritance;
QUANTITATIVE, when the thing divided is homogeneous
and may be separated into parts if movable, or limits may be
set if immovable;
IDEAL, when parts are not separated materially, but
assigned to several persons, as in pro-indiviso co-owners;
Three Exceptions to the Rule on Indivisibility:
1. When the parties so provide. (Article 1248, par. 1.)
2. When the nature of the obligation necessarily
entails performance in parts.
3. Where the law provides otherwise.
Divisibility of Obligation distinguished from divisibility of object:
Divisibility of obligation or prestation does not necessarily mean
a divisible obligation.
Divisibility of object is not the same as divisibility of obligation.
But the reverse is not the same. Indivisibility of object means an
indivisible obligation.
Article 1224. A joint indivisible obligation gives rise to indemnity
for damages from the time anyone of the debtors does not comply
with his undertaking. The debtors who may have been ready to
fulfill their promises shall not contribute to the indemnity beyond
the corresponding portion of the piece of the thing or of the value
of the service in which the obligation consists.
Article 1225. For the purposes of the preceding articles,
OBLIGATIONS to give definite things & those which are not
susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.
However, even though the object or service may be physically
divisible, an obligation is indivisible if so provided by law or
intended by the parties.
In OBLIGATIONS not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular
case.
TOLENTINO: To enforce a Joint Indivisible OBLIGATION,
Article 1209 has established the necessity of COLLECTIVE
FULFILLMENT and the action must be against all the debtors.
In case of non-performance by any of the debtors, the
OBLIGATION is converted into liability for losses &
damages = DIVISIBLE.
THUS, if one debtor is insolvent, or fails to pay his share,
the other debtors will no longer be liable for his share. The
entire liability for all damages is shouldered by the defaulting
debtor.
Solidarity vs. Indivisibility
Solidarity Indivisibility
Refers to vinculum, and refers to the prestation or the object of the
principally to the subjects of OBLIGATION
OBLIGATION
Requires plurality of subjects plurality not required
Solidarity remains even in case when OBLIGATION is converted to
of breach of one, they all liability for damages, the indivisibility
!"#$%&%'(")*+#,%-(.#/%
remain liable for indemnity ceases to exist, each debtor becomes liable Neither can the creditor's heir who received his share of the debt
for his part of indemnity return the pledge or cancel the mortgage, to the prejudice of the
Death of debtor terminates indivisibility affects the heirs of a decedent other heirs who have not been paid.
solidarity debtor, they remain to be bound to perform
the same prestation
From these provisions, it is expected the case in which, there being
Factors to Determine Whether OBLIGATION is Divisible or not several things given in mortgage or pledge, each one of them
1. will or intention of the parties, which may be expressed or guarantees only a determinate portion of the credit.
presumed;
2. objective or purpose of stipulated prestation; The debtor, in this case, shall have a right to the extinguishment of
3. nature of the thing; the pledge or mortgage as the portion of the debt for which each
4. provisions of law affecting the prestation thing is specially answerable is satisfied.
In OBLIGATIONS to give, indivisibility is
presumed; except:
1. when work is agreed to be by units of Article 2090. The indivisibility of a pledge or mortgage is not
time or measure; affected by the fact that the debtors are not solidarily liable.
2. or otherwise susceptible of partial
performance = divisible Article 1612. If several persons, jointly & in the same contract,
should sell an undivided immovable with a right of repurchase,
In indivisible OBLIGATION, partial performance is equal to none of them may exercise this right for more than his respective
non-performance. Thus, partial payment based on quantum share.
meruit is not availed. (Articles 1233 and 1248 forbids partial
fulfillment) Work half done i or han ork ndone!
Exceptions: The same rule shall apply if the person who sold an immovable
(1) OBLIGATION has been substantially performed in good alone has left several heirs, in which case each of the latter may
faith debtor may recover as if there had been complete only redeem the part which he may have acquired.
performance, minus the damages suffered by creditor;
(2) Creditor accepts, despite partial performance, with Article 1613. In the case of the preceding article, the vendee may
knowledge of incompleteness, without protest demand of all the vendors or co-heirs that they come to an
OBLIGATION is deemed fully performed. agreement upon the repurchase of the whole thing sold; and
should they fail to do so, the vendee cannot be compelled to
consent to a partial redemption.
ENTIRE contract SEVERABLE contract
Consideration single apportioned (expressly/implied) Article 1248. Unless there is an express stipulation to that effect,
Prestation/s several, distinct, separate items the creditor cannot be compelled partially to receive the
When a part is whole contract partly enforceable prestations in which the obligation consists. Neither may the
illegal unenforceable debtor be required to make partial payments.
One void void contract if not illegal, then valid
undertaking covenants may be enforced
Viz. Statute of must be in writing if separate chattels may be sold However, when the debt is in part liquidated & in part unliq-
Frauds below limits set by Statute of uidated, the creditor may demand & the debtor may effect the
Frauds, even when the sum total payment of the former without waiting for the liquidation of the
exceeds, contract not affected latter.

b. Indivisible OBLIGATIONS
Article 1209. If the division is impossible, the right of the creditors
may be prejudiced only by their collective acts, & the debt can be
enforced only by proceeding against all the debtors. If one of the
latter should be insolvent, the others shall not be liable for his
share.
Article 1210. The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.
Examples of Indivisible OBLIGATIONS:
(1) By virtue of its object
Article 618. Easements are indivisible. If the servient estate is
divided between two or more persons, the easement is not
modified, & each of them must bear it on the part which
corresponds to him.
If it is the dominant estate that is divided between two or more
persons, each of them may use the easement in its entirety,
without changing the place of its use, or making it more
burdensome in any other way.
Article 1583. Unless otherwise agreed, the buyer of goods is not
bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, & the seller
makes defective deliveries in respect of one or more installments,
or the buyer neglects or refuses without just cause to take delivery
of or pay for one or more installments, it depends in each case on
the terms of the contract & the circumstances of the case, whether
the breach of contract is so material as to justify the injured party
in refusing to proceed further & suing for damages for breach of
the entire contract, or whether the breach is severable, giving rise
to a claim for compensation but not to a right to treat the whole
contract as broken.
(3) Express agreement
Article 1714. If the contractor agrees to produce the work from
material furnished by him, he shall deliver the thing produced to
the employer & transfer dominion over the thing. This contract
shall be governed by the following articles as well as by the
pertinent provisions on warranty of title & against hidden defects &
the payment of price in a contract of sale.

(2) Express provision of law

Illustrations:
Article 2089. A pledge or mortgage is indivisible, even though the
debt may be divided among the successors in interest of the
debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot
ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
1. Obligations involving different parties; in other words, in a
problem involving two or more debtors and or two or more
creditors. Usual scenario: There are two or more debtors but only
one creditor but lately there would be scenarios 2 or more
creditors even only one debtor (consider this possibility) The usual
question: how much can one of the debtor compelled to pay if this
is an obligation to pay a sum of money? Or how much can a
creditor validly demand from the debtors? Clearly the question
pertains to whether it is joint or solidary because if this is joint
each debtor can only be compelled to pay his share and each
creditor entitled to demand also as to his share. Basis: There are
as many debts as there are debtors and as many credits as there
!"#$%&%'(")*+#,%-(.#/%
. That is why in an example if there are 3 debtors and
2 creditors, in a joint obligation, there are how many debts? Other
authors say, 3 debts, this is WRONG because this three debtors,
each of them would have two debtors. These debts are separate and
distinct from each other. In other words, we would divide the
entire obligation into three debtors, as each debtor has two
creditors. Effectively there are six debts.
2. Ex. (BAR EXAM QUESTION) Foreign medical students rented
an apartment unit from Thelma. In the contract it was stipulated
that the students would be responsible for the payment involving
the bills in utilities. Now after one semester, three of the students
went back home to their country. And only one was left and in
fact, this foreign student transferred to another apartment unit that
is smaller in size. But the lessor Thelma actually discovered that
there is an unpaid telephone bill in the amount of P80,000.00. So
Thelma demanded payment of the entire 80k from the foreign
student who was left in the country. The student said that I can
only be compelled to pay 1/4 of the 80k. Who is correct? The
foreign student is correct. Common reason that is wrong: That
there is no stipulation that the obligation is solidary so therefore it
is joint. This is wrong argument; inaccurate. Wrong because the
implication of the answer is solidarity would only arise if it is so
stipulated. This is wrong, because under 1207 there are three
exceptional circumstances when an obligation would be
considered solidary:
a. If so stipulated.
b. The law on the matter requires solidarity.
c. Because the nature of the obligation requires solidarity.
3. Th a h i f a e c f e d
obligation is joint or solidary, do not just base it on the stipulations.
It may not be stipulated but the law may provide for such. But
the more fundamental matter is that I have to emphasize, just
b e c a e h e b l e m e a i
that the answer could be found at the provisions of lease. Bear in
mind that the general principles in obligations-contracts are
applicable to these contracts. Thus, the correct answer is the
student is correct because the obligation is a Joint Obligation.
Because there was no stipulation for solidarity, the law on the
matter does not require solidarity and the third, the nature of the
obligation does not require solidarity. Common wrong: because
the law presumes that the obligation is joint. First, the law did not
i d e , d i d e e a d
If there is really a presumption, it is not a conclusive presumption.
Do not stop and claim that it is presumed. Read the facts in relation
with the applicability of laws.
4. Example: the problem pertains to succession and after the death of
X, the heirs found out that in the will a certain car was given to
grandchild A. But B and C took possession of the car after the
death of X and they took the car out for a joy ride. So while
driving, the driver, B cause the total destruction of the car. C on the
other hand was only a passenger. B died while C got injured. Can
C be held liable for the incident? Probably with damages? Answer:
YE S . E e i f i a C f a
– c.
5. Before going into the law, how will you know if the party so
stipulated that it is solidary? h a i f h e d l i d a
use, does it mean that it is not solidary? No. j i l a
c l l e c- Ronquillo
i e l vs CA ; j i l - used
a ind e e
b a k i g e c i ; i l i d m ;
d i i c i e l ; e a a e l ; c
6. Ex. I promise to pay X followed by two or more signatures of the
debtors, this is considered to be solidary. WE does not connote
that it is JOINT, it may be solidary. Should read the whole contract
or PN, maybe it is in the end that there is a stipulation that it is
solidary.
7. Article 2194 joint tortfeasors. Two or more persons liable under
quasi-delict will be held solidarily liable.
8. Ex. In agency, if you will be asked as to who will be liable. Do not
just say agent and principal. It is not all the time that the agent and
principal are solidarily liable. But you should complete the
scenario, like: If the agents acted in excess of his authority and
the principal contributed in making the person believe that the
agent had full power, the principal and the agent would be held
solidarily liable thi s is under 1911. But also expressly provided
two or more principals, in relation to a transaction involving an
agent they are held solidarily liable by law.
9. In relation to partners, ordinarily for partners obligations arising
from contracts, JOINT only. Unlike in code of commerce or
commercial transactions, it is SOLIDARY. Ex: if the obligation
arising from quasi-delict, maybe one of the partners was in the
performance of his obligations, another suffered damage because
of the wrongful act by his partner. The law provides under Article
1824 in relation to Article 1822, that the partners will be held
solidarily liable among themselves and with the partnership. Ex:
in the course of the partnership, one of the partners
misappropriated the sum of money received from a client for the
partnership. Under the law, all the partners are held solidarily
liable among themselves and with the partnership.
10. Even in Solutio Indebiti if two or more persons received a thing
h i c h h e d h a e h was
e i g h
delivered to them by mistake, they can be held solidarily liable. As
you read the provisions of the law, bear in mind that some of
this provisions, two or more persons may be held solidarily
liable. Ex. In the Family Code, are there provisions where the
spouses will be held solidarily liable? YES. As to those obligations
where conjugal properties will be charged with expenses.
11. So what if the obligation, aside from their particular rights and
obligations as to their shares, take note again if the obligation is
150k there 3 creditors, in a joint obligation, each one is entitled to
50k if there is no designation as to respective shares. This claim
is very wrong: The share is equal because it is joint. As if the
debtors will always share equally because it is joint or the creditors
will receive equally because it is joint. Not true. Rather in Article
1208, if there is no designation as to the respective shares, they
will share equally. T h a h e e i f i i
about it and have an agreement as to the shares each of them will
receive it may be differently or the same. What if one of the
debtors became insolvent, will that result to an increase in liability
of the other debtors? Will that prejudice other debtors? Answer:
again, it will depend on whether the obligation is joint or
solidary.
a. If it is a solidary obligation, e.g. A, B, C debtors and C
became insolvent. How much can A be held liable if the
debt is 100k? If C became insolvent, how much will A
be liable? B will be liable for the entire amount because
the obligation is solidary. This is not a proper answer
because you just repeated the facts . The question there
i h ais, why would b l Ae bem held liable
h e forh the
e whole a 100k if
one of them is insolvent? Reason here is, this debtor
can still be compelled to pay despite one of the debtors
is insolvent because in solidary obligations the share of
a c a the
c insolvent f willl ehave
a toe be shouldered
d e by the other
me a
debtors who are not insolvent, because “each one of
them” as the law says which is wrong , because it
should be “any one of them” may be held liable for the
entire amount. So A may still be held liable despite the
insolvency of one of the debtors.
b. If the obligation is joint, if one of them is insolvent
would that result in the increase of liability of the
others? NEVER. Because a very important principle in
e joint m obligations,
e i these debts
e l are
a separate
i and distincth a .
from each o her. Tha h e en if one of he deb or
is insolvent it will not affect/ prejudice the other
debtors. On the other hand, if one of the debt was
condoned, can there be partial condonation? YES. Can
there be even partial condonation even in solidary
obligation? YES. The word condone does not mean
the obligation is extinguished. In joint, if one of the
debts of the debtor was condoned, would that benefit
the other debtors? No, again their debts are separate and
distinct from each other. If the creditor demanded from
l . A and condoned the share of B. A cannot invoke the
condonation in favour of B to benefit him.
In a solidary obligation, if the creditor condoned one
of the share of the debtors, can the condonation benefit
the other debtors? In a way, because the other debtor
can only be compelled to pay less than the share of the
debtor whose share was condoned. In other words, if A,
B, aand C = 3 0 0 k . A h a e a c
d solidary obligation, how much can B be compelled to
a l l pay? Only 200k because he can raise the condonation
i d i i ofd A aasl al partial adefense.
d j C i was insolvent,
If l ; it
l l e c i doesn
e l t matter, it is still 200k because it is a solidary
obligation, the share of C will have to be shouldered
by the other debtors who are not insolvent that is
why B can still be compelled to pay 50k. Why? B can
still be compelled or be held liable as he is still not
exempt from his obligation to his co-debtors.
12. Distribution of share in insolvency: proportion to the share of the
debtors.
13. I forgot to mention the nature of obligation in solidary: nature,
insofar as SC had ruled in this case xxx: that the obligations of
two or more employers under the worker’s
. Their
obligation to the employee is solidary, not because it is stipulated
in the contract, not because the law the workers compensation act
provides, but the court said but because of the NATURE of the
obligation, it is solidary.
14. But in this one last scenario, in Gutierrez vs. Gutierrez, 3 persons
were held liable, 1. father of the minor driver, 2. driver of the
passenger truck/bus and 3. the owner of the passenger truck. If you
remember, the driver of the truck and the owner were held liable
under contract of carriage. The father was held liable, because the
minor was negligent, and the one injured is a passenger of the bus,
the father can be held in vicarious case and be held liable under
quasi-delict, nonetheless the three of them were held
SOLIDARILY liable, was there a stipulation? NO. Is there a law?
NO. If I have to support this ruling, it may only be supported on
this ground: by the nature of the obligation requires solidarity.
Not a good ruling but because of the nature, it can now be
considered as a good one.
15. MALAYAN INSURANCE vs. CA similar facts in the sense
!"#$%&%'(")*+#,%-(.#/%
that, 3 persons were held liable, 1. Owner of the jeepney who was
not even present when the accident happened, 2. Insurance
company, 3. Ricemill owner. The rice mill owner was correctly
held liable because it was his driver who caused the injury through
his negligence, vicarious liability. Malayan is really liable in
insurance contract, because the jeepney was insured. The owner of
the jeepney was held liable but he was not held liable in the SC. As
owner of the jeepney he can only be held liable only if he was
e e h e e d i g h e mi
diligence where by the exercise of due diligence he could have
prevented the mishap. He also cannot be held liable because he is
not the employer of the driver. Malayan said they cannot be held
solidarily liable because the other two is under quasi-delict and
their liability is under contract. xxxx If we apply this ruling, in
G ierre , al ho gh here a b an ial di inc ion a he are
held liable under different causes. T h a h I c a
in regular mishaps even if they are held under different causes of
action they may validly held solidarily liable on the ground that
the nature of the obligation requires solidarity.
16. Into the rights and obligations: favorite in the bar.
a. In relation to this: Defenses: We have already discussed
the insolvency as a defense. INSOLVENCY whether it
is in a joint obligation or in solidary obligation, in joint,
the insolvency of one cannot be invoke by the others
because their obligation is distinct and individual . In
solidary, it also cannot be invoked because it will be
shouldered by the other debtors. Personal defense of
MINORITY: if one of the debtors was a minor at the
time the contract was entered into. This is an obligation
arising from a contract. Is minority a defense? If it is a
defense, who can invoke such? If he can invoke the
defense, is it a total or partial defense? As to the minor
himself, it is always a defense, it doesn’t matter if the
. Contract is voidable. If the minor wants the
contract to be annulled, he must return whatever he has
received from the other party- Mutual restitution. He
wants to annul then he must return what he has
received. If the one invoking minority is not the minor
himself, can he invoke? It DEPENDS. If it is JOINT,
cannot invoke because it is separate and distinct. If it is
Solidary, YES but is it a total or partial defense? Only
PARTIAL. Example: 5 debtors one of them is a
minor. 50k debt. Creditor demanded payment to the
other creditors like to B, how much can B be compelled
to pay despite one of them is a minor? Only 40k
because he can only invoke minority as to the share of
the minor.
b. There can be a defense: Total Defense in any kind of
obligation that you can invoke in whether joint or
solidary and can be invoked by anyone. That defense
goes into the NATURE OF THE OBLIGATION. E.g.
if an action was filed against one of the debtors, but the
action was dismissed but thereafter the creditor filed
another action against another debtor, is it possible that
the action will not prosper, that it will be dismissed?
YES. If the ground for the dismissal of the first action is
because the contract is void, h e e c a
obligation to speak of.
17. PNB CASE: During the pendency of the action for the recovery of
sum of money, one of the debtors died may this action still be
prosecuted despite the death of one of the debtors? The effect of
this rather would the debt of one of the debtors result in the court
losing jurisdiction of the case? Others claim in this case that the
claim should be filed with the estate of the deceased, is that
correct? Regardless if joint or solidary, xxx if joint, one of the
debtors died, the share would be null and void only with regard to
the share of the debtor who died but as to the other joint debtors
they would still be held liable because it is a separate and distinct
obligation. But if this is a solidary obligation, one of them died,
would that result in the court losing jurisdiction over the case? No,
because in solidary obligation, the creditor can demand to any of
the debtors for the fulfilment of the obligation. The trial court can
continue with the proceeding of this case.
18. But a very good case is the CALANG CASE: Negligent act of the
driver. The driver and the owner were held liable. Can they be held
solidarily liable? Yes, they can be held solidarily liable if the
source of the obligation is quasi -delict. In quasi-delict xxxx
liability of the employer is also a direct and primary liability. And
persons held liable under quasi-delict can be held solidarily liable.
In this case, this is a criminal complaint filed against the driver
because he injured and killed someone and he was convicted. And
in the conviction there is a civil liability. If someone died as a
result of a crime or quasi-delict, Article 2206 h e e -called a
indemnity and there is also what you call actual damage. Even
without proof, the minimum that should be given is P25,000.00
by way of temperate damages. In addition to indemnity. BUT
in this case, by way of damages the driver and Philtranco was held
solidarily liable. BUT the SC said this is wrong, these two persons
cannot be held solidarily liable. Why? Because in death, the
liability involved is only a subsidiary liability. In other words, the
employer cannot be held liable until the properties of the convict
have been exhausted. Solidary is direct, that you do not need to
exhaust the properties of another. That is why it can never be
solidary. I think this is a good ruling.
OTHER KINDS OF OBLIGATIONS
19. An obligation to pay 1M, can the debtor compel the creditor to
accept a 100k? What if the creditor refuses to accept does it mean
that he can be considered in delay in relation to 100k? As a rule,
NO. A creditor cannot be compelled to accept a partial
h a a dperformance.
i f h e As da i rule,
d partiale performance
e c i e is dnonee
performance. He cannot be compelled to accept therefore he
cannot be considered in delay. Debtor will be the one who will be
in delay. But of course there are exceptions to this rule:
INSTALLMENT. Why would the creditor accept the partial
payment? Because it has been agreed by both the creditor and the
debtor. In other words, such obligation is called a DIVISIBLE
a c c e OBLIGATION.
a l i g
20. Are there obligations which are in a way are divisible even they are
not stipulated b y the parties? YES. As provided by law these are
obligations that requires the performance for a number of days
or in metric units. On the other hand, are there obligations which
by their nature are indivisible? Not even the parties would stipulate
for solidarity? The law would also tell us YES. A good example
would be an obligation to deliver a definite thing . Obligation to
deliver a horse. It cannot be that the obligation is divisible. By its
very nature it is indivisible. Example, if A, B and C obliged
themselves to deliver to X a specific horse, the value of the horse is
90k. However before the obligation became due, the horse died
due to the fault of A. if X creditor, filed an action against C. May
the action prosper? Decide the case. First, there are those who
would say that the action would not prosper because not all the
debtors were impleaded in this case. This is wrong. First, if the
e i i ma h e a c i
I d e me a
the plaintiff he is the injured party. But if he is really the injured
party and this is clear under the law, he has a remedy or remedies
available to him. Next question would be: what was the remedy
invoked? If the remedy invoked is wrong then the case would be
dismissed. In the problem, that would have been correct that the all
debtors should have been impleaded only if the action is for
specific performance. But under the circumstances, if you are the
lawyer, would you file an action for specific performance? NO.
Because the horse already died. If o are he credi or la er,
you would advice your client to ask for an amount of money which
is equivalent to the value of the horse. Will the action prosper
against C? To answer the question, you should know the nature of
the problem. The problem here pertains to joint indivisible
obligation (JIO). Why joint? Because there is no stipulation, law
on the matter does not require solidarity, and the nature of the
obligation does not require solidarity. It is also indivisible because
it involved the delivery of a determinate thing, a definite thing.
Knowing that this is JIO, and cannot be fulfilled due to the fault of
one of the debtors, law says this obligation would be converted
into a monetary obligation with each debtor only be held liable to
each of his share and only the debtor at fault be the only one
liable for damages. In other words, how much can C be held liable
in the problem? Only 30k. But if this is a Solidary Indivisible
Obligation? How much will C be held liable? 90k plus damages.
e h e But eof course C can seek reimbursement to B for 30k only. But
only to A can C seek reimbursement for the damages as A is the
one who was at fault.
21. : In a problem, A obliged himself, promise to
pay X or Y. when the obligation was already due, X demanded the
payment from A but thereafter Y also demanded payment from A.
A then paid Y instead of X even though X demanded first. May X
have a cause of action against A? Does A still have a liability to X?
First, start with what kind of obligation is involved. This is neither
j i l i d a b e c a e f
then maybe it can be a joint or solidary obligation. Second,
conjunctive or alternative, this is also wrong because there is only
one prestation involve, in those kinds of obligations, there should
be two or more prestations involved. In other words, what kind of
obligation is involved here? DISJUNCTIVE OBLIGATION.
The problem with this, in this scenario, there is no express
provision or article which would provide us with this rule in
relation to this problem as to whether X would still have a cause of
action against A. But the answer to the question would be if the
intention of the parties is clear as to who has the right to choose
to whom payment should be made. If A has the right to choose,
does it matter if X demanded the payment first, no it doesn’t
So the problem here would be: That the intentions of
the parties were not clear as to whom payment should be made.
Then who has the right to choose, since no express provision we
have to apply other provisions by analogy. Tolentino would want
us to apply rules in SOLIDARY obligations. So would X have a
cause of action against A? YES, because is solidary obligations, if
there are two or more creditors, the debtor should pay the creditor
who has first made the demand. Atty Uribe cannot agree with
Tolentino. Why? Because the three exceptional rules are not
present in the case. Rather I would support the answer that we
should apply the rules on Alternative Obligations. There is a
!"#$%&%'(")*+#,%-(.#/%
semblance as there is an alternative subjects. If in alternative
obligations, would X still have a cause of action against A? No
more because in alternative, the law provides that the debtor has
the right to choose unless otherwise expressly granted to the
creditor.
5. AS TO THE PRESENCE OF AN ACCESSORY
UNDERTAKING IN CASE OF BREACH
a. OBLIGATIONS with a Penal Clause
Article 1226. In OBLIGATIONS with a penal clause, the penalty
shall substitute the indemnity for damages & the payment of
interests in case of non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfillment of
the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
Balane: Articles 1226 to 1230 on obligation with a penal clause is the
same as liquidated damages found in Articles 2226 to 2228 by
authority of Lambert v. Fox, 26 Phil. 588.
(Tolentino) Penal Clause- A penal clause is an accessory undertaking
to assume greater liability in case of breach. The purpose is to
strengthen the coercive force of the obligation. When a penal clause is
present, damages do not have to be proved.
Thus, DUAL FUNCTION OF PENAL CLAUSE:
(1) To provide for liquidated damages
(2) To strengthen the coercive force of the OBLIGATION by
threat of greater responsibility in case of breach.
Characteristics of Penal Clause:
1. Subsidiary (also called alternative) upon non-performance, only
the penalty may be demanded.
Exception: Where penalty is joint (cumulative), where both the
principal undertaking & penalty may be demanded under Article 1227,
second sentence: "xxx unless this right has been clearly granted
him."
Notice the word clearly (not explicitly) which means that the right can
be clearly granted by implication.
2. Exclusive penal clause is for reparation. It takes the place of
damages.
Exception: When it is for punishment in which case both penalty
& damages may be demanded, namely--
If there is a stipulation that both penalty & damages are
recoverable in case of breach
If the obligor refuses to pay the penalty
If the obligor is guilty of fraud in the fulfillment of his
obligation.
Balane: The SC considered the 4% interest as not a penal clause
because it does not s trengthen the coercive force of the obligation.
ROBES-FRANCISCO V. CFI [86 SCRA 59]
Facts: In May 1962 Robes-Francisco Realty & Development Corporation,
now petitioner, agreed to sell to private respondent Lolita Millan for and in
consideration of the sum of P3,864.00, payable in installments, a parcel of
land containing an area of approximately 276 square meters, situated in Barrio
Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its Franville
Subdivision. 2
Millan complied with her obligation under the contract and paid the
installments stipulated therein, the final payment having been made on
December 22, 1971. The vendee made a total payment of P5,193.63 including
interests and expenses for registration of title. 3
Thereafter, Lolita Millan made repeated demands upon the corporation for the
execution of the final deed of sale and the issuance to her of the transfer
certificate of title over the lot. On March 2, 1973, the parties executed a deed
of absolute sale of the aforementioned parcel of land. The deed of absolute
sale contained, among others, this particular provision:
That the VENDOR further warrants that the transfer certificate of
title of the above-described parcel of land shall be transferred in
the name of the VENDEE within the period of six (6) months from
the date of full payment and in case the VENDOR fails to issue
said transfer certificate of title, it shall bear the obligation to
refund to the VENDEE the total amount already paid for, plus an
interest at the rate of 4% per annum. (record on appeal, p. 9)
Notwithstanding the lapse of the above-mentioned stipulated period of six (6)
months, the corporation failed to cause the issuance of the corresponding
transfer certificate of title over the lot sold to Millan, hence, the latter filed on
August 14, 1974 a complaint for specific performance and damages against
Robes-Francisco Realty & Development Corporation.
Issue: Whether or not the petitioner is correct in invoking Article 1226 of the
Civil Code which provides that in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests in case
of noncompliance, if there is no stipulation to the contrary.
Held: NO. We would agree with petitioner if the clause in question were to be
considered as a penal clause. Nevertheless, for very obvious reasons, said
clause does not convey any penalty, for even without it, pursuant to Article
2209 of the Civil Code, the vendee would be entitled to recover the amount
paid by her with legal rate of interest which is even more than the 4%
provided for in the clause.
It is therefore inconceivable that the afore-cited provision in the deed of sale is
a penal clause which will preclude an award of damages to the vendee Millan.
In fact the clause is so worded as to work to the advantage of petitioner
corporation.
CASE DOCTRINES: The theory that penal and liquidated damages
are the same cannot be sustained where obligor is guilty of fraud in
fulfillment of OBLIGATION;
The penalty clause does not partake of the nature of
liquidated damages.
Party to a contract which was breached by the other, may be
given the right to recover actual damages instead of
stipulated liquidated damages.
A creditor, in case of fraud by the obligor is entitled to
stipulated penalty plus the difference between the proven
damages & such stipulated penalty.
PAMINTUAN V. CA [94 SCRA 556]
FACTS: This is a case for Recovery of compensatory damages for breach of
contract of sale in addition to liquidated damages.
In 1960, MARIANO C. PAMINTUAN, with his barter license, was authorized
to export to Japan 1000 metric tons of white flint corn valued at USD 47K, in
exchange for collateral importation of plastic sheetings of equal value. As such
he entered into contract with TOKYO MENKA KAISHA, LTD. of OSAKA,
JAPAN. He also entered into a contract TO SELL the plastic sheetings to YU
PING KUN, CO., INC. for Php 265K, thus the latter undertook to open an
irrevocable domestic letter of credit in favor of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic sheetings to
b d e g a f Y P i g i Ma i l a a d b
c a i g e e l ; & h a b e a c
damages of Php 10K.
Pamintuan made incomplete deliveries, and then asked the President of the Co.
for cash payment and adjustments in price, which the company agreed to. When
Pamintuan refused to complete his deliveries, he invoked that the contract was
novated and Co. failed to comply thereto.
Co. filed for damages against Pamintuan. The lower court awarded actual
damages, liquidated damages as stipulated, and moral damages.
Pamintuan appealed and assert that Yu Ping is only entitled to recover liquidated
damages. CA found Pamintuan guilty of fraud, and sustained the Lower court.
ISSUE: Whether or not the Co. is entitled only to liquidated damages as
appearing in the contract of sale.
HELD: We hold that appellant's contention cannot be sustained because the
second sentence of Article 1226 itself provides that "nevertheless, damages
shall be paid if the obligor xxx is guilty of fraud in the fulfillment of the
obligation." xxx The trial court & the CA found that Pamintuan was guilty of
fraud because he did not make a complete delivery of the plastic sheeting & he
overpriced the same. Xxx There is no justification for the Civil Code to make
an apparent distinction between penalty and liquidated damages because the
settled rule is that there is no difference between penalty and liquidated damages
insofar as legal results are concerned and that either may be recovered without
the necessity of proving actual damages and both may be reduced when proper
(Arts. 1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L.
Reyes, cited in 4 Tolentino's Civil Code, p. 251). The penalty clause is strictly
penal or cumulative in character and does not partake of the nature of
liquidated damages (pena sustitutiva) when the parties agree "que el acreedor
podra pedir, en el supuesto incumplimiento o mero retardo de la obligacion
principal, ademas de la pena, los danos y perjuicios. Se habla en este caso de
pena cumulativa, a differencia de aquellos otros ordinarios, en que la pena es
sustitutiva de la reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).
After a conscientious consideration of the facts of the case, as found by Court of
Appeals and the trial court, and after reflecting on the/tenor of the stipulation for
liquidated damages herein, the true nature of which is not easy to categorize, we
further hold that justice would be adequately done in this case by allowing Yu
Ping Kun Co., Inc. to recover only the actual damages proven and not to award
to it the stipulated liquidated damages of ten thousand pesos for any breach of
the contract. The proven damages supersede the stipulated liquidated damages.
This view finds support in the opinion of Manresa (whose comments were the
bases of the new matter found in article 1226, not found in article 1152 of the old
Civil Code) that in case of fraud the difference between the proven damages and
the stipulated penalty may be recovered (Vol. 8, part. 1, Codigo Civil, 5th Ed.,
1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety thousand
five hundred fifty-nine pesos and twenty-eight centavos (P90,559.28), with six
percent interest a year from the filing of the complaint.
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Penalty & Liquidated damages :
There is no justification for the NCC to make an apparent
distinction between penalty & liquidated damages because
the settled rule is that there is no difference between penalty
& liquidated damages insofar as legal results are concerned
& either may be recovered without the necessity of proving
actual damages & both may be reduced when proper. Xxx
We further hold that justice would be adequately done in this
case by allowing Yu Ping Kun Co., Inc. to recover only the
actual damages proven, & not to award to it the stipulated
liquidated damages of P10,000 for any breach of the
contract. The proven damages supersede the stipulated
liquidated damages.
This view finds support in the opinion of Manresa that in
cases of fraud the difference between the proven damages &
the stipulated penalty may be recovered.
Legality of Penal clause: not contrary lo law, morals, public order
(e.g. usurious, immoral, unjust, merciless)
How construed: strictly construed, in accord with stipulation.
(effecting minimal rights)
When there could be damages aside from Penalty:
(1) E e i i : e .
penalty may be had, plus attor e f e e
(2) Debtor refused to pay penalty
(3) T h e e f a -performance
d i d e b
Non-performance gives rise to presumption of
fault, debtor has burden of proof: defenses may be
force majeure, or act of creditor himself;
CASE:
BACHRACH V. ESPIRITU [52 Phil. 346]
RE: Chattel Mortgage with PENAL CLAUSE
FACTS: Faustino Espiritu purchased from Bachrach Motor in JULY 1925 a
two-ton White truck on installment basis. This truck was mortgaged, including
two other white trucks owned by defendant which are fully paid for, to secure
the loan.
General Rule as to creditor: may not demand both fulfillment
and payment of penalty at the same time; except if such right is
granted clearly.
As to the last sentence, when it becomes impossible without
creditor’s fault it will happen only if through debtor’s fault or
delay, for penalty to become enforceable; because if through
fortuitous event without creditor’s nor debtor’s fault, principal
OBLIGATION would be extinguished and so will the penal clause.
Article 1228. Proof of actual damages suffered by the creditor is
not necessary in order that the penalty may be demanded.
Baviera: Courts can enforce contracts according to their terms.
Article 1229. The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty
may also be reduced by the court if it is iniquitous or
unconscionable.
Article 1230. The nullity of the penal clause does not carry with it
that of the principal obligation.
l e g a l i e e f 1 2 % . a . a i d e f m
f 2 0 %The nullity of the principal obligation carries with it that of the
penal clause.
Partial Performance refers to extent or quantity of fulfillment
Irregular Performance refers to the form
Doctrine of Strict Construction will apply as against the
enforcement of the penalty in its entirety, when the clause is
clearly punitive, not when it is impliedly intended as
liquidated damages;
Thus penalty is mitigated in:
1. partial or irregular performance
2. iniquitous or unconscionable penalty

In FEBRUARY 1925 defendant also purchased another one-ton white truck 1. Distinguished from OBLIGATION with suspensive condition:
from same plaintiff corp. with down-payment balance on installment basis also, Happening of the condition gives rise to the OBLIGATION;
placing this truck on mortgage for security and including the 2 above mortgaged in penal there is already a principal OBLIGATION
trucks also. Again, defendant failed to pay this debt. The principal OBLIGATION itself is dependent upon a
future and uncertain event; in penal, only the accessory
In both sales, a 12% annual interest was agreed upon the unpaid portion of the OBLIGATION (the penalty) depends upon non-performance
contracts, and upon maturity, when due, non-payment of total remaining debt
would give rise to 25% penalty; aside from mortgage deed, there was a
or breach.
Promissory Note, co-signed by defendant brother Rosario Espiritu solidarily.
Thus, Rosario appeared as intervenor in the collection suits alleging to be the 2. Distinguished from alternative OBLIGATIONS
sole owner of the two other trucks mortgaged. He alleged that he did not sign
the mortgage and did not consent to the inclusion of his two trucks therein. Article 1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty, save in the
While the cases were pending in lower court, the trucks were sold by virtue of case where his right has been expressly reserved for him. Neither
the mortgage and brought in a net sum not enough to settle the debts due. The can the creditor demand the fulfillment of the obligation & the
Lower court directed payments of all the sums due and in both two cases ordered satisfaction of the penalty at the same time, unless this right has
the payment of 12% interest p.a. until fully paid and a penalty of 25% in addition
been clearly granted him. However, if after the creditor has
as appearing in the contracts. To these matters the defendants alleged that these
amounts to usury. decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault,
ISSUE: Whether or not the 12% interest p.a. plus additional penalty of 25% the penalty may be enforced.
makes the contract usurious?
HELD: NO. Article 1152 of the Old Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreement, the penalty Article 1200. The right of choice belongs to the debtor, unless it
xxx does not include the interest, & as such the two are different & distinct has been expressly granted to the creditor.
things which may be demanded separately. The penalty is not to be added to the
interest for the determination of whether the interest exceeds the rate fixed by
law, since said rate was fixed only for the interest. The debtor shall have no right to choose those prestations which
are impossible, unlawful or which could not have been the object
BUT, considering partial performance, SC reduced penalty to 10% in of the obligation.
accord with Article 1154. (Article 1229, NCC)
ALTERNATIVE OBLIGATION WITHPENAL CLAUSE
Article 1227. The debtor cannot exempt himself from the OBLIGATION
performance of the obligation by paying the penalty, save in the 2 or more OBLIGATIONS are h e e l 1 i c i a
case where this right has been expressly reserved for him. Neither due but performance of 1 is in case of non-performance shall the penal
can the creditor demand the fulfillment of the obligation & the enough clause be enforceable
satisfaction of the penalty at the same time, unless this right has Impossibility of one of impossibility of principal OBLIGATION,
been clearly granted him. However, if after the creditor has OBLIGATIONS, the other/s penal clause extinguished
decided to require the fulfillment of the obligation, the subsists
performance thereof should become impossible without his fault, Debtor can choose which debtor cannot choose to pay penalty to avoid
prestation to fulfill performance, unless expressed
the penalty may be enforced.
X obliged to deliver a horse to X obliged to deliver a horse to Y. if he fails he
Y or pay him P500 will pay him P500
General Rule: Debtor cannot avoid performance by paying the
penalty; except when expressly granted to debtor. 2. Distinguished from Facultative OBLIGATIONS
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Article 1206. When only one prestation has been agreed upon, but
the obligor may render another in substitution, the obligation is Illustrations:
called facultative. 1. ROBLES-FRANCISCO vs. CFI CASE: This case would tell you
the nature of a penal clause . Spouses bought a parcel of land
payable in instalment and in the contract it was stipulated that if
The loss or deterioration of the thing intended as a substitute, despite full payment Robles-Francisco the (developer) would not
through the negligence of the obligor does not render him liable. be able to give to the partners the certificate of title over the land
But once the substitution has been made, the obligor is liable for the seller is obliged to return all the amounts paid plus four percent
the loss of the substitute on account of his delay, negligence or interest. Now when the spouses were already paid of the entire
fraud. amount of the purchase price, Robles-Francisco could not deliver
the certificate of title over such parcel of land because the mother
title was being mortgaged with the GSIS, hence, the condition
Article 1227. The debtor cannot exempt himself from the canno be a i fied, and ha h he po e filed hi ca e o
performance of the obligation by paying the penalty, save in the recover all the amounts paid plus 4% interest plus damages.
Actual amount paid + 4% + nominal damages. But Robles-
case where this right has been expressly reserved for him. Neither Francisco would question this decision claiming that, the 4%
can the creditor demand the fulfillment of the obligation & the interest stipulation is a penal clause and under the law the clause
satisfaction of the penalty at the same time, unless this right has shall substitute the indemnity for damages and the payment of
been clearly granted him. However, if after the creditor has interest . In other words, the court should have not awarded the
decided to require the fulfillment of the obligation, the nominal damages in addition to the penalty. Is the ruling in Robles-
performance thereof should become impossible without his fault, Francisco correct? WRONG. Because the 4% interest stipulation
the penalty may be enforced. said the court cannot be considered as a penal clause; because a
penal clause by its nature should provide for a greater liability
in case of non-performance and even under the law at that time,
FACULTATIVE OBLIGATION with PENAL CLAUSE if a person fails to pay a sum of money it is already in delay, he
OBLIGATION will be liable for interest, if you have any agreement as to the rate
Debtor has power to make General Rule, none; except when expressed it would have to be 6% at that time, now 12%, if by law you will
substitution be liable for 6% and by stipulation only 4%, how could that be
Creditor cannot demand both such right to demand both may be given considered a penal clause? When again a penal clause should
prestations provide for a greater liability. So what happened? The trial court
then ruled that Robles-Francisco should return all the amount
GUARANTY OBLIGATION with PENAL CLAUSE received plus 4% penalty plus nominal damages. However, I said
Is a contract by which virtue, OBLIGATION to pay penalty is different as a rule that penalty shall substitute as indemnity for damages and
a 3rd person (guarantor) from the principal OBLIGATION, but also payment of interest as this admits exceptions. In other words,
obliged himself to fulfill a i d i l i e -performance
f d e b aside from the penalty agreed upon, the debtor may be held
e a i i l i e f d e b liable for other amounts. 3 reasons:
non-performance a. . E.g. Credit cards agreement.
Intended to insure Intended to insure performance of principal In other words here, penalty shall not be a substitute for
performance of principal OBLIGATION indemnity for damages and the payment of interest.
OBLIGATION May interest ka na, may penalty ka pa. Which was in
Accessory & subsidiary Accessory & subsidiary OBLIGATION the ruling in the case of Bachrach vs. Espiritu
OBLIGATION stipulated penalty of 25% there is still an interest of
Principal debtor cannot be both OBLIGATIONS can be assumed by one 12% although if you read the case, ordinarily are courts
guarantor person bound to the penalty agreed upon by the parties? YES
Subsists even when principal penalty is extinguished in such case, unless because it is so stipulated. But of course there are
OBLIGATION is voidable or assumed by 3rd person exceptions, there are instances when the court would
unenforceable have the power to reduce the penalty agreed upon:
i. there was irregular in the performance
(Bachrach vs. Espiritu; Macalinao vs. BPI);
ii. when the penalty is unconscionable. When
will it be unconscionable? A 25% penalty
Q: When does delay set in? would have been unconscionable? Not
A: Delay sets-in in the following manner: necessarily, it would depend on the principal
amount involved.
1. For Reciprocal simultaneous OBLIGATIONS b. Instead of just penalty the person liable of fraud
By the readiness of one of the parties to perform & his letting the can be held liable of other amounts for damages
suffered by the other party. Problem: Spouses BK
other party know; & the other party is not ready to comply in a proper ordered from a furniture company set of furniture and it
manner with what is incumbent upon him. was so agreed upon that these sets of furniture would be
made of Narra and this furniture company delivered
2. For Reciprocal OBLIGATIONS which are not simultaneous furniture sets not made of Narra to spouses BK. In that
General Rule: Demand is necessary (Article 1169, par. contract it was stipulated that in case of non-
(1) This is called mora solvendi ex persona . performance, will be liable for penalty of 100k. Spouses
Exception: When demand is not necessary (the exceptions are found BK filed an action claiming for the 100k by way of
in Article 11 69, par. 2.) This is called mora solvendi ex re . stipulated penalty plus 300k for actual damage suffered
by them. Is he correct in claiming such? He would have
Q: What kind of demand is necessary? b e e c e c i f Be fication, f
in a way partially correct, in that the furniture
A: Judicial or extra-judicial company committed fraud in delivering the sets of
Exceptions: furniture not made of Narra, but did the company
When the obligation or the law expressly so declare . When the commit fraud already when they delivered the
contract says that without the necessity of demand, default sets in furniture? No. Just because that the furniture delivered
upon the failure of the obligor to perform on due date. There must were not made of Narra it is already fraud, it could
be something in the contract which explicitly states that the have been that it was made by mistake. Fraud is not
demand is not necessary in order that delay may set in. presumed. Good faith is presumed. Unless the
circumstance warrants that fraud was committed by
making it appear that the furniture was made of Narra
When from the nature & the circumstances of the obligation it when it was not. Then fraud is committed. Why did I
appears that the designation of the time when the thing is to be say only partially correct lang si Mr. BK? Because in
delivered or the service is to be rendered was a controlling Pamintuan case, there was fraud that is why creditor
motive for the establish ment of the contract. was able to recover an amount greater than the amount
Illustration: Bong Baylon is getting married in Valentines '96. Inno they have agreed upon. Back to the problem, assuming
Sotto was supposed to make Ella's (the bride) wedding gown. Feb. 14 there was fraud, is Mr. BK right in claiming both the
comes, no gown was delivered. Ella gets married in blue jeans & T- penalty and the actual amount? NO. If he would have
shirt. Finally, on Feb. 15, Inno delivers the gown. xxx Ella sues Inno recovered already the penalty the actual amount will
be minus to the penalty. Hindi pwede penalty + actual
for breach. Inno says there was no demand. In this case, demand is amount, because if ganito, Mr. BK would enrich
not necessary in order that delay may exist. himself.
2. Refuses to pay penalty this is consistent with Delay, therefore he
When demand would be useless , as when the obligor has rendered it i l l b e l i a b l e f h e a m
beyond his power to perform. Example is the case of Chavez v. compliance, like an obligation to deliver a horse, with the penalty
Gonzales, infra. of 300k in case of non-compliance and on the day that the
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obligation is due, the debtor failed to deliver the horse. Would
specific performance be the proper remedy? YES. As long as the
debtor is still in the position to deliver the horse he can still be
compelled to deliver such. But can the creditor recover both the
horse and the penalty? Ordinarily, NO, it is either the demand for
the horse or just the recovery of the penalty because that is the rule.
Except: unless the recovery of both is CLEARLY GRANTED TO
HIM. “clearly granted to him” under the law it says, it need not
3. E.g. in a real estate contract, if the obligation to build a building is
for the period of 365 days, and if after the period has already
expired, and the project would not have been completed, the
contractor would be liable to developer for 50k per every date of
delay. The period of 365 days have already lapsed or expired, can
the creditor still compel the debtor to perform? Of course if he
refuses he cannot, the demand will be a valid demand, but he
cannot be compelled to continue because it is an obligation to do.
Plus is he entitled to the penalty? Yes even if it was not stipulated
as it is clear here that he has a right to recover. He has the right
to demand the performance of both.
4. E.g. With that example of the horse with a penalty of 300k. The
debtor said here is the 300k which we agreed as the penalty, I
would not deliver the horse anymore, I will just pay you the
penalty instead. Can the creditor be compelled to accept? NO,
unless this time the debtor reserves such right to himself. If it is
clear that instead of performing the obligation he can just pay the
penalty then such it is possible. Otherwise, he would still be
compelled to deliver the horse.
5. LAST, if the principal obligation is void, can the debtor be
compelled to pay penalty? NEVER. Penal clause is just an
accessory clause. The payment of the penalty is just an accessory
therefore if the principal obligation is void then the penalty will
also be void. But if the penal clause is void would that affect the
obligation? NO. E.g. A promise to deliver B his horse, if he fails to
do so he would have to give B 3 kilos of shabu. Void is the penal
clause, but the principal obligation still subsists.
6. If the principal obligation is void, may that give rise to the
enforcement of the penal clause? YES. If it is clear in the
agreement that if it is a void obligation then one of the parties will
be liable to pay a sum of money the other parties. This can easily
be understood in relation to contracts entered into by a Filipino and
a foreigner. Because if the negotiation of the contract would be
made in the Philippines, and if the project would have to be
e f me d h e e i h e P h i l i
always demand that if this contract or there would be a stipulation
that if the contract would be declared void or the contract in
general declared void by our courts, the other party, the Filipino
would be liable for 10M. Can the Filipino be held liable? Yes if it
was declared void and it is reasonable because in the negotiation
the foreigners has already incurred expenses like the plane f are
and for hotel accommodations.
E. BREACH OF OBLIGATIONS (ARTICLE 1170)
Article 1170. Those who in the performance of their obligation are
guilty of fraud, negligence or delay, & those who in any manner
contravene the tenor thereof, are liable for damages.
Irregularity of Performance [Articles 1169 - 1174]
Article 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
When the obligation or the law expressly so declare;
When from the nature & the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract;
When demand would be useless, as when the obligor has rendered
it beyond his power to perform.
In reciprocal OBLIGATIONS, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
Balane: Two Classes of Irregularity of Performance:
1. Attributable to the debtor
A. Fraud
B. Negligence
C. Delay
2. Not attributable to the debtor
A. Fortuitous event
Illustrations:
22. If there is an obligation, does it mean that one of the parties would
be liable for the damages? Common answer: YES and this is
VERY WRONG. J b e c a e h e e a
liable for damages because the best scenario is both parties did not
comply with their respective obligations if this is reciprocal
obligation. Who would be liable? No one. But if one of the parties
failed to perform therefore liable for damages? Not necessarily
because there are EXCUSES to non-performance. Fail to
perform easiest reason: because it was the fault of the creditor.
But this scenario is not usual.
23. Usual defense in real life and in bar exam: FORTUITOUS
EVENT. I fail to perform my obligation because of this Fortuitous
event (FE). Under the law, FE could not have been foreseen or
though foreseen it is inevitable.
a. Robbery is it unforeseen? If your business is pawnshop,
robbery is not a FE.
b. .
c. Asian Financial Crisis in the case of Filinvest:
Spouses bought a condo unit in a pre-selling stage, but
even after the full payment of the price still there was
no condo. So the spouses sued Filinvest, Filinvest in its
defense was FE. They were not able to complete the
j e c b e c a e f F E h a
liable. Wa F i l i e ?c NO, e
because the Asian financial crisis is not a fortuitous
event. This is because it is man-made. There is a
financial crisis because of the greed of the people, so
this is man-made. But even if the reason was due to
Fortuitous event can it be possible that the debtor will
still be liable? YES. In other words there are exceptions
as to the general rule that in case of fortuitous event
the debtor may not be held liable. These are:
i. . e.g.
depositarium
ii. e.g. 1165.
The obligation to give a determinate thing, if
the loss due to the debtors fault can still be
held liable to thing lost if at that time of the
lost he was already in delay. Or before the
lost he promised to deliver such thing to two
or more persons and after it was lost xxxxx,
liable because the law so provides. e.g.
commodatum
i e , h a h h e f e i g e l d
MANNER OF BREACH
(1) Fraud
Article 1171. Responsibility arising from fraud is demandable in
all OBLIGATIONS. Any waiver of an action for future fraud is void.
Article 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would not have
agreed to.
Article 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay
damages.
Balane: Is it correct to say that fraud in Article 1170 means deceit or
insidious machinations? No.
LEGASPI OIL VS. CA [224 SCRA 213] - Definition of Fraud.--
In general, fraud may be defined as the voluntary execution
of a wrongful act, or willful omission, knowing &
intending the effects which naturally & necessarily arise
from such act or omission;
The fraud referred to in Article 1170 is the deliberate &
intentional evasion of the normal fulfillment of obligation ;
It is distinguished from negligence by the presence of
deliberate intent, which is lacking in the latter.
Fraud as used in Article 1170 is different from fraud as a cause for
vitiation of consent in contracts (more properly called deceit which
prevents the contract from arising; this is found in Article 1380, et seq.)
Fraud as referred here is the deliberate and intentional evasion of
normal fulfillment of OBLIGATIONS; thus, as ground for damages
from this article, implies some kind of malice or dishonesty, which
does not cover mistake, errors of judgment made in good faith.
Evasion of a legitimate OBLIGATION for benefits admittedly
received constitutes unjust enrichment.
Q: What is a synonym for fraud as used in Article 1170?
A: Malice.
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Effects of Fraud:
1. Creditor may insist on performance, specific or substitute (Article
1233.)
2. Creditor may resolve/ rescind (Article 1191.)
3. Damages in either case (Article 1170.)
(2) Negligence
Article 1171. Responsibility arising from fraud is demandable in
all OBLIGATIONS. Any waiver of an action for future fraud is void.
Article 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also demandable, but
such liability shall may be regulated by the courts, according to
the circumstances.
Article 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation & corresponds with the circumstances of the persons, of
the time & of the place. When negligence shows bad faith, the
provisions of articles 1171 & 2201, paragraph 2, shall apply.
Negligence is the absence of something that should be there
due diligence.
Measure of Due Diligence
There are two guides:
1. Diligence demanded by circumstances of person, place &
time
2. Care required of a good father of a family (fictional bonus
pater familias who was the embodiment of care, caution &
protection in Roman law.)
In common law, the degree of care required is the diligence of a
prudent businessman. This is actually the same as the diligence of a
good father of a family.
Effects of Negligence:
1. Creditor may insist on performance, specific or substitute
(Article 1233.)
2. Creditor may resolve/ rescind (Article 1191.)
3. Damages in either case (Article 1170.)
From 1173 = culpa contractual
from 2176 = culpa aquiliana or extra-contractual
** In both cases, for liability to attach, such negligence must be the
proximate cause of the injury to plaintiff.
(3) Delay
See Article 1169.
= default / mora, in the fulfillment of OBLIGATIONS;
REQUISITES to be in Default:
OBLIGATION is demandable and liquidated
debtor delays performance
creditor requires performance, judicial or extrajudicial demand
Article 1165. xxx. If the obligor delays, or has promised to deliver
the same thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event until he
has effected the delivery.
Article 1786. Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard
to specific and determinate things which he may have contributed
to the partnership, in the same cases and in the same manner as the
vendor is bound with respect to the vendee. He shall also be liable
for the fruits thereof from the time they should have been
delivered, without the need of any demand.
Article 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his
obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use.
Article 1896. The agent owes interest on the sums he has applied
to his own use from the day on which he did so, and on those
which he still owes after the extinguishment of the agency.
Article 1942. The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his
own thing, he chose to save the latter. (OBLIGATIONS OF
THE BAILEE)
Delay is the non-fulfillment of the obligation with respect to time.
Kinds of Delay:
1. Mora Solvendi- delay in the performance (on the part of
the debtor);
2. Mora Accipiendi- delay in the acceptance (on the part of
the creditor);
3. Compensation Morae- mutual delay
Article 2201. xxx
(2) In contracts & quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the
natural & probable consequences of the breach of the obligation,
& which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor
shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.
(4) ANY OTHER MANNER OF CONTRAVENTION:
Includes any illicit acts which impair the strict and faithful
fulfillment of OBLIGATION, or every kind of defective performance;
CASE: “in any manner contravene the tenor of contract”
FACTS: GSIS approved application of Marcelo Agcaoili for purchase of House
and Lot in Marikina, subject to the condition that latter should forthwith occupy
the house.
If o fail o occ p he ame i hin 3 da from receip of hi no ice, o r
application will be considered automatically disapproved & said House & Lot
ill be a arded o ano her.
Agcaoili could not stay in the house which was only a shell. It did not have a
ceiling, stairs, double walling, lights, water, CR, drainage. He asked a homeless
friend instead to stay and watch over the property. After paying 1st installment &
other fees, he refused to make further payments until GSIS would make d house
h a b i a b l e . I e a d f h e e d i g Ag c a
and demanded Agcaoili to vacate.
Ag c a i l i f i l e d a c a e f e c i f i c e
fail.
xxx
Since GSIS did not fulfill that obligation, & was not willing to put the house in
habitable state, it cannot invoke Agcaoili's suspension of payment of
amortization as cause to cancel the contract between them. It is axiomatic that
"In reciprocal OBLIGATIONS, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.
ISSUE: Whether or not Agcaoili breached the contract by failing to occupy the
house within 3 days as stipulated?
HELD: NO, argument of GSIS is devoid of merit. There being a perfected
contract of sale, it was the duty of GSIS as seller to deliver the thing sold in a
condition suitable for enjoyment by the buyer for the purpose contemplated.
There was then a perfected contract of sale between the parties; there had been a
meeting of the minds upon the purchase by Agcaoili of a determinate house &
lot in the GSIS Housing Project at Nangka, Marikina, Rizal, at a definite price
payable in amortizations at P31.56 per mo., & from the moment the parties
acquired the right to reciprocally demand performance. It was, to be sure, the
duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purpose contemplated, in other words, to deliver
the house subject of the contract in a reasonably livable state. This it failed to
do.
CASE DOCTRINE: One who assumes a co ntractual obligation &
fails to perform the same on account of his inability to meet certain
bank requirements which inability he knew & was aware of when
!"#$%&%'(")*+#,%-(.#/%
, responsible for those events which could not be foreseen, or which
. , though foreseen, were inevitable.

ARRIETA VS. NARIC [10 SCRA 79] (PAZ ARRIETA AND To constitute a caso fortuito that will exempt a person from
VITALIADO ARRIETA VS. NATIONAL RICE & CORN CORP.) responsibility, it is necessary that: [Austria vs. Abad, June 10, 1971]
FACTS: On May 1952, Arrieta took part in public bidding called by NARIC to 1. the event must be independent of human will;
supply 20K metric tons of Burmese rice, being the lowest bidder she was 2. the occurrence must render it impossible for the debtor to
awarded the contract. I h e c a c f a l e , A i e a fulfill the
O obligation
B L I G Ain T aI normal
O N manner;
a
d e l i e h e i c e a h e i c e f h e b i d , h i l e NAR I C OB L I GAT I ON a
3. that the obligor must be free of participation in, or
pay her in letter of credit, irrevocable, confirmed and assignable, in USD in
f a f A i e a aimmediately.
d / l i e i B m a aggravation
, of, the injury to the creditor.

NARIC knew that it did not have enough deposit in PNB to cover the Balane:
OBLIGATION, thus it wrote a letter of request to accommodate the application General Rule: The happening of a fortuitous event exonerates the
for Letter Of Credit despite such fact in lieu of this contract with Arrieta. This debtor from liability.
application was made by PNB on July 30, 1952, a month after it entered in the
c a c i h A i e a a d mi e d e
EXEMPTIONS hFROM
e L eAPPLICATION
e O f OF C General
e d i Rulei ON
mme d i a
By this time Arrieta has made a 5% tender to her supplier in Burma, which will
Fortuitous Event:
be confiscated if the required Letter Of Credit will not be received before August
4, 1952. Such fact was apprised by Arrieta to NARIC in a letter through 1. When the law so specifies. E.g., if the debtor is already in
counsel. delay (Article 1165, par. 3.)
PNB required NARIC to make a marginal deposit of 50% of the amount of 2. When the parties so agree
Letter Of Credit before such will be released in favor of Ar i e a l i 3.
e When
i the nature of the obligation requires the assumption of
Burma. Such condition NARIC is not in any financial position to meet. PNB risk, e.g., an insurance contract.
consequently approved & released the LOC 2-months in delay. The Burmese
supplier had cancelled the order on Aug. 20, 1952, and forfeited the 5% tender EXAMPLES OF By Express Provision of Law:
of Arrieta amounting to P200K. NARIC and PNB did not even make the 15-day
grace period given by the supplier. Arrieta endeavored to restore to no avail. It IN Depositary
offered to substitute with Thailand rice, but NARIC rejected. Thus, Arrieta
demanded for payment of damages of USD 286K representing unrealized Article 1979. The depositary is liable for the loss of the thing
profits. Again rejected. Thus, this case. through a fortuitous event:
ISSUE: WON NARIC was in breach of contract? (1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
HELD: YES. N A R I C c l a b i l willful
i anda deliberate
i e f
(3)mIf hei delays its return;
assumption of contractual OBLIGATIONS even as it was well aware of its
own financial incapacity to undertake the prestation. (4) If he allows others to use it, even though he himself may have
been authorized to use the same.
Under Article 1170, not only debtors guilty of fraud, negligence or default
but also every debtor, in general, who fails the performance of his
obligation is bound to indemnify for the losses & damages caused thereby. Q: What if a depositor was in the premises of the bank & was robbed
of his money which he was about to deposit?
Meaning of phrase "in any manner contravene the tenor" of the obligation in A: Bank cannot be held liable for fortuitous event (robbery) especially
Article 1170 The phrase includes any illicit task which impairs the strict & in case where the money has not yet been actually deposited.
faithful fulfillment of the obligation, or every kind of defective performance.
Article 1979 provides for instances wherein depositary is still liable
Balane: This phrase is a catch-all provision. At worst, it is a even in cases of fortuitous event.
superfluity. At best, there is a safety net just in case there is a culpable
irregularity of performance which is not covered by fraud, negligence Q: What kind of diligence is required of a depositary?
or delay. In this case, the SC was apparently not sure as to what A: Ordinary Diligence.
category the breach fell. This phrase is not really an independent *Safety Deposit Box: If the jewelry inside a Safety Deposit Box was
ground. stolen, rules on deposit will not apply because the contract governing
the transaction is LEASE of safety deposit box.
“TIME IS OF THE ESSENCE”
Bailee in Commodatum
TELEFAST Communications/Phil. Wireless, Inc. VS. IGNACIO
CASTRO [158 SCRA 445] Article 1942. The bailee is liable for the loss of the thing, even if it
FACTS: Consolacion Bravo-Castro, the wife of herein respondent Ignacio died should be through a fortuitous event:
in Lingayen, Pangasinan. Thus, that same day, her daughter Sofia sent a
telegram to her father in the USA via TELEFAST. Her mother was interred (1) If he devotes the thing to any purpose different from that for
without her father nor siblings in attendance. When Sofia went back to the USA which it has been loaned;
she learned that her telegram never reached her father. She sued TELEFAST for (2) If he keeps it longer than the period stipulated, or after the
d a ma g e d e b e a c h f c a c . Wh i l e TELE
accomplishment of Fthe
A Suse
T for which
d e the
f e commodatum
e a has been
e c h i c a
and atmospheric factor beyond its control. constituted;
ISSUE: Whether or not TELEFAST is liable only for P31.92 (fee) and not for
damages. If the thing loaned has been delivered with appraisal of its value,
HELD: YES, Article 1170, and also under Article 2176 applied. This liability unless there is a stipulation exempting the bailee from
is not limited to actual or quantified damages. To sustain petitioner’s responsibility in case of a fortuitous event;
If he lends or leases the thing to a third person, who is not a
Also,
Article 2217 i a l i c a b l e i c e P e i i e
member a c
of his household;
mi i a m e d g
negligence which was precisely the cause of the suffering of herein private (5) If, being able to save either the thing borrowed or his own thing,
respondents. he chooses to save the latter.
Petitioner & private respondent Sofia C. Crouch entered into a contract whereby,
for a fee, petitioner undertook to send said private respondent's message overseas
by telegram. This, petitioner did not do, despite performance by said private In Negotiorum Gestio
respondent of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private respondent & is Article 2147. The officious manager shall be liable for any
thus liable for damages. fortuitous event:
(1) If he undertakes risky operations which the owner was not
accustomed to embark upon;
EXCUSE FOR NON-PERFORMANCE
(2) If he has preferred his own interest to that of the owner;
1. Loss due to Fortuitous Events (3) If he fails to return the property or business after demand by
the owner;
Article 1174. Except in cases expressly specified by law, or when it (4) If he assumed the management in bad faith.
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
!"#$%&%'(")*+#,%-(.#/%
Article 2148. Except when the management was assumed to save
the property or business from imminent danger, the officious
manager shall be liable for fortuitous events:
(1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person
from taking up the management.
Payee in Solutio Indebiti
Article 2159. Whoever in bad faith accepts an undue payment,
shall pay legal interest if a sum of money is involved, or shall be
liable for fruits received or which should have been received if the
thing produces fruits.
He shall furthermore be answerable for any loss or impairment of
the thing from any cause, & for damages to the person who
delivered the thing, until it is recovered.
Lessee
Article 1648. Every lease of real estate may be recorded in the
Registry of Property. Unless a lease is recorded, it shall not be
binding upon third persons.
Article 1671. If the lessee continues enjoying the thing after the
expiration of the contract, over the lessor's objection, the former
shall be subject to the responsibilities of a possessor in bad faith.
Article 552. xxx.
A possessor in bad faith shall be liable for deterioration or loss in
every case, even if caused by a fortuitous event.
Independent Contractor
Article 1727. The contractor is responsible for the work done by
persons employed by him.
Article 1728. The contractor is liable for all the claims of laborers
& others employed by him, & of third persons for death or physical
injuries during the construction.
Common Carrier
Article 1763. A common carrier is responsible for injuries suffered
by a passenger on account of the willful acts or negligence of other
passengers or of strangers, if the common carrier's employees
through the exercise of the diligence of a good father of a family
could have prevented or stopped the act or omission.
(2) when it is otherwise declared by stipulation (Article 1174)
Express agreement
Article 1306. The contracting parties may establish such
stipulations, clauses, terms & conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
(3) when the nature of the OBLIGATION requires the
assumption of risks
Aleatory Contract
Article 2010. By an aleatory contract, one of the parties or both
reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the
happening of an event which is uncertain, or which is to occur at
an indeterminate time.
Article 1175. Usurious transactions shall be governed by special
laws.
Tolentino:
Usury is the contracting for or receiving something in excess of the
amount allowed by law for the loan or forbearance or money, goods or
chattels.
Special law on usury
-The Usury Law was Act No. 2655. This law was repealed during the
period of martial law, leaving parties free to stipulate higher rates.
______________________________________________________
CASES:
Balane: Some of the elements were present in this case. What was
absent was the last element.
National Power Corporation vs. CA and Engineering Construction
Inc. [161 SCRA 334] NPC cannot escape liability because its
negligence was the proximate caus e of the loss & damage even
though the typhoon was an act of God.
FACTS:
Typhoon Welming”
Plaintiff ECI entered contract with NAWASA on Aug.1964, to construct Ipo-
Bicti Tunnel, Intake and Outlet Structures at Norzagaray, Bulacan within 800
days from receipt of notice to proceed. It has finished 1st stage of the excavation
k a d a a l e a d h e I i e
November 4, 1967 and hit Central Luzon passing through Angat Dam.
Consequent to the heavy downpour, the dam reached danger height of 212 m.
above sea level causing the NPC to decide to open spillway gates at that point.
Thus, the extraordinary large volume of water rushed out of the gates and hit the
installations and construction work of ECI at Ipo Site with terrific impact
washing away and/or destroying supplies and equipment of ECI.
ECI then sued NPC for damages.
ISSUE: Whether or not NPC is liable for damages.
HELD: It is clear from the appellate court's decision that based on its findings of
fact & that of the trial court's, petitioner NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height of
typhoon "Welming" when it knew very well that it was safer to have opened the
same gradually & earlier, as it was also undeniable that NPC knew of the
coming of the typhoon at least 4 days before it actually struck. And even though
the typhoon was an act of God or what we may call force majeure, NPC cannot
escape liability because its negligence was the proximate cause of the loss &
damage. As we have said in Juan Nakpil & Sons vs. CA, 144 SCRA 596,
Thus, if upon the happening of a fortuitous event or an act of God, there concurs
a corresponding fraud, negligence, delay or violation or contravention in
any manner of the tenor of the obligation as provided for in Article 1170,
which results in a loss or damage, the obligor cannot escape liability. The
principle embodied in the act of God doctrine strictly requires that the act must
be one occasioned exclusively by the violence of nature & human agencies are
to be excluded from creating or entering into the cause of the mischief . When
the effect, the cause of which is to be considered, is found to be in part the result
of the participation of man, whether it be from active intervention or neglect, or
failure to act, the whole occurrence is thereby humanized, as it was, & removed
from the rules applicable to the acts of God. Thus, it has been held that when the
negligence of a person concurs with an act of God in producing a loss, such
person is not exempt from liability by showing that the immediate cause of the
damage was the act of God. To be exempt from liability for loss because of an
act of God, he must be free from any previous negligence or misconduct by
which the loss or damage may have been occasioned.
(2) ACT OF CREDITOR
CASE: City of Manila failed to exercise the diligence of a good
father of a family which is a defense in quasi-delict.
BERNARDINO JIMENEZ vs. CITY OF MANILA [150 SCRA
510]
FACTS: Bernard i J i me e e S a . A a
when his left foot fell in an open hole that was hidden by muddy rainwater in the
flooded market when the latter was flooded with ankle-deep rainwater. His left
leg was stuck by a rusty 4-inch nail. His leg later on swelled and he was brought
f e a me Ve e a Me m i a l H
for 15 days, unable to work, forced to hire a temporary driver for his school bus
he is operating. Thus, he sued the City of Manila for damages, and the Asiatic
Integrated Corp. (AIC) who had the managing and operating contract to that
market. Lower court dismissed his complaint for insufficiency of evidence. The
appellate court found in his favor and placed sole liability on AIC.
ISSUE: WON the City of Manila should be held solidarily liable with Asiatic
Integrated Corp. for injuries suffered by petitioner.
HELD: YES. As a defense against liability on the basis of quasi-delict, one
must have exercised the diligence of a good father of a family. (Article 1173,
NCC)
There is no argument that it is the duty of the City of Manila to exercise
reasonable care to keep the public market reasonably safe for people frequenting
the place for their marketing needs. While it may be conceded that the
fulfillment of such duties is extremely difficult during storms & floods, it must,
however, be admitted that ordinary precautions could have been taken during
good weather to minimize the dangers to life & limb under those difficult
circumstances. For instance, the drainage hole could have been placed under
the stalls instead of on the passage ways. Even more important is the fact, that
the City should have seen to it that the openings were covered. Sadly, the
evidence indicates that long before petitioner fell into the opening, it was
already uncovered, & 5 mos. after the incident happened, the opening was still
uncovered. Moreover, while there are findings that during floods the vendors
remove the iron grills to hasten the flow of water, there is no showing that
such practice has ever been prohibited, much less penalized by the City of
!"#$%&%'(")*+#,%-(.#/%
. HELD: It is not the fact of collapse that was the premise on applying
.-
For liability under Article 2189 NCC to attach, it is not necessary that the
defective public works belong to the LGU concerned. What is required is
c l e i i .
CASE: Requisites for exemption from liability due to an "act of
God."
Juan F. NAKPIL & SONS vs. CA [144 SCRA 596]- October 3, 1986
To exempt the obligor from liability under Article 1174, for a breach of
an obligation due to an "act of God," the following must concur:
1. the cause of the breach of the obligation must be independent
of the will of the debtor;
2. the event must be either unforeseeable or unavoidable; (c)
the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; &
3. the debtor must be fee from any participation in, or
aggravation of the injury to the creditor.
FACTS: Construction of the office building of Plaintiff Phil. Bar Assoc. (PBA)
in Intramuros, Manila was undertaken by United Construction Inc. on an
a d mi i a i b a i g g e
approved by PBA Board, & Pres. Roman Ozaeta. Plans and specifications were
done by Juan Nakpil & Sons. The Bldg. was completed on June 1966.
On August 2, 1968 an unusually strong earthquake hit Manila. The PBA bldg.
sustained major damage, in which tenants had to vacate. The building was
shored up by UCI at the cost of P13,661.28.
Hence, PBA filed action to recover damages against UCI while the latter sued
Nakpil for damages due to defects on the plans and specifications.
ISSUE: WON AN ACT OF GOD WHICH CAUSED DAMAGE TO THIS
BLDG, EXEMPTS FROM LIABILITY, PARTIES WHO ARE OTHERWISE
LIABLE BECAUSE OF NEGLIGENCE?
HELD:
ARTICLE 1723
To exempt obligor from liability under Article 1174, fortuitous events; or
for a breach of OBLIGATION due to an act of God, the following: must
concur:
1. cause of the breach of OBLIGATION must be independent of the
will of the debtor;
2. the event must be either unforeseeable or unavoidable
3. the event must be such as to render it impossible for debtor to fulfill
OBLIGATION in normal manner;
4. debtor must be free from any participation in, or aggravation of the
injury to the creditor.
Thus, if upon the happening of a fortuitous event or an Acts Of God, there
concurs a corresponding fraud, negligence, delay or violation or contravention in
any manner of the tenor of the OBLIGATION as provided in Article 1170,
which results in loss or damage, the obligor cannot escape liability.
To be an Act Of God, the event must be occasioned exclusively by violence of
nature and all human agencies are excluded from creating or entering into the
cause of mischief. With participation of man, whether active or neglect or failure
a c , h e c c e c e i h ma
application.
Findings of lower court and IAC were both beyond dispute that United and Juan
F. Nakpil & Sons were both liable. The defects in the plans & specifications
were proximate cause, the deviations of United for the specs and failure to
observe required workmanship & degree of supervision on both makes them
liable.
CASE DOCTRINE: "One who negligently creates a dangerous
condition cannot escape liability for the natural & probable
consequences thereof, although the act of a third person, or an act of
God for which he is not responsible, intervenes to precipitate the
loss." (Ci ting Tucker v. Milan, 49 OG 4379, 4380.)
NAKPIL & SONS VS. CA [160 SCRA 334] - APRIL 15, 1988
FACTS: UCI filed a Motion for Reconsideration on the decision
previously disposed of the SC on Oct. 3, 1986 pointing out that it was
P BA l e g a ovide
l full-time
d and active supervision in the
construction of the subject building. Also, UCI points out that bad faith
was not established.
ISSUES RAISED ON THIS MR:
(1) That the building did not collapse on the earthquake of 4/2/68, thus
the premise of the LC findings is negated, Article 1173
cannot apply
Article 1173 but on who should be responsible for the
extreme damage to the bldg. which inevitably led to its
collapse, or demolition. Trial court correctly found
defendants liable;
(2) That court failed to impute liability on PBA or on Ozaeta for
failure to provide legal duty to supervise, as owner.
HELD: There is no legal nor contractual basis. PBA sought technical
expertise of both United & JFN & sons for such costs on this
purpose. It was even JFN who suggested administration
basis.
(3) That findings of bad faith had no factual anchor.
HELD: Wanton negligence of both United & JFN & sons in effecting
plans, specs, & constructions designs is equivalent to Bad
Faith in performance of their respective duties;
( 4 ) A a d f 5 M h a d b a i , C
1.1M.
HELD: Such initial report was based on the partial collapse only, after
the 4/2/68 earth quake, for repairs; but after total collapse
almost 20 yrs later, unrealized rentals and major
reconstructions makes even 5M a very conservative estimate.
( 5 ) A a a d f a . f e e &
HELD: It was court discretion.
i f
(6) 12% Uinterest
i ep.a.
d according
P e to i dCB
e Circular
J 416a (PDC116)
a applies
l . S
only to (1) loans; (2) forbearance of money, goods or
credit; (3) rate allowed in JFO s involving 1 & 2.
HELD: True, but, 12% is imposable only when there is delay in
payment of judgment after its finality. (penalty not really
interest)
NPC VS. CA [222 S 415] Petitioners cannot be heard to invoke
the act of God or force majeure to escape liability for the loss or
damage sustained by the private respondents since they, the petitioners,
were guilty of negligence. The event then was not occasioned
exclusively by an act of God or force majeure; a human factor--
negligence or imprudence-- had intervened. The effect then of the
force majeure in question may be deemed to have, even if only partly,
resulted from the participation of man. Thus, the whole occurrence
was thereby humanized, as it were, & removed from the rules
applicable to acts of God.
NPC VS. CA [223 S 649] Petitioners have raised the same issues
& defenses as in the 2 other decided cases therein mentioned.
Predictably therefore, this petition must perforce be dismissed because
the losses & damages sustained by the private respondent's had been
proximately caused by the negligence of the petitioners, although the
typhoon which preceded the flooding could be considered as a force
majeure.
Case: Roberto Sicam and Agencia de R.C. Sicam Inc. Vs. Lulu Jorge and
Cesar Jorge, August 8, 2007.
Facts: On October 19, 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop unit. Such
incident was entered in police blotter in Paranaque. Sicam then sent letter to
Lulu informing the latter of the loss of her jewelry due to the robbery.
However, Lulu wrote a letter expressing her disbelief and asking the return of
her jewelry instead. But Sicam failed to return the same. Hence, Lulu and
husband filed a complaint seeking indemnification for the loss of pawned
i e djewelry.
, aRTCddismissed e m e d since
the complaint f Sicamm cannot h be
e maded personally
c i e
liable for an incident which is in relation to corporate transaction and so as the
corporation because the loss was occasioned by a fortuitous event. CA
reversed the RTC and held Sicam liable together with the corporation.
Issue: Whether or not the robbery in pawnshop resulting to the loss of pawned
jewelry can be considered as fortuitous event thereby excusing liability of
Sicam and Corporation.
Held: NO. Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen or which,
though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the happening
is not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a)
the cause of the unforeseen and unexpected occurrence or of the failure of
the debtor to comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor
to fulfill obligations in a normal manner; and, (d) the obligor must be free
from any participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on
him who invokes it.24 And, in order for a fortuitous event to exempt one
from liability, it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. 25
!"#$%&%'(")*+#,%-(.#/%
It has been held that an act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible adverse consequences of such
a loss. One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a
person's participation -- whether by active intervention, neglect or failure to
act -- the whole occurrence is humanized and removed from the rules
applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he started
the pawnshop business in 1983, he thought of opening a vault with the nearby
bank for the purpose of safekeeping the valuables but was discouraged by the
Central Bank since pawned articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had allegedly adopted show
that to them the possibility of robbery was not only foreseeable, but actually
foreseen and an i c i a e d . P e i i e S i c a m
e i i e d e f e e f f i
Moreover, petitioners failed to show that they were free from any negligence
by which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners.
In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully
placed in its possession was due to carnapping. Carnapping per se
cannot be considered as a fortuitous event. The fact that a thing
was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically
give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of
another's property. It must be proved and established that the
event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent
has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it which in this
case is the private respondent. However, other than the police
report of the alleged carnapping incident, no other evidence was
presented by private respondent to the effect that the incident was
not due to its fault. A police report of an alleged crime, to which
only private respondent is privy, does not suffice to establish the
carnapping. Neither does it prove that there was no fault on the
part of private respondent notwithstanding the parties' agreement at
the pre-trial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the part of
private respondent.28
Just like in Co, petitioners merely presented the police report of the Parañaque
Police Station on the robbery committed based on the report of petitioners'
employees which is not sufficient to establish robbery. Such report also does
not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in
finding that petitioners are guilty of concurrent or contributory negligence as
provided in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and
other establishments which are engaged in making loans secured by pledges,
the special laws and regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides
that the creditor shall take care of the thing pledged with the diligence of a
good father of a family. This means that petitioners must take care of the
pawns the way a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons,
of time and of the place. When negligence shows bad faith, the
provisions of Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do
something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not do. 31 It is want of
care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would have used
in the same situation.
Case: Manila Electric Company vs. Matilde Ramoy, March 4, 2008.
Facts: In 1987, NPC filed with MTC of Quezon City a case for ejectment
against several persons allegedly illegally occupying its properties in Baesa,
QC. Among the defendants were the Ramoys. The MTC ordered the
demolition of the buildings and structures. On June 20, 1990, NPC wrote
Meralco requesting the latter to immediately disconnect electric power supply
to all residential and commercial establishments in the subject land. Hence,
Meralco comply with the same. In due time, the electric service connection of
the plaintiffs was disconnected. Upon the conduct of disconnection,
respondents herein were contesting that the property were not under NPC
properties. The same lead the respondents to vacate the premises. However,
during ocular inspection ordered by the court, it was found out that the
e i d e c e f h ie d eR a NmP C e e e i e .
complaint for damages against Meralco but instead ordered the latter to
restore electric power supply to respondents. Hence, respondents appealed to
CA. CA held Meralco liable for damages.
Issue: Whether Meralco is held liable for damages to the Respondents.
Held: YES. MERALCO admits6 that respondents are its customers under a
Service Contract whereby it is obliged to supply respondents with electricity.
Nevertheless, upon request of the NPC, MERALCO disconnected its power
supply to respondents on the ground that they were illegally occupying the
NPC's right of way. Under the Service Contract, "[a] customer of electric
service must show his right or proper interest over the property in order that
he will be provided with and assured a continuous electric
service."7 MERALCO argues that since there is a Decision of the
Metropolitan Trial Court (MTC) of Quezon City ruling that herein
respondents
e i were
m among , theiillegal occupants
e f f e cof the , NPC's
c right of way,
a d i c
e MERALCO
e . was justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa
contractual or breach of contract for the latter's discontinuance of its service
to respondents under Article 1170 of the Civil Code which provides:
Article 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court
expounded on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right
of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance of
the contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering
that which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his "expectation interest," which is
his interest in having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused
by reliance on the contract by being put in as good a position as he would
have been in had the contract not been made; or his "restitution interest,"
which is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The
effect of every infraction is to create a new duty, that is, to make recompense
to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like
proof of his exercise of due diligence x x x or of the attendance of fortuitous
event, to excuse him from his ensuing liability.9 (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists
in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time
and of the place. The Court emphasized in Ridjo Tape & Chemical
Corporation v. Court of Appeals10 that "as a public utility, MERALCO has the
obligation to discharge its functions with utmost care and diligence."11
The Court agrees with the CA that under the factual milieu of the present
case, MERALCO failed to exercise the utmost degree of care and
diligence required of it. To repeat, it was not enough for MERALCO to
merely rely on the Decision of the MTC without ascertaining whether it
had become final and executory. Verily, only upon finality of said
Decision can it be said with conclusiveness that respondents have no right
or proper interest over the subject property, thus, are not entitled to the
services of MERALCO.
Case: Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation, July
26, 2010.
Facts: In the first quarter of 1998, Petitioner entered into an agreement with
Davao Corp. for the purchase of corrugated carton boxes specifically designed
f e i i e b i e f e i
agreement was not reduced into writing. To get the production underway, the
e i i e d e i e d e d e
full payment. However, despite payment, petitioner did not receiver any
boxes. Petitioner wrote demand letter for reimbursement from respondent. On
February 19, 2001, respondent replied that the boxes had been completed as
early as April 3, 1998 and that petitioner failed to pick them up from the
f me a e h e 3 0 d a f m c m
mentioned that petitioner even placed an additional order of 24,000 boxes, out
of which, 14,000 had been manufactured without any advanced payment from
petitioner. Respondent then demanded petitioner to remove the boxes from the
factory and to pay the balance of US$15,400.00 for the additional boxes and
P132,000.00 as storage fee. On August 17, 2001, petitioner filed a Complaint
for sum of money and damages against respondent. RTC ruled that
respondents did not commit any breach of faith that would justify rescission of
the contract and the consequent reimbursement. CA denied the appeal of
petitioner.
Issue: Whether or not the respondent is liable for reimbursement of the
payment made by petitioner.
Held: NO. P e i i e c l a i m f e i mb e
(or resolution) of contract under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
!"#$%&%'(")*+#,%-(.#/%
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
The right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the same law, which
provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the
f l f i l l me f h e a i e e e ci of Del
Hence, no demand is generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter automatically
incurs in delay. But when different dates for performance of the obligations
are fixed, the default for each obligation must be determined by the rules
given in the first paragraph of the present article,19 that is, the other party
would incur in delay only from the moment the other party demands
f l f i l l me f h e f me b l i g ai Corporation
the period for the fulfillment of the obligation is fixed, demand upon the
obligee is still necessary before the obligor can be considered in default and
before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint
was the lack of demand by petitioner upon respondent to fulfill its
obligation to manufacture and deliver the boxes. The Complaint only
alleged that petitioner made a "follow-up" upon respondent, which,
however, would not qualify as a demand for the fulfillment of the
obligation. Petitioner s witness also testified that they made a follow-up of
the boxes, but not a demand. Note is taken of the fact that, with respect to
their claim for reimbursement, the Complaint alleged and the witness
testified that a demand letter was sent to respondent. Without a previous
demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not
yet be considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the
present case, petitioner s claim for reimbursement would still fail, as the
circumstances would show that respondent was not guilty of breach of
contract.
The existence of a breach of contract is a factual matter not usually reviewed
in a petition for review under Rule 45.20 The Court, in petitions for review,
limits its inquiry only to questions of law. After all, it is not a trier of facts,
and findings of fact made by the trial court, especially when reiterated by the
CA, must be given great respect if not considered as final.21 In dealing with
this petition, we will not veer away from this doctrine and will thus sustain the
factual findings of the CA, which we find to be adequately supported by the
evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes
and the production report thereof, there is ample showing that the boxes had
already been manufactured by respondent.
Case: Mindanao Terminal and Brokerage Service, Inc. vs. Phoenix
Assurance Company of New York/MCGEE & Co., Inc., May 8, 2009.
Facts: Del Monte Philippines, Inc. (Del Monte) contracted petitioner
Mindanao Terminal and Brokerage Service, Inc. (Mindanao Terminal), a
stevedoring company, to load and stow a shipment of 146,288 cartons of fresh
green Philippine bananas and 15,202 cartons of fresh pineapples belonging to
Del Monte Fresh Produce International, Inc. (Del Monte Produce) into the
cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of
Davao City and the goods were to be transported by it to the port of Inchon,
Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured
the shipment under an "open cargo policy" with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance company,
and private respondent McGee & Co. Inc. (McGee), the underwriting
manager/agent of Phoenix. Mindanao Terminal loaded and stowed the cargoes
aboard the M/V Mistrau. The vessel set sail from the port of Davao City and
arrived at the port of Inchon, Korea. It was then discovered upon discharge
that some of the cargo was in bad condition. Del Monte Produce filed a claim
under the open cargo policy for the damages to its shipment. RTC dismissed
the complaint. CA reversed. The same court ordered Mindanao Terminal to
pay Phoenix and McGee "the total amount of $210,265.45 plus legal interest
from the filing of the complaint until fully paid and atto e f e e
the claim."11 I a i e d P h e i a d Mc G e e
the cargoes was the result of improper stowage by Mindanao Terminal. It
imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It further
held that even with the absence of a contractual relationship between
Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix
and McGee could be based on quasi-delict under Article 2176 of the Civil
Code.
Issue: Whether or not Mindanao Terminal is liable for damages for its failure
to exercise extraordinary diligence in loading and stowing the cargoes.
Held: NO. We adopt the findings of the RTC, which are not disputed by
Phoenix and McGee. The only participation of Mindanao Terminal was to
load the cargoes on board M/V Mistrau. It was not disputed by Phoenix and
McGee that the materials, such as ropes, pallets, and cardboards, used in
lashing and rigging the cargoes were all provided by M/V Mistrau and these
materials meets industry standard.
The resolution of the two remaining issues is determinative of the
ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does
not state the degree of diligence which is to be observed in the
performance of an obligation then that which is expected of a good father
of a family or ordinary diligence shall be required. Mindanao Terminal, a
stevedoring company which was charged with the loading and stowing the
cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a
labor provider in the case at bar. There is no specific provision of law that
imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and
stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee
that Mindanao Terminal was bound by contractual stipulation to observe a
higher degree of diligence than that required of a good father of a family. We
therefore conclude that following Article 1173, Mindanao Terminal was
required to observe ordinary diligence only in loading and stowing the cargoes
e Monte b l Produce
i g a aboard
i M/V Mistrau.
h Thel case
d ofbSumma
e Insurance
i m l a e
Corporation v. CA, which involved the issue of whether an arrastre operator is
legally liable for the loss of a shipment in its custody and the extent of its
liability, is inapplicable to the factual circumstances of the case at bar.
Therein, a vessel owned by the National Galleon Shipping Corporation
(NGSC) arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara Coal
. T h(Semirara)
, ase "notify
e party."
i The shipment,
e c i including c a a lbundle bofl i g a
PC 8 U blades, was discharged from the vessel to the custody of the private
respondent, the exclusive arrastre operator at the South Harbor. Accordingly,
three good-order cargo receipts were issued by NGSC, duly signed by the
ship's checker and a representative of private respondent. When Semirara
inspected the shipment at house, it discovered that the bundle of PC8U blades
was missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that existing
between the consignee or owner of shipped goods and the common carrier, or
that between a depositor and a warehouseman[22 ]. In the performance of its
obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman as
enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good care
of the goods and to turn them over to the party entitled to their
possession. (Emphasis supplied)
There is a distinction between an arrastre and a stevedore. Arrastre, a Spanish
word which refers to hauling of cargo, comprehends the handling of cargo on
the wharf or between the establishment of the consignee or shipper and the
ship's tackle. The responsibility of the arrastre operator lasts until the delivery
of the cargo to the consignee. The service is usually performed by
longshoremen. On the other hand, stevedoring refers to the handling of the
cargo in the holds of the vessel or between the ship's tackle and the holds of
the vessel. The responsibility of the stevedore ends upon the loading and
stowing of the cargo in the vessel.
It is not disputed that Mindanao Terminal was performing purely stevedoring
function while the private respondent in the Summa case was performing
arrastre function. In the present case, Mindanao Terminal, as a stevedore, was
only charged with the loading and stowing of the cargoes from the pier to the
h i c a g h l d ; i a e e h e
Produce. A stevedore is not a common carrier for it does not transport goods
or passengers; it is not akin to a warehouseman for it does not store goods for
profit. The loading and stowing of cargoes would not have a far reaching
public ramification as that of a common carrier and a warehouseman; the
public is adequately protected by our laws on contract and on quasi-delict.
The public policy considerations in legally imposing upon a common carrier
or a warehouseman a higher degree of diligence is not present in a stevedoring
outfit which mainly provides labor in loading and stowing of cargoes for its
clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of
evidence25 that Mindanao Terminal had acted negligently. Where the evidence
on an issue of fact is in equipoise or there is any doubt on which side the
evidence preponderates the party having the burden of proof fails upon that
issue. That is to say, if the evidence touching a disputed fact is equally
balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to
such fact must fail.26
It was further established that Mindanao Terminal loaded and stowed the
cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the
a g e l a , a g i d e f h e a e a
f hold,2 prepared
0 % by
f Del Monte Produce and the officers of M/V Mistrau.
a g me h a h e d a ma g e i
Illustrations:
1. Why would a party to an obligation be liable? If there was
FRAUD, NEGLIGENCE, DELAY or ANY OTHER MATTER
OF CONTRAVENTION.
a. ARRIETA vs. NARIC: As long as there is
!"#$%&%'(")*+#,%-(.#/%
, sending of the telegram which was not
. But is it correct to
say that only debtors may be held liable for damages?
No, even creditors may be held liable. In Article 1170,
the law says that those who are guilty of fraud. It did
not say that debtors who are guilty of fraud. In fact, in
the past bar exams, there was a problem where the
creditor was in delay and this is known as mora
accipiende. How could the creditor be in delay? He is
not the one to perform the obligation? Because if he
refuses to accept without just cause this can be
considered in delay. So what would the damages be
suffered by the debtor? Plenty of reasons. In keeping
the thing, in preserving the thing, in the transport of the
thing if it needs to be delivered.
b. FRAUD A sold to B bottles of liquor which appears
to be Fundador but in reality it is originally a Matador
Brandy inside the bottle of Fundador. Was there fraud?
YES. But is this fraud under under Article 1171? NO.
This is not, because the fraud here speaks of in the
performance of the obligation. In the contract there is
no fraud, but in the performance of the obligation there
is fraud. In this problem, this is what you call
CAUSAL FRAUD. Dolo Causante under Article 1338.
Article 1344 incidental fraud. As to the nature of
this fraud- Article 1170, I would not use dolo here,
because DOLO is fraud in on o btaining consent , that
pertains to deceit. Article 1170 bad faith/ malice.
i. The EFFECT OF FRAUD:
1. Article 1170 would result in
liability for damages.
2. Article 1338 would result in the
contract being considered to be
VOI DAB L E b e c a
vitiation of consent but the
injured party may be entitle to
damages as well.
3. Article 1334 would not result
into a voidable contract but
would only result in the
entitlement of the injured party to
damages.
ii.
4. If A filed an action against B for
damages, claiming that B
committed fraud upon him
causing damaged upon him,
however, if B was able to prove
to the court that A executed this
document where he basically
l d a h a
liable for whatever damage may
be cause to me b B waiver. If
there is such a waiver proven.
Will the action still prosper? It
depends. If the waiver was
executed before the fraudulent
act, h a a a i
frauds and such waiver is a void
waiver and can still recover. But
if the waiver was executed after
the fraudulent act was
committed with knowledge of the
fraudulent act, this of course
would amount to condonation.
How would you know if this is a
waiver as to future frauds? See
the dates as to the date of the
commission of the fraud and the
date when the waiver was
executed.
c. NEGLIGENCE- a h e fault whicha m e is really
wrong. Article 2176- quasi-delict is fault or negligence.
So fault is different from negligence. Negligence is by
omission. Fault may have intention.
i. C U L P A A C NA Q UorI Quasi-d
LI A e l i c
CULPA is a broad term covering broad term
including fault and negligence.
ii. CULPA = is not intentional. There are four
kinds of culpa. It can be intentional or non-
intentional.
iii. How would we know if an act is a negligent
act or not? Negligence Article 1173.
Parameters are there as to whether the act is
negligent or not. The degree of diligence
which should be observed in the
performance of the obligation.
iv. If a person is invoking fortuitous event, for
it to be a valid defense, there must not be a
concurrent negligence on his part.
v. Telefast vs. Castro Case This involves
negligence because the heirs are claiming
moral damages, but this is a contract, the
received by the heirs, but for moral damages
to be awarded resulting from a contract;
breach of contract, the law requires for one
to disregard the obligations. Telefast: we
are not negligent because the failure of
sending the telegram was not due to our
fault but due to a fortuitous event, it was due
to atmospheric pressure and its beyond are
control. SC: Telefast failed to notify Sophia,
the one who sent the telegram. The failure to
do so was a gross negligence act. And in our
jurisprudence, gross negligence act amounts
to bad faith. Hence, there is already a ground
for the award of moral damages. You have
to determine the degree of negligence
whether it is only a simple negligence or a
grossly negligent act in relation to
liabilities.
vi. Negligence in torts and damages is still the
same in Article 1173. In the case of
Philippine Bank of Commerce vs. CA:
This plaintiff company authorize a secretary
to deposit a sum of money to its account in a
branch of the PBC. Now, the secretary is not
an executive secretary just an ordinary one,
however, instead of depositing the money to
the account of the company, the secretary
deposited the sum of money to her
h band acco n in he ame branch in he
PBC. How did she do it? She filled up the
original copy but the duplicate original has
no account name, but the account number of
e h e e h e h b a d a h e
f i l l e d i h h e h
and number. So the bank would accept the
amount of money for the account of the
husband and give back the duplicate original
copy to the secretary. Then the secretary
allegedly would now fill up the original
duplicate and fill the account name with the
name of the company to make it appear that
it was deposited in the account of the
company. This happened several times not
only once. Until the company discovered
that their account was empty and so they
sued the bank. Obviously it was the
negligence of the bank officers that’s why
I i l l h l d B Whose negligence is the
proximate cause, whether it was the
negligence if the officer of the bank in
accepting slips which are not fully filled up?
In this case there was a defense raised
among other defenses, that the company had
the last clear chance in preventing this injury
e a f ehave they only exercised the diligence.
Why? The banks would give us monthly
statement of accounts. The bank said that if
they only bothered to open their statement if
accounts they would have notice that the
money was not deposited to their account
therefore there would be no subsequent acts
that followed causing them further injury.
SC: The majority held the bank liable
h l d i g h a i a h
through its officers which is the direct and
proximate cause except of one justice who
supported the doctrine of the last clear
chance. I agree with the majority only for
one reason = because the banks are required
to exercise the highest degree of diligence
in the performance of their obligations.
vii. Who else are required to exercise not the
= ordinary diligence or the diligence of a good
father of a family? Anyone if it is so
stipulated . If not under the law, aside from
banks, are common carriers. Doctors, public
utilities like Meralco. In one case it was held
that: Public utilities should exercise or a re
required to exercise the highest degree of
diligence. But the recent rulings on realty
companies: are now required to exercise
highest degree of diligence.
viii. Degree of diligence corresponding to the
circumstances of the person s time and of
the place. MUST REMEMEBER!! The best
case: Cangco vs. MRR. Alighting from the
moving vehicle was not a negligent act
according to the SC. Majority ruled it was
not a negligent act. I agree with the majority
considering the circumstances as to the
!"#$%&%'(")*+#,%-(.#/%
person, the time, and the place. Why? SC for the demand not necessary so
ruled that Cangco because he was at his that delay will not set in.
i me , h e a j a d 2 0 , i i 8. k a f the
him to jump from the train even when the l a a a g a h A
train is still running. And not only that, he of the parties had already
was every much familiar with the train and complied and the other had not
train station for he was riding it every day complied, and the one who had
for years. Here the time mattered, as to the not complied will already be
negligence f the employees because it considered in delay even if there
turned out that it was the negligence of the a d e ma d h a
employees of the MRR is the approximate do not read it literally. SC has
and direct cause . Why? Because they held that, this is subject to the
placed sacks of melon in the platform of the stipulation of the parties.
station near the doors where the trains are a. Like in a sale,
stopping for the passengers to alight that is obligations of the
why Cangco slipped and one of his hand parties are reciprocal,
e d e h e a i . Ca g c a a b l e the seller has already
see the sacks of melon because the station delivered and the
was not well lit. But there was proof here buyer has not yet
presented by Cangco that, (On its face the paid, does it mean
dissenting opinion seems to be correct that that the buyer is
alighting from a moving train per se is a already in delay? Not
negligent act, because the argument, had necessarily, they may
he not alighted while the train was moving have agreed that the
and waited for the tra in to go to a full stop buyer will only pay
then he would not have been injured , after the period of one
parang tamang argument dba? But I think year. So before that,
this argument is wrong. It was not a you cannot be
scenario that the train was at a full stop, the considered in delay.
scenario is that the train was still moving so This is one of the
given the scenario, was the act a negligent exceptions in the rule
act? No. Why? Another passenger alighted to demand under
the train ahead of Cangco, the train was still Article 1169.
moving faster even when the train was
moving fast, was this passenger injured? No.
So that was not the reason, alighting form
the moving vehicle per se. It was the
negligence of the employees of the MRR
who put the sacks of melon in the platform
which resulted from injury. Cangco was
also a male, has he been a female then that
would be a negligent act because of the
clothes the women wear at that time are
kimonos.
ix. Stevedoring company, is it required to
exercise? Only Ordinary Diligence.
d. DELAY is also called mora, default. Delay on the
part of both parties, AGCAOILI CASE even
assuming in delay na si Agcaolli because he refused to
accept, GSIS was also in delay because it failed to
deliver habitable house. He was asked to deliver a
house, but instead he delivered a structure with a roof.
The court did not agree even in the agreement it was
a i d a h e , i h l d b e a h a b i a b l e h e . E e
assuming that Agcaoilli was in delay, in contemplation
of the law no one was in delay, so was the GSIS correct
in cancelling the contract? No, because Agcaoilli was
not in delay.
x. When would there be delay? As a rule when
there is already DEMAND. NO DEMAND
NO DELAY. But there are Exceptions:
5. . E.g. credit card
agreement. Without need of
demand. For a demand to be
valid the demand must be made
when the obligation is already
due. If you demand when the
obligation is not yet due –

No particular form
as to how to make a demand. But
lawyers will never make a
demand verbally because of
evidentiary purposes. Follow-up
is it a valid demand? NO.
Demand is where you require the
performance not just a follow-up.
Request not a demand as well.
6. . E.g.
Agency. Like if the agent
misappropriated a sum of money,
will he be liable already for
interest? From the time he
misappropriated or from the time
the demand was made? Fro m the
time he misappropriated
because the law so provides.
Even there was not yet any
demand.
7. Demand will be useless due to
the fault of the debtor . Due to
the fault of the debtor, in order
!"#$%&%'(")*+#,%-(.#/%
F. REMEDIES FOR BREACH OF OBLIGATIONS:
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery.
Article 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not
have been mentioned.
Article 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor
of the obligation. Furthermore, it may be decreed that what has been
poorly done be undone.
Article 1168. When the obligation consists in not doing, and the obligor
does what has been forbidden him, it shall also be undone at his expense.
Article 1170. Those who in the performance of their OBLIGATIONS are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the rights
and bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Article 1178. Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there has been no stipulation to the
contrary.
Article 1191. The power to rescind OBLIGATIONS is implied in
reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
Article 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered
by the court. If it cannot be determined which of the parties first violated
the contract, the same shall be deemed extinguished, and each shall bear
his own damages.
Article 2236. The debtor is liable with all his property, present and
future, for the fulfillment of his OBLIGATIONS, subject to the
exemptions provided by law. (Concurrence and Preference of Credits)
Article 302. Neither the right to receive legal support nor any money or
property obtained as such support or any pension or gratuity from the
government is subject to attachment or execution. (Support)
Article 1708. The laborer's wages shall not be subject to execution or
attachment, except for debts incurred for food, shelter, clothing and
medical attendance. (Contract Labor)
FAMILY CODE:
Article 153. The family home is deemed constituted on a house and lot
from the time it is occupied as a family residence. From the time of its
constitution and so long as any of its beneficiaries actually resides
therein, the family home continues to be such and is exempt from
execution, forced sale or attachment except as hereinafter provided and to
the extent of the value allowed by law.
Article 155. The family home shall be exempt from execution, forced
sale or attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the constitution
of the family home;
(3) For debts secured by mortgages on the
premises before or after such constitution;
and
(4) For debts due to laborers, mechanics,
architects, builders, materialmen and others
who have rendered service or furnished
material for the construction of the building.
Rules of Court- RULE 39, SEC. 13:
Section 13. Property exempt from execution.
Except as otherwise expressly provided by law, the following property,
and no other, shall be exempt from execution:
FOCAUPLBELASE
The judgment obligor's Family home as provided by law, or the
homestead in which he resides, and land necessarily used in
connection therewith;
Ordinary tools and implements personally used by him in his trade,
employment, or livelihood;
Three horses, or three cows, or three Carabaos, or other beasts of
burden, such as the judgment obligor may select necessarily used
by him in his ordinary occupation;
His necessary clothing and Articles for ordinary personal use,
excluding jewelry;
Household furniture and Utensils necessary for housekeeping, and
used for that purpose by the judgment obligor and his family, such
as the judgment obligor may select, of a value not exceeding one
hundred thousand pesos;
Provisions for individual or family use sufficient for four months;
The professional Libraries and equipment of judges, lawyers,
physicians, pharmacists, dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not exceeding three hundred
thousand pesos in value;
One fishing Boat and accessories not exceeding the total value of
one hundred thousand pesos owned by a fisherman and by the
lawful use of which he earns his livelihood;
So much of the salaries, wages, or Earnings of the judgment
obligor for his personal services within the four months preceding
the levy as are necessary for the support of his family;
Lettered gravestones;
Monies, benefits, privileges, or Annuities accruing or in any
manner growing out of any life insurance;
The right to receive legal Support, or money or property obtained
as such support, or any pension or gratuity from the Government;
Properties specially Exempted by law.
But no article or species of property mentioned in this section shall be
exempt from execution issued upon a judgment recovered for its price or
upon a judgment of foreclosure of a mortgage thereon.
Tolentino:
Remedy under Article 1165 REMEDIES OF CREDITOR: For
failure of debtor to comply,
1. SPECIFIC PERFORMANCE, to obtain compliance of
the prestations, whether determinate or generic; this action
implies a contractual relation;
2. TO RESCIND OR RESOLVE THE OBLIGATION
3. AN ACTION FOR DAMAGES exclusively or in
addition to 1 and 2.
Constitutional prohibition vs. imprisonment f or debt applies,
except in subsidiary imprisonment when civil liability arising from
crime is not paid; or in contempt;
Exception to exception on the General rule under Fortuitous
Event: Debtor in default may still prove that he is not liable for
fortuitous event because even if he had not performed, the loss would
still have occurred in the same manner.
Remedy under Article 1167 Performance of OBLIGATION by
another at creditor s choice and at debtor s cost court may not
by discretion merely award damages to creditor when the
OB L I GAT I ON ma b e d e i i e
But, law may not compel or force debtor to comply with
OBLIGATION, if to do so, would amount to involuntary servitude,
and since worthy is the rule that if there is debt, then there is no
imprisonment. If OBLIGATION can only be done by debtor, then
the only remedy is to ask for damages.
Remedy under Article 1168 OBLIGATION NOT TO DO was
done may compel debtor to UNDO what he has done; but if
impossible to undo so, the remedy is to ask for damages.
Remedy under Article 1170 RECOVERABLE DAMAGES =
when the OBLIGATION is to do something other than the payment
of money;
If OBLIGATION is payment of money, Article 2209 is the rule in
relation to damages when debtors incurs in delay, there is payment
of interest if without stipulation to the contrary, as agreed upon, or if
no agreement, the legal interest will do.
Remedy under Article 1177 RIGHTS OF CREDITORS:
!"#$%&%'(")*+#,%-(.#/%
1. To levy by attachment and execution upon all the
property of debtor except if exempt by law;
2. To exercise all the rights and actions of the debtor, except
those inherently personal to him; accion subrogatoria;
prior court approval is not required.
This should concur with the following: requisites:
a. Creditor has interest in the right or action not
only because of his credit but that of the
insolvency of debtor;
b. Malicious or negligent inaction of debtor at level
which endanger the claim of Creditor;
c. D e b i rdg hperson amust
g a be
i (a)3 PRINCIPAL REMEDY
patrimonial, or susceptible of being transformed
to patrimonial value.
3. Ask for rescission of contracts made by debtor in fraud of
C e d i i g h . The injured party may choose between the fulfillment and the rescission
Balane:
Q: Against what can the obligee demand performance?
A: Against non-exempt properties of the debtor. -- The debtor is liable
with all his property, present and future, for the fulfillment of his
OBLIGATIONS, subject to the exemptions provided by law.
(Article 2236)
If number one is not enough, the creditor goes to any claims which the
debtor may have against third persons. This is called accion
subrogatoria , wherein the creditor is subrogated in the rights of
the debtor.
Personal rights of the debtor:
1. Right to subsistence, support he receives are exempt
2. Public rights;
3. Rights pertaining to honor
4. Right to use remaining powers available to him, e.g.
SPA of agency or deposit; administrator; to accept a
contract
5. Non-patrimonial rights establish status, legitimate or
illegitimate child; annulment of marriage, legal
separation, those arising from Persons and Family
Relations;
6. Personal rights arising from patrimonial source, e.g. to
revoke a donation due to ingratitude, to demand
exclusion of an unworthy heir;
Accion pauliana (Articles 1380-89) -- This is the right of creditors to
set aside fraudulent transfers which the debtor made so much of it
as is necessary to pay the debts.
pertains to acts which debtor may have done in fraud of creditor E.g.
alienation of property, renunciation of inheritance or right of
usufruct, assignment of credit, remission of debts.
(1) EXTRAJUDICIAL REMEDIES:
(a) EXPRESSLY GRANTED BY LAW
(b) STIPULATED BY THE PARTIES
(a) EXPRESSLY GRANTED BY LAW, extrajudicial remedies
(In OBLIGATIONS of the Partners)
Article 1786. Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to
specific and determinate things which he may have contributed to the
partnership, in the same cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered, without the need
of any demand.
Article 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and damages
from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use.
(In Delivery of the Thing Sold)
Article 1526. Subject to the provisions of this Title, notwithstanding that
the ownership in the goods may have passed to the buyer, the unpaid
seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while
he is in possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the
goods in transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid
seller has, in addition to his other remedies a right of withholding delivery
similar to and coextensive with his rights of lien and stoppage in transitu
where the ownership has passed to the buyer.
(2) JUDICIAL REMEDIES:
(a) PRINCIPAL REMEDY Article 1191 or Article 1170
(b) SUBSIDIARY REM Articles 1380 /1177
(c) ANCILLARY REM Rules of Court
1191 / 1170
Article 1191. The power to rescind OBLIGATIONS is implied in
reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
Notes:
Two remedies are alternative and not cumulative, subject to the
exception in par. 2 where he may also seek rescission even after
he has chosen fulfillment if the latter should become impossible
Article 1170. Those who in the performance of their obligation are
guilty of fraud, negligence or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
(b) SUBSIDIARY REM Articles 1380 /1177
Article 1380. Contracts validly agreed upon may be rescinded in the
cases established by law. (Rescissible Contracts)
Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the rights
and bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Note:
Rescission in reciprocal OBLIGATION in Article 1191 is not identical
to Rescission of contracts in Article 1380 and the succeeding
provisions thereto.
Requisites of Rescission of a contract under Article 1380:
A rescissible contract provided for under Article 1381 and 1382;
No other legal means to obtain reparation for damages (Article
1383);
The person demanding rescission must be able to return whatever
he may be obliged to restore if rescission be granted (Article
1385);
The objects of contract must not have passed legally to the
possession of a of 3rd person in good faith (Article 1385);
Actions for rescission must be brought within 4 years (Article
1389).
Re c i d a b l e c a c a e ed a l i d
collaterally as in a land registration proceeding. Direct proceeding is
therefore necessary.
Rescission only for legal cause, as those in Article 1381 and 1382.
Le i d e A i c l e 1 3 8 1 a .
rescission, must be known or could have been known at the time of
making the contract, and not due to circumstances subsequent thereto
or unknown to the parties.
Accion Pauliana : Actions to set aside contracts in fraud of Creditors
(Article 1381 par. 3)
Requisites for Accion Pauliana:
1. Plaintiff: Asking for rescission has a credit prior to
alienation, though demandable later;
2. Debtor has made a subsequent contract conveying a
patrimonial benefit to 3rd person;
3. Creditor-Plaintiff has no other legal remedy to satisfy his
claim;
4. Act being impugned is fraudulent;
!"#$%&%'(")*+#,%-(.#/%
5. The 3rd person who received property, if by onerous title, is
accomplice in the fraud.
Rescission is a subsidiary action, which presupposes that the
Creditor has exhausted the properties of the debtor. And that
fraudulent conveyance must be shown.
Test: WON conveyance by debtor a bona fide transmission.
Badges/ Signs of Fraud:
1. consideration of conveyance is inadequate
2. transfer made by Debtor after suit has begun and while
pending action against him
3. a sale upon credit by insolvent Debtor
4. evidence of large indebtedness or complete insolvency
5. transfer of all or nearly all of property of Debtor who is
insolvent or greatly embarrassed financially
6. transfer is made between father and son
7. failure of vendee to take exclusive possession of property
8. If alienation is gratuitous, good faith of transferee does NOT
protect him over the owner; otherwise that amounts to Unjust
enrichment
9. If alienation is by onerous title, transferee must be a party to
the fraud, to have rescission
As a rule, Rescission benefits only Creditor who obtained Rescission.
And the extent of revocation is only to the amount of prejudice suffered
by Creditor. As to the excess, the alienation is maintained.
Actions for Rescission may be brought by:
(1) the person injured by the rescission of the contract;
(2) heirs of this person, and
(3) their Creditors by virtue of right granted under Article 1177.
Notes:
Right of transferee to retain property depends upon the
nature of the transfer and upon the complicity of the former
in the fraud.
rd
Wh e c a c c a person
b ewho is e
in good faith, the party who caused the loss is liable for the
damages.
Badges of fraud, and Article 1387: Presumptions. May be
rebutted by satisfactory and convincing evidence.
Article 1388: Creditor with action only against subsequent
transferees only when an action lies against the 1st transferee.
If 1st Transferee is in Good Faith, there is no liability. But if
the 1st Transferee is in Bad Faith, the rescissible character of
2nd alienation depends upon how 2nd Transferee acquired the
thing.
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The creditor shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles.
1385 and 1388 and the Mortgage Law.
Article 1192. In case both parties have committed a breach of the
obligation, the liability of the 1st infractor shall be equally tempered
bye the creditors. If it cannot be determined which of the parties
1st violated the contract, the same shall be deemed extinguished,
and each shall bear his own damages.
According to Tolentino:
Similarities between Rescission under Article 1191 and Article 1380
include the following:
(1) both presuppose contracts validly entered into and existing, and
(2) both require mutual restitution when declared proper.
Differences:
(1) Rescission under Article 1191 may be demanded only by party to
the contract, while under Article 1380 by 3rd person prejudiced by the
contract;
(2) Rescission under Article 1191 may be denied when there is
sufficient reason to justify extension of time to perform, while under
Article 1380 such reason does NOT affect right to ask for rescission;
(3) Non-performance is the only ground for rescission under Article
1191 while there are various reasons of equity as grounds under Article
1191 applies only to reciprocal obligations where one party has not
performed, while under Article 1380, OBLIGATION may be unilateral
or reciprocal and even when contract has been fulfilled.
Case: UNLAD Resources Dev. Co., UNLAD Rural Bank of Noveleta, Inc.,
UNLAD Commodities, Inc., Helena Benitez and Conrado Benitez II vs.
Renato Dragon, et al., July 28, 2008, J. Nachura.
Facts: Herein respondents and petitioner entered into a Memorandum of
Agreement wherein it is provided that respondents, as controlling stockholders
of Rural Bank shall allow Unlad Resources to invest P4.8 Million in the Rural
Bank in a form of additional equity. Likewise, Unlad Resources, upon signing, it
was agreed that the former shall subscribe to a minimum of 480,000 common or
preferred non-voting share of stock and pay immediately 1,200,000 for said
subscription, and that upon signing, said agreement shall transfer control and
management over Rural Bank to Unlad. According to respondents, immediately
after signing, they complied with their obligation and transferred control of
Rural Bank to Unlad, thereby renaming the Bank into Unlad Rural Bank of
Noveleta. However, despite repeated demands, Unlad has failed and refused to
comply with their obligations as agreed upon. On August 10, 1984, the Board of
Directors of [petitioner] Unlad Resources passed Resolution No. 84-041 authorizing the
President and the General Manager to lease a mango plantation situated in Naic, Cavite.
Pursuant to this Resolution, the Bank as [lessee] entered into a Contract of Lease with the
[petitioner] Helena Z. Benitez as [lessor]. The management of the mango plantation was
undertaken by Unlad Commodities, Inc., a subsidiary of Unlad Resources[,] under a
Management Contract Agreement. The Management Contract provides that Unlad
Commodities, Inc. would receive eighty percent (80%) of the net profits generated by the
e a i f h e ma g l a a i h i l e h
further agreed that at the end of the lease period, the Rural Bank shall turn over to the
lessor all permanent improvements introduced by it on the plantation.
On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents] regarding [the]
Ce a l Ba k a t Bank
a l of the Philippines]
e i preferred
e i [ De
shares in the amount of P219,000.00 and giving notice for subscription to proportionate
shares. The [respondents] objected on the grounds that there is already a sinking fund for
the retirement of the said DEBTORP-held preferred shares provided for annually and that
it could deprive the Rural Bank of a cheap source of fund. (sic)
[Respondents] alleged compliance with all of their obligations under the Memorandum of
Agreement in that they have transferred control and management over the Rural bank to
the [petitioners] and are ready, willing and able to allow [petitioners] to subscribe to a
minimum of four hundred eighty thousand (P480,000.00) (sic) common or preferred non-
voting shares of stocks with a total par value of four million eight hundred thousand
c i d e d b e c a e 3
pesos (P4,800,000.00) in the Rural Bank. However, [petitioners] have failed and refused
to subscribe to the said shares of stock and to pay the initial amount of one million two
hundred thousand pesos (P1,200,000.00) for said subscription.
On July 3, 1987, herein respondents filed before the Regional Trial Court (RTC) of
Makati City, Branch 61 a Complaint4 for rescission of the agreement and the return of
control and management of the Rural Bank from petitioners to respondents, plus
damages. RTC ruled in favor of the respondents. Hence, petitioners appeal. But CA
affirmed the RTC decision.
Issues:
a. Whether or not the action for rescission had already
prescribed.
b. Whether or not the action for rescission is proper.
Held:
(1) NO. Article 1389. The action to claim rescission must be commenced within four
years x x x.
This is an erroneous proposition. Article 1389 specifically refers to rescissible contracts
as, clearly, this provision is under the chapter entitled "Rescissible Contracts."
In a previous case, this Court has held that Article 1389: applies to rescissible contracts,
as enumerated and defined in Articles 1380 and 1381. We must stress however, that the
"rescission" in Article 1381 is not akin to the term "rescission" in Article 1191 and
Article 1592. In Articles 1191 and 1592, the rescission is a principal action which seeks
the resolution or cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as enumerated in said article.
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in
Article 1144, which provides that the action upon a written contract should be brought
within ten years from the time the right of action accrues.
Article 1381 sets out what are rescissible contracts, to wit:
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
The Memorandum of Agreement subject of this controversy does not fall under the
above enumeration. Accordingly, the prescrip tive period that should apply to this case
is that provided for in Article 1144, to wit:
Article 1144. The following actions must be brought within ten years from the time the
right of action accrues:
(1) Upon a written contract;
xxxx
Based on the records of this case, the action was commenced on July 3, 1987, while the
Memorandum of Agreement was entered into on December 29, 1981. Article 1144
specifically provides that the 10-year period is counted from "the time the right of action
accrues." The right of action accrues from the moment the breach of right or duty
occurs.13 Thus, the original Complaint was filed well within the prescriptive period.
(2) YES.
!"#$%&%'(")*+#,%-(.#/%
There is no question that petitioners herein failed to fulfill their obligation under the
Memorandum of Agreement. Even they admit the same, albeit laying the blame on
respondents.
I i e h a e d e i cck toeonly
a P5e d
million, which was not enough to accommodate the P4.8 million worth of stocks that
e i i e e e b c i b e a d
undertaking in the agreement would have given rise to the scenario contemplated by
Article 1191 of the Civil Code, which reads:
Article 1191. The power to rescind reciprocal obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choo se between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission cl aimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Thus, petitioners should have exacted fulfillment from the respondents or asked for the
rescission of the contract instead of simply not performing their part of the Agreement.
But in the course of things, it was the respondents who availed of the remedy under
Article 1191, opting for the rescission of the Agreement in order to regain control of the
Rural Bank.
Having determined that the rescission of the subject Memorandum of Agreement was in
order, the trial court ordered petitioner Unlad Resources to return to respondents the
management and control of the Rural Bank and for the latter to return the sum
of P1,003,070.00 to petitioners.
Mutual restitution is required in cases involving rescission under Article 1191. This
means bringing the parties back to their original statu s prior to the inception of the
contract. Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever he may be
obligated to restore.
Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
This Court has consistently ruled that this provision applies to rescission under Article
1191:
Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates
the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest," the Court finds no justification to sustain
e i i e t said Article 1385 i doesi not applyhtoarescission under Article
1191.
Rescission has the effect of "unmaking a contract, or its undoing from the beginning,
and not merely its termination." 16 Hence, rescission creates the obligation to return the
object of the contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative position s as if no
contract has been made.
Accordingly, when a decree for rescission is handed down, it is the duty of the court to
require both parties to surrender that which they have respectively received and to
place each other as far as practicable in his o riginal situation. The rescission has the
effect of abrogating the contract in all parts.
Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there
was just cause for rescission. With the contract thus rescinded, the parties must be
restored to the status quo ante, that is, before they entered into the Memorandum of
Agreement.
Case: Central Bank of the Philippines and Acting Director Antonio Castro,
Jr. of the Department of Commercial and Savings Bank (In his capacity as
statutory receiver of Island Savings Bank) vs. CA and Sulpicio Tolentino,
October 3, 1985, C.J. Makasiar.
Facts: Islands Savings Bank approved the loan application of Tolentino for
P80,000. To secure the loan, Tolentino executed a real estate mortgage on his
100-hectare land. Only P17,000 was released by the Bank, for which Tolentino
executed a promissory note payable within 3 years. The balance was not
released. In 1965, the Monetary Board of the Central Bank issued Resolution
No. 1049 prohibiting the Bank from doing business in the Philippines. The Bank
filed an application for extrajudicial foreclosure of the real estate mortgage of
Tolentino for non-payment of the promissory note for P17,000. In turn,
Tolentino filed an action for injunction, specific perform ance or rescission,
alleging that the Bank failed to fulfill its obligation to lend the balance of
P63,000.
Issues:
Whether or not Tolentino can compel specific performance.
Held:
NO. When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each party
is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
[1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party
has performed or is ready and willing to perform his part of the contract, the
other party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island Savings
Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a
real estate mortgage on April 28, 1965, he signified his willingness to pay the
P80,000.00 loan. From such date, the obligation of Island Savings Bank to
furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the
entire loan started on April 28, 1965, and lasted for a period of 3 years or
when the Monetary Board of the Central Bank issued Resolution No. 967 on
June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank
to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the public is
recognized by Section 29 of R.A. No. 265, which took effect on June 15,
1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt
the default of Island Savings Bank in complying with its obligation of
releasing the P63,000.00 balance because said resolution merely prohibited
h e R a l Ba k a h i e d c a i a l
the Bank from making new loans and investments, and nowhere did it prohibit
a fisland. Savings
H Bank
e from
e , releasing
e the balance
d e of loan agreements
f a i l previously
e f l f
contracted. Besides, the mere pecuniary inability to fulfill an engagement does
not discharge the obligation of the contract, nor does it constitute any defense
to a decree of specific performance (Gutierrez Repide vs. Afzelius and
Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is
never an excuse for the non-fulfillment of an obligation but 'instead it is taken
as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. We rule that the liability
of Island Savings Bank for damages in not furnishing the entire loan is offset
by the liability of Sulpicio M. Tolentino for damages, in the form of penalties
and surcharges, for not paying his overdue P17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that he
should account for the interest thereon.
We hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.
Case: Universal Food Corporation vs. CA and Magdalo Francisco Sr. and
Victoriano Francisco, (1970), J. Castro.
FACTS: Magdalo V. Francisco, Sr. PATENTEE or owner and author of the
formula for MAFRAN SAUCE, manufactured and distributed by UFC, filed
with the CFI-Manila, an action for rescission of a contract entitled "Bill of
Assignment." The plaintiffs prayed the court to adjudge the defendant as
without any right to the use of the Mafran trademark and formula, and order
the latter to restore to them the said right of user; to order UFC to pay
Magdalo his unpaid salary from December 1, 1960, as well as damages in the
sum of P40,000, and to pay the costs of suit.
Petitioner UFC contends that the CA erred in granting above prayers of
plaintiff, holding that right to specific performance is not conjunctive with the
right to rescind a reciprocal contract; that a plaintiff cannot ask for both
remedies; that the appellate court awarded the respondents both remedies as it
held that the respondents are entitled to rescind the Bill of Assignment and
also that the respondent patentee is entitled to his salary aforesaid; that this is
a gross error of law.
Certain provisions of the Bill of Assignment would seem to support the
petitioner's position that the respondent patentee ceded and transferred to the
petitioner the formula for Mafran sauce.
However, a perceptive analysis of the entire instrument and the language
employed therein would lead one to the conclusion that what was actually
ceded and transferred was only the use of the Mafran sauce formula. This was
the precise intention of the parties: (1) 2% ROYALTY; provisions to preserve
utmost secrecy and monopoly of the formula by the patentee; etc.
ISSUE: WON the rescission of the Bill of Assignment by the CA is proper.
In this connection, we quote for ready reference the following articles of the
new Civil Code governing rescission of contracts:
ARTICLE 1191. The power to rescind OBLIGATIONS is implied
in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 of the Mortgage Law.
ARTICLE 1383. The action for rescission is subsidiary; it cannot
be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
ARTICLE 1384 . Rescission shall be only to the extent necessary to
cover the damages caused.
HELD: YES. The power to rescind OBLIGATIONS is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between fulfillment and rescission of the
obligation, with payment of damages in either case.
In this case before us, there is no controversy that the provisions of the Bill of
Assignment are reciprocal in nature. The petitioner corporation violated the
Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the
services of the respondent patentee Magdalo V. Francisco, Sr., without lawful
and justifiable cause.
The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement. The question of whether a breach of a contract is substantial
depends upon the attendant circumstances. The petitioner contends that
rescission of the Bill of Assignment should be denied, because under article
1383, rescission is a subsidiary remedy which cannot be instituted except
!"#$%&%'(")*+#,%-(.#/%
when the party suffering damage has no other legal means to obtain reparation
for the same.
However, in this case the dismissal of the respondent patentee Magdalo V.
Francisco, Sr. as the permanent chief chemist of the corporation is a
fundamental and substantial breach of the Bill of Assignment. He was
dismissed without any fault or negligence on his pArticle Thus, apart from the
legal principle that the option to demand performance or ask for rescission
of a contract belongs to the injured party, the fact remains that the
respondents-appellees had no alternative but to file the present action for
rescission and damages. It is to be emphasized that the respondent patentee
would not have agreed to the other terms of the Bill of Assignment were it not
for the basic commitment of the petitioner corporation to appoint him as its
Second Vice-President and Chief Chemist on a permanent basis; that in the
manufacture of Mafran sauce and other food products he would have
"absolute control and supervision over the laboratory assistants and personnel
and in the purchase and safeguarding of said products;" and that only by all
these measures could the respondent patentee preserve effectively the secrecy
of the formula, prevent its proliferation, enjoy its monopoly, and, in the
process afford and secure for himself a lifetime job and steady income. The
salient provisions of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the appointment of the respondent
patentee as Second Vice-President and chief chemist on a permanent status;
the obligation of the said respondent patentee to continue research on the
patent to improve the quality of the products of the corporation; the need of
absolute control and supervision over the laboratory assistants and personnel
and in the purchase and safekeeping of the chemicals and other mixtures used
in the preparation of said product all these provisions of the Bill of
Assignment are so interdependent that violation of one would result in virtual
nullification of the rest.
In the Separate Opinion: REYES, J.B.L., J., concurring:
I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would
like to add that the argument of petitioner, that the rescission demanded by
the respondent-appellee, Magdalo Francisco, should be denied because
under Article 1383, NCC rescission can not be demanded except when the
party suffering damage has no other legal means to obtain reparation, is
predicated on a failure to distinguish between a rescission for breach of
contract under Article 1191 of the Civil Code and a rescission by reason of
lesion or economic prejudice, under Article 1381, et seq.
(Rescission for breach of contract under Article 1191) The rescission on
account of breach of stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that the action for
rescission thereunder is subordinated to anything other than the culpable
breach of his OBLIGATIONS by the defendant. This rescission is in
principal action retaliatory in character, it being unjust that a party be
held bound to fulfill his promises when the other violates his. As expressed
in the old Latin aphorism: "Non servanti fidem, non est fides servanda."
Hence, the reparation of damages for the breach is purely secondary.
(Rescission by reason of lesion or economic prejudice, under Article 1381,
et seq.) On the contrary, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence of that
prejudice, because it is the raison d'etre as well as the measure of the right to
rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly provided in Articles
1383 and 1384. But the operation of these two articles is limited to the cases
of rescission for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not, apply to cases under Article 1191.
It is probable that the petitioner's confusion arose from the defective technique
of the new Code that terms both instances as rescission without distinctions
between them; unlike the previous Spanish Civil Code of 1889, that
differentiated "resolution" for breach of stipulations from "rescission" by
reason of lesion or damage. But the terminological vagueness does not justify
confusing one case with the other, considering the patent difference in causes
and results of either action.
Case : Magdalena Estate, Inc. Vs. Louis Myrick, March 14, 1941, J. Laurel.
FACTS: Magdalena Estate, Inc. sold to Louis J. Myrick parcel of lots in San
Juan Subdivision, San Juan Rizal, with contract of sale providing for the price
which shall be payable in 120 equal monthly installments of each on the 2 nd
day of each month from the date of execution of the agreement.
Simultaneously, the vendee executed and delivered to the vendor a
Promissory Note for the whole purchase price. Myrick made several
installment payments the last being Oct. 1930, but was in default as to May
payment.
Thus, vendor notified the vendee that, in view of his inability to comply with
the terms of their contract, said agreement had been cancelled as of that
date, thereby relieving him of any further obligation thereunder, and that all
amounts paid by him had been forfeited in favor of the vendor, who assumes
the absolute right over the lots in question. To this communication, the vendee
did not reply, and it appears likewise that the vendor thereafter did not require
him to make any further disbursements on account of the purchase price.
Myrick, respondent herein, commenced the present action in CFI-Albay,
against MEI for the sum of P2,596.08 with legal interest thereon from the
filing of the complaint until its payment, and for costs of the suit. Lower court
granted, CA affirmed with modification that legal interest should be computed
from the date of the cancellation of the contract. Thus this petition.
ISSUE: WO N e i i e c e i i
be resolved or cancelled only by the prior mutual agreement of the parties,
which is approved by the judgment of the proper court; and that the letter of
MEI was not assented to by the respondent, and therefore, cannot be deemed
to have produced a cancellation, even if it ever was intended.
HELD: Where the terms of writing are clear, positive and unambiguous, the
intention of the parties should be gleaned from the language therein employed,
h i c h i c c l i e i h e a b e c e
it was unequivocal.
The fact that the contracting parties herein did not provide for resolution is
now of no moment, for the reason that the OBLIGATIONS arising from the
contract of sale being reciprocal, such OBLIGATIONS are governed by
article 1124 of the Civil Code which declares that the power to resolve, in
the event that one of the obligors should not perform his part, is implied.
Upon the other hand, where, as in this case, the petitioner cancelled the
contract, advised the respondent that he has been relieved of his
OBLIGATIONS thereunder, and lead said respondent to believe it so and act
upon such belief, the petitioner may not be allowed, in the language of
section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123
of the New Rules of Court), in any litigation the course of litigation or in
dealings in nais, be permitted to repudiate his representations, or occupy
inconsistent positions, or, in the letter of the Scotch law, to "approbate
and reprobate."
The contract of sale, contract SJ-639, contains no provision authorizing the
vendor, in the event of failure of the vendee to continue in the payment of the
stipulated monthly installments, to retain the amounts paid to him on account
of the purchase price. The claim, therefore, of the petitioner that it has the
right to forfeit said sums in its favor is untenable. Under article 1124 of the
Civil Code, however, he may choose between demanding the fulfillment of
the contract or its resolution. These remedies are alternative and not
cumulative, and the petitioner in this case, having to cancel the contract,
cannot avail himself of the other remedy of exacting performance. (Osorio &
Tirona vs. Bennet & Provincial Board of Cavite, 41 Phil., 301; Yap Unki vs.
Chua Jamco, 14 Phil., 602.) As a consequence of the resolution, the parties
should be restored, as far as practicable, to their original situation (Po
Pauco vs. Siguenza, supra) which can be approximated only by ordering, as
we do now, the return of the things which were the object of the contract, with
their fruits and of the price, with its interest (article 1295, Civil Code),
computed from the date of the institution of the action. (Verceluz vs. Edaño,
46 Phil. 801.)
Case: University of the Philippines vs. Walfrido Delos Angeles (Judge of CFI
in Quezon City), September 29, 1970, JBL Reyes.
Facts: In the provinces of Laguna and Quezon, Land Grants were segregated
from the public domain and given as an endowment to UP, to be operated and
developed for the purpose of raising additional income for its support,
pursuant to Act 3608.
In 1960, UP and ALUMCO (Associated Lumber Manufacturing Co.) entered
into a logging agreement under which the latter was granted exclusive
authority, for a period starting from the date of the agreement to 31 December
1965, extendible for a further period of five (5) years by mutual agreement, to
cut, collect and remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.; ALUMCO cut and removed
timber therefrom but, as of 8 December 1964, it had incurred an unpaid
account of P219,362.94, which, despite repeated demands, it had failed to pay.
After it had received notice that UP would rescind or terminate the logging
agreement, ALUMCO executed an instrument, entitled "Acknowledgment
of Debt and Proposed Manner of Payments," dated 9 December 1964 , which
was approved by the President of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this
paragraph are not sufficient to liquidate the foregoing indebtedness
of the DEBTOR in favor of the CREDITOR, the balance
outstanding after the said payments have been applied shall be paid
by the DEBTOR in full no later than June 30, 1965;
5. In the event that the DEBTOR fails to comply with any of its
promises or undertakings in this document, the DEBTOR agrees
without reservation that the CREDITOR shall have the right and
the power to consider the Logging Agreement dated December
2, 1960 as rescinded without the necessity of any judicial suit,
and the CREDITOR shall be entitled as a matter of right to
Fifty Thousand Pesos (P50,000.00) by way of and for
liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid
account, for the period from 9 December 1964 to 15 July 1965, in the amount
of P61,133.74, in addition to the indebtedness that it had previously
acknowledged.
Thus, UP informed ALUMCO that it had, as of that date, considered as
rescinded and of no further legal effect the logging agreement that they had
entered in 1960; and UP filed a complaint against ALUMCO at CFI-Rizal, for
the collection or payment of sums of money with prayer for injunction. But
before preliminary injunction may be issued, UP had taken steps to have
another concessionaire to take over the logging operation, by advertising an
invitation to bid; that bidding was conducted, and the concession was awarded
to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16
February 1966. ALUMCO had filed several motions to discharge the writs of
attachment and preliminary injunction but were denied by the court. Thus,
ALUMCO filed a petition to enjoin petitioner University from conducting the
bidding and for preliminary injunction. Respondent judge issued the first of
the questioned orders, enjoining UP from awarding logging rights over
the concession to any other party.
UP received the TRO after it had concluded its contract with Sta. Clara, and
said
c company e chad ,started hlogging
a operations.
a b i lOna motion,
e aALUMCO
l c and one a c m
Jose Rico, the court, declared petitioner UP in contempt of court and Sta.
Clara Lumber to refrain from exercising logging rights or conducting logging
operations in the concession.
UP MR a d e i e d .
!"#$%&%'(")*+#,%-(.#/%
ISSUE: Whether petitioner U.P. can treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial pronouncement to
that effect.
HELD: YES. In the first place, UP and ALUMCO had expressly stipulated
that, upon default by the debtor ALUMCO, the creditor (UP) has "the right
and the power to consider, the L ogging Agreement as rescinded without the
necessity of any judicial suit." As to such special stipulation, and in
connection with Article 1191 of the Civil Code, this Court stated in Froilan
vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA
276:
there is nothing in the law that prohibits the parties from entering
into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In
other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.
Of course, it must be understood that the act of party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party
must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies
that rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent indemnity awarded to the
party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial s teps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the
suit until the final judgment of rescission is rendered when the law itself
requires tha t he should exercise due diligence to minimize its own damages
(Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this
Court invoked by respondent declaring that judicial action is necessary for the
resolution of a reciprocal obligation, since in every case where the
extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action will be necessary, as
without it, the extrajudicial resolution will remain contestable and subject to
judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
Case: Jose Zulueta vs. Hon. Mariano and Lamberto Avellana,
January 30, 1982, J. Melencio-Herrera.
FACTS: Petitioner Jose C. Zulueta is the registered owner of a residential
house and lot situated within the Antonio Subdivision, Pasig, Rizal. On
November 6, 1964, petitioner Zulueta and private respondent Lamberto
Avellana, a movie director, entered into a "Contract to Sell" the
aforementioned property for P75,000.00 payable in twenty years with
respondent buyer assuming to pay a down payment of P5,000.00 and a
monthly installment of P630.00 payable in advance before the 5th day of the
corresponding month, starting with December, 1964 WITH FURTHER
SPECIFIC STIPULATIONS IN CASE OF BREACH OF SUCH
contract.
Avellana occupied the property but title remained with petitioner Zulueta.
Upon the allegation that respondent had failed to comply with the monthly
amortizations stipulated in the contract, despite demands to pay and to vacate
the premises, and that thereby the contract was converted into one of lease,
petitioner, commenced an ejectment suit against respondent before the MTC-
Pasig. Respondent controverted by contending that the Municipal Court had
no jurisdiction over the nature of the action as it involved the interpretation
and/or rescission of the contract; and made some affirmative defenses and
counterclaim. Lower court found in favor of plaintiff, and asked defendant to
vacate and pay back rentals, etc. CA reversed and ruled against the Justice of
the Municipal Court finding the case as one of interpretation and rescission of
contract because the contract to sell was converted to contract of lease. MR
denied.
ISSUE: WON the original contract to sell was rescinded due to the automatic
rescission clause in the contract, thus the case was unlawful detainer
cognizable by the MTC or one of judicial rescission of contract cognizable by
then CFI.
HELD: Thus, the basic issue is not possession but one of rescission or
annulment of a contract, which is beyond the jurisdiction of the Municipal
Court to hear and determine.
A violation by a party of any of the stipulations of a contract on
agreement to sell real property would entitle the other party to
resolved or rescind it. An allegation of such violation in a detainer
suit may be proved by competent evidence. And if proved a justice
of the peace court might make a finding to that effect, but it
certainly cannot declare and hold that the contract is resolved or
rescinded. It is beyond its power so to do. And as the illegality of
the possession of realty by a party to a contract to sell is premised
upon the resolution of the contract, it follows that an allegation
and proof of such violation, a condition precedent to such
resolution or rescission, to render unlawful the possession of the
land or building erected thereon by the party who has violated the
contract, cannot be taken cognizance of by a justice of the peace
court xxx
True, the contract between the parties provided for extrajudicial rescission.
This has legal effect, however, where the other party does not oppose it.
Where it is objected to, a judicial determination of the issue is still necessary.
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex proprio
vigore confer upon the former the right to take possession thereof
if objected to without judicial intervention and' determination.
But while respondent Judge correctly ruled that the Municipal Court had no
jurisdiction over the case and correctly dismissed the appeal, he erred in
assuming original jurisdiction, in the face of the objection interposed by
petitioner. Section 11, Rule 40, leaves no room for doubt on this point:
Section 11. Lack of jurisdiction. A case tried by an inferior court
without jurisdiction over the subject matter shall be dismiss on
appeal by the Court of First Instance. But instead of dismissing the
case, the Court of First Instance may try the case on the merits, if
the parties therein file their pleadings and go to trial without any
objection to such jurisdiction.
There was no other recourse left for respondent Judge, therefore, except to
dismiss the appeal.
If an inferior court tries a case without jurisdiction over the
subject-matter on appeal, the only authority of the CFI is to declare
the inferior court to have acted without jurisdiction and dismiss the
case, unless the parties agree to the exercise by the CFI of its
original jurisdiction to try the case on the merits.
The foregoing premises considered, petitioner's prayer for a Writ of Execution
of the judgment of the Municipal Court of Pasig must perforce to be denied.
Case: Palay, Inc. and Albert Onstott vs, Jacobo Clave (Presidential
Executive Assistant National Housing Authority) and Nazario Dumpit, Sept.
21, 1983, J. Melencio-Herrera.
FACTS: Petitioner Palay, Inc., through its President, Albert Onstott executed
in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of
Land of the Crestview Heights Subd. in Antipolo, Rizal, owned by said
corporation. The sale price was P23,300.00 with 9% interest p.a., payable with
a down-payment of P4,660.00 and monthly installments of P246.42 until fully
paid. Contract provided for automatic extrajudicial rescission upon default
in payment of any monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need of notice and with
forfeiture of all installments paid. Respondent Dumpit paid the downpayment
and several installments amounting to P13,722.50. The last payment was
made on December 5, 1967 for installments up to September 1967. Almost six
(6) years later, private respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon. Replying petitioners
inform ed respondent that his Contract to Sell had long been rescinded and
the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a
letter complaint with the National Housing Authority (NHA) for
reconveyance with an altenative prayer for refund. NHA, finding the
rescission void in the absence of either judicial or notarial demand, ordered
Palay, Inc. and Alberto Onstott, jointly and severally, to refund immediately
to Dumpit the amount of P13,722.50 with 12% interest from the filing of the
complaint. Petitioners' MR was denied. Appeal to the OP was also denied.
ISSUE: Whether the rescission of the contract is proper.
HELD: NO. Well settled is the rule, as held in previous jurisprudence, that
judicial action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of
any of its terms and conditions.
However, even in the cited cases, there was at least a written notice sent to the
defaulter informing him of the rescission. As stressed in University of the
Philippines vs. Walfrido de los Angeles the act of a party in treating a
contract as cancelled should be made known to the other.
In this case, private respondent has denied that rescission is justified and has
resorted to judicial action. It is now for the Court to determine whether
resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as held
in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there
was no contract to rescind in court because from the moment the petitioner
defaulted in the timely payment of the installments, the contract between the
parties was deemed ipso facto rescinded." However, it should be noted that
even in that case notice in writing was made to the vendee of the cancellation
and annulment of the contract although the contract entitled the seller to
immediate repossessing of the land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide Protection
to Buyers of Real Estate on Installment Payments." which took effect on
September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission
of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer. (Emphasis
supplied).
The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and private
respondent had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where liberty
of choice has been fully accorded. 9 Moreover, it is a matter of public policy to
!"#$%&%'(")*+#,%-(.#/%
protect buyers of real estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments.
Case: Buenaventura Angeles, et al. Vs. Ursula Torres Calasanz, et
al., March 18, 1985, J. Gutierrez, Jr.
FACTS: Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece
of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest
per annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution
of the contract. They promised to pay the balance in monthly installments of P
41.20 until fully paid, the installments being due and payable on the 19th day
of each month. The plaintiffs-appellees paid the monthly installments until
July 1966, when their aggregate payment already amounted to P4,533.38. On
numerous occasions, the defendants-appellants accepted and received
delayed installment payments from the plaintiffs-appellees. On December
7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter
requesting the remittance of past due accounts. On January 28, 1967, the
defendants-appellants cancelled the said contract because the plaintiffs-
appellees failed to meet subsequent payments. The plaintiffs' letter with
their plea for reconsideration of the said cancellation was denied by the
defendants-appellants.
The plaintiffs-appellees filed with CFI-Rizal to compel the defendants-
appellants to execute in their favor the final deed of sale alleging inter alia
that after computing all subsequent payments for the land in question, they
found out that they have already paid the total amount of P4,533.38 including
interests, realty taxes and incidental expenses for the registration and transfer
of the land.
The defendants-appellants alleged in their answer that the complaint states no
cause of action and that the plaintiffs-appellees violated paragraph six (6) of
the contract to sell when they failed and refused to pay and/or offer to
pay the monthly installments corresponding to the month of August, 1966
for more than five (5) months, thereby constraining the defendants-
appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-appellees. MR
denied.
ISSUE: WON the contract to sell has been automatically and validly
cancelled by the defendants-appellants.
HELD: NO. The right to rescind the contract for non-performance of one of
its stipulations, therefore, is not absolute. In Universal Food Corp. v. Court of
Appeals (33 SCRA 1) the Court stated that;
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement. (Song Fo and Co. v.
Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of
whether a breach of a contract is substantial depends upon the
attendant circumstances.
The breach of the contract adverted to by the defendants-appellants is so
slight and casual when we consider that apart from the initial downpayment
of P392.00 the plaintiffs-appellees had already paid the monthly installments
for a period of almost nine (9) years. In other words, in only a short time, the
entire obligation would have been paid.
Article 1234 If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is business,
yet, it cannot be denied that this subdivision is likewise purposely
done to afford those landless, low income group people of
realizing their dream of a little parcel of land which they can really
call their own.
The contract to sell entered into by the parties has some characteristics of a
contract of adhesion . The defendants-appellants drafted and prepared the
contract. The plaintiffs-appellees, eager to acquire a lot upon which they could
build a home, affixed their signatures and assented to the terms and conditions
of the contract. They had no opportunity to question nor change any of the
terms of the agreement. It was offered to them on a "take it or leave it" basis.
The contract to sell, being a contract of adhesion, must be construed against
the party causing it. We agree with the observation of the plaintiffs-appellees
to the effect that "the terms of a contract must be interpreted against the party
who drafted the same, especially where such interpretation will help effect
justice to buyers who, after having invested a big amount of money, are now
sought to be deprived of the same through the prayed application of a contract
clever in its phraseology, condemnable in its lopsidedness and injurious in its
effect which, in essence, and in its entirety is most unfair to the buyers."
Case: Solomon Boysaw and Alfredo Yulo, Jr. vs. Interphil Promotions,
Inc., Lope Sarreal and Manuel Nieto, March 20, 1987, J. Fernan.
FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed
with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to
engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight
championship of the world. It was stipulated that the bout would be held at the
Rizal Memorial Stadium in Manila on September 30, 1961 or not later than
thirty [30] days thereafter should a postponement be mutually agreed upon,
and that Boysaw would not, prior to the date of the boxing contest, engage in
any other such contest without the written consent of Interphil Promotions,
Inc.
Ketchum on his own behalf assigned to J. Amado Araneta the managerial
rights over Solomon Boysaw, presumably in preparation for his engagement
with Elorde. Then, Araneta assigned to Alfredo J. Yulo, Jr. the managerial
rights over Boysaw. The next day, Boysaw wrote Lope Sarreal, Sr. informing
him of his arrival and presence in the Philippines.
Yulo, Jr. wrote to Sarreal informing him of his acquisition of the
managerial rights over Boysaw and indicating his and Boysaw's readine ss
to comply with the boxing contract of May 1, 1961. On the same date, on
behalf of Interphil, Sarreal wrote a letter to the Games and Amusement Board
[GAB] expressing concern over reports that there had been a switch of
managers in the case of Boysaw, of which he had not been formally notified,
and requesting that Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences and changed the schedule the Elorde-
Boysaw fight. The USA National Boxing Association which has supervisory
control of all world title fights approved the date set by the GAB. Yulo, Jr.
refused to accept the change in the fight date.
The fight never materialized. Thus, Boysaw and Yulo, Jr. sued Interphil,
Sarreal, and Nieto in CFI-Rizal for damages.
ISSUE: Whether or not Boysaw can compel the fulfillment of the contract.
HELD: NO. The power to rescind OBLIGATIONS is implied, in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. [Part 1, Article 1191, Civil Code].
There is no doubt that the contract in question gave rise to
reciprocal OBLIGATIONS. "Reciprocal OBLIGATIONS are those which
arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed simultaneously, so
that the performance of one is conditioned upon the simultaneous
fulfillment of the other" [Tolentino]
The power to rescind is given to the injured party. "Where the
plaintiff is the party who did not perform the undertaking which he was bound
by the terms of the agreement to perform for he is not entitled to insist upon
the performance of the contract by the defendant, or recover damages by
reason of his own breach [Seva vs. Alfredo Berwin 48 Phil. 581].
Another violation of the contract in question was the assignment
and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo,
Jr., of the managerial rights over Boysaw without the knowledge or consent of
Interphil. The assignments, from Ketchum to Araneta, and from Araneta to
Yulo, were in fact novations of the original contract which, to be valid, should
have been consented to by Interphil.
Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor.[Article 1293]
Creditor not bound to deal with unilaterally substituted debtor - Under the
law when a contract is unlawfully novated by an applicable and unilateral
substitution of the obligor by another, the aggrieved creditor is not bound to
deal with the substitute.
The consent of the creditor to the change of debtors, whether in
expromision or delegacion is an, indispensable requirement . . . Substitution of
one debtor for another may delay or prevent the fulfillment of the obligation
by reason of the inability or insolvency of the new debtor, hence, the creditor
should agree to accept the substitution in order that it may be binding on him.
Thus, in a contract where x is the creditor and y is the debtor, if y
enters into a contract with z, under which he transfers to z all his rights under
the first contract, together with the OBLIGATIONS thereunder, but such
transfer is not consented to or approved by x, there is no novation. X can still
bring his action against y for performance of their contract or damages in case
of breach. [Tolentino]
From the evidence, it is clear that the appellees, instead of
availing themselves of the options given to them by law of rescission or
refusal to recognize the substitute obligor Yulo, really wanted to postpone
the fight date owing to an injury that Elorde sustained in a recent bout. That
the appellees had the justificat ion to renegotiate the original contract,
particularly the fight date is undeniable from the facts aforestated. Under
the circumstances, the appellees' desire to postpone the fight date could
neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights on the
matter rested with the appellees, and appellants' claims, if any, to the
enforcement of the contract hung entirely upon the former's pleasure and
sufferance, the GAB did not act arbitrarily in acceding to the appellee's
request to reset the fight date to November 4, 1961. It must be noted that
appellant Yulo had earlier agreed to abide by the GAB ruling.
Case: Pilipinas Bank vs. IAC and Jose Diokno and Carmen Diokno,
June 30, 1987, J. Paras.
FACTS: Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as
vendor, and private respondents, Jose W. Diokno and Carmen I. Diokno, as
vendees executed a Contract to Sell over a parcel of land in Victoria
Valley Subdivision in Antipolo, Rizal, subject to terms and conditions as
stipulated. A e d e e f a i l e a , e
former to settle arrearages, requests for extensions were give, further demand
was again given several times, until a Notice of rescission was given to
Carmen Diokno after she informed the Corp. that she wanted an
audience with the Pres. because she had a prospective buyer of the
property.
Thus, private respondents filed Complaint for Specific Performance with
Damages to compel petitioner to execute a deed of sale in thei r favor, and to
deliver to them the title of the lot in question. Petitioner filed an Answer with
counterclaim for damages in the form of attorney's fees, claiming that
Contract to Sell has been automatically rescinded or cancelled by virtue
of private respondents' failure to pay the installments due in the contract
under the automatic rescission clause. After trial, the lower court rendered a
decision in private respondents' favor, holding that petitioner could not rescind
the contract to sell, because: (a) petitioner waived the automatic rescission
!"#$%&%'(")*+#,%-(.#/%
clause by accepting payment on September 1967, and by sending letters
advising private respondents of the balances due, thus, looking forward to
receiving payments thereon; (b) in any event, until May 18, 1977 (when
petitioner made arrangements for the acquisition of additional 870 square
meters) petitioner could not have delivered the entire area contracted for, so,
neither could private respondents be liable in default, citing Article 1189,
NCC. CA affirmed.
ISSUE: WON the Contract to Sell was rescinded or cancelled, under the
automatic rescission clause contained therein.
HELD: NO. We find the petition meritless. While it is true that a contractual
provision allowing "automatic rescission" (without prior need of judicial
rescission, resolution or cancellation) is VALID, the remedy of one who
feels aggrieved being to go to Court for the cancellation of the rescission
itself, in case the rescission is found unjustified under the circumstances,
still in the instant case there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the many extensions granted
private respondents by the petitioner. In all these extensions, the petitioner
never called attention to the proviso on "automatic rescission."
Illustrations:
1. In a problem which involves remedies, the question in that
problem would be what? The Premise of a case has already been
filed and a remedy has already been prayed for. The GENERAL
QUESTION would be: WILL THE ACTION PROSPER? If that
is the question, what do you CONSIDER FIRST? In remedies
what is the steps for the action to prosper:
a. Whether or not the plaintiff is the aggrieved party?
The remedies are only provided to the injured property.
Wh e me e f i l meane that
a he cisa e ,
h e a g g i e e d a , i j
filed the case to make it appear that he is the injured
party.
b. To know the nature of the obligation.
i. intention of the parties
ii. to know the manner of the breach in relation
to the prayer
Ex. Specific performance will not be proper in what
obligation? In obligations to do it will not be a proper
remedy.
c. Whether or not the remedy applied for is the
appropriate remedy
2. Can you give me an example of a remedy which is a principal
remedy and that can also be extra-judicially demanded and also is
expressly demanded by law? Warranty against eviction in Sales.
Rescissible contracts may also involve reciprocal obligations. E.g.
SALE may it not involve reciprocal obligations? Yes, but a sale
may also be rescissible as a contract.
3. Kinds of rescission:
a. Article 1380 RESCISSION of Contracts
SUBSIDIARY REMEDY = can only be invoked if that
is the ONLY remedy. There should first be exhaustion
other remedies to be able to invoke Rescission.
b. Article 1191 (Rescission) RESOLUTION of
Obligations PRINCIPAL REMEDY = can be
invoked anytime even when other remedies are
available.
4. Can 2 Principal Remedies be sought for at the same time? YES.
Give me an example where an injured party can invoke 2 principal
remedies at the same time. Example: When you filed a suit, civil
action and another suit for damages.
5. The remedy under 1191, is it extrajudicial remedy? YES. Basis:
UP vs. DE LOS ANGELES CASE . QUESTION: In an
extrajudicial rescission, when would the rescissory act take effect?
From the time when the party claims rescission as remedy? Agree?
NO! It is at the time the other party was given NOTICE or
NOTICE WAS ISSUED to the other party. Why would it be
from the time? It is the time the other party was informed. BASIS:
Due Process. So that he can also take appropriate action. If he
thinks the rescissory act is wrong, he can go to court to question
such act.
6. X filed an action for rescission against Y. Y filed a motion to
dismiss on the ground that the action has already prescribed
because the action was filed 4 years after the date of the contract of
the parties. Rule on the case. Answer: It will depend on the nature
of the action. There are 2 kinds of rescission, so you should first
determine the cause of action if it is under 1191 or 1381.
7. CASE: UFC CASE what was the nature of the action? Action
for rescission. Why would the plaintiff Magdalo file an action if he
can just extra-judicially rescind? Why not just like what UP did,
just gave a notice to the other party? Because he wanted to claim
the unpaid wages, the unpaid salary. What if he did not want to
recover that? In other words, in general, why would an action for
rescission be necessary? Because as stated in the case, even if the
rescission is not ordered to h e c , h e e b l a d e
neck of the person. IN OTHER WORDS, it is not necessary but it
may be advisable because at any time the other party may file an
action to question the validity of the rescissory act. This is so
because if the rescissory act is a valid act then it should still be
sustained by the court. When would it be necessary? Are there
good reasons why someone would not file a case? Because a party
cannot be left to take matters into their own hands OR because he
wants to recover something form the other party and cannot
compel the other party. UFC CASE AGAIN: This is also an
action for rescission. What were the defences raised by the UFC?
a. Plaintiff did not exhaust the remedies
SC: This defense is the result of the confusion as to the two
kinds of rescission between 1191 and 1381. This defense is
of the premise that the contract entered into is a rescissible
contract. And in that kind of contract the remedy of
rescission is a subsidiary remedy and therefore the other
party must exhaust all other legal remedies before he can
invoke rescission as a remedy. But in this case, clearly it was
not filed under Article 1383, the cause of action here is
because there was a breach.
- A and B entered into a sale of molasses, the parties
stipulated to the date of payment. Buyer failed to pay
h e d e d a e a d a k e d
th
e e i f 2 0 d a a d
day but 20 days after the due date A, creditor said
that he already rescinded the contract. Was the
rescission valid? Was the rescission proper? In other
words, one of the requirements for rescission to be
proper under 1191 is? NO, it was not proper because
breach must be substantial or fundamental. If it is
just a casual or slight breach, the other party has the
remedy of Payment for Damages. Always remember
that NOT every breach gives the injured party a
reason to rescind.
b. Breach is not SUBSTANTIAL or FUNDAMENTAL
c. More fundamental issue: Whether or not under the
Bill of Assignment, Plaintiff Magdalo has the
i d e obligation to transfer ownership.
h d.
a h eissue ina this case:hW/N
Main e rescissione wash proper?
- The defense of UFC that Plaintiff Magdalo did not
comply with his obligation to transfer ownership
over the formula of the sauce to UFC got to do with
the issue as to w/n the rescission was proper? It has
something to do with the breach.
Rescission cannot be a remedy if the plaintiff had not
complied with his obligation or at least not in the
position to comply with the obligation, the premise
behind this is that he is not the injured party. He who
is not the injured party, then there is no remedy
under the law.
8. Remember that the EFFECT OF RESCISSION: MUTUAL
RESCISSION.
9. UP CASE: How come or why was the extra-judicial rescission
was sufficient? B e c a e U P d e r anything from a
the concessioner at that point and also to be free from the
agreement with the concessioner. To be able to award to the other
party. Rescind first to be free from any other acts to be sought for.
10. Both parties are in delay. What is the effect? In contemplation of
the law, it is as if there is NO DELAY. Therefore there is no cause
of action against the other party.
11. In Article 1191, how many remedies are mentioned in that article?
Only two:
a. Fulfilment of obligation w/damages
b. Rescission of obligation w/ damages
If one of the parties in Reciprocal Obligation had already
invoked the fulfilment as the remedy, may he thereafter invoke
the remedy of rescission?
Yes, if the obligation became impossible rescission
could be a remedy.
What must have been the reason that the obligation has become
impossible? Does it mean that every time fulfilment is
impossible, and then rescission would be a remedy? A and B, A
already invoked fulfilment, but every time this remedy of
fulfilment becomes impossible then this remedy of rescission can
be resorted to? Is it Yes?
No. Despite the wording of the law, there is a
premise.
What must be the cause? Why the performance becomes
impossible?
It must be on the cause not imputable to A. This is
only half accurate. If it is not imputable to A then
what if it was due to a fortuitous event? The answer
must be: Rather due to the fault of B. Whether it is
FE or fault of A do you think he would have the
remedy of rescission? No. because he could not
claim that he is the injured party at least in a
for i o e en a a r le. Tha h he premi e of
the law to the injured, the impossibility must be due
to the fault of the other party.
A injured party, invoked rescission, it was a valid rescission, and
under the law the premise is that this is a valid rescission,
thereafter may he be allowed to invoke fulfilment as a remedy?
h a g i NO. g Why i not? h e
He can no longer demand for fulfilment because
with rescission, obligation has already been
extinguished as rescission is a mode of
extinguishment, since the obligation has already
been extinguished therefore no more obligation to be
fulfilled.
12. This was discuss in the MAGDALENA ESTATE CASE:
!"#$%&%'(")*+#,%-(.#/%
Magdalena rescinded. Despite the fact that Magdalena rescinded,
she still wanted or she still asked for the payment. When Myrick
was only asking for was to get back what he paid for. Was
Magdalena correct in forfeiting the accounts paid? NO, because
there was no forfeiture clause in the contract. Had there been a
forfeiture clause, which would have been a valid forfeiture. Again
the effect of rescission is Mutual Restitution. T h a
Magdalena should return the money. She was ordered to return the
money.
13. A obliged himself to give to B a refrigerator with motor #12345
which was in his sala, he also obliged himself g i
Sony Bravia, but he also obliged himself to repair the Mercedes
Benz of B. He did not do any of this. Can the court compel A to
perform his obligations? If not, what is the remedy available to B,
if any?
a. Refrigerator Specific performance
b. TV substitute performance somebody else would
perform at the expense of the debtor
c. Obligation to give a Generic Thing Debtor may be
asked to comply with the obligation at the expense of
the debtor or to have the thing delivered to him at the
expense of the debtor.
d. Car also substitute performance; other person would
fulfil the obligation
14. Do you agree that in all performance to do, substitute performance
is the remedy if the debtor refuses to perform the obligation? No, if
the performance is purely or strictly personal in nature. Only the
debtor can perform such obligation because in the constitution of
the obligation the skills of the debtor are considered. He alone can
perform.
15. I forgot to mention: Even if A is the aggrieved party, and an
action was filed against B, the case may not prosper because it may
not be the proper remedy, but any other reason why this case may
not prosper aside from prescription, any other? Even if the remedy
invoked is the proper remedy. Why? Neither, because he is not the
injured party nor because the remedy invoked was wrong but?
Because B is not the one who cause the damage to A.
16. If A the debtor, can B validly cause the levy of all the properties of
A? Not all. Because there are properties that are exempted. Under
the FC, Art 155, the Family Home is exempted from levy. So it is
correct to say that family home may not be levied upon? No, there
are exceptions that family home are exempt from levy and
execution. If the debtor has 3 carabaos, and these carabaos would
be exempt from execution, correct? No because it was not stated
that the debtor is not a farmer or is essential to his occupation.
17. Future properties of the debtor may be levied upon by his
creditors? YES. FUTURE PROPERTY properties he may
acquire after the execution sale or levy subject to the exceptions
me i e d . H e e , i f h e
to cover the debts of 10M, which were worth only of 3M, there is a
deficiency of 7M. If you are the counsel of the debtor, then the
debtor wanted to start anew, what advice would you give? FILE
FOR INSOLVENCY PROCEEDING. Does this extinguished
obligation? NO because after he may acquire properties thus these
newly acquired property may be levied by his creditors. What
would really extinguish his obligation? Court discharges him of his
obligation, which is allowed by law which would result to the
extinguishment of his obligation.
18. Aside from rescission in 1383, is there any other subsidiary
remedy expressly recognized by Civil Code of the Philippines?
YES. Accion Pauliana But this is covered under 1383. But this
is covered under contracts. An action to set aside or to impugn in
fraud of creditors. ACCION SUBROGATORIA can only be
invoked by the injured party if there are no other remedies. How
many persons are involved?
a. 3 persons:
i. 1. Creditor,
ii. 2. Debtor and
iii. 3. Debtor of the Debtor.
19.
The law would give the creditor a right of action against
the debtor of the debtor in accion subrogatoria and in every right
of a debtor as against his debtor can be the subject of accion
subrogatoria? NO, the law said: Rights inherent in the person or
purely personal rights. What rights can be a subject matter of a
subrogatory action? Gen Rule: Property Rights. Exception:
Personal in nature.
20. Debtor is the agent to the third person, who is the third person as to
the debtor? The PRINCIPAL.
21. If the creditor files a subrogatory action against this principal, will
the action prosper? It may prosper. When? What may be the nature
of the action filed by the creditor? Maybe the principal owes him a
sum of money by way of a commission. This is obviously not an
inherent right in the person.
G. MODES OF EXTINGUISHMENT OF OBLIGATIONS
Article 1231. Obligations are extinguished BY:
(1) Payment or Performance;
(2) Loss of the thing due;
(3) Condonation or Remission of the debt;
(4) Confusion or Merger of the rights of creditor and debtor;
(5) Compensation;
(6) Novation.
h Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription
are governed elsewhere in this Code.
e B a 4 9
Balane:
Article 1231 gives us ten modes of extinguishing an obligation. One of
the modes mentioned is rescission. But it does not tell us whether this is
rescission under Article 1191 (resolution) or rescission under
Article 1380, et. seq. If it means both, then we have eleven modes of
extinguishing an obligation under Article 1231. (Similar to
Tolentino s)
This enumeration is not exclusive.
Other modes of extinguishing an obligation are the following:
1. Death particularly where the obligation is purely
personal, e.g., death of one partner dissolves the
partnership/agency;
2. Renunciation by the creditor
3. Compromise
4. Arrival of Resolutory Term / fulfillment of resolutory
condition
5. Mutual Desistance or mutuo disenso (Saura v. DEBTORP)
6. In some cases, Unilateral Withdrawal, e.g., in partnership,
any partner can withdraw any time from the partnership.
7. In some cases, change of civil status, e.g., if marriage is
annulled, it extinguishes obligations like the obligation to
give support, among others.
8. Unforeseen Events (rebus sic stantibus) (Article 1267.)
9. Want of Interest GR: No, but there are certain cases:
If it is equitable to deem the OBLIGATION extinguished
due to want of interest of creditor in the fulfillment of such
OBLIGATION.
10. Abandonment of the thing as in Article 662, party wall;
or abandonment of a vessel under Code of Comm.
11. Insolvency of debtor judicially declared and discharged.
Illustration: Carale owns a restaurant. He hires Molina as a chef. In the
contract of employment, there was a stipulation that if Molina resigns
d e b from Carale's restaurant,
e he
i e cannot seek
e eemployment from f fanother
i c i e
restaurant for a period of five years. Subsequently, Molina resigns from
Carale's restaurant and wants to apply to Mildo's House of Chicken. In
this case, Molina cannot work with Mildo's because of the stipulation in
the contract he signed with Carale. Suppose, however, Carale, closes
down his restaurant and engages in a totally different business, a
construction business, for example, Molina can apply for work at
Mildo's even before the lapse of the five year prohibitive period. In this
case, Molina can make out a case of extinguishment of obligation
on the ground of want of interest. The obvious purpose of the
stipulation is to prevent unfair competition.
SAURA IMPORT and EXPORT BANK VS. DEBTORP [44 S 445]
FACTS: Plaintiff Saura, Inc. applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DEBTORP, for an industrial
loan of P500,000.00, to be used as follows: P250,000.00 for the construction
of a factory building (for the manufacture of jute sacks); P240,900.00 to pay
the balance of the purchase price of the jute mill machinery and equipment;
and P9,100.00 as additional working capital. The jute mill machinery had
already been purchased by Saura on the strength of a LOC by PBTC. RFC
approved the loan secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be
installed, and the loan to be released at the discretion of RFC, subject to
availability of funds, andas the construction of the factory buildings
progresses, to be certified to by an appraiser of RFC. China Engineers, Ltd.
had again agreed to act as co-signer for the loan. When the RFC Board later
decided to decrease the loan from 500K to 300K, China Eng signified to
withdraw as co-maker. Thus, when Saura requested for the release of the
500K loan, RFC signified that the Loan Agreement has been cancelled.
Saura, Inc. does not deny that the factory he was building in Davao was for
the manufacture of bags from local raw materials, a Kenaf mill plant, to
manufacture copra and corn bags, runners, floor mattings, carpets, draperies;
out of 100% local raw materials. When negotiations came to a standstill.
Saura, Inc. did not pursue the matter further. Instead, it requested RFC to
cancel the mortgage which RFC did. It appears that the cancellation was
requested to make way for the registration of a mortgage contract, executed
over the same property in favor of PBTC, under which contract Saura, Inc.
had up to December 31 of the same year within which to pay its obligation on
the trust receipt heretofore mentioned. It appears further that for failure to pay
the said obligation PBTC sued Saura.
NINE YEARS LATER, Saura commenced the present suit for damages,
alleging failure of RFC /DEBTORP to comply with its obligation to release
the proceeds of the loan applied for and approved, thereby preventing the
!"#$%&%'(")*+#,%-(.#/%
plaintiff from completing or paying contractual commitments it had entered
into, in connection with its jute mill project. The trial court rendered
judgment for the plaintiff.
ISSUE: WON the OBLIGATION of RFC to Saura in the perfected loan
contract subsists.
HELD: When RFC turned down the request of Saura, the negotiations which
had been going on for the implementation of the loan agreement reached an
impasse. Saura, Inc. obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that the loan be released as
agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was
done by RFC. The action thus taken by both parties was in the nature of
mutual desistance - what Manresa terms as "mutuo disenso" - which is a
mode of extinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.
Extinguishment of OBLIGATIONS by mutual desistance Where after
approval of his loan, the borrower, instead of insisting for its release, asked that
the mortgage given as security be cancelled and the creditor acceded thereto, the
action taken by both parties was in the nature of mutual desistance - what
Manresa terms "mutuo disenso " - which is a mode of extinguishing obligations.
It is a concept that derives from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can cause its
extinguishment.
Case: Land Bank of the Philippines vs. Alfredo Ong, Nov. 24, 2010, J.
Velasco Jr.
Facts: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan
from Land Bank Legazpi City in the amount of PhP 16 million. The loan was
secured by three (3) residential lots, five (5) cargo trucks, and a warehouse.
Under the loan agreement, PhP 6 million of the loan would be short-term and
would mature on February 28, 1997, while the balance of PhP 10 million
would be payable in seven (7) years. The Notice of Loan Approval dated
February 22, 1996 contained an acceleration clause wherein any default in
payment of amortizations or other charges would accelerate the maturity of
the loan.
Subsequently, however, the Spouses Sy found they could no longer pay their
loan. On December 9, 1996, they sold three (3) of their mortgaged parcels of
l a d f P h P 1 5 0 , 0 0 0 A g e l i a Gl
De e d f S a l e i h A m i etitionerf M g a g e . E a
Alfredo Ong, later went to Land Bank to inform it about the sale and
assumption of mortgage. Atty. Edna Hingco, the Legazpi City Land Bank
Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there
was nothing wrong with the agreement with the Spouses Sy but provided them
with requirements for the assumption of mortgage. They were also told that
Alfredo should pay part of the principal which was computed at PhP 750,000
and to update due or accrued interests on the promissory notes so that Atty.
Hingco could easily approve the assumption of mortgage. Two weeks later,
Alfredo issued a check for PhP 750,000 and personally gave it to Atty.
Hingco. A receipt was issued for his payment. He also submitted the other
documents required by Land Bank, such as financial statements for 1994 and
1995. Atty. Hingco then informed Alfredo that the certificate of title of the
Spouses Sy would be transferred in his name but this never materialized. No
notice of transfer was sent to him.
Alfredo later found out that his application for assumption of mortgage was
not approved by Land Bank.
Issue:
(1) Whether or not Article 1236 applies to the case at bar.
(2) Whether or not there is novation in the contract.
Held:
(1) Land Bank contends that Art. 1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of Land
Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance by a third person
who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the
debtor.1avvphi1
We agree with Land Bank on this point as to the first part of paragraph 1 of
A . 1 2 3 6 . La d Ba k a b d
as the former was concerned, he did not have an interest in the payment of the
loan of the Spouses Sy. However, in the context of the second part of said
paragraph, Alfredo was not making payment to fulfill the obligation of the
Spouses Sy. Alfredo made a conditional payment so that the properties subject
of the Deed of Sale with Assumption of Mortgage would be titled in his name.
It is clear from the records that Land Bank required Alfredo to make payment
before his assumption of mortgage would be approved. He was informed that
the certificate of title would be transferred accordingly. He, thus, made
payment not as a debtor but as a prospective mortgagor.
(2) Land Bank also faults the CA for finding that novation applies to the
instant case. It reasons that a substitution of debtors was made without its
consent; thus, it was not bound to recognize the substitution under the rules on
novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B.
Finance Corporation14 provides the following discussion:
Novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory when
the old obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either by changing the
object or principal conditions (objective or real), or by substituting the person
of the debtor or subrogating a third person in the rights of the creditor
(subjective or personal). Under this mode, novation would have dual functions
e e i g i h a e i i g b l i
i l a c ea conflux ofefour essential
i i requisites:
g (1) a previous valid
obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new
obligation. x x x
In order that an obligation may be extinguished by another which substitutes
the same, it is imperative that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point incompatible with each
other. The test of incompatibility is whether or not the two obligations can
stand together, each one having its independent existence. x x x (Emphasis
supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new
debtor gives him rights mentioned in articles 1236 and 1237.
We do not agree, then, with the CA in holding that there was a novation in the
contract between the parties. Not all the elements of novation were present.
Novation must be expressly consented to. Moreover, the conflicting intention
and acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the
parties to novate the old agreement.15 Land Bank is thus correct when it
argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the obligation and payment
was made with the knowledge or consent of Spouses Sy, he may still pay the
obligation for the reason that even before he paid the amount of P750,000.00
on January 31, 1997, the substitution of debtors was already perfected by and
between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with
Assumption of Mortgage executed by them on December 9, 1996. And since
the substitution of debtors was made without the consent of Land Bank a
requirement which is indispensable in order to effect a novation of the
obligation, it is therefore not bound to recognize the substitution of debtors.
Land Bank did not intervene in the contract between Spouses Sy and Spouses
Ong and did not expressly give its consent to this substitution.
i A.
a Payment
O g , or Performance
E a g e l i e m h e , d e
g e l i e f a h e ,
PERTINENT PROVISIONS/ reading matters:
Article 1232. Payment means not only the delivery of money but
also the performance, in any other manner, of an obligation.
Article 1233. A debt shall not be understood to have been paid
unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be.
Article 1234. If the obligation has been substantially performed in
good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.
Article 1235. When the obligee accepts the performance, knowing
its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with.
Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
a c c e Al f e d a me , i c e a
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a
mortgage, guaranty, or penalty.
Article 1238. Payment made by a third person who does not
intend to be reimbursed by the debtor is deemed to be a donation,
which requires the debtor's consent. But the payment is in any
case valid as to the creditor who has accepted it.
Article 1239. In obligations to give, payment made by one who
does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of
article 1427 under the Title on "Natural Obligations."
!"#$%&%'(")*+#,%-(.#/%
Article 1240. Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
Article 1241. Payment to a person who is incapacitated to
administer his property shall be valid if he has kept the thing
delivered, or insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it
has redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
If after the payment, the third persons acquires the creditor's
rights;
If the creditor ratifies the payment to the third person;
If by the creditor's conduct, the debtor has been led to believe that
the third person had authority to receive the payment.
Article 1242. Payment made in good faith to any person in
possession of the credit shall release the debtor.
Article 1243. Payment made to the creditor by the debtor after
the latter has been judicially ordered to retain the debt shall not be
valid.
Article 1244. The debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same
value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's
will.
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a thing of inferior
quality. The purpose of the obligation and other circumstances
shall be taken into consideration.
Article 1247. Unless it is otherwise stipulated, the extrajudicial
expenses required by the payment shall be for the account of the
debtor. With regard to judicial costs, the Rules of Court shall
govern.
Article 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect
the payment of the former without waiting for the liquidation of the
latter.
Article 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through the
fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
Article 1250. In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary.
Article 1251. Payment shall be made in the place designated in
the obligation.
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made wherever
the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the
debtor.
If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of
Court.
Article 1302. It is presumed that there is legal subrogation:
1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter's share
Republic Act No. 529, as amended by R.A. No. 4100, provides:
SECTION 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to require payment
in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void, and of no
effect, and no such provision shall be contained in, or made with respect
to, any obligation hereafter incurred.
The above prohibition shall not apply to
(a) transactions where the funds involved are the proceeds of loans
or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies
and instrumentalities, and international financial banking
institutions so long as the funds are identifiable, as having
emanated from the sources enumerated above;
(b) transactions affecting high-priority economic projects for
agricultural, industrial and power development as may be
determined by the National Economic Council which are financed
by or through foreign funds;
(c) forward exchange transactions entered into between banks or
between banks and individuals or juridical persons;
(d) import-export and other international banking, financial
investment and industrial transactions.
With the exception of the cases enumerated in items (a), (b), (c) and (d) in
h e f e g i g i i , i h i c h
agreement shall apply, every other domestic obligation heretofore or
hereafter incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts.
Provided, That if the obligation was incurred prior to the enactment of
this Act and required payment in a particular kind of coin or currency
other than Philippine currency, it shall be discharged in Philippine
currency, measured at the prevailing rates of exchange at the time the
obligation was incurred, except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in which case the
rate of exchange prevailing at the time of the stipulated date of payment
shall prevail. All coin and currency, including Central Bank notes,
heretofore or hereafter issued and declared by the Government of the
Philippines shall be legal tender for all debts, public and private.
Pertinent portion of Republic Act No. 8183 states:
SECTION 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties
may agree that the obligation or transaction shall be settled in any other
currency at the time of payment.
SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the
Uniform Value of Philippine Coin and Currency" is hereby repealed.
(Approved on June 11, 1996)
The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of
removing the prohibition on the stipulation of currency other
than Philippine currency, such that obligations or transactions
may now be paid in the currency agreed upon by the parties.
Just like R.A. No. 529, however, the new law does not provide
for the applicable rate of exchange for the conversion of
foreign currency incurred obligations in their peso equivalent.
It follows, therefore, that the jurisprudence established in R.A. No.
529 regarding the rate of conversion remains applicable. Thus, in
Asia World Recruitment, Inc. v. National Labor Relations
Commission, the Court, applying R.A. No. 8183, sustained the
ruling of the NLRC that obligations in foreign currency may be
discharged in Philippine currency based on the prevailing rate
at the time of payment.
CONCEPT OF PAYMENT
!"#$%&%'(")*+#,%-(.#/%
Article 1232. Payment means not only the delivery of money but 1. RP silver peso and half peso for debts of any amount, RP
also the performance, in any other manner, of an obligation. subsidiary silver coins 20 ¢and 10 ¢ for up to P20 debts, and RP
It is the fulfillment of the prestation due which extinguishes the minor nickel and copper coins for up to P2.00 debts;
OBLIGATION by the realization of the purposes for which it was 2. RP Treasury certificates, new Victory series (EO 25, s. 1944,
constituted. already withdrawn from circulation)
It is a juridical act which is voluntary, licit and made with the 3. All notes and coins issued by CB.
intent to extinguish the OBLIGATION;
It is made not only by 1 who owes money but also by 1 bound to Q: How do you convert?
do something or to refrain from doing A: In case of an obligation which is not a loan in foreign currency, if
Thus, Payment is identical with Fulfillment. incurred before RA 529, conversion must be as of the time the
obligation was incurred. If incurred after RA 529 became effective, the
Requisites of Payment or Performance: conversion must be as of the time the obligation was incurred (Kalalo
[TOLENTINO] v. Luz) If the loan is in foreign currency, the conversion is as of the
1. the person who pays must have requisite capacity time of payment. (RA 529)
2. the person to whom payment is made
3. the thing to be paid in accordance with the Payment in negotiable paper This may be refused by the creditor.
OBLIGATION Payment in manager's check or certified check is not payment in
4. the manner, time and place of payment, etc. legal tender. The ruling in Seneris has been reversed in the case of
payment should be made by the debtor to the creditor at the right Bishop of Malolos. The Malolos ruling is better. I found it hard to
time and place. accept that manager's check or certified check is good as legal
tender. There are always risks to which cashier's checks are
KINDS: subject. What if after having issued a cashier's check, the drawee-
1. NORMAL when Debtor voluntarily performs bank closes, what happens to your cashier's check?
2. ABNORMAL when Debtor is forced by judicial
proceeding In any event, payment by check can be refused by the creditor. And
even if payment by check is accepted by the creditor, the acceptance is
Balane: only a provisional payment until the check is
Payment or Performance is used interchangeably. (a) encashed or
But technically, (b) when through the fault of the creditor they have been
Payment in obligations to give, impaired.
Performance in obligations to do.
Payment/ performance is the paradigmatic mode of extinguishment of The case of Namarco v. Federation , 49 SCRA 238, interprets the
an obligation. phrase "when through the fault of the creditor, they have been
It is the only normal way of extinguishing an obligation. impaired" as to apply only to a check used in payment if issued by a
person other than the debtor.
Article 1233. A debt shall not be understood to have been paid
unless the thing or service in which the obligation consists has Why? It is because if the check was issued by the debtor himself, all
been completely delivered or rendered, as the case may be. that the debtor have to do is to issue another check.
Tolentino: This Article States two requisites for Payment:
Revaluation in case of extraordinary inflation or deflation (Article
(1) Identity, of the prestation, and the very thing or service due 1250)
must be delivered or released;
(2) Its integrity prestation must be fulfilled completely. This rule has never been used. It was only during the Japanese
occupation that there was a recognition of extraordinary inflation
in this country.
For BALANE: Article 1233 states these requisites of payment:
I. Re: The prestation
1. Identity Exceptions to the requirement of identity
(i) Dacion en pago (Article 1245)
2. Integrity
(ii) Novation
3. Indivisibility
In both cases, there is a voluntary change in the object.
II. Re: The parties
2. Integrity There must be delivery of the entire prestation due.
1. Payor/ obligor/ debtor
(Article 1233) or completely fulfilled;
2. Payee/ obligee/ creditor
The exceptions to the requirement of integrity are:
1. In case of substantial performance in good faith (Article
III. Re: Time and place
1234.) This is an equity rule.
2. In case of waiver of obligee/ creditor (Article 1235.)
Discussions:
3. In case of application of payments if several debts are
I. With respect to prestation:
equally onerous (Article 1254, par. 2.)
1. Identity
If specific prestation, this requisite means that the very thing
3. Indivisibility This means that the obligor must perform the
or service must be delivered. (Article 1244.)
prestation in one act and not in parts. (Article 1248)
If generic, the requisite requires the delivery of something of
There are several exceptions to this requirement:
neither inferior nor superior quality (Article 1246). It must be 1. In case or express stipulation. (Article 1248.)
something in the middle. In case of money, there are 2. In case of prestations which necessarily entail partial
special rules: performance. (Article 1225, par. 2)
3. If the debt is liquidated in part and unliquidated in part
Governing rule: RA 529 as amended by RA 4100 (Article 1248.)
In case of money debts, you will have to pay in legal 4. In case of joint divisible obligations (Article 1208.)
tender in the Philippines. This law supersedes Article 5. In solidary obligations when the debtors are bound under
1249. different terms and conditions. (Article 1211.)
If the parties stipulate that payment will be made in 6. In compensation when a balance is left. (Article 1290.)
foreign currency, the obligation to pay is valid but 7. If the work is to be delivered partially, the price or
the obligation to pay in foreign currency is void. compensation for each part having been fixed. (Article
Payment will be made in Phil. currency. 1720.)
8. In case of several guarantors who demand the right of
LEGAL TENDER means such currency which in a given division. (Article 2065.)
jurisdiction can be used for payment of debts public and private, and 9. In case of impossibility or extreme difficulty of single
which cannot be refused by Creditor. performance.

In the Republic of the Philippines, the ff. are legal tender: (Sec. 54, RA II. With respect to the parties
265) There are two parties involved:
!"#$%&%'(")*+#,%-(.#/%
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
Requirements:
1. Article 1226 - 1238. Who should the payor be:
a. Without need of the creditor's consent
1. The debtor himself
2. His heirs or assigns
3. His agent
4. Anyone interested in the fulfillment of the
obligation, e.g., a guarantor
b. With the creditor's consent -- Anyone.
This is a departure from the rule in the Old Civil Code
which did not require consent on the part of the creditor.
c. Effect of payment by a third person:
1. If the payment was with the debtor's consent, he
becomes the agent of the debtor. The effect is
subrogation (Articles 1236-1237)
(1) Exception: If the person paying intended it to be a
donation. (Article 1238.)
2. If payment was without the debtor's consent, the third
person may demand repayment to the extent that the
debtor has been benefited. (Article 1236, par. 2.)
2. Who may be the payee?
1. The obligee proper (Articles 1240, 1626.)
2. His successor or transferee (Article 1240.)
3. His agent (ibid.)
4. Any third person subject to the following qualifications:
a. Provided it redounded to the obligee's benefit and
only to the extent of such benefit. (Article 1241,
par. 2.)
b. If it falls under Article 1241, par. 2 nos. 1, 2 and 3,
benefit is deemed to be total.
5. Anyone in possession of the credit. (Article 1242.)
In all these five (5) cases, it is required that the debt should not have
been garnished. (Article 1243)
III. With respect to the time and place of payment:
1. When payment to be made: When due
2. Place (Article 1251.)
Primary rule: As stipulated.
Secondary rule: Place where the thing was at the time the obligation
was constituted if the obligation is to deliver a determinate thing.
Tertiary rule: At the debtor's domicile.
Balane:
** Payment and Performance are used interchangeably.
But technically, payment is used in obligations to give whereas
performance is used in obligations to do. Payment/ performance is the
paradigmatic mode of extinguishment of an obligation. It is the only
normal way of extinguishing an obligation.
Article 1234. If the obligation has been substantially performed in
good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.
Substantial Performance:
1. an attempt in GF to perform, without any willful or
intentional departure from it;
2. deviation from performance of OBLIGATION must be
slight, and omission or defect must be so technical and
unimportant, and must not pervade the whole, must not be so
material to the achievement of the very purpose of the
parties;
3. party claiming substantial performance must show attempt in
good faith.
CASES on Payment:
J.M. TUASON V. LEGAYA JAVIER [31 SCRA 829] - In the interest of
justice and equity, court may grant the vendee a new term where he
substantially performed in g ood faith according to Article 1234, regardless of
Article 1592 of the same Code.
FACTS: Contract to Sell between Plaintiff JM Tuazon and defendant Ligaya
Javier on a parcel of land in Sta. Mesa Heights Subd. on installment with down
and interest of 10% p.a. Defendant took possession of property after payment of
1st installment on execution of contract in Sept. 1954 and paid monthlu
installments until Jan. 1962. After subsequent months, default by defendant of
monthly installments. Plaintiff informed her that contract has been rescinded.
But defendant refused to vacate. Thus, plaintiff filed case with CFI-Rizal for
judicial rescission of contract and payment of arrears.
Based on Article 1592, CFI found in favor of defendant but made the latter pay
arrears i h i 6 0 d a , l i e e , a
transferred after such payment with costs at the expense of defendant.
Article 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by
a notarial act. After the demand, the court may not grant him a new
term.
Thus, plaintiff appealed for erroneous application of Article 1592 because this is
a contract to sell and not of contract of sale.
ISSUE: WON CFI erred in NOT declaring herewith contract rescinded.
HELD: NO. What applies here is Article 1234: If the obligation has been
substantially performed in good faith, the obligor may recover as though there
had been a strict and complete fulfillment, less damages suffered by the
obligee. In this connection, it should be noted that, apart from the initial
installment of P396.12, paid upon the execution of the contract, on September
7, 1954, the defendant religiously satisfied the monthly installments accruing
thereafter, for a period of almost eight (8) years, or up to January 5, 1962;
that, although the principal obligation under the contract was P3,691.20, the
total payments made by the defendant up to January 5, 1962, including
stipulated interest, aggregated P4,134.08; that the defendant has offered to pay
all of the installments overdue including the stipulated interest, apart from
e a a b l e a e f e e a d h e c
sentenced the defendant to pay all such installments, interest, fees and costs.
Thus, plaintiff will thereby recover everything due thereto, pursuant to its
contract with the defendant, including such damages as the former may have
f f e e d i c e e c e f h e l a e
feel that, in the interest of justice and equity, the decision appealed from may
be upheld upon the authority of Art. 1234 of the Civil Code.1
LEGARDA HERMANOS and JOSE LEGARDA VS. FELIPE SALDAÑA
[55 SCRA 324] The Court's doctrine in J.M. Tuason vs. Javier is fully
applicable to the present case, RE Substantial performance of contract
OBLIGATION in GF, Article 1234.
FACTS: Contract to Sell between Plaintiff vendee, Felipe Saldaña and
Defendant vendor, Legarda Hermanos, a subdivision-owner, on 2 written
contracts, payable for 10 yrs, 120 equal monthly installments with 10% interest
p.a., from May 1948. Respondent Saldaña faithfully paid for 8-yrs about 95-
mos. installments out of 120; he stopped paying from filing of this case with
CFI-Manila in 1961; after his 1st 5 years of paying, respondent called attention of
vendors that he wanted to build a house on his lot but they have to start
improvements on the subdivision, e.g. roads. Instead, he was informed of
cancellation of contract for failure to pay as stipulated, the 120 installments and
his payments were to be treated as rents.
Th e L e C d i mi e d e d e
the contract. Appellate court reversed, and ordered the conveyance of one of the
2 l d e f e d a It was found
. A
that the lots
h could
e l not
a be e
delivered because they were still submerged in water and there were no roads in
the subdivision. (for equity and justice)
ISSUE: WON cancellation of contract here was proper?
HELD: NO. The Court's doctrine in the analogous case of J.M. Tuason & Co.
Inc. vs. Javier is fully applicable to the present case, with the respondent at
bar being granted lesser benefits, since no rescission of contract was therein
permitted. There, where the therein buyer-appellee identically situated as
herein respondent buyer had likewise defaulted in completing the payments
after having religiously paid the stipulated monthly installments for almost
eight years and notwithstanding that the seller-appellant had duly notified the
buyer of the rescission of the contract to sell, the Court upheld the lower
court's judgment denying judicial confirmation of the rescission and instead
granting the buyer an additional grace period of sixty days from notice of
judgment to pay all the installment payments in arrears together with the
stipulated 10% interest per annum from the date of default, apart from
reasonable attorney's fees and costs, which payments, the Court observed,
would have the plaintiff-seller "recover everything due thereto, pursuant to its
contract with the defendant, including such damages as the former may have
suffered in consequence of the latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of
applying said Art. 1592 thereto, we find that plaintiff herein has not been
denied substantial justice, for, according to Art. 1234 of said Code: 'If the
obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee,'" and "that in the interest
of justice and equity, the decision appealed from may be upheld upon the
authority of Article 1234 of the Civil Code."
GUILLERMO AZCONA VS. JOSE JAMANDRE (Administrator of the
Intestate Estate of Cirilo Jamandre) [151 SCRA 317]
FACTS: GUILLERMO AZCONA leased 80 Ha. out of his 150 Ha pro-indiviso
share in hacienda Sta. Fe in Escalante, Negros Occidental to CIRILO
JAMANDRE, decedent represented by Administrator to his Estate; that the
Yearly rental agreed: P7,200 for 3-agricultural years from 1960, extendible to
1 9 6 5 a l e st annual
e e rental due on Mar.
i 1960; . but respondent
1 did
not pay for failure of petitioner to deliver possession of the property to him until
!"#$%&%'(")*+#,%-(.#/%
he paid in Oct. 1960 of P7000; that in April 1961, petitioner notified respondent
that contract is deemed cancelled for failure to comply with the conditions
therein; that the respondent filed complaint, defendant filed counterclaim; both
were dismissed by Trial Court for pari de licto.
ISSUE: WON the payment of P7000, lacking of 200 from the agreed annual
rental of 7200, amounts to delay and ground for rescission.
HELD: NO. The receipt showed full payment as per contract; no mention of
the short of 200; which means that rental was reduced, perhaps because of the
reduction of the 80 Ha. by 16 Ha. used by Petitioner as grazing land. But the
rest of the contract subsists.
xxx If the petitioner is fussy enough to invoke it now, it stands to reason that he
would have fussed it too in the receipt he willingly signed after accepting,
without reservation and apparently without protest only P7,000. Article 1235 is
applicable.
Petitioner says that he could not demand payment of the balance of P200 on
10/26/60, date of receipt because the rental for the crop year 1961-1962 was due
on or before 1/30/61. But this would not have prevented him from reserving in
the receipt his right to collect the balance when it fell due. Moreover, there is
evidence in the record that when the due date arrived, he made any demand,
written or verbal, for the payment of that amount.
Article 1235. When the obligee accepts the performance, knowing
its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with.
1. To whom payment should be made
Article 1240. Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
ARAÑAS V. TUTAAN [127 SCRA 828]
Payment by judgment debtor to the wrong party does not extinguish judgment
debt.
FACTS: CFI-Rizal, Quezon declared petitioner-plaintiff spouses Arañas as
owner of 400 shares of stocks in Universal Textile Mills, Inc. UTEX, which the
Corp-defendant issued to co-defendant Gene Manuel and BR Castaneda,
including stock dividends which accrued to said shares. This court a quo
rendered decision in August 1971. UTEX made a motion for clarification and
such was answered in 1972 clearly directing UTEX to pay spouses petitioners as
rightful owners of all accruing dividends from their stocks from after the
judgment by the court, and for the transfer of the disputed shares of stocks to the
names of petitioner-spouses. In lieu of the appeal filed by Manuel and
Castaneda, UTEX failed to transfer the names of the shares and pay the
dividends to petitioners. Thus, spouses-petitioner asked for a writ of execution
from court a quo for payment of cash dividends from1972-1979 with interest
and to effect the transfer of the shares to them. Lower court granted such order
but absolved UTEX of payment of cash dividends which they have already paid
to Manuel and Castaneda on the ground of equity.
ISSUE: WON UTEX should be made to pay spouses Arañas the cash dividends
from 1972-1979 with interests, after it has already paid the same to Manuel and
Ca a e d a , d e i e k l e d g e f h e
HELD: The burden of recovering the supposed payments of the cash dividends
made by UTEX to the wrong parties Castaneda and Manuel squarely falls upon
itself by its own action and cannot be passed by it to petitioners as innocent
parties.
*** It is elementary that payment made by a judgment debtor to a wrong
party cannot extinguish the judgment obligation of such debtor to its
creditor. xxx
A payment in order to be effective to discharge an obligation must be
made to the proper parties. --
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Thus, payment must be
made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment.
Payment made to one having apparent authority to receive the
money will, as a rule, be treated as though actual authority had
been given for its receipt.
Likewise, if payment is made to one who by law is authorized to act for
the creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will, therefore
satisfy the debt.
xxx The theory is where a payment is made to a person
authorized and recognized by the creditor, the payment
to such a person so authorized is deemed payment to the
creditor. xxx
Unless authorized by law or by consent of the obligee, a public officer
has no authority to accept anything other than money in payment of
an obligation under a judgment being executed.
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 medium of payment of his debt.
Consequently, unless authorized by law or by consent of the obligee, a
public officer has no authority to accept anything other than money in
payment of an obligation under a judgment being executed. Strictly
speaking, the acceptance by the sheriff of the petitioner's checks, in the
case at bar, does not, per se, operate as a discharge of the judgment
debt. [PAL V. CA (181 S 557)]
Tolentino:
Authority to receive: LEGAL or CONVENTIONAL
(1) Legal: conferred by law, such as authority of guardian to include
creditor (Cr), or the administrator of estate
(2) Conventional: authority from Creditor himself, as when agent is
appointed to collect from Debtor.
Payment to wrong party does NOT extinguish obligation
to Creditor, if there is no fault or negligence which can be
imputed to the latter, even when Debtor acted in utmost
Good Faith and by mistake as to the person of his Creditor,
or through error induced by fraud of 3rd Person, EXCEPT AS
PROVIDED IN ARTICLE 1241.
Deposit by Debtor in bank, in the name of and to the
credit of Cr, without latter s authority does NOT
constitute payment; but when the Creditor cannot be found
in the place of payment, such deposit may be a valid excuse
for not holding the Debtor in default
General Rule: Consignation in court of thing or amount due, when
properly made will extinguish the obligation.
Article 1241. Payment to a person who is incapacitated to
administer his property shall be valid if he has kept the thing
delivered, or insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it
has redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
1. If after the payment, the third persons acquire the
creditor's rights;
2. If the creditor ratifies the payment to the third person;
3. If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the
payment.
Baviera: Number three is Estoppel in Pais.
cTolentino: d e c i i h e i e .
1. When Creditor is incapacitated, payment must be made to his
legal representative or deliver the thing to court for consignation
ff. Article 1256.
2. Payment to Incapacitated Creditor shall be valid only insofar as
it accrued to his benefit. Absence of benefit, Debtor may be
made to pay again by Creditor when he attains capacity, or his
legal representative during the incapacity.
3. Same principles are applicable to payment made to 3rd Person,
but person who paid has right to recover from 3rd Person.
4. In ff. Cases, payment to 3rd Person releases Debtor:
(a) when without notice to assngment of credit, he pays to
original Creditor [Article 1626] and
(b) when in Good Faith he pays to one in possession of credit
[Article 1242]
5. If mistake of Debtor due to fault of Creditor, then Creditor
cannot demand anew.
Article 1242. Payment made in good faith to any person in
possession of the credit shall release the debtor.
(Assignment of Credits and Other Incorporeal Rights)
Article 1626. The debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation.
2. Who shall make payment?
Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
!"#$%&%'(")*+#,%-(.#/%
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a
mortgage, guaranty, or penalty.
Article 1238. Payment made by a third person who does not
intend to be reimbursed by the debtor is deemed to be a donation,
which requires the debtor's consent. But the payment is in any
case valid as to the creditor who has accepted it.
Article 2173. When a third person, without the knowledge of the
debtor, pays the debt, the rights of the former are governed by
articles 1236 and 1237. (Other Quasi-Contracts)
Article 1239. In obligations to give, payment made by one who
does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of
article 1427 under the Title on "Natural Obligations."
Article 1427. When a minor between eighteen and twenty-one
years of age, who has entered into a contract without the consent
of the parent or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the obligation, there shall
be no right to recover the same from the obligee who has spent or
consumed it in good faith.
: Age of majority is now 18.
Tolentino:
Where the person paying has no capacity to make the
payment, the Creditor cannot be compelled to accept it.
Consignation will not be proper.
In case Creditor accepts, the payment will not be valid,
except in the case provided in Article 1427.
Article 1243. Payment made to the creditor by the debtor after
the latter has been judicially ordered to retain the debt shall not be
valid.
Tolentino:
Payment to Creditor after the credit has been attached or
garnished is void as to the party who obtained the
attachment or garnishment, to the extent of the amount of
judgment in his favor;
Debtor can therefor be made to pay again to the party who
secured the attachment or garnishment, but he can recover
the same to the extent of what he has paid to his Creditor.
Article 1244. The debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same
value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's
will.
Tolentino:
Defects of the thing delivered may be waived by the Creditor, if he
expressly so declares, or if, with knowledge thereof, he accepts the
thing without protest or disposes of it or consumes it
Article 1245. Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed by
the law of sales.
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a thing of inferior
quality. The purpose of the obligation and other circumstances
shall be taken into consideration.
Tolentino:
Creditor or Debtor may waive the benefit of this Article;
Creditor may require a thing of inferior quality and Debtor
may deliver a thing of superior quality, unless the price to be
pd in the latter case is dependent upon the quality.
Article 1247. Unless it is otherwise stipulated, the extrajudicial
expenses required by the payment shall be for the account of the
debtor. With regard to judicial costs, the Rules of Court shall
govern.
Article 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect
the payment of the former without waiting for the liquidation of the
latter.
BALANE CASE:
Article 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through the
fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
NORBERTO TIBAJIA JR. VS. CA AND EDEN TAN (1993)
Facts: In a suit for collection of a sum of money, Eden Tan obtained judgment
against Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia. The
decision having become final, Eden Tan filed motion for execution and the
garnished funds which by then were on deposit with the cashier of the RTC-
Pasig were levied upon.
Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money
judgment in Cashier's Check P262,750.00, and in Cash 135,733.70 = Total
P398,483.70. Tan, refused to accept such payment and instead insisted that the
garnished funds deposited with RTC-Pasig be withdrawn to satisfy the
judgment obligation. Defendant spouses (petitioners) filed a motion to lift the
writ of execution on the ground that the judgment debt had already been paid.
Trial court denied on the ground that payment in cashier's check is not
payment in legal tender and that payment was made by a third pa rty other
than the defendant . MR was denied. CA affirmed, holding that payment by
cashier's check is not payment in legal tender as required by RA No. 529. MR
denied again.
ISSUE: Whether or not payment by means of check (even by cashier's check)
is considered payment in legal tender as required by the Civil Code, Republic
Act No. 529, and the Central Bank Act.
HELD: NO.
The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Article 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be held
in abeyance;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec.1. Every provision contained in, or made with respect to, any obligation
which purports to give the obligee the right to require payment in gold or in
any particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, shall be as it is hereby
declared against public policy null and void, and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation
thereafter incurred. Every obligation heretofore and hereafter incurred,
whether or not any such provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public and private
debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act)
which provides:
Sec. 63. Legal character. Checks representing deposit money do not have
legal tender power and their acceptance in the payment of debts, both public
and private, is at the option of the creditor: Provided, however, that a check
which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to the
amount credited to his account.
From the aforequoted provisions of law, it is clear that this petition must fail.
A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor.
OCTAVIO KALALO VS. ALFREDO LUZ (1970) [34 SCRA 337]
Under RA 529, if the obligation was incurred prior to the enactment in a
particular kind of coin or currency other than the Phil. currency the same
shall be discharged in Phil. currency measured at the prevailing rate of
exchange at the time the obligation was incurred. RA 529 does not provide for
the rate of exchange for the payment of the obligation incurred after t he
enactment of said Act. The logical conclusion is that the rate of exchange
should be that prevailing at the time of payment for such contracts.
FACTS: Octavio KALALO, a licensed civil engineer doing business under the
firm name of O. A. Kalalo and Associates, entered into an agreement with
Alfredo LUZ, a licensed architect, doing business under firm name of A. J.
Luz and Associates, whereby the former was to render engineering design
services to the latter for fees, as stipulated in the agreement. The services
included design computation and sketches, contract drawing and technical
specifications of all engineering phases of the project designed by O. A.
!"#$%&%'(")*+#,%-(.#/%
Kalalo and Associates bill of quantities and cost estimate, and consultation
and advice during construction relative to the work. The fees agreed upon
were percentages of the architect's fee.
Kalalo in his complaint against Luz alleged that for services rendered in
connection with the different projects there was due him fees in US$,
excluding interests, of which some were paid, thus leaving unpaid the balance
plus prayer for consequential and moral damages, as well as moral damages,
attorney's fees and expenses of litigation; and actual damages.
Luz admitted that appellee rendered engineering services, as alleged, but
averred that some were not in accordance with the agreement and such claims
were not justified by the services actually rendered, and that the aggregate
amount actually due was only P80,336.29, of which P69,475.21 had already
been paid, thus leaving a balance of only P10,861.08. Luz denied liability for
any damage claimed by appellee to have suffered, as alleged in the second,
third and fourth causes of action. Appellant also set up affirmative and special
defenses, alleging that appellee had no cause of action, that appellee was in
estoppel because of certain acts, representations, admissions and/or silence,
which led appellant to believe certain facts to exist and to act upon said facts,
that appellee's claim regarding the Menzi project was premature because
appellant had not yet been paid for said project, and that appellee's services
were not complete or were performed in violation of the agreement and/or
otherwise unsatisfactory. Appellant also set up a counterclaim for actual and
moral damages for such amount as the court may deem fair to assess, and for
attorney's fees.
Trial Court authorized the case to be heard before a Commissioner. The
Commissioner rendered a report which, in resume, states that the amount due
to appellee was US$28K as his fee in the IRRI Project, and P51,539.91 for the
other projects, less the sum of P69,475.46 which was already paid by the
appellant. The Commissioner also recommended the payment to appellee of
the sum of P5,000.00 as attorney's fees. Both had no objection to the findings
of fact of the Commissioner contained in the Report.
ISSUE: WON the recommendation in the Report that the payment of the
amount due to the plaintiff in dollars was legally permissible, and if not, at
what rate of exchange it should be paid in pesos.
HELD: Under the agreement, Exhibit A, appellee was entitled to 20% of
$140,000.00, or the amount of $28,000.00. Appellee, however, cannot oblige
the appellant to pay him in dollars, even if appellant himself had received
his fee for the IRRI project in dollars. This payment in dollars is prohibited
by Republic Act 529 which was enacted on June 16, 1950. Said act
provides as follows:
SECTION 1. Every provision contained in, or made with respect to, any
obligation which provision purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured
thereby, be as it is hereby declared against public policy, and null, void and of
no effect, and no such provision shall be contained in, or made with respect to,
any obligation hereafter incurred. Every obligation heretofore or here after
incurred, whether or not any such provision as to payment is contained
therein or made with respect thereto, shall be discharged upon payment in
any coin or currency which at the time of payment is legal tender for public
and private debts : Provided, That, ( a) if the obligation was incurred prior to
the enactment of this Act and required payment in a particular kind of coin or
currency other than Philippine currency, it shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time the obligation
was incurred, (b) except in case of a loan made in a foreign currency
stipulated to be payable in the same currency in which case the rate of
exchange prevailing at the time of the stipulated date of payment shall prevail.
All coin and currency, including Central Bank notes, heretofore or hereafter
issued and declared by the Government of the Philippines shall be legal tender
for all debts, public and private.
Under the above-quoted provision of Republic Act 529, if the obligation
was incurred prior to the enactmentof the Act and require payment in a
particular kind of coin or currency other than the Philippine currency
the same shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred . parties' agreement shall apply, every other domestic obligation heretofore or
As we have adverted to, Republic Act 529 was enacted on June 16, 1950.
In the case now before us the obligation of appellant to pay appellee the 20%
of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or
after the enactment of Republic Act 529. It follows that the provision of
Republic Act 529 which requires payment at the prevailing rate of exchange
when the obligation was incurred cannot be applied.
Republic Act 529 does not provide for the rate of exchange for the payment of
obligation incurred after the enactment of said Act. The logical conclusion,
therefore, is that the rate of exchange should be that prevailing at the
time of payment.
This view finds support in the ruling of this Court in the case of Engel vs.
Velasco and Co. where this Court held that even if the obligation assumed by
the defendant was to pay the plaintiff a sum of money expressed in American
currency, the indemnity to be allowed should be expressed in Philippine
currency at the rate of exchange at the time of judgment rather than at the rate
of exchange prevailing on the date of defendant's breach. This is also the
ruling of American court as follows:
The value in domestic money of a payment made in foreign
money is fixed with respect to the rate of exchange at the time
of payment.
NELIA PONCE AND VICENTE PONCE VS. CA AND JESUSA AFABLE
[90 SCRA 533] It is to be noted that while an agreement to pay in dollars is
declared as null and void and of no effect, what the law specifically prohibits is
payment in currency other than legal tender. It does not defeat a creditor's
claim for payment, as it specifically provides that "every other domestic
obligation xxx whether or not any such provision as to payment is contained
therein or made with respect thereto, shall be discharged upon payment in any
coin or currency which at the time of payment is legal tender for public and
private use." A contrary rule would allow a person to profit or enrich himself
inequitably at another's expense.
FACTS: On June 3, 1969, private respondent Jesusa B. Afable, together with
Felisa L. Mendoza and Ma. Aurora C. Diño executed a promissory note in
favor of petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine
Currency, payable, without interest, on or before July 31, 1969 . It was
further provided therein that should the indebtedness be not paid at maturity, it
shall draw interest at 12% per annum, without demand; that should it be
necessary to bring suit to enforce payment of the note, the debtors shall pay a
sum equivalent to 10% of the total amount due for attorney's fees; and, in the
event of failure to pay the indebtedness plus interest in accordance with its
terms, the debtors shall execute a first mortgage in favor of the creditor over
their properties or of the Carmen Planas Memorial, Inc.
For failure to comply with the OBLIGATION , a Complaint was filed by
PONCE at CFI -Manila for the recovery of the principal sum of
P814,868.42, plus interest and damages.
Trial Court rendered judgment ordering respondent Afable and her co-debtors,
Felisa L. Mendoza and Ma. Aurora C. Diño , to pay petitioners, jointly and
severally, the sum of P814,868.42, plus 12% interest per annum from July 31,
1969 until full payment, and a sum equivalent to 10% of the total amount due
as attorney's fees and costs.
From said Decision, by respondent Afable appealed to the Court of Appeals.
She argued that the contract under consideration involved the payment of
US dollars and was, therefore, illegal; and that under the in pari delicto rule,
since both parties are guilty of violating the law, neither one can recover. It is
to be noted that said defense was not raised in her Answer. CA affirmed Trial
C . MR d e i e d . CA h l d i g : h e
effect under Republic Act No. 529. Under the doctrine of pari delicto, no
recovery can be made in favor of the plaintiffs for being themselves guilty of
violating the law.
ISSUE: WON the subject matter is illegal and against public policy, thus,
doctrine of pari delicto applies.
HELD: WE DISAGREE. It is to be noted that while an agreement to pay in
dollars is declared as null and void and of no effect, what the law specifically
prohibits is payment in currency other than legal tender. It does not defeat
a creditor's claim for payment, as it specifically provides that "every other
domestic obligation ... whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender
for public and private debts." A contrary rule would allow a person to profit or
enrich himself inequitably at another's expense.
Section 1 of Republic Act No. 529, which was enacted on June 16, 1950:
Section1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provision
purports to give the obligee the right to require payment in gold or in a
particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereb y, be as it is hereby
declared against public policy, and null and void and of no effect and no
such provision shall be contained in, or made with respect to, any obligation
hereafter incurred . The above prohibition shall not apply to (a) transactions
were the funds involved are the proceeds of loans or investments made
directly or indirectly, through bona fide intermediaries or agents, by foreign
governments, their agencies and instrumentalities, and international financial
and banking institutions so long as the funds are Identifiable, as having
emanated from the sources enumerated above; (b) transactions affecting high
priority economic projects for agricultural industrial and power development
as may be determined by the National Economic Council which are financed
by or through foreign funds; (c) forward exchange transactions entered into
between banks or between banks and individuals or juridical persons; (d)
import-export and other international banking financial investment and
industrial transactions. With the exception of the cases enumerated in items
(a) (b), (c) and (d) in the foregoing provision, in, which cases the terms of the
hereafter incurred whether or not any such provision as to payment is
contained therein or made with - respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts: Provided, That if the obligation was
incurred prior to the enactment of this Act and required payment in a
particular kind of coin or currency other than Philippine currency, it
shall be discharge in Philippine currency measured at the prevailing rates
of exchange at the time the obligation was incurred, except in case of a
loan made in foreign currency stipulated to be payable in the currency in
which case the rate of exchange prevailing at the time of the stipulated
date of payment shall prevail All coin and currency, including Central
Bank notes, heretofore and hereafter issued and d by the Government of
the Philippines shall be legal tender for all debts, public and private. (As
amended by RA 4100, Section 1, approved June 19, 1964)
NEW PACIFIC TIMBER AND SUPPLY COMPANY VS. HON.
SENERIS AND EX-OFFICIO SHERIFF HAKIM ABDULWAHID [101
SCRA 686]
FACTS: U a c m mi e j d g me a g a i
failure to comply, CFI-Zambo issued a writ of execution. Sheriff levied on
personal properties or petitioner. And set such for auction sale. Prior to which
date of auction, petitioner deposited with Clerk of Court, ex-officio sheriff, the
payment of the judgment OBLIGATION consisting of cash and checks. Private
respondent, Ricardo TONG refused to accept and requested the auction to
proceed. Tong was the highest bidder in the auction, for total amount short of the
judgment debt.
!"#$%&%'(")*+#,%-(.#/%
ISSUE: Whether the Sheriff can validly refuse acceptance of the P50,000
Ca h i e c h e c k a d P 1 3 , 1 3 0 i c a
HELD: YES. It is to be emphasized that the check deposited by the petitioner in
the amount of P50,000 is not an ordinary check but a Cashier's check of the
Equitable Banking Corp., a bank of good standing and reputation. It was even a
certified crossed check. It is well known and accepted practice in the business
sector that a Cashier's check is deemed as cash.
Moreover, since the said check has been certified by the drawee bank, by the
certification, the funds represented by the check are transferred from the credit of
the maker to that of the payee or holder, and for all intents and purposes, the
latter becomes the depositor of the drawee bank, with rights and duties of one in
such situation. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said certification "implies that
the check is drawn upon sufficient funds in the hands of the drawee, that
they have been set apart fort its satisfaction, and that they shall be so
applied whenever the check is presented for payment. It is an understanding
that the check is good then, and shall continue to be good, and this agreement is
as binding on the bank as its notes in circulation, a certificate of deposit payable
to the order of the depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder to use it as
money." When the holder procures the check to be certified, "the check operates
as an assignment of a part of the funds to the creditors." Hence, the exception to
the rule enunciated under Sec. 63 of the CB Act shall apply in this case:
Sec. 63. Legal Character Checks representing deposit do not have
legal tender power and their acceptance in payment of debts, both
public and private, is at the option of the Creditor Provided,
however that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to his
account.
ROMAN CATHOLIC BISHOP OF MALOLOS, INC. VS. IAC AND
ROBES-FRANCISCO REALTY AND DEV. CORP. [191 SCRA 411]
FACTS: Petitioner is vendor of parcels of land in Bulacan to vendee Robes-
Francisco Realty Corp. with down payment of 20K+ and balance of 100K
payable within 4yrs with 12% int. p.a. from execution of contract on July 7,
1975, with forfeiture clause in case vendee fails to pay in 4yrs.
On July 17, 1975, vendee wrote a letter requesting for extension and allowance
to pay in installment within 6mos with interests. Petitioner denied, granted only
5 days grace period. Request for 30-days grace on the 4th day was also denied by
petitioner. Private respondent later purports tender of payment (in check) on 5th
day was refused by petitioner. Trial Court favored petitioner. IAC reversed after
finding that respondent had sufficient funds at the time of tender of check
payment to petitioner. On the 5th day of the grace period, and concluded that
there was valid tender of payment.
ISSUE: WON offer of certified personal check is valid tender of payment of
OBLIGATION under a contract which stipulates that consideration of sale is in
Phil. Currency?
HELD: Finding of sufficient available funds by CA does not constitute proof of
tender of payment. (non sequitur)
Tender of Payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to oblige for the OBLIGATION and
demanding that the latter accept the same.
Since 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 the obligee or creditor.
Tolentino:
Legal tender: such currency which in a given jurisdiction
can be used for the payments of debts, public and private,
and which cannot be refused by the Creditor.
Since payment must be in money that is legal tender,
payment in check even when good may be validly refused by
Creditor
P a me b Ch e c k : WO N M a
NOT a valid tender of payment
Article 1250. In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary.
Baviera: This article applies to contracts only. EXTRAORDINARY
means unusual or beyond the common fluctuation, not foreseen.
Tolentino: Does NOT apply where obligation to pay arises from law,
independent of contracts, like the taking of private property by the
goverment in the exercise of its power of eminent domain
FILIPINO PIPE AND FOUNDRY CORP. (FPFC) VS. NAWASA [161
SCRA 32]
Facts: In 1961 NAWASA entered contract with FPFC for the supply of cast iron
pressure pipes for the construction of the Waterworks in Msbate and Samar.
NWS paid in installments. Leaving a balance of unpaid interests. Thus, FPFC
filed a collection case against NWS in CFI-Manila.
In 1967, CFI ordered NAWASA to pay FPFC the balance unpaid balance NWS
negotiable bonds, redeemable in 10 yrs with 6%p.a. interest. NWS failed to pay,
neither delivered bonds. In 1971, FPFC filed another complaint seeking an
h aadjustment
a of mthee unpaid balance
f dueh toe change
j ind value
g m eof judgmentbinlpeso
i gina i
1967 to 1971. Trial Court dismissed the complaint holding that the inflation was
a worldwide occurrence and that there was no proof of extraordinary inflation in
the sense contemplated by Article 1250.
Issue: WON there was extraordinary inflation to apply Art 1250.
Held: None. Extraordinary inflation exists when there is a decrease or
increase in the purchasing power of the Phil currency which is unusual or
beyond the common fluctuation value of the said currency, and such decrease or
increase could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.
The decline of the purchasing power of the currency cannot be considered
extraordinary. It was due to oil embargo crisis the effect of which was
worldwide.
PEDRO VELASCO VS. MERALCO [42 SCRA 556]
FACTS: V e l a c M i f Re c i d e
reduced amount of damages due him based only on his BIR assessed income and
not considered his undeclared source of income which he did not disclose. He
now urges that damages awarded him was inadequate considering the present
high cost of living, applying Art 1250.
ISSUE: Whether or not Article 1250 of the New Civil Code is applicable.
HELD: From the employment of the words "extraordinary inflation or deflation
of the currency stipulated" in Article 1250, it can be seen that the same
envisages contractual obligations where a specific currency is selected by the
parties as the medium of payment; hence it is inapplicable to obligations
arising from tort and not from contract. Besides, there is no showing that the
factual assumption of said article has come into existence.
COMMISSIONER OF PUBLIC HIGHWAYS V. BURGOS [96 S 831] -
FACTS: Victoria Amigable is the owner of parcel of land in Cebu which the
Government took for road-right-of-way purpose in 1924. The land had since
become streets known as Mango Avenue and Gorordo Avenue. In 1959,
Amigable filed in CFI -Cebu a complaint, to recover ownership and
possession of the land, and for damages in the sum of P50,000.00 for the
alleged illegal occupation of the land by the Government, moral damages in
the sum of P25,000.00, and at torney's fees in the sum of P5,000.00, plus
costs of suit.
In its answer, the Republic alleged, among others, that the land was either
donated or sold by its owners to the Province of Cebu to enhance its value,
and that in any case, the right of the owner, if any, to recover the value of said
property was already barred by estoppel and the statute of limitations,
defendants also invoking the non-suability of the Government.
Plaintiff's complaint was dismissed on the grounds relied upon by the
defendants therein. SC reversed, and the case was remanded to the court of
origin for the determination of the compensation to be paid the plaintiff-
appellant as owner of the land, including attorney's fees, also directed the
determination of just compensation on the basis of the price or value thereof at
the time of the taking.
ISSUE: WON Article 1250 applicable in determining JUST compensation
payable to Amigable from the taking in 1924.
HELD: NO. Article 1250 applies only to cases where a contract or agreement
is involved. It does not apply where the obligation to pay arises from law,
independent of contracts. The taking of private property by the government in
the exercise of its power of eminent domain does not give rise to a contractual
obligation.
SIMEON DEL ROSARIO VS. SHELL COMPANY OF THE PHIL. LTD.
[164 SCRA 556]
FACTS: Del Rosario leased to Shell his land in Ligao, Albay at 250/mo. With
stipulation on currency adjustment according to inflation. An EO (EO 195) was
promulgated by Pres Diosdado Macapagal prompting Del Rosario to demand for
increase in rental from Shell which the latter refused to pay. Thus Del Rosario
filed with CFI-Manila which was dismissed.
ISSUE: WON the effect of EO 195 is official devaluation of peso as
contemplated in the Lease Contract
HELD: In the case at bar, while no express reference has been made to metallic
content, there nonetheless is a reduction in par value or in the purchasing power
a g e of Phil. currency.
c h eEven
c kassuming there has dbeeni no aofficial devaluation
i as the
term is technically understood, the fact is that there has been a diminution or
lessening in the purchasing power of the peso, thus there has been "depreciation"
(opposite of "appreciation.") Moreover, when laymen unskilled in the semantics
of economics use the terms "devaluation" or "depreciation" they certainly mean
them in their ordinary signification--decrease in value. Hence, as contemplated
by the parties herein in their lease agreement, the term "devaluation" may be
regarded as synonymous with "depreciation," for certainly both refer to a
decrease in the value of the currency. The rentals should therefore, by their
agreement, be proportionately increased.
Article 1251. Payment shall be made in the place designated in
the obligation.
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made wherever
the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the
debtor.
If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of
Court.
!"#$%&%'(")*+#,%-(.#/%
appellant, to the mortgagee, the herein appellee, does not constitute dation in
Four Special Kinds of Payments: payment in the absence, express or implied of the true intention of the parties.
The demand for return merel h e d a e l l e e i e
1. Dacion en pago (Article 1245.) the vehicle and prevent loss, damage, destruction or fraudulent transfer to 3rd
2. Application of payments (Subsection 1.) e , a h i h e d c , V l . S
3. Payment by cession (Subsection 2.) said that such return is in full satisfaction of the mortgaged debt. The
4. Consignation (Subsection 3.) conveyance was as to rights only, ownership never left the mortgagor, as such
burdens on the property should still be shouldered by him.
Article 1245. Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed by Dacion en pago, according to Manresa, is the transmission of the
the law of sales. ownership of a thing by the debtor to the creditor as an accepted
[Tolentino] equivalent of the performance of an obligation .
Dation in payment is the delivery and transmission of ownership of In dacion en pago, as a special mode of payment, the debtor
a thing by the Debtor to the Creditor as an accepted equivalent of offers another thing to the creditor who accepts it as
performance of OBLIGATION; equivalent of payment of an outstanding debt.
It may be a thing or a real right (i.e. usufruct), or of a credit
against a 3rd Person; Dacion en pago in the nature of sale . The undertaking really partakes
Example: Assignment by an heir-Debtor of his interests in the in one sense of the nature of sale, that is, the creditor is really buying
succession to the Creditor, made after the death of decedent, the thing or property of the debtor, payment for which is to be charged
extinguishes the OBLIGATION. against the debtor's debt.
As such, the essential elements of a contract of sale, namely,
Effect on OBLIGATION extinguished to the extent of the value consent, object certain, and cause or consideration must be
of thing delivered present.
Debtor does not have to be insolvent, agreement only
between the parties makes dation possible. Dacion en pago in its modern concept . In its modern concept, what
actually takes place in dacion en pago is an objective novation of the
When personal property is delivered it is PLEDGE, not dation, obligation where the thing offered as an accepted equivalent of the
unless parties clearly stipulate, but in doubt, the presumption is pledge, performance of an obligation is considered as the object of the contract
with lesser transmission of rights. of sale, while the debt is considered as the purchase price. In any case,
Warranties of Debtor Dation is an onerous transmission or common consent is an essential prerequisite, be it sale or novation,
contract of alienation, provision in Sales Re warranty against eviction to have the effect of totally extinguishing the debt or obligation.
and against hidden defects of the thing applies, Debtor is vendor,
Creditor is vendee; CITIZENS SURETY AND INSURANCE COMPANY VS. CA AND
If Creditor is evicted, original OBLIGATION is not revived, PASCUAL PEREZ [162 SCRA 738]
but Creditor is entitled to recover from breach of warranty in RATIO: There is no dation in payment when there is no obligation to be
extinguished.
Article 1555. FACTS: Petitioner issued 2 surety bonds to Pascual Perez to guarantee his
[Balane] compliance in a Contract of Sale of Goods he entered with Singer Sawing
, in Roman law, called "datio in solutum ", in Machine Co. Perez in turn executed a deed of assignment of its stock of lumber
French, "dation en paiement ," in Spanish, "dacion en to petitioner. And a 2nd indemnity agreement to guaranty reimbursement of
pago.") h a e e l i a b i l i i i l l b e ma d e
Dation in payment is possible only if there is a debt in f a i l e d c m l . S i g e ma d e e i i
failed to reimburse petitioner. Thus petitioner filed a claim against the estate of
money. Instead of money, a thing is delivered in
Nicasia Sarmiento which was being administered by Perez. Perez averred that
satisfaction of the debt in money. (Dation en pago is his liability to the surety has been extinguished by the deed of assignment of the
explained in the case of Filinvest v. Phil Acetylene). lumber. Trial Court held Perez and the estate of Sarmiento solidarily liable to
There are two ways at looking at dacion en pago: Ci i e S e . CA e e e d a d d i m
1. Classical way where dacion en pago is treated as a sale. Sarmiento.
2. Modern concept which treats dacion en pago as a ISSUE: WON CA erred in concluding that there was dation in payment by the
novation. execution of the Deed of Assigment?
HELD: The transaction could not be dation in payment. xxx When the deed of
assignment was executed on 12/4/59, the obligation of the assignor to refund the
Castan has another view Both are wrong.
assignee had not yet arisen. In other words, there was no obligation yet on the
* A dacion en pago is not a sale because there is no intention to part of the petitioner, Citizens' to pay Singer Sewing Machine Co. There was
enter into a contract of sale. nothing to be extinguished on that date, hence, there could not have been a
* It is not also a novation because in novation, the old obligation is dation in payment.
extinguished and a new obligation takes its place.
** But here, the old obligation is extinguished. What takes its 2ND SPECIAL KIND OF PAYMENT: Application of Payment
place? Nothing. So what is it? It is a special form of payment
which resembles a sale. [Balane]
Application of payment (Imputacion in Spanish) is the designation of
There are two more things to remember in the cases of Filinvest v. a debt which is being paid by the debtor who has several obligations of
Phil. Acetylene, supra. and Lopez v. CA, 114 SCRA 671: the same kind in favor of the creditor to whom the payment is made.
Dacion en pago can take place only if both parties consent.
Q: To what extent is the obligation extinguished? Rules where the amount sent by the debtor to the creditor is less
Answer: Up to the value of the thing given (the thing must be than all that is due:
appraised) unless the parties agree on a total extinguishment. No.1: Apply in accordance with the agreement.
(Lopez. v. CA, supra.) No.2: Debtor may apply the amount (an obvious limitation because
of the principles of indivisibility and integrity) where there would be
partial payment.
FILINVEST CREDIT CORP. V. PHIL. ACETYLENE [111 SCRA 421] No.3: Creditor can make the application.
FACTS: Phil. Acetylene Co. purchased from Alexander LIM with Deed of Sale, No.4: Apply to the most onerous debt. (Article 1252, par. 1.)
a Chevrolet 1969 model with downpayment, and balance payable for 34 mos.
Q; What are the rules to determine which is the most onerous
Wi h 1 2 % i . . a . e f l e c e d i a P N, i h Ch a e l g a g e a e c i i
favor. Lim assigned to Filinvest Finance Corp. his interests in the PN and Chattel debt?
Mortgage. After defaulting in 9 installments, Filinvest sent demand letter to A: (Article 1252)
PAC, to pay or return the vehicle. PAC returned the car but Filinvest cannot sell 1. If one is interest paying and the other is not, the debt which is
the car due to unpaid taxes thereon incurred by PAC. Fil offered to deliver back interest paying is more onerous.
the car to PAC, the latter refused. Fil thus filed a complaint for collection of 2. If one is a secured debt and the other is not, the secured debt
money withdamages in CFI-Manila. PAC averred that Fil has no cause of is more onerous
action against PAC because when the car was returned after the demand letter, 3. If both are interest free, one is older than the first, the newer
the OBLIGATION was extinguished. one is more onerous because prescription will take longer
ISSUE: WON the return of mortgaged vehicle to appellee by voluntary
surrender by appellant totally extinguished the OBLIGATION, as in dacion en
with respect to the newer debt.
pago?
HELD: NO. We find appellant's contention devoid of persuasive force. The 5th Rule: Proportional application if the debts are equally onerous.
mere return of the mortgaged motor vehicle by the mortgagor, the herein
!"#$%&%'(")*+#,%-(.#/%
Article 1252. He who has various debts of the same kind in favor
of one and the same creditor, may declare at the time of making
the payment, to which of them the same must be applied. Unless
the parties so stipulate, or when the application of payment is
made by the party for whose benefit the term has been
constituted, application shall not be made as to debts which are
not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot complain
of the same, unless there is a cause for invalidating the contract.
[Tolentino]
Necessary that OBLIGATION must all be due.
Only in case of mutual agreement, or upon consent of the
party in whose favor the term was establish, that payments
may be applied to OBLIGATION which have not yet
matured.
Article 1253. If the debt produces interest, payment of the
principal shall not be deemed to have been made until the
interests have been covered.
Article 1254. When the payment cannot be applied in accordance
with the preceding rules, or if application can not be inferred from
other circumstances, the debt which is most onerous to the debtor,
among those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment
shall be applied to all of them proportionately.
[Baviera]
The ff. are the rules for application of payments:
1 - The first choice belongs to the Debtor;
2 - If the Debtor did not choose, the Creditor may choose, which he
will manifest in a receipt.
3 - If neither specified the application, payment shall be made to
the most onerous debt.
3rd SPECIAL FORM OF Payment by Cession
[Balane]
Property is turned over by the debtor to the creditor who
acquires the right to sell it and divide the net proceeds among
themselves.
Q: Why is payment by cessiona special form of payment?
A: Because there is no completeness of performance (re: integrity.)
In most cases, there will be a balance due.
Q: Difference between dacion en pago and payment by cession:
In dacion en pago, there is a transfer of ownership from the debtor to
the creditor.
In payment by cession, there is no transfer of ownership. The creditors
simply acquire the right to sell the properties of the debtor and apply
the proceeds of the sale to the satisfaction of their credit.
Q: Does payment by cessionterminate all debts due?
A: Generally, NO, only to the extent of the net proceeds. The
extinguishment of the obligation is pro tanto.
Execution in Legal cession where the extinguishment of the
obligation is total. Legal cession is governed by the
Insolvency Law.
Article 1255. The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there is
stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by special laws.
4th SPECIAL FORM OF PAYMENT:
Tender of Payment and Consignation
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.
Consignation alone shall produce the same effect in the following
cases:
When the creditor is absent or unknown, or does not appear at the
place of payment;
When he is incapacitated to receive the payment at the time it is
due;
When, without just cause, he refuses to give a receipt;
When two or more persons claim the same right to collect;
When the title of the obligation has been lost.
[Balane]
Subsection 3.-- Tender of Payment and Consignation
The title of the subsection is wrong. It should have been
Consignation only because that is the special mode of payment and
not the tender of payment.
It is a special mode of payment because payment is made not
to the creditor but to the court.
Consignation is an option on the part of the debtor
because consignation assumes that the creditor was in mora
accipiendi (when the creditor without just cause, refuses to
accept payment.)
Consequence when the creditor without just cause, refuses to
accept payment The debtor may just delay payment. But something
still hangs above his head. He is therefore, given the option to
consignation. Distinguish this from BGB (German Civil Code) which
states that mora accipiendi extinguishes the obligation.
[Tolentino]
Tender of payment before consignation is required by the
present Article but only in case where the Creditor refuses to
accept it without just cause.
Effect on INTEREST: When tender is made in a form that Creditor
could have immediately realized payment (cash), followed by a
prompt attempt of the Debtor to make consignation, the accrual of
interest will be suspended from the date of such tender.
But when tender is not accompanied by means of pmt, and the Debtor
did not take any immediate step to consign, then interest is not
suspended from the time of such tender.
SOLEDAD SOCO VS. HON. MILITANTE AND REGINO FRANCISCO
JR. [123 S 160] Requirements of consignation
FACTS: Disputed here is decision of lower court in an Unlawful Detainer case
filed by lessor SOLEDAD SOCO against private respondent REGINO
FRANCISCO JR. lessee of a building owned by Soco, whose payments of
rentals were considered valid and effective, dismissed the Unlawful Detainer
c a e a d ma d e l e a m a l a d
holding there was substantial compliance in the with the requisites of
consignation. Francisco and Soco entered into a Contract of Lease for a
monthly rental of P 800.00 for a period of 10 years renewable for another 10
years at the option of the lessee. Francisco subleased the bldg for a rental of
3,000/month. Knowing this, Soco apparently stopped accepting rental
payments of Francisco and later demanded him to vacate the bldg. and filed
for rescission/annulment of Lease Contract with CFI-Cebu.
ISSUE: WON the provisions in Arts. 1256-1261, NCC regarding the requisites
of consignation must be complied with fully and strictly, mandatorily and that
did the lower court err in ruling substantial compliance thereto?
HELD: NO. We do not agree with the questioned decision. We hold that the
essential requisites of a valid consignation must be complied with fully and
strictly in accordance with the law, Articles 1256 to 1261, New Civil Code.
That these Articles must be accorded a mandatory construction is clearly
evident and plain from the very language of the codal provisions themselves
which require absolute compliance with the essential requisites therein
provided. Substantial compliance is not enough for that would render only a
directory construction to the law. The use of the words "shall" and "must"
which are imperative, operating to impose a duty which may be enforced,
positively indicate that all the essential requisites of a valid consignation must
be complied with. The Civil Code Articles expressly and explicitly direct what
must be essentially done in order that consignation shall be valid and
effectual.
Consignation Defined:
Consignation is the act of depositing the thing due with the
court or judicial authorities whenever the creditor (1) cannot
accept or (2) refuses to accept payment, and it generally
requires a prior tender of payment.
Requisites of Valid Consignation:
In order that consignation may be effective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show
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 (Article 1176,NCC);
3. that previous notice of the consignation had been given
to the person interested in the performance of the
obligation (Article 1177,NCC);
!"#$%&%'(")*+#,%-(.#/%
4. that the amount due was placed at the disposal of the
court (Article 1178,NCC); and
5. that after the consignation had been made the person
interested was notified thereof (Article 1178,NCC).
Failure in any of these requirements is enough ground to render a
consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco,
Inc., 90 Phil. 311).
Without prior notice, a consignation is void as payment.
(Limkako vs. Teodoro, 74 Phil 313)
In order to be valid, the tender of payment must be made in
lawful currency. While payment in check by the debtor may be
acceptable as valid, if no prompt objection to said payment is made
(Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956)
The fact that in previous years payment in check was accepted
does not place its creditor in estoppel from requiring the
debtor to pay his obligation in cash (Sy vs. Eufemio, L-10572,
Sept. 30, 1958).
Thus, the tender of a check to pay for an obligation is not a
valid tender of payment thereof (Desbarats vs. Vda. de Mortera,
supra).
Tender of payment must be distinguished from consignation
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 is extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to
make a private settlement before proceeding to the solemnities of
consignation. (8 Manresa 325).
Article 1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
Article 1258. Consignation shall be made by depositing the things
due at the disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, and the announcement
of the consignation in other cases.
The consignation having been made, the interested parties shall
also be notified thereof.
[Tolentino]
Notice: The requirement is fulfilled by the service of
summons upon the Defendant together with copy of
complaint.
Article 1259. The expenses of consignation, when properly made,
shall be charged against the creditor.
[Tolentino] Proper when
1. Creditor accepts consignation after deposit without
protest though Debtor failed to comply with requisites
or;
2. Court declares consignation as validly made.
Article 1260. Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of the
obligation.
Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly made,
the debtor may withdraw the thing or the sum deposited, allowing
the obligation to remain in force.
[Tolentino]
Effects of Consignation:
1. Debtor is released in the same manner as if he had performed
the obligation.
2. Accrual of INTEREST is suspended.
3. Deterioration or loss of thing or amount consigned without
fault of Debtor must be borne by Creditor.
4. Any increment or increase in value of thing inures to the
benefit of Creditor.
SC:
When money is deposited in court under the provisions of the
law on consignation, it is in custodia legis and therefore
exempt from Attachment and execution (Manejero v.
Lampa)
Article 1261. If, the consignation having been made, the creditor
should authorize the debtor to withdraw the same, he shall lose
every preference which he may have over the thing. The co-
debtors, guarantors and sureties shall be released.
[Baviera]
Q: When is there a need to tender payment?
A: (a) upon demand and (b) when debt is due
Q: There are 2 or more claims. What will Debtor do after
consignation?
A: File INTERPLEADER.
Q: Why tender first?
A: It is because there is no need to consign if Creditor accepts payment.
We can only know this through tender. (EXHAUSTION OF
EXTRAJUDICIAL MEANS)
Q: Before and after consignation, there is a need to notify the
Creditor. Why is this?
A: So that the Creditor can get the money from the Clerk of court and
avoid costs of litigation.
Q: Debtor consigns. Hearing Before the court could approve, the
City Hall burned + money. Should Debtor pay again?
A: No. When money is consigned, it is no longer generic. It becomes
specific. Creditor bears the loss because although it was due to a
fortuitous event, there was delay on his part when he refused to accept
payment.
Q: In a Contract of Sale with pacto de retro. The vendor tendered
payment within the 3-yr pd but vendee refused to accept. Action
for specific performance by Vendor. According to Vendee, since
money was not consigned, Vendor cannot claim right of
repurchase. Tenable argument?
A: No. As long as there was tender, no need to consign.
But in one case of a co-owner wanting to redeem at reasonable price
(was exorbitant), the court held that reasonable price is determined
according to the circumstances. So if you want to redeem, consign the
full amount in cout and ask it to fix the reasonable compensation.
LAURO IMMACULATA VS. HON. NAVARRO AND HEIRS OF
JUANITO VICTORIA [160 SCRA 211] We hereby grant said alternative
cause of action or prayer. While the sale was originally executed in Dec. 1969, it
was only on Feb. 3, 1974 when, as prayed for by private respondent, and as
ordered by the court a quo, a deed of conveyance was formally executed. Since
the offer to redeem was made on 3/24/75, this was clearly within the 5-yr. period
of legal redemption allowed by the Public Land Act.
FACTS: A previous complaint, for annulment of judgment and deed of sale
with reconveyance of real property alleged that Juanito Victoria, with the
cooperation of defendant Juanita Naval and others succeeded in causing
plaintiff Lauro Immaculata, petitioner herein, to execute a Deed of Absolute
Sale in favor of Juanito Victoria, by unduly taking advantage of the mental
illness and/or weakness of petitioner and through deceit and fraudulent means,
purportedly disposed of by way of absolute sale, a 5,000-sq.m.parcel of land
with TCT, for P58K, which petitioner supposedly received, but in truth and in
fact did not; Jurisdiction of the court over the person of the defendant was also
questioned but such was upheld through valid service of summons to the
guardian ad litem and also later through voluntary appearance in lieu of
pleadings asking for exercise of jus by the same court. Accordingly,
respondent Court directed the respondent Sheriff to execute the deed of
conveyance prayed for by Juanito Victoria, by reason of which, without the
knowledge and consent of petitioner, a new TCT was issued in favor of
Juanito Victoria; that the said TCT is null and void having been based on void
proceedings;
*** that, in the alternative, petitioner prays that he be allowed to repurchase
the property within five (5) years from the time judgment is rendered by
the respondent court upholding the validity of the proceedings and the sale
since the land in question was originally covered by a Free Patent title;
Respondent Court dismissed the complaint on the ground of res judicata. In
this present MR, the petitioner merely asks of this Court to consider a point
inadvertently missed the matter of LEGAL REDEMPTION, which has
remained unresolved. The bar of res judicate is as to questions on the validity
of the sale.
An offer to redeem was made clearly within the 5-yr-period allowed by law,
Public Land Act. (Sec. 119, CA No. 141)
ISSUE: WON offer to redeem was insincere in the absence of consignation
of such amount in Court?
HELD: NO. The right to redeem is a RIGHT NOT AN OBLIGATION, thus
no consignation is required.
To preserve the right to redeem, consignation is not required. But to actually
redeem, there must of course be payment or consignation (deposit) itself.
(2nd MODE OF EXTINGUISHEMENT)
LOSS OF THE THING DUE OR IMPOSSIBILITY OF
PERFORMANCE
Article 1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be lost or
!"#$%&%'(")*+#,%-(.#/%
destroyed without the fault of the debtor, and before he has
incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous
events, the loss of the thing does not extinguish the obligation, and
he shall be responsible for damages. The same rule applies when
the nature of the obligation requires the assumption of risk.
Balane:
Article 1262 is the same as fortuitous event in Article 1174.
The effect is the same:
The OBLIGATION is extinguished if the OBLIGATION is to
deliver a determinate thing. If the OBLIGATION is to deliver a generic
thing, the OBLIGATION is not extinguished.
[General Rule] Genus nunquam perit ("Genus never perishes.")
But what is not covered by this rule is an OBLIGATION to deliver a
limited generic something in between specific and generic thing,
e.g., "For P3,000, I promise to deliver to you one of my watches." This
OBLIGATION does not really fall under either Article 1262 or Article
1263. But this OBLIGATION really falls under Article 1262. In this
case, the OBLIGATION may be extinguished by the loss of all the
thing through Fortuitous Event.
Article 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
Article 1264. The courts shall determine, whether, under the
circumstances, the partial loss of the object of the obligation is so
important as to extinguish the obligation.
Article 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault,
unless there is proof to the contrary, and without prejudice to the
provisions of article 1165. This presumption does not apply in case
of earthquake, flood, storm, or other natural calamity.
Article 1165. When what is to be delivered is a determinate thing,
the creditor, in addition to the right granted him by article 1170,
may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall
be responsible for any fortuitous event until he has effected the
delivery.
Article 1170. Those who in the performance of their obligations
are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof are liable for damages.
Article 1266. The debtor in obligations to do shall also be released
when the prestation becomes legally or physically impossible
without the fault of the obligor.
[Balane]
Objective and Subjective Impossibility:
In objective impossibility, the act cannot be done by anyone. The
effect of objective impossibility is to extinguish the OBLIGATION.
In subjective impossibility, the OBLIGATION becomes
impossible only with respect to the obligor.
There are 3 views as to the effect of a subjective impossibility:
1. One view holds that the OBLIGATION is not extinguished.
The obligor should ask another to do the OBLIGATION.
2. Another view holds that the OBLIGATION is extinguished.
3. A third view distinguishes one prestation which is very
personal and one which are not personal such that subjective
impossibility is a cause for extinguishes a very personal
OBLIGATION, but not an OBLIGATION which is not very
personal.
PEOPLE VS. NATIVIDAD FRANKLIN, accused, ASIAN SURETY AND
INSURANCE COMPANY [39 SCRA 363]
FACTS: Appellant, ASIAN SURETY and INSURANCE CO. INC. contends
that the CFI-PAMPANGA erred in forfeiting its bail bond for the provisional
release of NATIVIDAD FRANKLIN, it contends that lower court should have
released it from all liability under the bail bond because its failure to produce and
surrender the accused was due to the negligence of the Phil. Government itself in
issuing a passport to said accused, thereby enabling her to leave the country. In
support of this contention, the provisions of Article 1266 are invoked.
ISSUE: WON Surety should be held liable?
HELD: Article 1266, NCC does not apply to a surety upon a bail bond.
Article 1266 does not apply to a surety upon a bail bond, as said Article speaks
of a relation between a debtor and creditor, which does not exist in the case of a
surety upon a bail bond, on one hand, and the State, on the other. For while
sureties upon a bail bond (or recognizance) can discharge themselves from
liability by surrendering their principal, sureties on ordinary bonds or
commercial contracts, as a general rule, can only be released by payment of
the debt or performance of the act stipulated.
It is clear, therefore, that in the eyes of the law a surety becomes the legal
custodian and jailer of the accused, thereby assuming the obligation to keep
the latter at all times under his surveillance, and to produce and surrender him
to the court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport which
enabled her to go to the United States was, in fact, due to the surety company's
fault because it was its duty to do everything and take all steps necessary to
prevent that departure. This could have been accomplished by seasonably
informing the Department of Foreign Affairs and other agencies of the
government of the fact that the accused for whose provisional liberty it had
posted a bail bond was facing a criminal charge in a particular court of the
country. Had the surety company done this, there can be no doubt that no
Philippine passport would have been issued to Natividad Franklin.
NOTES:
Liability of Sureties on a bail bond is conditioned upon
appearance of accused from the time set for arraignment or
trial or any other time as fixed by court, the bondsman being
the jailer of the accused and absolutely responsible for his
custody, with duty at all times to keep him under
surveillance.
Surety will be exonerated where the performance of
condition of bail bond is rendered impossible by act of God
(e.g. death of accused), of the obligee (arrested by
government), or the law (law punishing him is repealed) or
also under Rule 114, sec. 16.
Article 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.
[Baviera]
Ordinarily, on a contract for a piece of work, an increase in prices
will not relieve the contractor because such circumstances was
already considered by the parties when they entered into the
contract.
BAR Q: What if the prices rose so high as to be beyond the
contemplation of the parties due to the oil crisis?
Answer: Released.
Balane:
Rebus sic stantibus.Literally means "things as they stand."
It is short for clausula rebus sic stantibus ("agreement of things as they
stand.")
This is a principle of international law which holds that when 2
countries enter into a treaty, they enter taking into account the
circumstances at the time it was entered into and should the
circumstances change as to make the fulfillment of the treaty very
difficult, one may ask for a termination of the treaty. This principle of
international law has spilled over into Civil law.
This doctrine is also called the doctrine of extreme difficulty and
frustration of commercial object.
It has four (4) requisites:
1. The event or change could not have been foreseen at the time
of the execution of the contract;
2. The event or change makes the performance extremely
difficult but not impossible;
3. The event must not be due to an act of either party;
4. The contract is for a future prestation. If the contract is of
immediate fulfillment, the gross inequality of the reciprocal
prestation may involve lesion or want of cause.
In the case of Naga , the court did not consider the 4th element as an
element.
The attitude of the courts on this doctrine is very strict. This
principle has always been strictly applied. To give it a liberal
application is to undermine the binding force of an
obligation. Every obligation is difficult. The performance
must be extremely difficult in order for rebus sic stantibus to
apply.
LAGUNA TAYABAS BUS COMPANY AND BATANGAS TRANSPO
COMPANY VS. FRANCISCO MANABAT, assignee of Biñan Transpo
Company, Insolvent [59 SCRA 650]
FACTS: LEASE contract was executed between BTC and LTB, with monthly
rental of Php 2500 of Certificate of Public Convenience, provisionally approved
by the Public Service Commission. Later, BTC was declared insolvent and
FRANCISCO MANABAT was appointed as assignee. Rentals were still paid,
!"#$%&%'(")*+#,%-(.#/%
until strikes by Employees of BTC caused them some further losses. Thus they
asked for permission of PSC to suspend operation of the CPC also in lieu of low
passenger traffic on these lines and high cost of operation. Manabat opposed the
jurisdiction of PSC to suspend the lease contract being an impairment of
OBLIGATION. PSC contended that it had the power to suspend, as it did so, as
a consequence of its power to issue the same CPC, and not as an interpretation of
the provision of the Lease contract, which is a function of regular courts.
ISSUE: WON petitioners may ask PSC for reduction of rentals in lieu of such
suspension and declaration of insolvency of the corp. citing Article 1680.
HELD: Article 1680, it will be observed is a special provision for leases of
rural lands. No other legal provision makes it applicable to ordinary leases. xxx
Even if the cited article were a general rule on lease, its provisions nevertheless
do not extend to petitioners. One of the requisites is that the cause of the loss
of the fruits of the leased prop. must be an "extraordinary and unforeseen
fortuitous event." The circumstances of the case fail to satisfy such requisite.
xxx [T]he alleged causes for the suspension of operations on the lines leased,
namely, the high prices of spare parts and gasoline and the reduction of the
dollar allocations (by the CB Monetary B), "already existed when the contract of
lease was executed." The cause of petitioners' inability to operate on the lines
cannot, therefore, be ascribed to FE or circumstances beyond their control, but to
their own voluntary desistance.
*** Performance is not excused by subsequent inability to perform, by
unforeseen difficulties, by unusual or unexpected expenses, by danger, by
inevitable accident, by the breaking of machinery, by strikes, by sickness,
by failure of a party to avail himself of the benefits to be had under the
contract, by weather conditions, by financial stringency, or by stagnation of
business. Neither is performance excused by the fact that the contract turns
out to be hard and improvident, unprofitable or impracticable,ill-advised or
even foolish, or less profitable, or unexpectedly burdensome.
JESUS OCCENA VS. HON. JABSON AND TROPICAL HOMES INC.
[73 SCRA 637]
FACTS: Tropical HOMES INC., filed complaint for modification of Terms and
Condi of subdivision contract with petitioner Occena, landowners of disputed
lands in Davao, citing Article 1267, and the worldwide increases in prices.
The NCC authorizes the release of an obligor when the service has become
so difficult as to be manifestly beyond the contemplation of the parties.
ISSUE: WON the above Article gives the court the authority to consequently
modify the contents of the contract.
HELD: Respondent's complaint seeks not release from the subdivision contract
but that the court "render judgment modifying the terms and conditions of the
contract... by fixing the proper shares that should pertain to the herein parties out
of the gross proceeds from the sales of subdivided lots of subject subdivision."
Article 1267 does not grant the courts this 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.
Balane: In this case the interpretation of the court is too literal.
According to the court, it can release a debtor from the obligation but it
cannot make the obligation lighter. But if you look at Article 1267,
partial release is permitted.
NAGA TELEPHONE V. CA [230 S 351] - The term "service" should be
understood as referring to the "performance" of the obligation.-- Article 1267
speaks of "service" which has become so difficult. Taking into consideration the
rationale behind this provision, the term "service" should be understood as
referring to the "performance" of the obligation. In the present case, the
obligation of prvt. resp. consists in allowing petitioners to use its posts in Naga
City, which is the service contemplated in said article. Furthermore, a bare
reading of this article reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change. According. to
Tolentino, Article 1267 states in our law the doctrine of unforeseen events. This
is said to be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist the contract also
ceases to exist. Considering practical needs and the demands of equity and good
faith, the disappearance of the basis of a contract gives rise to a right to relief in
favor of the party prejudiced.
Balane: The Court went too far in this case. It even went to the extent
of stipulating for the parties in the name of equity.
Article 1268. When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the
cause for the loss, unless the thing having been offered by him to
the person who should receive it, the latter refused without
justification to accept it.
Article 1269. The obligation having been extinguished by the loss
of the thing, the creditor shall have all the rights of action which
the debtor may have against third persons by reason of the loss.
[Tolentino]
When Debtor tenders payment and Creditor refuses to accept without
just cause, Debtor has 2 alternatives:
(1) to consign or
(2) to just keep the thing in his possession, with the obligation to use
due diligence, subject to the general rules of OBLIGATION, but no
longer to the special liability under Article 1268.
ARTICLE 1189, 1174, 1165, 1268, 1942, 1979, 2159:
Article 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of the condition.
If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost when
it perishes, or goes out of commerce, or disappears in such a way
that its existence is unknown or it cannot be recovered;
When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case:
If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary.
[Balane]
There are three requisites in order for Article 1189 to apply:
1. There is loss, deterioration or improvement before the
happening of the condition.
2. There is an obligation to deliver a determinate thing (on the
part of the debtor)
3. The condition happens.
Article 1174. Except in cases expressly specified by law, or when it
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
Article 1165. When what is to be delivered is a determinate thing,
the creditor, in addition to the right granted him by article 1170,
may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall
be responsible for any fortuitous event until he has effected the
delivery.
Article 1268. When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the
cause for the loss, unless the thing having been offered by him to
the person who should receive it, the latter refused without
justification to accept it.
Article 1942. The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
If he devotes the thing to any purpose different from that for which
it has been loaned;
If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
If he lends or leases the thing to a third person, who is not a
member of his household;
If, being able to save either the thing borrowed or his own thing, he
chooses to save the latter.
Article 1979. The depositary is liable for the loss of the thing
through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have
been authorized to use the same.
Q: What if a depositor was in the premises of the bank and was
robbed of his money which he was about to deposit?
!"#$%&%'(")*+#,%-(.#/%
A: Bank cannot be held liable for fortuitous event (robbery) especially
in the case of a bank where the money has not yet been actually
deposited.
Article 1979 provides for instances wherein depositary is
still liable even in cases of fortuitous event.
Q: What kind of diligence is required of a depositary?
A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a Safety Deposit Box was
stolen, rules on deposit will not apply because the contract governing
the transaction is LEASE of safety deposit box.
In Negotiorum Gestio
Article 2147. The officious manager shall be liable for any
fortuitous event:
(1) If he undertakes risky operations which the owner was not
accustomed to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by
the owner;
(4) If he assumed the management in bad faith.
Payee in Solutio Indebiti
Article 2159. Whoever in bad faith accepts an undue payment,
shall pay legal interest if a sum of money is involved, or shall be
liable for fruits received or which should have been received if the
thing produces fruits.
He shall furthermore be answerable for any loss or impairment of
the thing from any cause, and for damages to the person who
delivered the thing, until it is recovered.
3rd MODE OF EXTINGUISHMENT OF OBLIGATION:
CONDONATION OF REMISSION OF THE DEBT
[Balane]
Condonation or remission is an act of liberality by virtue
of which, without receiving any equivalent, the creditor
renounces enforcement of an obligation which is
extinguished in whole or in part.
This has four (4) requisites:
1. Debt that is existing. You can remit a debt even before
it is due.
2. Renunciation must be gratuitous. If renunciation is for a
consideration, the mode of extinguishment may be
something else. It may be novation, compromise of
dacion en pago.
3. Acceptance by the debtor.
4. Capacity of the parties.
The form of donation must be observed. If the condonation involves
movables, apply Article 748. If it involves immovables, apply
Article 749.
But note that the creditor may just refuse to collect (without observing
any form.) In this case, the OBLIGATION will be extinguished not by
virtue of condonation but by waiver under Article 6.
Article 1270. Condonation or remission is essentially gratuitous,
and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore,
comply with the forms of donation.
FORMS of Condonation:
a. By a Will
Article 935. The legacy of a credit against a third person or of the
remission or release of a debt of the legatee shall be effective only
as regards that part of the credit or debt existing at the time of the
death of the testator.
In the first case, the estate shall comply with the legacy by
assigning to the legatee all rights of action it may have against the
debtor. In the second case, by giving the legatee an acquittance,
should he request one.
In both cases, the legacy shall comprise all interests on the credit
or debt which may be due the testator at the time of his death.
Article 936. The legacy referred to in the preceding article shall
lapse if the testator, after having made it, should bring an action
against the debtor for payment of his debt, even if such payment
should not have been effected at the time of his death.
The legacy to the debtor of the thing pledged by him is understood
to discharge only the right of pledge.
b. By Agreement
Article 1270. Condonation or remission is essentially gratuitous,
and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore,
comply with the forms of donation.
Article 746. Acceptance must be made during the lifetime of the
donor and of the donee.
Article 752. The provision of article 750 notwithstanding, no
person may give or receive, by way of donation, more than he may
give or receive by will.
The donation shall be inofficious in all that it may exceed this
limitation.
Article 750. The donation may comprehend all the present
property of the donor, or part thereof, provided he reserves, in full
ownership or in usufruct, sufficient means for the support of
himself, and of all relatives who, at the time of the acceptance of
the donation are by law entitled to be supported by the donor.
Without such reservation, the donation shall be reduced on
petition of any person affected.
Article 748. The donation of a movable may be made orally or in
writing.
An oral donation requires the simultaneous delivery of the thing or
of the document representing the right donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be made
in writing. Otherwise, the donation shall be void.
Article 749. In order that the donation of an immovable may be
valid, it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee
must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor
shall be notified thereof in an authentic form, and this step shall
be noted in both instruments.
Presumption in Condonation:
Article 1271. The delivery of a private document, evidencing a
credit, made voluntarily by the creditor to the debtor, implies the
renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by providing that
the delivery of the document was made in virtue of payment of the
debt.
[Balane:] Articles 1271 and 1272 refer to a kind of implied
renunciation when the creditor divests himself of the proof credit.
According to De Diego, this provision is absurd and immoral in that it
authorizes the debtor and his heirs to prove that they paid the debt,
when the provision itself assumes that there has been a remission,
which is gratuitous. [Tolentino]
This is Limited to Private Document Article 1271 has no
application to public documents because there is always a copy in the
archives which can be used to prove the credit.
Private document refers to the original in order for Article 1271 to
apply. (Trans-Pacific. v. CA, supra.)
TRANS-PACIFIC V. CA [234 SCRA 494]
HELD: It may not be amiss to add that Article 1271 raises a presumption, not of
payment, but of the renunciation of the credit where more convincing evidence
would be required than what normally would be called for to prove payment.
!"#$%&%'(")*+#,%-(.#/%
The rationale for allowing the presumption of renunciation in the delivery
of a private instrumentis that, unlike that of a public instrument, there could
be just one copy of the evidence of credit.
Where several originals are made out of a private document, the intendment of
the law would thus be to refer to the delivery only of the original rather than to
the original duplicate of which the debtor would normally retain a copy. It
would thus be absurd if Article 1271 were to be applied differently.
Article 1272. Whenever the private document in which the debt
appears is found in the possession of the debtor, it shall be
presumed that the creditor delivered it voluntarily, unless the
contrary is proved.
Rule 131, Sec. 5 (b), (j), (k), Rules of Court, Disputable
presumptions. The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other
evidence:
xxx
(b) That an unlawful act was done with an unlawful intent;
xxx
(j) That a person found in possession of a thing taken in the doing
of a wrongful act is the taker and doer of the whole act; otherwise,
that things which a person possesses, or exercises acts of
ownership over, are owned by him;
(k) That a person in possession of an order on himself for the
payment of money, or the delivery of anything, has paid the money
or delivered the thing accordingly;
xxx
Under the 1985 Rules of Court, as amended: Rule 131, Sec. 3.
Disputable presumptions.-- The following presumptions are
satisfactory if uncontradicted, but may be contradicted and
overcome by other evidence:
xxx
(c) That a person intends the ordinary consequences of his
voluntary act;
xxx
(f) That money paid by one to another was due to the latter;
(g) That a thing delivered by one to another belonged to the latter;
(h) That an obligation delivered up to the debtor has been paid;
(i) That prior rents or installments had been paid when a receipt for
the later ones is produced;
(k) That a person in possession of an order on himself for the
payment of they money, or the delivery of anything, has paid the
money or delivered the thing accordingly;
xxx
VELASCO V. MASA
8]4 : Velasco filed a complaint for the recovery of a sum of money he gave to
Masa as a loan, as contained in a private document. V claims that while he was
i m i e d d i g h e J a c c a i
surrendering the doc to M. V filed a criminal case before against M which was
dismissed for lack of jurisdiction. M contends that doc was voluntarily delivered
to him through Osmena. TC dismissed the action.
Issue : WON there was condonation.
Held: Yes. No sa i f a c f a a l l e g a
wife. It is an unquestionable fact that the instrument proving the debt now
claimed passed to the possession of the Debtor. For this reason, unless the
contrary is proven, it must be presumed that in accordance with the provisions of
the law, that delivery was voluntarily made. This fact implies a renunciation of
the action which Cr had for the recovery of his credit. It should be noted that the
doc is of a private nature, the only case subject to the provisions of Articles 1187
to 1189 OCC, so that a tacit renunciation of the debt may be presumed, in the
absence of proof that the doc was delivered for some other reason than the
gratuitous waiver of the debt and the complete extinction of the obligation to
pay.
Effect of Partial Remission:
Article 1273. The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force.
Article 2076. The obligation of the guarantor is extinguished at the
same time as that of the debtor, and for the same causes as all
other obligations.
Article 2080. The guarantors, even though they be solidary, are
released from their obligation whenever by some act of the
creditor they cannot be subrogated to the rights, mortgages, and
preferences of the latter.
(Provisions Common to Pledge and Mortgage)
Article 2085. The following requisites are essential to the
contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
xxx
Article 1274. It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged, after its delivery
to the creditor, is found in the possession of the debtor, or of a
third person who owns the thing.
[Balane]
The accesory obligation of pledge is extinguished because pledge is a
possessory lien.
The presumption in this case is that the pledgee has
surrendered the thing pledged to the pledgor. This is not a
conclusive presumption according to Article 2110, par. 2.
Article 2093. In addition to the requisites prescribed in article
2085, it is necessary, in order to constitute the contract of pledge,
that the thing pledged be placed in the possession of the creditor,
or of a third person by common agreement.
Article 2105. The debtor cannot ask for the return of the thing
pledged against the will of the creditor, unless and until he has
paid the debt and its interest, with expenses in a proper case.
4TH MODE OF EXTINGUISHMENT:
Confusion or Merger of Rights
Article 1275. The obligation is extinguished from the time the
characters of creditor and debtor are merged in the same person.
[Balane]
Confusion is the meeting in one person of the qualities of the
creditor and debtor with respect to the same obligation.
There are two (2) requisites:
1. It must take place between the creditor and the
principle debtor (Article 1276.)
2. The very same obligation must be involved.
Rationale You become your own creditor or you become your own
debtor. So how can you sue yourself?
What may cause a merger or confusion?
(1) Succession, whether compulsory, testamentary or intestate;
(2) Donation;
(3) Negotiation of a negotiable instrument.
, M Because
c e of c eitsd nature,
a confusion/
d i merger
c k e dmayVoverlap withi f e i
other causes of extinguishment.
For example, I owe Ms. Olores P100,000. She bequeath to me that
credit. And then she died. In this case, there is extinguishment both by
merger. But in this case, merger could overlap with payment.
Article 1276 (below) is perfectly in consonance with Article 1275.
i f c e c i a d i c k e V
a. Principal Parties
Article 1276. Merger which takes place in the person of the
principal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does not
extinguish the obligation.
[Tolentino]
Extinguishment of the principal obligation through confusion
releases the guarantors, whose obligation is merely
accessory.
When merger takes place in the person of the guarantor,
obligation is NOT extinguished.
b. Among guarantors
(Effects of Guaranty as Between Co-Guarantors)
Article 2073. When there are two or more guarantors of the same
debtor and for the same debt, the one among them who has paid
may demand of each of the others the share which is
proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be
borne by the others, including the payer, in the same proportion.
!"#$%&%'(")*+#,%-(.#/%
The provisions of this article shall not be applicable, unless the Te m l e k lg eendorsement.
d g e a Heeding
d cto this e
payment has been made in virtue of a judicial demand or unless allegation, BPI froze the account purporting to Salazar.
the principal debtor is insolvent. The bank found Salazar not entitled to the account for lack of endorsement
h e e b h e h i c h m e d i d
and the sum worth P267, 692.50 was paid to Templonuevo by means of
c. Joint Obligations c a h i e c h e c k . Th e d i f f e e c e b e
Article 1277. Confusion does not extinguish a joint obligation c e c i i h h e i a c e f a c
except as regards the share corresponding to the creditor or debtor however, ruled in favor of Salazar and was affirmed by the CA saying that there
in whom the two characters concur. was no ineffective payment to Salazar which would call for the exercise of
e i i e i g h e f f a g a i
petition contending thet the CA committed reversible error in NOT applying the
d. Solidary Obligations provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI
Article 1215. Novation, compensation, confusion or remission of regarding COMPENSATION arguing that the deduction of the subject amount
the debt, made by any of the solidary creditors or with any of the from Sala ar acco n , BPI a merel rec if ing he nd e pa men i made
solidary debtors, shall extinguish the obligation, without prejudice upon the checks and exercising its prerogative to alter or modify an erroneous
to the provisions of article 1219. credit entry in the regular course of its business.
Issue: Whether or not compensation under the Civil Code is proper in this case.
The creditor who may have executed any of these acts, as well as Held: YES. The right of set-off was explained in Associated Bank v. Tan: A
he who collects the debt, shall be liable to the others for the share bank generally has a right of set-off over the deposits therein for the payment
in the obligation corresponding to them. of any withdrawals on the part of a depositor. The right of a collecting bank to
Article 1219. The remission made by the creditor of the share debit a client's account for the value of a dishonored check that has previously
which affects one of the solidary debtors does not release the been credited has fairly been established by jurisprudence. To begin with,
Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
latter from his responsibility towards the co-debtors, in case the
deposits of money in banks and similar institutions shall be governed by the
debt had been totally paid by anyone of them before the remission provisions concerning simple loan."
was effected. Hence, the relationship between banks and depositors has been held to be
Article 1216. The creditor may proceed against any of one of the that of creditor and debtor. Thus, legal compensation under Article 1278 of
solidary debtors or some or all of them simultaneously. The the Civil Code may take place "when all the requisites mentioned in Article
demand made against one of them shall not be an obstacle to 1279 are present," as follows:
those which may subsequently be directed against the others, so (1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
long as the debt has not been fully collected. (2) That both debts consist in a sum of money, or if the things
Article 1217. Payment made by one of the solidary debtors due are consumable, they be of the same kind, and also of the
extinguishes the obligation. If two or more solidary debtors offer to same quality if the latter has been stated;
pay, the creditor may choose which offer to accept. (3) That the two debts be due;
(4) That they be liquidated and demandable;
He who made the payment may claim from his co-debtors only the (5) That over neither of them there be any retention or
share which corresponds to each, with the interest for the payment controversy, commenced by third persons and communicated in
already made. If the payment is made before the debt is due, no due time to the debtor.
interest for the intervening period may be demanded. While, however, it is conceded that petitioner had the right of set-off over
When one of the solidary debtors cannot, because of his the amount it paid to Templonuevo against the deposit of Salazar, the
issue of whether it acted judiciously is an entirely different matter. As
insolvency, reimburse his share to the debtor paying the obligation, businesses affected with public interest, and because of the nature of their
such share shall be borne by all his co-debtors, in proportion to the functions, banks are under obligation to treat the accounts of their depositors
debt of each. with meticulous care, always having in mind the fiduciary nature of their
relationship. In this regard, petitioner was clearly remiss in its duty to private
e. Indivisible Obligations respondent Salazar as its depositor.
Article 1209. If the division is impossible, the right of the creditors To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the
may be prejudiced only by their collective acts, and the debt can be encashment of these checks three times on three separate occasions. This
enforced only by proceeding against all the debtors. If one of the e g a e e i i e c l a i m h a i m
latter should be insolvent, the others shall not be liable for his f h e c h e c k S a l a a a c c a
share. CA h a e i i e e c g i e d S a l a a
Article 1224. A joint indivisible gives rise to indemnity for acted deliberately in paying the same, contrary to ordinary banking policy and
damages from the time anyone of the debtors does no comply practice. It must be emphasized that the law imposes a duty of diligence on
the collecting bank to scrutinize checks deposited with it, for the purpose of
with his undertaking. The debtors who may have been ready to determining their genuineness and regularity. The collecting bank, being
fulfill their promises shall not contribute to the indemnity beyond primarily engaged in banking, holds itself out to the public as the expert on
the corresponding portion of the price of the thing or of the value of this field, and the law thus holds it to a high standard of conduct. The taking
the service in which the obligation consists. and collection of a check without the proper indorsement amount to a
conversion of the check by the bank.
More importantly, however, solely upon the prompting of Templonuevo, and
5TH MODE OF EXTINGUISHMENT: with full knowledge of the brewing dispute between Salazar and
Compensation Templonuevo, petitioner debited the account held in the name of the sole
proprietorship of Salazar without even serving due notice upon her. This ran
Article 1278. Compensation shall take place when two persons, in c a e i i e a a c e
account would remain untouched, pending the resolution of the controversy
their own right, are creditors and debtors of each other. between her and Templonuevo.
[Balane] For the above reasons, the Court finds no reason to disturb the award of
Compensation is a mode of extinguishing, to the concurrent damages granted by the CA against petitioner. This whole incident would
amount, the obligations of those persons who in their own have been avoided had petitioner adhered to the standard of diligence
expected of one engaged in the banking business. A depositor has the right to
right are reciprocally debtors and creditors of each other.
e c e e a a b l e m a l d a ma g e e e
[Castan] been attended with malice and bad faith, if the former suffered mental
Perhaps, next to payment, compensation is the most common anguish, serious anxiety, embarrassment and humiliation. 31 Moral damages
mode of extinguishing an obligation. are not meant to enrich a complainant at the expense of defendant. It is only
intended to alleviate the moral suffering she has undergone. The award of
Distinguished from Confusion In compensation, there are 2 parties exemplary damages is justified, on the other hand, when the acts of the bank
and 2 debts, whereas in confusion, there are 2 debts and only 1 party. are attended by malice, bad faith or gross negligence. The award of reasonable
a e f e e i e h e e e e m
where depositors are compelled to litigate to protect their interest.
CASES:

Case: BPI vs. CA, Annabelle Salazar and Julio Templonuevo, January 25, GAN TION vs. CA and ONG WAN SIENG [28 SCRA 235, 1969] Award
2007, J. Azcuna. of attorney’s fees is proper subject of legal compensation.
Facts: A.A. Salazar Construction and Engineering Services, being substituted by FACTS: Ong Wan Sieng was a tenant in certain premises owned by Gan Tion.
Annabelle Salazar filed an action for sum of money with damages against BPI Gan filed an ejectment case against Ong in 1961 for non-payment of rentals for 2
for the recovery of the amount worth P267, 707.70 debited by BPI from her months total of P360. Ong denied and said that agreed rental was not 180 but
account. BPI, however alleged that one Templonuevo, third-party defendant 160 which he offered but was refused by Gan. The trial court favored plaintiff-
demanded from the former payment of the amount worth 267, 692.50 Gan. While the Appellate court reversed and ordered plaintiff-Gan to pay
representing the aggregate value of 3 checks allegedly payable to him which A e e f e e f P 5 0 0 . Th i b e c a me
e e d e i e d i h BP I h e e i When
e Ong obtained
d e writ of execcution,
S a l a Gan a Tion went ato cthec appellate court and
i h
pleaded legal compensation averring that Ong owed him more than P4K in
!"#$%&%'(")*+#,%-(.#/%
e a l f mO cA . g 66 31 . Th e A e l l a
may not be legally compensated because such constitute trust fund for benefit of
lawyer. And the requisites of Article 1278 not complied with.
ISSUE: WON there was legal compensation between Gan Tion and Ong Wan
Sieng.
HELD: YES. Th e a a d f a e
counsel, thus litigant is judgment creditor who may enforce judgment by
execution. Such is credit therefore which can be proper subject of legal
compensation.
PNB VS. GLORIA ONG ACERO, ET AL. [148 SCRA 166, 1987]- There is
no compensation where the parties are not creditors and debtors of each other .
FACTS: Savings account of ISABELA Construction and Wood Development
Corporation with the PNB of P2M is subject of 2 conflicting claims that of the
Aceros, as judgment creditor of ISABELA and of PNB as creditor of the
depositor due to a loan or credit agreement by ISABELA with PNB the deposit
being the collateral. IAC decided against PNB.
ISSUE: WON by operation of Article 1278, PNB and ISABELA has become
here debtors and creditors of each other.
HELD: NO. PNB's main thesis is that when it opened a savings account for
ISABELA on March 9, 1979 in the amount of P 2M, it (PNB) became
indebted to ISABELA in that amount. 11 So that when ISABELA itself
subsequently came to be indebted to it on account of ISABELA's breach of
the terms of the Credit Agreement of October 13, 1977, and therefore
ISABELA and PNB became at the same time creditors and debtors of each
other, compensation automatically took place between them, in accordance
with Article 1278 of the Civil Code. The amounts due from each other were,
in its view, applied by operation of law to satisfy and extinguish their
respective credits. More specifically, the P2M owed by PNB to ISABELA
was automatically applied in payment and extinguishment of PNB's own
credit against ISABELA. This having taken place, that amount of P2M could
no longer be levied on by any other creditor of ISABELA, as the ACEROS
attempted to do in the case at bar, in order to satisfy their judgment against
ISABELA.
Article 1278 of the Civil Code does indeed provide that "Compensation shall
take when two persons, in their own right, are creditors and debtors of each
other." Also true is that compe nsation may transpire by operation of law, as
when all the requisites therefor, set out in Article 1279, are present.
Nonetheless, these legal provisions can not apply to PNB's advantage
under the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding of
the IAC that it has not proven by competent evidence that it is a creditor of
ISABELA. The only evidence presented by PNB towards this end consists of 2
documents marked in its behalf. But as the IAC has cogently observed, these
documents do not prove any indebtedness of ISABELA to PNB. All they do
prove is that a letter of credit might have been opened for ISABELA by PNB,
but not that the credit was ever availed of [by ISABELA's foreign correspondent
(MAN)], or that the goods thereby covered were in fact shipped, and received by
ISABELA.
ENGRACIO FRANCIA VS. IAC, HO FERNANDEZ[162 SCRA 753]-
[T]here can be no off-setting of taxes against the claims that the taxpayer
may have against the government.
FACTS: ENGRACIO FRANCIA is the registered owner of a lot and 2-storey
house in Pasay City, a portion of which lot was subject of expropriation by the
Republic of the Philippines, with just compensation computed at its assessed
value. From 1963 to 1977, Francia has not paid real property taxes on the
property. Thus, such was sold on public auction by the City Treasurer of
Pasay City pursuant to Sec. 73 PD 464 Real Property Tax Code to satisfy his
delinquency. Ho Fernandez was the highest bidder. In 1979 Francia received
notice that Ho wants the TCT transferred to him after a Final Bill of Sale was
issued to him. Francia filed a complaint to annul the auction sale stating that
Francia contends that his tax delinquency of P2,400.00 has been extinguished
by legal compensation. He claims that the government owed him P4,116.00
when a portion of his land was expropriated on October 15, 1977. Hence, his
tax obligation had been set-off by operation of law as of October 15, 1977. He
was in Iligan at that time, but such was dismissed and court ordered Register of
De e d e f f e c h e a f e f i
affirmed.
ISSUE: WO N F a c i a a d e l i -off by
e thec
g e me i d e b e d eportion of his lot hwas
i m
expropriated.
HELD: NO. There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right are reciprocally
debtors and creditors of each other, are extinguished (Art. 1278, Civil Code).
The circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts b e due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently
ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of
a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court
ruled that Internal Revenue Taxes can not be the subject of set-off or
compensation. We stated that:
e ACclaim for taxes ais inotd such ah debt,
a a
demand, contracte or judgment
f eas eis
allowed to be set-off under the statutes of set -off, which are construed
uniforml y, in the light of public policy, to exclude the remedy in an action or
any indebtedness of the state or municipality to one who is liable to the state
or municipality for taxes. Neither are they a proper subject of recoupment
f e e i they ido not farise
since a out o f the fcontract
l i or transaction
i g a sued on. ... (80 f h i
C.J.S., 7374). "The general rule based on grounds of public policy is well -
settled that no set -off admissible against demands for taxes levied for
general or local governmental purposes. The reason on which th e general
rule is based, is that taxes are not in the nature of contracts between the
party and party but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the personal consent of
individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included
in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331)
where we stated that: "... internal revenue taxes can not be the subject of
compensation: Reason: government and taxpayer are not mutually creditors
and debtors of each other' under Article 1278 of the Civil Code and a
"claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off."
Article 1286. Compensation takes place by operation of law, even
though the debts may be payable at different places, but there
shall be an indemnity for expenses of exchange or transportation
to the place of payment.
A. Different Kinds of Compensation:
Legal Compensation (Articles 1279, 1290) which takes place
automatically by operation of law once all the requisites are
present.
Article 1279. 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 by any retention or controversy,
commenced by third persons and communicated in due time to
the debtor.
[Balane]
Requisites under Article 1279:
1. The parties must be
mutually debtors and creditors (1) in their own right, and (2)
as principals. There can be no compensation if 1 party
occupies only a representative capacity. Likewise, there can
be no compensation if in one obligation, a party is a principal
obligor and in another obligation, he is a guarantor.
2. The word consumable is wrong.
Under Article 418, consumable things are those which
cannot be used in a manner appropriate to their nature
without their being consumed. In a reciprocal obligation to
deliver horses, the things due are not consumable; yet there
can be compensation. (Tolentino) The proper terminology is
l e , a d"fungible"
f h i m
which a of the
refers to things H samea kind which in
e f
f
payment can
P 2 , 4 0 0 h a
be substituted
b e e
for another.
e
f P 43., 1 1 6 a f e a Both debts must be due to permit
compensation.
4. Tolentino:
Demandable means that the debts are enforceable in court,
there being no apparent defenses inherent in them. The
obligations must be civil obligations, excluding those that are
purely natural. xxx Before a judicial decree of rescission or
annulment, a rescissible or voidable debt is valid and
demandable; hence, it can be compensated.
A debt is liquidated when its existence and amount are determined.
xxx And a debt is considered liquidated, not only when it is expressed
already in definite figures which do not require verification, but also
when the determination of the exact amount depends only on a simple
arithmetical operation. xxx
(additional
requirement)
!"#$%&%'(")*+#,%-(.#/%
0 like Articles
1287, 1288 and 1794.
Article 1287. Compensation shall not be proper when one of the
debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a
claim for support due by gratuitous title, without prejudice to the
provisions of paragraph 2 of article 301.
Article 1288. Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal offense.
Article 1794. Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts may
equitably lessen this responsibility if through the partner's
extraordinary efforts in other activities of the partnership, unusual
profits have been realized.
CASES:
REPUBLIC V. DE LOS ANGELES [98 SCRA 103]- Compensation of debts
arising even without proof of liquidation of claim is allowable where the claim
is undisput ed.
FACTS: Spouses FARIN got a loan from MARCELO STEEL CORP of P600k
and did a Real Estate Mortgage of their lot in Quezon City as security in favor of
MARCELO STEEL. A year later MARCELO STEEL asked sheriff assistant in
extrajudicial foreclosure of the real estate mortgage of such lot. Spouses Farin
filed for injunction and succeeded. Thus, MARCELO STEEL invoked par. 5 in
h e m g a g e c a c a d a k e d
P e a Bl d g i a e d e Rice and
h eCornmAdmin
g a g e d
(RCA), to direct their rental payments to MARCELO STEEL. Such an order
was issued by the court. RCA filed an Motion for Reconsideration praying to be
excluded from such order because Spouses Farin has a standing OBLIGATION
with RCA which should be set-off with their rental OBLIGATIONS, thus rents
of RCA has been previously assigned by Spouses Farin to Vidal Tan. Spouses
Farin also filed Motion for Reconsideration asking the court to exclude lessees
of the bldg from such order as they are not parties to the case. The trial court
denied both MR and granted motion of Spouses Farin for RCA to release rentals
incurred for repair of the bldg. Trial Court ratiocinated that RCA never
e e e d a f f F ato offset
i with its i
rentals.
ISSUE: WON Respondent Judge erred in denying claim of RCA that
compensation of debts has taken place because records showed no proof of
l a i i f f i d e b e d e R C A.
HELD: YES. Proof of the liquidation of a claim, in order that there be
compensation of debts, is proper if such claim is disputed. But, if the claim
is undisputed, as in the case at bar, the statement is sufficient and no other
proof may be required. I h e i a
obligation to RCA was raised by RCA in its motion dated Dec. 23, 1967. The
silence of Petra, although the declaration is such as naturally one to call for
action or comment if not true, could be taken as an admission of the existence
and validity of such a claim. Since R C A c l a i m i
liquidation is not necessary.
LORETO SOLINAP VS. HON. DEL ROSARIO AND SPOUSES
JUANITO AND HARDEVI LUTERO AND THE PROVINCIAL
SHERRIF OF ILOILO [123 SCRA 640]- Compensation cannot take place
where one's claim agains t the other is still the subject of court litigation. It is a
requirement, for compensation to take place, that the amount involved be
certain and liquidated.
FACTS: SPOUSES TIBURCIO LUTERO and ASUNCION MAGALONA,
owners of Hacienda Tambal, leased such to LORETO SOLINAP for 10 years
with rental of P50K/year, further agreed that half of annual rental would be paid
by Solinap to PNB as amortization on indebtedness of Spouses Lutero. When
Tiburcio died, testate estate proceedings was instituted at CFI-Iloilo which
authorized the administrator of estate, Judge Nicolas Lutero, the grandson of
decedent, to take from the heirs its obligation with PNB with right of
subrogation. After compliance, the heirs who paid subjugated to the PNBs claim
against lessee Solinap for payment of rentals. Solinap instituted a separate action
against Spouses Lutero, the administrator, who allegedly owed Solinap P71K
with Real Estate Mortgage as security. In this case, Spouses Lutero setup a
counterclaim of P125K in unpaid rentals of petitioner on Hacienda Tambal. An
order thereafter in the estate proceedings ordered Solinap to reimburse to
Spouses Lutero P25,000 plus interest. Solinap raises the defense of
compensation.
ISSUE: WON the trial court erred in not holding that legal compensation has
taken place in these cases by operation of Article 1278.
HELD: NO. Petitioner contends that respondent judge gravely abused her
discretion in not declaring the mutual obligations of the parties extinguished to
the extent of their respective amounts. He relies on Article 1278 to the effect
that compensation shall take place when 2 persons, in their own right, are
creditors and debtors of each other. The argument fails to consider Article
1279 which provides that compensation can take place only if both
obligations are liquidated. In the case at bar, the petitioner's claim against the
respondent Luteros is still pending determination by the court. While it is not for
us to pass upon the merits of the plaintiff's cause of action in that case, it appears
that the claim asserted therein is disputed by the Luteros on both factual and
legal grounds. More, the counterclaim interposed by them, if ultimately found to
be meritorious, can defeat petitioner's demand. Upon this premise, his claim in
that case cannot be categorized as liquidated credit which may properly be set-
off against his obligation. Compensation cannot take place where one's claim
against the other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain and
liquidated.
FRANCISCO SYCIP VS. CA AND PEOPLE OF THE PHILIPPINES
[134 SCRA 317]- Compensation cannot take place where, with respect to the
money involved in the estafa case, the complainant was merely ac ting as agent
of another. In set -off the two persons must in their own right be creditor and
debtor of each other
FACTS: JOSE LAPUZ received from ALBERT SMITH 2,000 shares of stock
of REPUBLIC FLOUR MILLS in the name of Dwight Dill who left for
Honolulu. Jose was suppose to sell his shares at market value from which he
would get commission. According to Jose, Francisco Sycip approached him and
volunteered to sell the shares. A Special Power of Attorney was granted by Dill
to Lapuz, for the latter to transact with Sycip. Series of their transactions were
duly paid for and transferred. But the later payments were pocketed by Sycip
with checks paid by him having been dishonored for insufficiency of funds.
Estafa case was filed against Sycip which the latter was convicted ordering him
to pay Lapuz P8,000. But Sycip contended that there is compensation because
Lapuz owes him more than P5,000.
ISSUE: WON CA erred in not applying Article 1278-79 despite evidence
h i g La i d e b e d e e . S
HELD: NO. Petitioner contends that respondent CA erred in not applying the
provisions on compensation or setting-off debts under Article 1278 and 1279,
despite evidence showing that Jose Lapuz still owed him an amount of more
than P5,000 and in not dismissing the appeal considering that the latter is not
h e clegally the aggrieved
i party.
e a d c m e l h e l e e e
This
contention
l , is iuntenable.
c l Compensation
d i g cannot
h take place in this case since
the evidence shows that Jose Lapuz is only an agent of Albert Smith and/ or
Dr. Dwight Dill. Compensation takes place only when two persons in their own
right are creditors and debtors of each other, and that each one of the obligors is
bound principally and is at the same time a principal creditor of the other.
Moreover, xxx Lapuz did not consent to the off-setting of his obligation with
petitioner's obligation to pay for the 500 shares.
COMPANIA MARITIMA vs. CA and PAN ORIENTAL SHIPPING CO.
d e b[135e SCRA
d e 593]- Compensation
h i c h cannoti take placea where one of the debts is
not liquidated as when there is a runn ing interest still to be paid thereon.
FACTS: FERNANDO FROILAN purchased from SHIPPING
ADMINISTRATION a boat for 200K, and paid downpayment of 50K, while he
constituted a mortgage on the vessel for the unpaid balance. However, Froilan
defaulted in payment of the balance and interests as well as insurance premiums
on the vessel which was paid for by the SHIPPING ADMINISTRATION (SA).
Thus, SA took immediate possession of the vessel as well as its cargoes, with
c a e ,claimRthat
CA the vessel cis lnota repossessed
i m f but its
P eownership
a is retransferred to the
SA/government.
PAN ORIENTAL offered to charter the same vessel with monthly rental of 3K,
which the government agreed with further stipulation that charterer will pay cost
d i of labor,
e d dry-docking
, andf repairs,
f including
i spare parts needed. Froilan
protested to the charter agreement.
Before formal bareboat charter was to be approved by General Manager of SA, a
Cabinet resolution was issued revoking the cancellation of the contract of Sale to
Froilan, restored him to all his rights, on condition he will pay at least 10K to
settle partially his outstanding accounts, to reimburse Pan Oriental of its
expenses incurred, and file a bond to cover the rest of his undertaking with the
government. After posting his bond, court ordered to e e F i l a
of the vessel. Pan Oriental resisted. COMPANIA MARITIMA as purchaser of
the vessel from Froilan was allowed to be intervenor.
ISSUE: WON the Court erred in holding that Froilan, Compania and
Government should pay Pan Oriental reimbursements of its legitimate expenses
with legal interest from the time of disbursement, instead of from the date of
dispossession, failing to consider legal compensation between RP and Pan
Oriental.
HELD: NO. More, the legal interest payable from 2/3/51 on the sum of
P40,797.54, representing useful expenses incurred by PAN-ORIENTAL, is
also still unliquidated since interest does not stop accruing "until the
expenses are fully paid." Thus, we find without basis REPUBLIC'S allegation
that PAN-ORIENTAL'S claim in the amount of P40,797.54 was extinguished by
compensation since the rentals payable by PAN-ORIENTAL amount to
P59,500 while the expenses reach only P40,797.54. Deducting the latter
amount from the former, REPUBLIC claims that P18,702.46 would still be
owing by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the
fact that to the sum of P40,797.54 will still have to be added the legal rate of
interest "from Feb. 3, 1951 until fully paid."
INTERNATIONAL CORPORATE BANK INC. (ICB) VS. IAC,
NATIVIDAD FAJARDO, SILVINO PASTRANA as Deputy and Special
Sheriff [163 S 296]- Requisite of legal compensation under Article 1279. The
requirement that debts must be liquidated and demandable has not yet been
met since the validity of the extrajudicialforeclosure and petitioner’s claim for
of sheriff’s sale on extrajudicial foreclosure of respondent property from
FACTS: NATIVIDAD PAJARDO secured from Investment Underwiriting and
ATRIUM Capital, predecessors of ICB, a loan of P50M, which she secured with
!"#$%&%'(")*+#,%-(.#/%
Real Estate Mortgage of her properties in Quiapo and Bulacan with total market
value of 110M. However, only 20M of the loan was approved for release which
same amount went to pay her standing OBLIGATIONS with the same bank,
thus she did not receive the same amount. She also made a money-market
placement with ATRIUM of more than P1M at 17% interest for 32 days. At
maturity, proceeds of such was not released to her but instead allegedly applied
to her mortgaged indebtedness which she failed to pay. Her properties were
auctioned and Atrium being the sole bidder, acquired them only at 20M in all.
At the end she is still indebted in the amount of P6.81M.
S h e h f i l e d a c m l a i i h
of her mortgaged properties the debt not yet being due and demandable, the
release of the balance of her loan of P30M, and recovery of the proceeds of her
money-market investments.
The IAC ordered ICB to pay plaintiff Fajardo the proceeds of her money-market
i e me . CA a f f i me d . O e e c
upon, and upon motion by plaintiff, its branches were ordered to pay.
Petitioner contends that after foreclosing the mortgage, there is still due from
private respondent as deficiency the amount of P6.81 million against which it
has the right to apply or set off private respondent's money market claim of
P1,062,063.83.
ISSUE: WON there was legal compensation in this case, that after petitioner
foreclosed the mortgage, upon the deficiency amount, it still has the right to
e f f l a-market
i investments
i f f proceeds.
m e
HELD: NO. The argument is without merit. Compensation shall take place
when two persons, in their own right are creditors and debtors of each other.
When all the requisites mentioned in Article 1279 are present, compensation
takes effect by operation of law, even without the consent or knowledge of the
debtors. (Article 1290.)
Article 1279 requires among others, that in order that legal compensation
shall take place, 'the two debts be due' and 'they be liquidated and
demandable.' Compensation is not proper where the claim of the person
asserting the set-off against the other is neither clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim arising from breach
of contract.
There can be no doubt that petitioner is indebted to private respondent in the
amount of P1,062,063.83 representing the proceeds of her money market
investment. This is admitted. But whether private respondent is indebted to
petitioner in the amount of P6.81 million representing the deficiency balance
after the foreclosure of the mortgage executed to secure the loan extended to her,
is vigorously disputed. This circumstance prevents legal compensation from
taking place.
Article 1280. Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as regards what
the creditor may owe the principal debtor.
Article 1283. If one of the parties to a suit over an obligation has a
claim for damages against the other, the former may set it off by
proving his right to said damages and the amount thereof.
Effect of Legal Compensation:
Article 1289. If a person should have against him several debts
which are susceptible of compensation, the rules on the
application of payments shall apply to the order of the
compensation.
Article 1290. 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.
Article 1279. 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 by any retention or controversy,
commenced by third persons and communicated in due time to
the debtor.
MINDANAO PORTLAND CEMENT CORPORATION (MPCC) VS. CA,
PACWELD STEEL CORPORATION AND ATTY. CASIANO
LAQUIHON [120 SCRA 930]- Automatic compensation requires present
extinguishment of two debts arising from final and executory judgments due
to compensation by operat ion of law.
FACTS: Atty. Laquihon, in behalf of 3rd party defendant Pacweld Steel Corp.
f i l e d a M i d i e c a me
h a MP C C a a d j d g e d a P a c
opposed this motion stating that such amount is compensated with an equal
amount it is entitled from Pacweld after the latter is also adjudged by same CFI-
Manila in another case to pay to MPCC. The Court issued the motion of Atty.
Laquihon and denied the MR of MPCC.
ISSUE: WON Trial Court erred in not holding the 2 judgment debts of the 2
corporations against each other mutually compensated.
HELD: YES. It is clear from the record that both corporations, petitioner
Mindanao Portland Cement Corp. (appellant) and respondent Pacweld Steel
Corp. (appellee), were creditors and debtors of each other, their debts to each
other consisting in final and executory judgments of the CFI in 2 separate cases,
ordering the payment to each other of the sum of P10K by way of attorney's
fees. The 2 obligations, therefore, respectively offset each other, compensation
having taken effect by operation of law and extinguished both debts to the
h e concurrent
i a l amount
c of P10T, pursuant
f to the
a provisions
l mofe Article 1278,
f 1279hand
e h e
1290, since all the requisites provided in Article 1279 for automatic
compensation even though the creditors and debtors are not aware of the
compensation were duly present.
Automatic compensation, requisites of, present Extinguishment of two
i debts, arising
I Cfrom
B final 2and 0 executory
m judgmentse hdue
i cto l compensation
e e bye l e
operation of law.
Facultative Compensation which takes place when compensation is
claimable by only one of the parties but not of the other, e.g.,
Articles 1287, 1288.
Article 1287. Compensation shall not be proper when one of the
debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a
claim for support due by gratuitous title, without prejudice to the
provisions of paragraph 2 of article 301.
Article 301. The right to receive support cannot be renounced; nor
can it be transmitted to a third person. Neither can it be
compensated with what the recipient owes the obligor.
However, support in arrears may be compensated and renounced,
and the right to demand the same may be transmitted by onerous
or gratuitous title.
[Baviera]
Note that Article 301 of the NCC is not found in Family Code.
Future support cannot be compensated.
Thus, a father who paid damages for son’s quasi-delict cannot
claim compensation by not giving support to his son. However
under Article 301, support IN ARREARS may be compensated and
renounced and the right to demand the same may be transmitted
by onerous or gratuitous title.
[Balane]
The depositary cannot set up compensation with respect to
the things deposited to him.
But the depositor can set up the compensation.
Article 1288. Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal offense.
[Baviera]
The obligation of the depositary to return a specific thing cannot be
compensated or substituted by delivery of a thing of the same
kind.
Q: If there is an obligation of the depositary to the depositor for
damages (already liquidated and demandable) in case of negligence
and if the depositor owes the depositary a sum of money, can there
be set-off?
A: No, since it arose out of a deposit. Not allowed by law. But it could
be a way of creditor to collect a bad debt.
Article 1794. Every partner is responsible to the partnership for
damaged suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts may
equitably lessen this responsibility if through the partner’s
extraordinary efforts in other activities of the partnership, unusual
profits have been realized.
TYJY[o TM=Y[ J]MY= which takes place when
parties agree to set-off even if the requisites of legal compensation are
not present, e.g., Article 1282. (Baviera OL: F. Comp 1. Kinds a.
Voluntary)
Article 1282. The parties may agree upon the compensation of
f debts
a which eare not yetfdue.
e e c e l i k i g
e l d 1 0 K i a e f e e . MP C C
[Tolentino]
1. is not limited to obligations which
are not yet due. The parties may compensate by agreement
any obligations, in which the objective requisites provided
for legal compensation are not present. xx
!"#$%&%'(")*+#,%-(.#/%
2. when decreed by the court in a case
where there is a counterclaim, such as that provided in
Article 1283. (Baviera OL: F. Comp 1. Kinds b. Judicial)
Article 1283. If one of the parties to a suit over an obligation has a
claim for damages against the other, the former may set it off by
proving his right to said damages and the amount thereof.
[Baviera] What is the idea behind legal compensation?
It is to facilitate collection of money or for expediency.
Effect of Assignment of Credit:
Article 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up
against the assignee the compensation which would pertain to
him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right to
the compensation.
If the creditor communicated the cession to him but the debtor did
not consent thereto, the latter may set up the compensation of
debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he
may set up the compensation of all credits prior to the same and
also later ones until he had knowledge of the assignment.
[Balane]
There are 3 situations covered in this Article:
1. Assignment with the debtor's consent;
2. Assignment with the debtor's knowledge but without his
consent; and
3. Assignment without the debtor's knowledge (and obviously
without his consent.)
Rules:
Assignment with the debtor's consent Debtor cannot set up
compensation at all unless the right is reserved.
Assignment with the debtor's knowledge but without his
consent The debtor can set up compensation with a
credit already existing at the time of the assignment.
Assignment without the debtor's knowledge Debtor can set
up as compensation any credit existing at the time he
acquired knowledge even if it arose after the actual
assignment.
Article 1284. When one or both debts are rescissible or voidable,
they may be compensated against each other before they are
judicially rescinded or avoided.
6TH MODE OF EXTINGUISHMENT:
Novation
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
[TOLENTINO]
Novation is the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which extinguishes or
modifies the first, either by changing the object of principal conditions,
or by substituting the person of the debtor, or by subrogating a third
person in the rights of the creditor. (Manresa)
Novation is the most unusual mode of extinguishing an obligation.
It is the only mode whereby an obligation is extinguished and a new
obligation is created to take its place.
The other modes of extinguishing an obligation are absolute in the
sense that the extinguishment of the obligation is total (with the
exception of compromise.)
Novation, on the other hand, is a relative mode of extinguishing an
obligation .
Classification of Novation:
1. (Personal) or novation by a change of subject
2. or a change of creditor; also known as
subrogation.
3. or a change of debtor
4. (Real) or novation by change in the object or in the
principal conditions.
Novation by a change in the principal conditions is
the most problematic kind of novation because you
have to determine whether or not the change in the
conditions is principal or merely incidental.
For example, a change from straight terms to
installment terms and a change from non-interest
bearing obligation to an interest bearing one are
changes in the principal conditions.
5. which is a combination of both subjective
and objective novation.
Requisites of Novation:
1. There must be a previous valid obligation;
2. Agreement of the parties to create the new obligation;
3. Extinguishment of the old obligation. (I would consider this
an effect, rather than a requisite of novation-- Balane);
4. Validity of the new obligation. (Tiu Siuco v. Habana , 45 P
707.)
5. There must be CONSENT of all the parties to the
substitution, resulting in the extinction of the old obligation
and the creation of a valid one.
Article 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
[TOLENTINO]
Novation is NEVER presumed.
It must be established that
1. the old and the new contracts are incompatible in
all points,
2. or that the will to novate appear by express
agreement of the parties
3. or in acts of equivalent import.
IMPLIED NOVATION There is no specific form required for an
implied novation. All that is required is INCOMPATIBILITY between
the original and the subsequent contracts.
A mere extension of the term of payment does not result in
novation, for the period affects only the performance, not the
creation of the obligation
CASES:
Case: Japan Airlines vs. Jesus Simangan, April 22, 2008, J. R.T. Reyes.
Facts: In 1991, respondent Jesus Simangan decided to donate a kidney to his
ailing cousin, Loreto Simangan, in UCLA School of Medicine in Los Angeles,
California, U.S.A. Upon request of UCLA, respondent undertook a series of
laboratory tests at the National Kidney Institute in Quezon City to verify
whether his blood and tissue type are compatible with Loreto's.6 Fortunately,
said tests proved that respondent's blood and tissue type were well-matched
with Loreto's.7
Respondent needed to go to the United States to complete his preliminary
work-up and donation surgery. Hence, to facilitate respondent's travel to the
United States, UCLA wrote a letter to the American Consulate in Manila to
arrange for his visa. In due time, respondent was issued an emergency U.S.
visa by the American Embassy in Manila.8
Having obtained an emergency U.S. visa, respondent purchased a round trip
plane ticket from petitioner JAL for US$1,485.00 and was issued the
corresponding boarding pass.9 He was scheduled to a particular flight bound
for Los Angeles, California, U.S.A. via Narita, Japan.10
On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino
International Airport in the company of several relatives and friends. 11 He was
allowed to check-in at JAL's counter.12 His plane ticket, boarding pass, travel
authority and personal articles were subjected to rigid immigration and
security routines.13 After passing through said immigration and security
procedures, respondent was allowed by JAL to enter its airplane.14
While inside the airplane, JAL's airline crew suspected respondent of carrying
a falsified travel document and imputed that he would only use the trip to the
United States as a pretext to stay and work in Japan.15 The stewardess asked
respondent to show his travel documents. Shortly after, the stewardess along
with a Japanese and a Filipino haughtily ordered him to stand up and leave the
plane.16 Respondent protested, explaining that he was issued a U.S. visa. Just
to allow him to board the plane, he pleaded with JAL to closely monitor his
movements when the aircraft stops over in Narita.17 His pleas were ignored.
He was then constrained to go out of the plane.18In a nutshell, respondent was
bumped off the flight.
Respondent went to JAL's ground office and waited there for three hours.
Meanwhile, the plane took off and he was left behind.19 Afterwards, he was
informed that his travel documents were, indeed, in order. 20 Respondent was
refunded the cost of his plane ticket less the sum of US$500.00 which was
deducted by JAL.21 Subsequently, respondent's U.S. visa was cancelled.22
Displeased by the turn of events, respondent filed an action for damages
against JAL with the Regional Trial Court (RTC) in Valenzuela City,
docketed as Civil Case No. 4195-V-93. He claimed he was not able to donate
his kidney to Loreto; and that he suffered terrible embarrassment and mental
anguish.23 He prayed that he be awarded P3 million as moral damages, P1.5
million as exemplary damages and P500,000.00 as attorney's fees.24
!"#$%&%'(")*+#,%-(.#/%
JAL denied the material allegations of the complaint. It argued, among others,
that its failure to allow respondent to fly on his scheduled departure was due
to "a need for his travel documents to be authenticated by the United States
Embassy"25 because no one from JAL's airport staff had encountered a parole
visa before.26 It posited that the authentication required additional time; that
respondent was advised to take the flight the following day, July 30, 1992.
JAL alleged that respondent agreed to be rebooked on July 30, 1992. RTC
ruled in favor of Simangan. Stating that,
The RTC explained:
In summarily and insolently ordering the plaintiff to disembark
while the latter was already settled in his assigned seat, the
defendant violated the contract of carriage; that when the plaintiff
was ordered out of the plane under the pretext that the genuineness
of his travel documents would be verified it had caused him
embarrassment and besmirched reputation; and that when the
plaintiff was finally not allowed to take the flight, he suffered more
wounded feelings and social humiliation for which the plaintiff
was asking to be awarded moral and exemplary damages as well as
attorney's fees.
The reason given by the defendant that what prompted them to
investigate the genuineness of the travel documents of the plaintiff
was that the plaintiff was not then carrying a regular visa but just a
letter does not appear satisfactory. The defendant is engaged in
transporting passengers by plane from country to country and is
therefore conversant with the travel documents. The defendant
should not be allowed to pretend, to the prejudice of the plaintiff
not to know that the travel documents of the plaintiff are valid
documents to allow him entry in the United States.
The foregoing act of the defendant in ordering the plaintiff to deplane while
already settled in his assigned seat clearly demonstrated that the defendant
breached its contract of carriage with the plaintiff as passenger in bad faith
and as such the plaintiff is entitled to moral and exemplary damages as well as
to an award of attorney's fees. CA affirmed with modification stating thus,
While the protection of passengers must take precedence over convenience,
the implementation of security measures must be attended by basic courtesies.
In fact, breach of the contract of carriage creates against the carrier
a presumption of liability, by a simple proof of injury, relieving the
injured passenger of the duty to establish the fault of the carrier or
of his employees; and placing on the carrier the burden to prove
that it was due to an unforeseen event or toforce majeure.
That appellee possessed bogus travel documents and that he might
stay illegally in Japan are allegations without substantiation. Also,
appellant's attempt to rebook appellee the following day was too
late and did not relieve it from liability. The damage had been
done. Besides, its belated theory of novation, i.e., that appellant's
original obligation to carry appellee to Narita and Los Angeles on
July 29, 1992 was extinguished by novation when appellant and
appellant agreed that appellee will instead take appellant's flight to
Narita on the following day, July 30, 1992, deserves little attention.
It is inappropriate at bar. Questions not taken up during the trial
cannot be raised for the first time on appeal.40 (Underscoring ours
and citations were omitted)
Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n
contracts of common carriage, inattention and lack of care on the part of the
carrier resulting in the failure of the passenger to be accommodated in the
class contracted for amounts to bad faith or fraud which entitles the
passengers to the award of moral damages in accordance with Article 2220 of
the Civil Code."42
Nevertheless, the CA modified the damages awarded by the RTC.
Issue: Whether or not JAL is correct when it used as a defense NOVATION in
not being liable for breach of contract of carriage.
Held: NO. That respondent purchased a round trip plane ticket from JAL and
was issued the corresponding boarding pass is uncontroverted.49 His plane
ticket, boarding pass, travel authority and personal articles were subjected to
rigid immigration and security procedure.50 After passing through said
immigration and security procedure, he was allowed by JAL to enter its
airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan.51 Concisely, there was a contract of carriage between JAL and
respondent.
Nevertheless, JAL made respondent get off the plane on his scheduled
departure on July 29, 1992. He was not allowed by JAL to fly. JAL thus failed
to comply with its obligation under the contract of carriage.
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 guilty of
breach of contract of carriage as respondent was not able to travel to the
United States due to his own voluntary desistance.55
We cannot agree. JAL did not allow respondent to fly. It informed respondent
that there was a need to first check the authenticity of his travel documents
with the U.S. Embassy.56 As admitted by JAL, "the flight could not wait for
Mr. Simangan because it was ready to depart."57
Since JAL definitely declared that the flight could not wait for respondent, it
gave respondent no choice but to be left behind. The latter was
unceremoniously bumped off despite his protestations and valid travel
documents and notwithstanding his contract of carriage with JAL. Damage
had already been done when respondent was offered to fly the next day on
July 30, 1992. Said offer did not cure JAL's default.
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.
Moreover, the reason behind the bumping off incident, as found by the RTC
and CA, was that JAL personnel imputed that respondent would only use the
trip to the United States as a pretext to stay and work in Japan. 59
Apart from the fact that respondent's plane ticket, boarding pass, travel
authority and personal articles already passed the rigid immigration and
security routines,60 JAL, as a common carrier, ought to know the kind of valid
travel documents respondent carried. As provided in Article 1755 of the New
Civil Code: "A common carrier is bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances."61 Thus, We find
untenable JAL's defense of "verification of respondent's documents" in its
breach of contract of carriage.
It bears repeating that the power to admit or not an alien into the country is a
sovereign act which cannot be interfered with even by JAL. 62
In an action for breach of contract of carriage, all that is required of plaintiff is
to prove the existence of such contract and its non-performance by the carrier
through the latter's failure to carry the passenger safely to his
destination.63 Respondent has complied with these twin requisites.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court
of Appeals is AFFIRMED WITH MODIFICATION. As modified,
petitioner Japan Airlines is ordered to pay respondent Jesus Simangan the
following: (1) P500,000.00 as moral damages; (2) P100,000.00 as exemplary
damages; and (3) P200,000.00 as attorney's fees.
The total amount adjudged shall earn legal interest at the rate of 6% per
annum from the date of judgment of the Regional Trial Court on September
21, 2000 until the finality of this Decision. From the time this Decision
becomes final and executory, the unpaid amount, if any, shall earn legal
interest at the rate of 12% per annum until its satisfaction.
Case: Anamer Salazar vs. J.Y. Brothers Marketing Corp., October 20, 2012,
J. Peralta.
Facts: J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged
in the business of selling sugar, rice and other commodities. On October 15,
1996, Anamer Salazar, a freelance sales agent, was approached by Isagani
Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the
positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar
with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice
worthP214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros.
Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena
Jaucian Timario in the amount of P214,000.00 with the assurance that the
check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of
rice to Salazar. However, upon presentment, the check was dishonored due to
"closed account."
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to
J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated
October 29, 1996 again issued by Nena Jaucian Timario in the amount
ofP214,000.00 but which, just the same, bounced due to insufficient funds.
When despite the demand letter dated February 27, 1997, Salazar failed to
settle the amount due J.Y. Bros., the latter charged Salazar and Timario with
the crime of estafa before the Regional Trial Court of Legaspi City, docketed
as Criminal Case No. 7474.
After the prosecution rested its case and with prior leave of court, Salazar
submitted a demurrer to evidence. On November 19, 2001, the court a
quo rendered an Order, the dispositive portion of which reads:
WHEREFORE, premises considered, the accused Anamer D. Salazar is
hereby ACQUITTED of the crime charged but is hereby held liable for the
value of the 300 bags of rice. Accused Anamer D. Salazar is therefore ordered
to pay J.Y. Brothers Marketing Corporation the sum of P214,000.00. The
Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with
the trial on the civil aspect of the criminal case.
On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of
which reads:
WHEREFORE, Premises Considered, judgment is rendered DISMISSING as
against Anamer D. Salazar the civil aspect of the above-entitled case.
The RTC found that the Prudential Bank check drawn by Timario for the
amount of P214,000.00 was payable to the order of respondent, and such
check was a negotiable order instrument; that petitioner was not the payee
appearing in the check, but respondent who had not endorsed the check, much
less delivered it to petitioner. It then found that e i i e l i a b
limited to the allegation in the amended information that "she endorsed and
negotiated said check," and since she had never been the holder of the check,
petitioner's signing of her name on the face of the dorsal side of the check did
not produce the technical effect of an indorsement arising from negotiation.
The RTC ruled that after the Prudential Bank check was dishonored, it was
replaced by a Solid Bank check which, however, was also subsequently
dishonored; that since the Solid Bank check was a crossed check, which
me a h a c h c h e c k a l f d
that rendered such check non-negotiable, the substitution of a non-negotiable
Solid Bank check for a negotiable Prudential Bank check was an essential
change which had the effect of discharging from the obligation whoever may
be the endorser of the negotiable check. The RTC concluded that the absence
of negotiability rendered nugatory the obligation arising from the technical act
of indorsing a check and, thus, had the effect of novation; and that the ultimate
effect of such substitution was to extinguish the obligation arising from the
issuance of the Prudential Bank check.
CA found that petitioner indorsed the Prudential Bank check, which was later
replaced by a Solid Bank check issued by Timario, also indorsed by petitioner
as payment for the 300 cavans of rice bought from respondent. Petitioner
contends that the issuance of the Solid Bank check and the acceptance thereof
by the respondent, in replacement of the dishonored Prudential Bank check,
amounted to novation that discharged the latter check; that respondent's
!"#$%&%'(")*+#,%-(.#/%
acceptance of the Solid Bank check, notwithstanding its eventual dishonor by
the drawee bank, had the effect of erasing whatever criminal responsibility, Case: Metropolitan Bank and Trust Company vs. Rural bank of Gerona,
under Article 315 of the Revised Penal Code, the drawer or indorser of the Inc. (RBG), July 5, 2012, J. Brion.
Prudential Bank check would have incurred in the issuance thereof in the Facts: RBG is a rural banking corporation organized under Philippine laws
amount of P214,000.00; and that a check is a contract which is susceptible to a and located in Gerona, Tarlac. In the 1970s, the Central Bank and the RBG
novation just like any other contract. entered into an agreement providing that RBG shall facilitate the loan
Respondent filed its Comment, echoing the findings of the CA. applications of farmers-borrowers under the Central Bank-International Bank
Issue: Whether or not there is novation in the case at bar. f Re c c i B R Da d) D4 e h e l R ma el C e
Held: NO. We find no merit in this petition. agreement required RBG to open a separate bank account where the IBRD
Section 119 of the Negotiable Instrument Law provides, thus: loan proceeds shall be deposited. The RBG accordingly opened a special
SECTION 119. Instrument; how discharged. A negotiable instrument is a i g a c c i h Me b a k Ta
discharged: RBG, Metrobank was designated to receive the credit advice released by the
(a) By payment in due course by or on behalf of the principal Central Bank representing the proceeds of the IBRD loan of the farmers-
debtor; b e ; Me b a k , i , c e d i
(b) By payment in due course by the party accommodated, where a c c f hthee farmers-borrowers.
l a e e l e a e
the instrument is made or accepted for his accommodation; On September 27, 1978, the Central Bank released a credit advice in
(c) By the intentional cancellation thereof by the holder; Me b a k f a a d a c c d i g l c
(d) By any other act which will discharge a simple contract for account in the amount of P178,652.00, for the account of RBG. The amount,
the payment of money; which was credited to R B G e c i a l a i g a c c
(e) When the principal debtor becomes the holder of the instrument approved loan application of farmer-borrower Dominador de Jesus. RBG
at or after maturity in his own right. (Emphasis ours) withdrew the P178,652.00 from its account.
And, under Article 1231 of the Civil Code, obligations are extinguished: On the same date, the Central Bank approved the loan application of another
xxxx farmer-borrower, Basilio Panopio, for P189,052.00, and credited the amount
(6) By novation. Me b a k d e ma d d e i a c c
Petitioner's claim that respondent's acceptance of the Solid Bank check which special savings account. Metrobank claims that the RBG also withdrew the
replaced the dishonored Prudential bank check resulted to novation which entire credited amount from its account.
discharged the latter check is unmeritorious. On October 3, 1 9 7 8 , h e Ce a l Ba k a e
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and application for P220,000.00. As with the two other IBRD loans, the amount
Stronghold Insurance Co., Inc.,12 we stated the concept of novation, thus: a c e d i e d Me b a k d e ma d d
x x x Novation is done by the substitution or change of the obligation by a Me b a k l a e c e d i e d iount. Of f a f
subsequent one which extinguishes the first, either by changing the object or the P220,000.00, RBG only withdrew P75,375.00.
principal conditions, or by substituting the person of the debtor, or by On November 3, 1978, more than a month after RBG had made the above
subrogating a third person in the rights of the creditor. Novation may: withdrawals from its account with Metrobank, the Central Bank issued debit
[E]ither be extinctive or modificatory, much being dependent on the nature of advices, reversing all the approved IBRD loans.6 The Central Bank
the change and the intention of the parties. Extinctive novation is never i m l e me e d h e e e a l b d e b i i g
presumed; there must be an express intention to novate; in cases where it is account the amount corresponding to all three IBRD loans.
implied, the acts of the parties must clearly demonstrate their intent to Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn,
dissolve the old obligation as the moving consideration for the emergence of d e b i e d h e f l l i g a m f m R
the new one. Implied novation necessitates that the incompatibility between account: P189,052.00, P115,000.00, and P8,000.41. Metrobank, however,
the old and new obligation be total on every point such that the old obligation claimed that these amounts were insufficient to cover all the credit advices
is completely superceded by the new one. The test of incompatibility is that were reversed by the Central Bank. It demanded payment from RBG
whether they can stand together, each one having an independent existence; if which could make partial payments. As of October 17, 1979, Metrobank
they cannot and are irreconcilable, the subsequent obligation would also claimed that RBG had an outstanding balance of P334,220.00. To collect this
extinguish the first. amount, it filed a complaint for collection of sum of money against RBG
An extinctive novation would thus have the twin effects of, first, before the RTC, docketed as Civil Case No. 6028.7
extinguishing an existing obligation and, second, creating a new one in its In its July 7, 1994 decision,8 the RTC ruled for Metrobank, finding that legal
stead. This kind of novation presupposes a confluence of four essential subrogation had ensued:
requisites: (1) a previous valid obligation, (2) an agreement of all parties [Metrobank] had allowed releases of the amounts in the credit advices it
concerned to a new contract, (3) the extinguishment of the old obligation, and c e d i e d i f a f [ RBG e c i a l
(4) the birth of a valid new obligation. Novation is merely modificatory where deposits were under its supervision. Being faulted in these acts or omissions,
the change brought about by any subsequent agreement is merely incidental to h e Ce a l Ba k [ i c ] d e b i e d h e e
the main obligation (e.g., a change in interest rates or an extension of time to [ d e i ] e e e ; h [ , Me b a k
pay; in this instance, the new agreement will not have the effect of correspondingly, [Metrobank as of this time,] suffers prejudice in which case
extinguishing the first but would merely supplement it or supplant some but legal subrogation has ensued.9
not all of its provisions.) It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest
The obligation to pay a sum of money is not novated by an instrument that at 14% per annum until the amount is fully paid.
expressly recognizes the old, changes only the terms of payment, adds other On appeal, the CA noted that this was not a case of legal subrogation under
obligations not incompatible with the old ones or the new contract merely Article 1302 of the Civil Code.
supplements the old one.13 Issue: Whether or not legal subrogation under Article 1302 applies.
14
In Nyco Sales Corporation v. BA Finance Corporation, we found untenable Held: YES. Our disagreement with the appellate court is in its conclusion that
petitioner Nyco's claim that novation took place when the dishonored BPI no legal subrogation took place; the present case, in fact, exemplifies the
check it endorsed to BA Finance Corporation was subsequently replaced by a circumstance contemplated under paragraph 2, of Article 1302 of the Civil
Security Bank check,15 and said: Code which provides:
There are only two ways which indicate the presence of novation and thereby Art. 1302. It is presumed that there is legal subrogation:
produce the effect of extinguishing an obligation by another which substitutes (1) When a creditor pays another creditor who is preferred, even
the same. First, novation must be explicitly stated and declared in unequivocal i h h e d e b k l e d g e ;
terms as novation is never presumed. Secondly, the old and the new (2) When a third person, not interested in the obligation, pays with
obligations must be incompatible on every point.1avvphi1 The test of the express or tacit approval of the debtor;
incompatibility is whether or not the two obligations can stand together, each (3) When, even without the knowledge of the debtor, a person
one having its independent existence. If they cannot, they are incompatible interested in the fulfillment of the obligation pays, without
and the latter obligation novates the first. In the instant case, there was no e j d i c e h e e f f e c f c f
express agreement that BA Finance's acceptance of the SBTC check will [Emphasis supplied.]
discharge Nyco from liability. Neither is there incompatibility because both As discussed, Metrobank was a third party to the Central Bank-RBG
checks were given precisely to terminate a single obligation arising from agreement, had no interest except as a conduit, and was not legally answerable
Nyco's sale of credit to BA Finance. As novation speaks of two distinct f h e I BRD l a . De i e h i , i
obligations, such is inapplicable to this case.16 i e a d f RBG , h i c h h e Ce a l
I h i c a e , e d e a c c e a c assumption
e f perhapsh e that S thisl was
i dthe most
B a convenient
k c h means e c kof, recovering
h i the
c h e
the dishonored Prudential Bank check, did not result to novation as there was c a c e l l e d l a . Th a Me b a k a
no express agreement to establish that petitioner was already discharged from change the reality that it was Metrobank which effectively answered for
his liability to pay respondent the amount of P214,000.00 as payment for the RBG b l i g a i .
300 bags of rice. As we said, novation is never presumed, there must be an Was there express or tacit approval by RBG of the payment enforced against
express intention to novate. In fact, when the Solid Bank check was delivered Me b a k ? Af e Me b a k e c e i e d
to respondent, the same was also indorsed by petitioner which shows November 1978, it (Metrobank) accordingly debited the amounts it could
e i i e e c g i i tof h e e i f i m
g RB b G l i g a i e c i a l ae i g d e a c c
pay P214,000.00 subject of the replaced Prudential Bank check. RBG.14 R B G P e i d e a d Ma a g e , D .
Moreover, e d e a c c e a c e f h e SMetrobank,
l i d onBAugust
a k 14,c1979,
h e with
c k proposals
d i d regarding possible e means l of
a i c m a i b i l i , i c e h e c settling
h e c kthe amounts Pdebiteddbye Central i Bank
a l from a Metrob
d S a l ki d B da e m k a c dh
were precisely for the purpose of paying the amount of P214,000.00,i.e., the deposit account.15 T h e e i a c e a e a l l i d i c
credit obtained from the purchase of the 300 bags of rice from respondent. Me b a k a me f h e I BRD l a
Indeed, there was no substantial change in the object or principal condition of after payment had been made does not completely negate the legal
the obligation of petitioner as the indorser of the check to pay the amount subrogation that had taken place.
of P214,000.00. It would appear that respondent accepted the Solid Bank Article 1303 of the Civil Code states that subrogation transfers to the person
check to give petitioner the chance to pay her obligation. subrogated the credit with all the rights thereto appertaining, either against the
!"#$%&%'(")*+#,%-(.#/%
debtor or against third persons. As the entity against which the collection was
enforced, Metrobank was subrogated to the rights of Central Bank and has a
cause of action to recover from RBG the amounts it paid to the Central Bank,
plus 14% per annum interest.
Under this situation, impleading the Central Bank as a party is completely
unnecessary. We note that the CA erroneously believed that the Central
Ba k e e c e i e c e a " i
reversals made by it concerning the loan applications of the end users and to
have a complete determination or settlement of the claim."16 In so far as
Metrobank is concerned, however, the C e a l Ba k e
reasons for its reversals of the IBRD loans are immaterial after subrogation
h a a k e l a c e ; Me b a k i e e incompatibility,
the Central Bank. Whatever cause of action RBG may have against the
Central Bank for the unexplained reversals and any undue deductions is for
RBG to ventilate as a third-party claim; if it has not done so at this point, then
the matter should be dealt with in a separate case that should not in any way
further delay the disposition of the present case that had been pending before
the courts since 1980.
While we would like to fully and finally resolve this case, certain factual
matters prevent us from doing so. Metrobank contends in its petition that it
c e d i e d lRsavings
B G account with e cthree
i aamounts corresponding to
the three credit advices issued by the Central Bank: the P178,652.00 for
Dominador de Jesus; the P189,052.00 for Basilio Panopio; and
the P220,000.00 for Ponciano Lagman. Metrobank claims that all of the three
credit advices were subsequently reversed by the Central Bank, evidenced by
three debit advices. The records, however, contained only the credit and debit
17
advices for the amounts set aside for de Jesus and Lagman; nothing in the
findings of fact by the RTC and the CA referred to the amount set aside for
Panopio.
Thus, what were sufficiently proven as credited and later on debited from
Me b a k eposit account
d e m aweredonlydthe amounts of P178,652.00
and P1 8 9 , 0 5 2 . 0 0 . Wi h h e e a m
amount to P398,652.00 the same amount RBG acknowledged as due to
18
Metrobank in its August 14, 1979 letter. Significantly, Metrobank likewise
quoted this amount in its July 11, 197919 and July 26, 197920 demand letters to
21
RBG and its Statement of Account dated December 23, 1982.
22
RBG asserts that it made partial payments amounting to P145,197.40, but
neither the RTC nor the CA made a conclusive finding as to the accuracy of
this claim. Although Metrobank admitted that RBG indeed made partial
payments, it never mentioned the actual amount paid; neither did it state that
the P145,197.40 was part of theP312,052.41 that, it admitted, it debited from
RBG e c i a l a i g a c c . those essential and principal changes introduced by the new obligation
Deducting P3 1 2 , 0 5 2 . 4 1 ( e e e i g h e
special savings account, as admitted by Metrobank) from P398,652.00 amount
due to Metrobank from RBG, the difference would only be P86,599.59. We
are, therefore, at a loss on how Metrobank computed the amount
of P3 3 4 , 2 2 0 . 0 0 i c l a i m a h e b a l a
trier of facts, we deem it proper to remand this factual issue to the RTC for
determination and computation of the actual amount RBG owes to Metrobank,
plus the corresponding interest and penalties.
EUSEBIO MILLAR VS. COURT OF APPEALS, ANTONIO GABRIEL- 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. Slight modifications on cause, object
or condition of the old obligation do not affect substantial
incompatibility.
FACTS: Millar obtained a favorable judgment against Gabriel. A writ of
executi a i e d , Willy
h e s Ford
b a Jeep
i was f
seized. Subsequently, Gabriel pleaded with Millar to release the jeep under an
agreement whereby Ganriel would mortgage the jeep in favor of Millar to secure
the payment of the judgment debt. The chattel mortgage reduced the amount to
be paid by Gabriel. However, Gabriel failed to comply with the said agreement.
Millar obtained another writ of execution but was opposed by Gabriel arguing
that the judgment debt has already been extinguished by NOVATION. The
lower court ruled that novation had taken place, and that the parties had
executed the chattel mortgage only "to secure or get better security for the
judgment.
The respondent duly appealed the aforesaid order to the Court of Appeals,
which set aside the order of execution in a decision rendered on October 17,
1968, holding that the subsequent agreement of the parties impliedly novated
the judgment obligation in civil case 27116.
The appellate court stated that the following circumstances sufficiently
demonstrate the incompatibility between the judgment debt and the obligation
embodied in the deed of chattel mortgage, warranting a conclusion of implied
novation:
1. Whereas the judgment orders the respondent to pay the petitioner the sum
of P1,746.98 with interest at 12% per annum from the filing of the complaint,
plus the amount of P400 and the costs of suit, the deed of chattel mortgage
limits the principal obligation of the respondent to P1,700;
2. Whereas the judgment mentions no specific mode of payment of the
amount due to the petitioner, the deed of chattel mortgage stipulates payment
of the sum of P1,700 in two equal installments;
3. Whereas the judgment makes no mention of damages, the deed of chattel
mortgage obligates the respondent to pay liquidated damages in the amount of
P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage, which
may be foreclosed extrajudicially in case of default, secured the obligation.
On November 26, 1968, the petitioner moved for reconsideration of the
appellate court's decision, which motion the Court of Appeals denied in its
resolution of December 7, 1968. Hence, the present petition for certiorari to
review the decision of the Court of Appeals, seeking reversal of the appellate
court's decision and affirmance of the order of the lower court.
ISSUE: WON the mortgage debt novated the judgment debt.
HELD: Where the new obligation merely reiterates or ratifies the old
OBLIGATION, although the former effects but minor alterations or slight
modifications with respect to the cause or object or conditions of the latter,
d such
e changes do not effectuate any h esubstantial
d l i incompatibility
g h between
h e the 2m a e
OBLIGATIONS. Only those essential and principal changes introduced by the
new OBLIGATION producing an alteration or modification of the essence of
e the c old
e OBLIGATION
a d h result
e in implied novation. In the case at bar, the mere
reduction of the amount due in no sense constitutes a sufficient indicium of
i i especially
m l in the lightcof (a)l the l eexplanation
c hbyethe petitioner
a m i
that the reduced indebtedness was the result of the partial payments made by
the respondent before the execution of the chattel mortgage agreement, and
(b) the latter's admissions bearing thereon. Hence, the SC held that there is
NO incompatibility between the mortgage obligation and the judgment
liability of Gabriel sufficient to justify a conclusion of implied novation.
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 in civil case 27116. The Court of Appeals, in arriving at the
conclusion that implied novation has taken place, took into account the four
circumstances heretofore already adverted to as indicative of the
incompatibility between the judgment debt and the principal obligation under
the deed of chattel mortgage.
1. Anent the first circumstance, the petitioner argues that this does not
constitute a circumstance in implying novation of the judgment debt, stating
that in the interim from the time of the rendition of the judgment in civil
case 27116 to the time of the execution of the deed of chattel mortgage the
respondent made partial payments, necessarily resulting in the lesser sum
c mstated
b i inethe d deed
, R chattel
of B G mortgage.l i aHebadds
i l that
i on record appears
l d the
admission by both parties of the partial payments made before the execution
of the deed of chattel mortgage. The erroneous conclusion arrived at by the
Court of Appeals, the petitioner argues, creates the wrong impression that the
execution of the deed of chattel mortgage provided the consideration or the
reason for the reduced judgment indebtedness.
Where the new obligation merely reiterates or ratifies the old obligation,
although the former effects but minor alterations or slight modifications with
respect to the cause or object or conditions of he latter, such changes do not
effectuate any substantial incompatibility between the two obligations Only
a m producing an alteration
d e b i or modification
e d f m essence
of the R B Gof the old obligation
result in implied novation. In the case at bar, the mere reduction of the amount
due in no sense constitutes a sufficient indictum of incompatibility, especially
in the light of (a) the explanation by the petitioner that the reduced
c eindebtedness
f RwasB Gthe resultl of the
a partial
. payments
A h i by the
made C respondent i
before the execution of the chattel mortgage agreement and (b) the latter's
admissions bearing thereon.
At best, the deed of chattel mortgage simply specified exactly how much the
respondent still owed the petitioner by virtue of the judgment in civil case
27116. The parties apparently in their desire to avoid any future confusion as
to the amounts already paid and as to the sum still due, decoded to state with
specificity in the deed of chattel mortgage only the balance of the judgment
debt properly collectible from the respondent. All told, therefore, the first
circumstance fails to satisfy the test of substantial and complete
incompatibility between the judgment debt an the pecuniary liability of the
respondent under the chattel mortgage agreement.
2. The petitioner also alleges that the third circumstance, considered by the
Court of Appeals as indicative of incompatibility, is directly contrary to the
h i admissions
c h G aofbthe respondent
i e l and is without any factual basis. The appellate
court pointed out that while the judgment made no mention of payment of
damages, the deed of chattel mortgage stipulated the payment of liquidated
damages in the amount of P300 in case of default on the part of the
respondent.
However, the petitioner contends that the respondent himself in his brief filed
with the Court of Appeals admitted his obligation, under the deed of chattel
mortgage, to pay the amount of P300 by way of attorney's fees and not as
liquidated damages. Similarly, the judgment makes mention of the payment of
the sum of P400 as attorney's fees and omits any reference to liquidated
damages.
The discrepancy between the amount of P400 and tile sum of P300 fixed as
attorney's fees in the judgment and the deed of chattel mortgage, respectively,
is explained by the petitioner, thus: the partial payments made by the
respondent before the execution of the chattel mortgage agreement were
applied in satisfaction of part of the judgment debt and of part of the attorney's
fee fixed in the judgment, thereby reducing both amounts.
At all events, in the absence of clear and convincing proof showing that the
parties, in stipulating the payment of P300 as attorney's fees in the deed of
chattel mortgage, intended the same as an obligation for the payment of
liquidated damages in case of default on the part of the respondent, we find it
difficult to agree with the conclusion reached by the Court of Appeals.
3. As to the second and fourth circumstances relied upon by the Court of
Appeals in holding that the montage obligation superseded, through implied
novation, the judgment debt, the petitioner points out that the appellate court
considered said circumstances in a way not in accordance with law or
accepted jurisprudence. The appellate court stated that while the judgment
specified no mode for the payment of the judgment debt, the deed of chattel
mortgage provided for the payment of the amount fixed therein in two equal
installments.
On this point, we see 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 gave the respondent a
method and more time to enable him to fully satisfy the judgment
indebtedness. 1 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 Court of Appeals also considered the terms of the deed of chattel
mortgage incompatible with the judgment because the chattel mortgage
secured the obligation under the deed, whereas the obligation under the
judgment was unsecured. The petitioner argues that the deed of chattel
agreement clearly shows that the parties agreed upon the chattel mortgage
solely to secure, not the payment of the reduced amount as fixed in the
aforesaid deed, but the payment of the judgment obligation and other
incidental expenses in civil case 27116.
The unmistakable terms of the deed of chattel mortgage reveal that the parties
constituted the chattel mortgage purposely to secure the satisfaction of the
then existing liability of the respondent arising from the judgment against him
in civil case 27116. As a security for the payment of the judgment obligation,
the chattel mortgage agreement effectuated no substantial alteration in the
liability of the respondent.
The defense of implied novation requires clear and convincing proof of
complete incompatibility between the two obligations. 2 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.
We do not see any substantial incompatibility between the two obligations as
to warrant a finding of an implied novation. Nor do we find satisfactory proof
showing that the parties, by explicit terms, intended the full discharge of the
respondent's liability under the judgment by the obligation assumed under the
terms of the deed of chattel mortgage so as to justify a finding of express
novation.
INTEGRATED CONSTRUCTION SERVICES, INC. AND ENGINEERING
CONSTRUCTION INC. VS. RELOVA AND METROPOLITAN
WATERWORKS AND SEWERAGE SYSTEM, [146 SCRA 360]
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FACTS: Petitioners sued the MWSS, formerly NAWASA, at CFI-Manila for
breach of contract. The Arbitration Board rendered decision-award which
became final and executory, and ordered MWSS to pay petitioners. Petitioners
subsequently agreed to give MWSS some discounts due to early payment of the
award provided that MWSS would pay the judgment. However, MWSS only
paid on December of 1972 instead of the agreed October 1972 payment. Hence,
petitioners moved for Execution of judgment against MWSS. The trial court
however denied the motion averring that the letter-agreement (Re: discounts)
NOVATED the award.
ISSUE: Whether novation applies.
HELD: While the tenor of the subsequent letter-agreement in a sense novates
the judgment award there being a shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and
conditional nature of the said agreement (making the novation conditional) is
expressly acknowledged and stipulated in the 14th whereas clause of MWSS'
Resolution. However, MWSS' failure to pay within the stipulated period
removed the very cause and reason for the agreement, rendering some
ineffective. Petitioners, therefore, were remitted to their original rights
under the judgment award.
As to whether or not petitioners are now in estoppel to question the
subsequent agreement, suffice it to state that petitioners never acknowledged
full payment; on the contrary, petitioners refused MWSS' request for a
conforme or quitclaim. (p. 125, Rollo)
Accordingly, the award is still subject to execution by mere motion, which
may be availed of as a matter of right any time within (5) years from
entry of final judgment in accordance with Section 5, Rule 39 of the Rules
of Court.
JOSEPH COCHINGYAN JR. AND JOSE VILLANUEVA VS. R AND B
SURETY AND INSURANCE COMPANY [151 SCRA 339]
Novation defined. There can be no implied novation because the parties to the
new obligation expressly recognized the continuous existence and validity of
the old one.
FACTS: Pacific Agricultural Suppliers, Inc. PAGRICO (P) submitted a surety
bond issued by R and B surety in favor of PNB. Under the bond, PNB had the
right to proceed directly against R and B without going after P. In turn, 2
indemnity agreements were entered into with R and B by CCM (Catholic
Church Mart) and Joseph Cochingyan in his capacity as CCM President and in
h i e a l c a a c i ; a d b P ,
personal capacity, Liu Tua Beth, as PACOCO President, and in his personal
capacity. 2 years after the execution of these documents, a TRUST
AGREEMENT was entered into between Jose and Susana Cochingyan, Tomas
Besa, a PNB officer, as trustee; and PNB was the beneficiary. The trust
agreement expressly provides that it shall not, in any manner release R and B
from their respective liabilities under the bond. When P failed to pay, PNB
demanded payment from R and B. R and B in turn demanded reimbursement
from Joseph Cochingyan and Jose V. who refused to pay on the ground that the
trust agreement had extinguished their obligation under the Indemnity
Agreements.
ISSUE: Whether there is NOVATION.
HELD: Novation is the extinguishment of an obligation by the substitution
or change of the obligation by a subsequent one which terminates it, either
by changing its object or principal conditions, or by substituting a new
debtor in place of the old one, or by subrogating a third person to the rights
of the creditor.
Novation through a change of the object or principal conditions of an existing
obligation is referred to as objective (or real) novation .
Novation by the change of either the person of the debtor or of the creditor is
described as subjective (or personal) novation .
Novation may also be both objective and subjective (mixed) at the same time.
In both objective and subjective novation, a dual purpose is achieved an
obligation is extinguished and a new one is created in lieu thereof.
Novation is never presumed . If objective novation is to take place, it is
imperative that the new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every point incompatible
with the old one. Novation is never presumed; it must be established either by
the discharge of the old debt by the express terms of the new agreement, or by
the acts of the parties whose intention to dissolve the old obligation as a
consideration of the emergence of the new one must be clearly discernible.
If old debtor is not released, no novation occurs and the third person who
assumed the obligation becomes a co-debtor or surety or a co -surety.
Again, if subjective novation by a change in the person of the debtor is to occur,
it is not enough that the juridical relation between the parties to the original
contract is extended to a third person. It is essential that the old debtor be
released from the obligation, and the third person or new debtor take the place in
the new relation. If the old debtor is not released, no novation occurs and the
third person who has assumed the obligation of the debtor becomes merely a co-
debtor or surety or a co-surety.
Novation is not implied when the parties to the new obligation expressly
negated the lapsing of the old obligation . Neither can the petitioners anchor
their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete
incompatibility between the old and the new obligation (and nothing else) would
sustain a finding of novation by implication. But where, as in this case, the
parties to the new obligation expressly recognize the continuing existence and
validity of the old one, where, in other words, the parties expressly negated the
lapsing of the old obligation, there can be no novation. The issue of implied n
ovation is not reached at all.
In the case at bar, the Trust Agreement does not expressly terminate the
obligation of R and B Surety under the Surety Bond. On the contrary, the
Trust Agreement expressly provides for the continuing subsistence of that
obligation by stipulating that it shall not in any manner release R and B
Surety from its obligation under the Surety Bond. What the Trust did was
merely to bring in another person to assume the same obligation. The
precise legal effect is the increase of the number of persons liable to the
obligee and NOT the extinguishment of the liability of the first debtor. PNB
never intended to release and never did release R and B. Thus, R and B,
which was NOT a party to the Trust Agreement could not have been
intended to release any of its own indemnitors simply because one of those
indemnitors, the Trustor under the Trust Agreement became also directly
liable to PNB.
FUA CAM LU VS. YAP FAUCO AND YAP SINGCO [74 PHIL. 287]
NOVATION BY SUBSEQUENT AGREEMENT
FACTS: Fua Cam Lu, judgment-Creditor of Yap Fauco and Yap Singco, agreed
subsequently to the execution of a mortgage in his favor by the Yaps of a
camarin being built on the same lot plus reduction of debt to 1,200 payable in 4
installments; that in case of default they would pay balance plus the discounted
a m a d 1 0 % a e f e e . C
However, on March 31, 1934, the provincial sheriff, without publication sold
l a d a b l i c a c i . F a c a d S i
that the judgment in Civil Case no. 42125 was NOVATED.
ISSUE: Wh e h e F a c a d S i g c l i a b i l
extinguished.
HELD: YES. T h e Ya l i a b i l i d e h e j
the new agreement. Although the mortgage did not expressly cancel the old
obligation, this was impliedly novated 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
P1200 payable in installments, stipulates for attorney's fees and is secured by a
mortgage. The later agreement did not merely extend the time to pay the
judgment, because it was therein recited that appellants promised to pay P1,200
to appellee as a settlement of the said judgment. Said judgment cannot be said to
have been settled, unless it was extinguished.
** Foreclosure of such new mortgage under the judgment in the old
OBLIGATION was VOID.
CARLOS SANDICO, SR. AND TEOPISTO TIMBOL VS. HON. PIGUING
AND DESIDERIO PARAS [42 SCRA 322]
J FACTS:
e V Spouses
i l l a Sandicoe anda Timbol
a as Padministrator
m a of the
a gEstate
e ofalate d i
Sixta Paras obtained judgment in their favor against Desiderio Paras for the
recognition of easement rights of the former and payment of damages; the
judgment debt was later on agreed by them to be reduced from P6,000 to P4,000
and was subsequently paid by Paras.
When the spouses demanded for performance of the part of the judgment about
the recognition of the easement rights of the petitioner, they demanded that
!"#$%&%'(")*+#,%-(.#/%
defendant rebuild and reconstruct the irrigation canal in its original dimensions.
When defendant refused, the spouses asked the court a quo in a motion for
execution to compel them or hold them in contempt. An alias writ of execution
was issued which was later, on appeal was ordered quashed by the CA because
h e a i e a e d b b e e a PEOPLE'S
there is nothing more to be executed.
ISSUE: WON CA erred in quashing the alias writ of execution due to its
i e e a i h a h e b e e a g e e me
OBLIGATION on the judgment of court a quo.
HELD: NO. CA was not in grave abuse of discretion.
Novation results in 2 stipulations (1) to extinguish an existing obligation,
and (2) to substitute a new one in its place. Fundamental it is that novation
effects a substitution or modification of an obligation by another or an
extinguishment of one obligation by the creation of another. In the case at hand,
we fail to see what new or modified obligation arose out of the payment by the
respondent of the reduced amount of P4,000 and substituted the monetary
liability for P6,000 of the said respondent under the appellate court's judgment.
Additionally, to sustain novation necessitates that the same be so declared in
unequivocal terms clearly and unmistakably shown by the express
agreement of the parties or by acts of equivalent import or that there is
complete and substantial incompatibility between the 2 obligations.
Record showed that defendant attempted to rebuild the irrigation canal but not in
the original dimensions, which was not disputed by both parties. Such partial
reconsideration does not constitute substantial compliance. Thus SC remanded
the case to Trial Court for ocular on the job done and if defendant refuses to
complete to ask another to do the work at the expense of defendant.
NATIONAL POWER CORPORATION VS. JUDGE DAYRIT AND DANIEL
ROXAS, DOING BUSINESS AS UNITED VETERANS SECURITY
AGENCY AND FOREIGN BOATS WATCHMENT [125 SCRA 849]
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FACTS: DANIEL E. ROXAS, doing business under the name and style of
United Veterans Security Agency and Foreign Boats Watchmen, sued the
NATIONAL POWER CORPORATION (NPC) and two of its officers in
Iligan City. The purpose of the suit was to compel the NPC to restore the
contract of Roxas for security services which the former had terminated. The
parties drafted a Compromise Agreement which the Trial Court approved. The
agreement consisted of NPC paying plaintiff sum of money, plaintiff will pay
or return materials lost and found by his agency, the contract for security
services with NPC will remain, and they both waive other claims and counter-
claims with each other.
NPC subsequently contracted another security agency. Thus, plaintiff asked
court a quo for writ of execution which was granted. NPC appealed claiming
that the judgment was novated thus extinguished, and nothing more to
execute.
ISSUE: WON novation of judgment by subsequent agreement of parties
extinguished the OBLIGATION of NPC to sustain the security contract with
plaintiff.
HELD: NO. It is elementary that novation is never presumed; it must be
explicitly stated or there must be manifest incompatibility between the old and
the new obligations in every aspect. Thus the Civil Code provides: Article
1292. In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible
with each other. In the case at bar, there is nothing in the May 14, 1982
agreement which supports the petitioner's contention. There is neither explicit
novation nor incompatibility on every point between the "old" and the "new"
agreements…
SPOUSES BALILA VS. IAC, DEL CASTILLO [155 SCRA 262]
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FACTS: Amicable settlement of this dispute was arrived at and made basis of
decision of Trial Court. Defendants admitted "having sold under a pacto de
retro sale the parcels of land described in the complaint in the amount of
P84,000.00" and that they "hereby promise to pay the said amount within the
period of four (4) months but not later than May 15,1981. Subsequently,
private respondent Guadalupe Vda. de del Castillo, represented by her son
Waldo del Castillo as for attorney-in-fact, accepted payments from
petitioners and gave petitioners several extensions of time to pay their
remaining OBLIGATIONS. Plaintiffs filed for the consolidation of titles
which the defendants opposed because they already made payments.
ISSUE: WON decision of trial court in its judgment by compromise was
novated and amended by the subsequent mutual agreements and actions of
petitioners and private respondents
HELD: YES. The fact therefore remains that the amount of P84,000 payable on
or before May 15, 1981 decreed by the trial court in its judgment by compromise
was novated and amended by the subsequent mutual agreements and
actions of petitioners and private respondent Spouses. Petitioners paid the
afore-stated amount on an installment basis and they were given by private
respondents no less than 8 extensions of time to pay their obligation. These
transactions took place during the pendency of the motion for reconsideration of
the order of the trial court dated 4/26/83, during the pendency of the petition for
certiorari before the IAC and after the filing of the petition before Us. This
answers the claim of the respondent Spouses on the failure of the petitioners to
present evidences or proofs of payment in the lower court and the appellate
court.
g e e m e BANK h e TRUST
AND j d g m e
COMPANY i VS. SYVEL'S
e i ,
INCORPORATED, ANTONIO SYYAP AND ANGEL SYYAP [164 SCRA
247]
e i g i h e d h e d e f e d a
R' X' ] ]' ]4'Z 5] '' ''Xg Absence of
existence of explicit novation nor incompatibility between the old and the new
agreements. Novation was not intended in the case at bar as the Real estate
mortgage was taken as additional security for the performance of the contract.
If objective novation is to take place, it is essential that the new obligation
expressly declare that the old obligation is to be extinguished or that the new
obligation be on every point incompatible with the old one. xxx
FACTS: Action for foreclosure of chattel mortgage executed in favor of the
plaintiff by the defendant Syvel's Inc. on its stocks of goods, personal
properties and other materials owned by it and located at its stores or
warehouses. This chattel mortgage was duly registered in Register of Deed of
Manila and Pasay City, in connection with a credit commercial line in the
amount of P900K g a e d S e l ; d e f e d a
guaranteed absolutely and unconditionally and without the benefit of
excussion the full and prompt payment of any indebtedness to be incurred on
account of the said credit line.
Th e f a i l e f S e l a i a c
Commercial Credit Agreement, bank started to foreclose extrajudicially the
chattel mortgage but was not pushed through a f e S e l a e
As no payment was made, this case was filed in Court. During its pendency,
Syyap proposed to have the case settled amicably and to that end a conference
was held in which Mr. Antonio de las Alas, Jr., VP of the Bank, plaintiff,
defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap
requested that the plaintiff dismiss this case because he did not want to have
the goodwill of Syvel's Incorporated impaired, and offered to execute a Real
Estate Mortgage on his property in Bacoor. Mr. De las Alas consented, and so
h e Re a l E a e M g a g e . S e l d i
which included the dismissal of their counterclaim and filed instead their own
motion to dismiss on the ground that by the execution of said real estate
mortgage, the obligation secured by the chattel mortgage was NOVATED and
h e e f e , a e l l e e c a e f a c i
ISSUE: WON on the ground that by the execution of said real estate
mortgage, the obligation secured by the chattel mortgage subject of this case
was novated, and therefore, appellee's cause of action thereon was
extinguished.
HELD: NO. Novation takes place when the object or principal condition of
an obligation is changed or altered. It is elementary that novation is never
presumed; it must be explicitly stated or there must be manifest
incompatibility between the old and the new obligations in every aspect. In
the case at bar, there is nothing in the REM which supports appellants'
submission. The contract on its face does not show the existence of an explicit
novation nor incompatibility on every point between the old and the new
agreements as the second contract evidently indicates that the same was
executed as new additional security to the CM previously entered into by the
parties. Records show that in the real estate mortgage, appellants agreed that
the chattel mortgage "shall remain in full force and shall not be impaired by
this (real estate) mortgage." It is clear, therefore, that a novation was not
intended. The real estate mortgage was evidently taken as additional security
for the performance of the contract
b. FORMS OF NOVATION:
Article 1281. Compensation may be total or partial. When the two
debts are of the same amount, there is a total compensation.
(Classmates, I think there was a typo error in Ma’am Bubbles’
outline. I think this should have been Article 1291, reproduced
below)
1. Substitution of debtor--
Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from
a mortgage, guaranty, or penalty.
Article 1835 second paragraph
A partner is discharged from any existing liability upon dissolution
of the partnership by an agreement to that effect between himself,
the partnership creditor and the person or partnership continuing
the business; and such agreement may be inferred from the
course of dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing the business.
!"#$%&%'(")*+#,%-(.#/%
PNB VS. MALLARI
FACTS: Def borrowed from PNB and this loan was secured by a chattel
mortgage on his standing crop. Mallari defaulted so the sacks of rice deposited in
a a e h e e e a a c h e d . G a
the latter. This was accepted by PNB so the attachment was later lifted. Guanzon
defaulted in his payment so PNB sued the def on the same obligation. The LC
dismissed the comp on the ground that there was novation brought about by the
alteration of the principal conditions of the original obli and the substitution of a
news debtor.
HELD: The acceptance of PNB of the offer of G to pay under the terms
specified by him constituted not only a substitution of the debtor but an
alteration or modification of the terms and conditions of the original K.
Effect of insolvency of new debtor--
Article 1294. If the substitution is without the knowledge or
against the will of the debtor, the debtor’s insolvency or non-
fulfillment of the obligation shall not give rise to any liability on the
part of the original debtor.
Article 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the creditor, shall
not revive the action of the latter against the original obligor,
except when said insolvency was already existing and of public
knowledge, or known to the debtor, when he delegated his debt.
2. Change of Principal Condition or Object
3. Subrogation/Subjective Novation
a. In case of active subjective novation
Article 1300. Subrogation of a third person in the rights of the
creditor is either legal or conventional. The former is not presumed,
except in cases expressly mentioned in this Code; the latter must
be clearly established in or order that it may take effect.
Legal (Article 1302) In all cases of Article 1302, subrogation takes
place by operation of law.
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter's share;
Conventional/ Contractual (Article 1301) Consent of the 3 parties
(old creditor, debtor and new creditor) are required.
Article 1301. Conventional subrogation of a third person requires
the consent of the original parties and of the third person.
Q: Is it possible for a creditor to transfer his credit without
consent of the debtor?
A: Yes. But this is not novation but an assignment of rights under
Article 1624.
Assignment is also a novation but much simpler. But is not
subrogation.
KINDS OF NOVATION:
a. Legal
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter's share;
Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to defraud
, dthem.
e f e d a E , f f e e d a h e
(Conventional Redemption)
Article 1610. The creditors of the vendor cannot make use of the
right of redemption against the vendee, until after they have
exhausted the property of the vendor.
Article 1729. Those who put their labor upon or furnish materials
for a piece of work undertaken by the contractor have an action
against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. However, the following
shall not prejudice the laborers, employees and furnishers of
materials:
(1) Payments made by the owner to the contractor before they are
due;
(2) Renunciation by the contractor of any amount due him from
the owner.
This article is subject to the provisions of special laws:
(Assignment of Credits and Other Incorporeal Rights)
Article 1629. In case the assignor in good faith should have made
himself responsible for the solvency of the debtor, and the
contracting parties should not have agreed upon the duration of
the liability, it shall last for one year only, from the time of the
assignment if the period had already expired.
If the credit should be payable within a term or period which has
not yet expired, the liability shall cease one year after the maturity.
Article 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
2. Effect:
Article 1304. A creditor, to whom partial payment has been made,
may exercise his right for the remainder, and he shall be preferred
to the person who has been subrogated in his place in virtue of the
partial payment of the same credit.
Article 1303. Subrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either against the
debtor or against third persons, be they guarantors or possessors
of mortgages, subject to stipulation in a conventional subrogation.
b. Passive Subjective Novation
(Substitution of the debtor)
Article 1293. Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a
mortgage, guaranty or penalty.
RODRIGUEZ VS. REYES [37 SCRA 195]
FACTS: On November 13, 1962, Alberto Benipayo was sued by his siblings for
the partition of the properties held by them in common as heirs of the late
spouses, Donato Benipayo. The parties agreed to have the properties sold at
public auction. The list of properties includes properties which were mortgaged
to the Development Bank of the Philippines (DBP). After the sale of said
properties, Jose Dualan (one of the winning bidders) asked the Court to order the
payment of the mortgaged debt to DBP from the proceeds of the auction sale.
The siblings argued that upon purchase of the mortgaged property, Dualan
replaced the debtors in the principal obligation.
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ISSUE: Whether there is novation.
HELD: NO. By buying the property covered by TCT No. 48979 with notice that
it was mortgaged, respondent Dualan only undertook either to pay or else allow
the land's being sold if the mortgage creditor could not or did not obtain payment
from the principal debtor when the debt matured. Nothing else. Certainly, the
buyer did not obligated himself to replace the debtor in the principal
obligation, and he could not do so in law without the creditor's consent.
(Article 1293) The obligation to discharge the mortgage indebtedness therefore,
remained on the shoulders of the original debtors and their heirs, petitioners
herein, since the record is devoid of any evidence of contrary intent. xxx
Article 1835. xxx
A partnership is discharged from any existing liability upon
dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or part-
nership continuing the business; and such agreement may be
inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership
continuing the business.
[Balane]
Passive Subjective Novation-- Articles 1293 and 1295
Article 1293 talks of expromission (not upon the old debtor's
initiative. It could be upon the initiative of the creditor or of
the new debtor.)
Article 1295 talks of delegacion (change at the old debtor's
initiative.)
In expromission, the change in the person of the debtor is not
upon the initiative of the old debtor, whether or not he gave
his consent. As soon as a new debtor and creditor agree,
novation takes place.
In both cases, the intent of the parties must be to release the
old debtor.
What is the difference in effect between expromission and
delegacion?
In expromission , the release of the old debtor is absolute
(even if it turns out that the new debtor is insolvent.)
In delegacion , the release of the old debtor is not absolute.
He may be held liable (1) if the new debtor was already
insolvent at the time of the delegacion; and (2) such
insolvency was either known to the old debtor or of public
knowledge.
Cases of expromission are quite rare.
Effect of Novation
Article 1296. When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent.
[Balane]
Effect of novation as to accessory obligations Accessory
obligations may subsist only insofar as they may benefit third persons
who did not give their consent, e.g., stipulation pour atrui
General rule: In a novation, the accesory obligation is extinguished.
Exception: In an active subjective novation, the guarantors, pledgors,
mortgagors are not released.
Look at Article 1303, accessory obligations are not extinguished. So
there is a conflict.
How do you resolve? According to commentators, Article 1303 is an
exception to Article 1296.
Article 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation should
be extinguished in any event.
Article 1298. The novation is void if the original obligation was
void, except when annulment may be claimed only by the debtor,
or when ratification validates acts which are voidable.
Article 1299. If the original obligation was subject to a suspensive
or resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated.
Illustrations:
1. Special forms of payment:
a. Dation
b. Application Before the courts do not consider application
as special form of payment.
c. Tender of payment and consignation Tender of payment
is not a form of payment consignation is a special form of
payment.
d. Cession
2. Distinguish one from the other or the rest:
a. Consent: is consent of both parties required in this special
form of payment? There is no question that as to debtors
consent is obviously there because he is the one offering to
pay, so if he is the one offering to pay then there must be
consent, but as to creditor?
i. Dation in payment the creditor has to accept
the delivery of a thing instead of the other
prestation for the satisfaction of the debt, if
there is no consent on the part of the creditor,
there can be no dation in payment. CASE:
Filinvest v. Phil. Acetelyn
ii. Application of payment As a rule the consent
of the creditor is not required, it is only under
certain circumstances that the consent of the
creditor will be present.
iii. Payment by cession Definitely the consent of
the creditor is required, if the creditor would not
agree that the debtor would abandon the
properties for the creditors to sell, there can be
no payment by cession.
iv. Consignation The consent of the creditor is not
required even if the creditor refuses to accept
the thing delivered by the debtor to the court by
way of consignation, the court may declare the
consignation to be valid.
b. As to the effect of the delivery of the thing from the debtor
to the creditor or from the debtor to the court is there
transfer of ownership?
i. Dation in payment yes there is transfer of
ownership, because that thing is being delivered
and the ownership thereof is being transferred in
satisfaction of his debt.
ii. Application of payment Yes there is transfer of
ownership. If money is delivered by the debtor to
the creditor ownership passes to the creditor.
The only question here in this form of payment is
to which debt the payment will apply? This is the
issue in this kind of payment, but as to ownership
it passes immediately to the creditor.
iii. Cession - Ownership does not pass because the
creditor upon delivery because the creditors just
accept the things or those things to be sold and
the proceeds thereof to be applied to the
indebtedness.
iv. Consignation Upon the delivery of the thing to
the court ownership does not automatically pass
to the creditors because the consignation may be
void, if it is void, then ownership does not pass to
the creditor. However, if the creditor will accept
thereafter, may be months or years thereafter, or
maybe the court declares the consignation valid,
then the ownership passes, however, by law the
effect of acceptance or the declaration by the
court that the consignation is valid retroacts to
the time of the delivery of the court as if the
creditor is already the owner of the thing at the
time of the delivery.
c. Extent of Extinguishment: May there be total
extinguishment of the debt?
i. Application of payment No, there can never be
total extinguishment, precisely because there is a
need to determine to which debt the payment is
to be applied. Because the amount paid is not
sufficient to cover all the debts, because you will
no longer have a problem is the amount is
sufficient to cover all the debts you just have to
invoke the rules on application on payments.
Necessarily there is no total extinguishment of
the debts under the rules on application of
payment.
ii. Cession the extinguishment will only be to the
extent of the net profits of the sale, unless the
parties agree that the abandonment will result to
the extinguishment of the entire debt. So here,
the net proceeds is the basis of the extent of the
extinguishment of the debt.
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iii. Consignation Because this is a special form of
payment it follows the rule in payment, thus as a
rule “partial performance is non performance”
therefore if the debtor delivers only a portion of
his debt, then the consignation is null and void.
The exception will only be if the creditor would
agree to the delivery of partial amount, then to
that extent there will be partial extinguishment.
iv. Dation in payment There are authors who will
take the position that if there is Dation in
payment then the obligation is totally
extinguished unless it is clear in the intention of
the parties that it will result only to partial
extinguishment. But is this the better rule? For
example if A is the debtor of B in the amount of
1M and A delivered to B a car stating that it is to
be applied to the amount that B owes A, the
value of the car is 150K, if the creditor accepted
the car, does that mean that the entire obligation
is extinguished? This rule does not seem to be
equitable, the BETTER RULE: As a rule the
extinguishment is only to the extent of the value
of the thing delivered unless it is clear from the
agreement of the parties that the delivery of a
thing, no matter the value, is equivalent to the
amount of the obligation.
3. Specific Rules:
a. Dation in payment Again in Dation a thing is delivered and
ownership thereof is delivered by the debtor to the creditor
in satisfaction of his debt. Dation apparently will only apply
to the delivery of the thing THIS IS NOT TRUE. The SC has
ruled that even rights can be the subject of Dation for
example: if hereditary right is already vested to the debtor,
the debtor can deliver his rights to his creditor for the
satisfaction of his debt. Also, in one case, a credit owing to
the debtor may be delivered by him to his creditor for the
satisfaction of his debt. But just like the other modes of
payment, in order that there be Dation there has to be an
obligation to be extinguished (CASE: Citizen’s Surety v. CA:
Perez was claiming that with the execution of deed of
assignment that practically extinguishes his obligation under
the indemnity agreement by way of Dation, the scenario
here was: a contract of sale was entered into, payable by
installment, the buyer is Pascual enterprises, to secure the
fulfillment of his obligation, a surety bond was executed in
favor of the seller, not citizen’s surety executed an
indemnity agreement just in case it will be held liable under
the bond, Pascual Perez and his wife being the party
thereto, Citizen’s also had Perez execute a deed of
assignment over certain stocks. The surety obviously was
held liable under the bond, the surety went after Perez
under the indemnity agreement. Perez claimed that the
execution of deed of assignment was a form of Dation, but
the facts showed that at the time the deed of assignment
was executed there was no obligation under the indemnity
agreement nor under the surety bond. Why? Because the
contract were all dated earlier than the time he was made
liable, therefore there was no obligation yet. So what is
really the nature of deed of assignment? It was a form of
security arrangement. Other facts relied upon by the SC in
ruling that the deed of assignment was not Dation in
payment was that after the deed of assignment was
executed, Perez also executed a real estate mortgage, so
why would he execute a real estate mortgage if his
obligation was already extinguished by Dation. Also, in
deed of assignment, there were partial payments made, if
there was Dation then he would not have made the
payments.)
What is the law governing Dation? Others would say
that this is governed by the law of sales. If you will read
1245, it would appear that Dation is governed by law of
sales, but reading it more closely; the law on sales will only
apply if the obligation is in money. For instance, A owes B
20K, instead of paying cash, A offered his cell phone to B in
satisfaction of the obligation, there is here Dation and this
will be governed by the law on sales as provided for in 1245.
Tolentino criticized this provision, considering that the
trend worldwide is to consider this as a form of novation
because practically there is a change in the object, from
money to a thing. REMEMBER! 1245 will not apply if the
pre-existing obligation is not in money. For example: A is
obliged to deliver to B a horse, so instead of delivering a
horse he delivered a car to B. 1245 will not apply here
because the pre-existing obligation is not in money, but it is
to deliver a horse. So in this case Novation shall apply
because there was a changed in the object of the
obligation, from horse to car. Again, going back to
Tolentino’s criticism, he said that regardless of pre-existing
obligation whether money or thing, still the law that will
apply is the law of novation. Atty. Uribe: I find wisdom in
1245 because, instead of paying in cash, (refer to the cell
phone example) the debtor paid by giving his phone to the
creditor, but is this not almost similar to the scenario where
the debtor paid in cash and the creditor used the cash to
buy the cell phone? And therefore the law on sales will
govern. I think 1245 will do.
b. Application of payment the only question relevant in this
rule is “ o hich deb ill he pa men be applied the
premise of this question is a debtor has two or more debts
to one creditor but may the rules on application of
payments be invoked if the debtor has two or more
creditors? Yes. As long as as to one creditor he has two or
more debts. The law does not require that the debtor
should only have one creditor. For example: A’s creditors are
XYZ, for the rules to be invoked, he must have two debts to
one creditor. Let us say A owes X 100K, 50K, and 20K, now if
A delivers to X 30K, the question here is to which debt will
the payment apply? 1. AS A RULE: The debt designated by
the debtor, so under the law, the debtor has the right to
designate to which debt the payment will apply. So here, A
can designate the 30K to apply to 100K or to 50K or to 20K
or 30K. But having said that, if A instructed the creditor to
apply the 30K to 50K, can the creditor be compelled to apply
the payment to the 50K debt? AS A RULE THE ANSWER IS
NO because this is a special form of payment, the rules of
payment shall apply, the creditor cannot be compelled to
accept partial payment, nor the debtor be compelled to
perform partial payment. Therefore, unless there is a
stipulation giving the debtor a right to designate to a debt
that will constitute partial payment, he cannot designate
payment to which the payment should be applied. In the
first place why would he designate it to the 50K? The 50K
may be interest bearing. THEREFORE, THE RIGHT OF THE
DEBTOR TO DESIGNATE TO WHICH PAYMENT SHALL APPLY
IS NOT ABSOULTE, ONE OF THE EXCEPTIONS IS AS TO
PARTIAL PAYMENT. SECOND LIMITATION, A delivered the
30K, he designated it for the payment of the 30K debt,
however, the 30K debt is interest bearing, can he compel
the creditor to apply the payment to the principal first, then
he will just pay the interest later? NO BY 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.
THIRD LIMITATION: A designated the 30K for the payment of
the 30K debt, but the 30K debt is not yet due. THE LAW
REQUIRES THAT THE DEBT IS ALREADY DUE IN ORDER THAT
THE DEBTOR WOULD HAVE THE RIGHT TO DESGINATE
SUCH PAYMENT TO THE DEBT. What is the meaning of due
here? The period must be fixed for the benefit of the
creditor or for both of them. If it is not yet due, but the
period is fixed solely for the benefit of the debtor it does not
matter the debtor can designate such debt because the
period is for his benefit. But also he cannot vary an
agreement which they had as to which debt the payment
to be applied.
PROBLEM: What if A entrusted X to apply the 30K to
30K debt, but the debt is secured by a mortgage, as
instructed X applied the payment, he issued a receipt stating
that the 30K is applied to the 30K debt, however, days
thereafter, A asked X to apply the amount to another debt,
the 50K, though the creditor cannot be compelled to
accept, he may accept if he wants to. So, if X agrees, and he
applied the payment of the 50K debt instead of the 30K,
thereafter A was not able to pay X as to the 30K debt, can X
foreclose the mortgage? NOT ANYMORE! A already paid
the 30K, although it was revived (when he chose that the
payment be applied to 50K instead) the mortgage was not
revived (mortgage is not revived without the consent of
the mortgagor).
SECOND RULE: What if the debtor did not designate
the debt to which the payment shall apply? The debt
designated by the creditor. He would have the right to
designate to which debt the payment shall apply. However,
is the debtor’s consent required in the designation made by
the creditor? Yes! By express provision of the law, if in the
receipt the debtor sees that the payment was applied to a
particular debt, and the debtor does not agree to such
application, he may refuse to accept the application.
THIRD RULE: Neither the debtor nor the creditor made
the designation. Scenario: the debtor made payment; the
creditor accepted and issued a receipt without designating
the particular debt, so to which debt the payment shall
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apply? IT WILL DEPEND ON WHETHER THE DEBT OF THE
SAME NATURE AND BURDEN OR WHETHER THE DEBT IS
MOST ONEROUS OF THEM ALL. If all the debts are of the
same nature and burden, the law requires proportional
application. As regards to the most onerous debt, apply the
payment to the most onerous obligation. TAKE NOTE! That
you should only go into these rules if the law would not
guide you as to which debt the payment should be applied,
there are guides like partial payment, interest bearing, and
the circumstances which may show the intention of the
parties, if these guides are not present, then that is the
time you go into the rules considering the nature and
burden of the debts. IN DETERMINING WHICH DEBT IS THE
MOST ONEROUS: is there a particular rule? None. The SC
held that there is no hard and fast rule! This is because each
debt has its own features, for example, there are debts
which consist of bigger amount the other smaller amount
but interest bearing, the other one secured. For example
one debt is secured by real estate mortgage and another
debt is secured by pledge, what is more burdensome? The
debt secured by a real estate mortgage. However, real
estate mortgage may be constituted by one real estate, so
consider if the real estate mortgage constitutes a small lot
and the pledge constitutes ships, which is more onerous?
Obviously the debt secured by pledge constituting ships.
TAKE NOTE THAT ALL FACTORS ARE CONSIDERED IN
DETERMINING WHICH IS MORE ONEROUS. If for instance in
one debt the debtor is merely the guarantor and other debt
he is the principal, apparently the debt in which he is the
principal debtor is more onerous, but the common reason
given by few authors is because in this debt where he is a
guarantor, his liability is only subsidiary, in fact inchoate, he
may or may not be held liable because the principal debtor
should first be held in default then his properties dissolved
before the guarantor may be held liable, BUT THIS IS A
WRONG REASON WHY? If the rules on applications of
payment are to be invoked, it presupposes as to the two
debts he is already liable, his liability is not merely inchoate,
and even if it is only subsidiary, he is already liable, in other
words in this scenario for the rules to be applied, the
principal debtor should have defaulted and his properties
exhausted that is why the guarantor is liable, if he is not yet
liable there is no reason to apply the rules on application of
payment because there is only one debt, which is the debt
to which he is the principal debtor. But even considering
that in the contract of guaranty the guarantor is already
liable, which is more onerous, Atty. Uribe: the debt more
onerous is the debt to which the debtor is a principal,
because in guaranty the guarantor may be able to recover
what he paid to the creditor from the debtor, in the debt to
which he is a principal, he cannot recover anything by way of
reimbursement. One author would claim: bigger amount is
more onerous than smaller amount. Is there any basis for
this claim? Atty. Uribe: I beg to disagree to this claim, first, if
the debt is one peso or two pesos or even one thousand
pesos bigger in amount, does that really matter in this
country? But if you go by the rules, if you follow this claim,
then what will happen to the rule that there are debts of the
same nature and burden because if the debts would have 1
peso difference, then that debt is already more onerous,
since the law provides that proportional application to
debts, presupposes that the debts are of different
amounts. OBVIOUSLY THIS IS WRONG. Example this is 1M
the other debt is 10K, you think 1M is more onerous, not
necessarily, let’s say the debt is only 10K but it is interest
bearing, what should I pay first? Of course the 10K interest
bearing. Who cares about the 1M, after 2 years it is still 1M!
Again the amount is irrelevant. Another, OLDER DEBT IS
MORE ONEROUS. There is no basis to this claim. In fact,
older debts may be less onerous why? Because it is about to
prescribe.
c. Cession or assignment Here the debtor would abandon or
assign all his properties to the creditor which properties will
have to be sold by the creditor the net proceeds shall be
applied to the credit. FIRST ISSUE: All the properties of the
debtor shall be delivered? No there are properties which
are exempt from execution. But can the debtor deliver to
the creditor properties which are exempt from execution?
Yes! Because that is a right which the debtor can waive,
though he cannot be compelled he may abandon those
properties to the creditor. However, there are certain
properties which cannot be the subject of the claim of the
creditor even with the consent of the debtor LIKE THE
FAMILY HOME, of course 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? Authors would say that the best
remedy of the debtor is to file an action for insolvency. In a
way insolvency proceeding has its advantages, however,
here in the Philippines businessmen are really not keen on
filing an insolvency proceedings.
What if the creditors did agree for this kind of
payment but they failed to agree as to how they will
partition/distribution the proceeds? Atty. Uribe agrees that
the rules on concurrence and preference of credits because
in these rules there are preferred debts and those debts
which are not preferred they shall be paid proportionately.
Alleged requirement of few authors that in this form
of payment, the debtor is insolvent. In other words, there
can be no cession if the debtor is not insolvent. Atty. Uribe
CANNOT AGREE TO THIS REQUIREMENT because if you read
1265 there is no requirement that the debtor must be
insolvent for payment of cession to take place. Another
important reason is the fact that this is by agreement of
parties, there can only be payment of cession because the
creditor agreed, as long as the debtor is willing to abandon
the properties and the creditors agree and the proceeds
shall be applied to the debt, there is cession. Other authors
claim that the debtor should be partially insolvent, is there
any basis to this? NONE! Once a debtor failed to comply
with his obligations and xxx is insolvent. There is no such
thing as partial insolvent. The statement of Professor Sta.
Maria is a better statement “this mode of extinguishing
obligation would normally be resorted to by debtors who are
in a financially difficult position.”
d. Tender of payment and consignation Fist, let us go to the
claim of Prof. Jurado, as a rule tender of payment is
necessary for consignation to be valid, correct? Reading
1256, there are how many grounds or causes for
consignation wherein the law expressly provides that tender
of payment is not required. In 1256 there are about 5
grounds, where the law provides that in those grounds
tender of payment is not required, obvious because in those
grounds the creditor is not present. So in those causes, there
is no tender of payment but the consignation is valid. What
are the grounds or causes for consignation where tender of
payment is necessary under the law? Where the creditor
refuses to accept without just cause. Therefore going back
to the statement tender of payment is required for
consignation to be valid, it seems wrong. AS A RULE
TENDER OF PAYMENT IS NOT REQUIRED, THE ONLY
EXCEPTION TO THAT RULE IS WHEN THE GROUND FOR
CONSIGNATION IS THAT THE CREDITOR REFUSES TO
ACCEPT WITHOUT JUST CAUSE.
On the other hand, Jurado is very much correct in his
statement that “tender of payment by its very nature is
extrajudicial” as you have read in the case of Soco v.
Milintante, tender of payment is made during the pendency
of the action, that consignation is void. Tender of payment
should be made prior to consignation not during the
pendency of the action. SO IT IS BY ITS VERY NATURE
EXTRAJUDICIAL IN CHARACTER.
Now, if the ground for consignation requires tender of
payment and the debtor sent probably three letters to the
credi or informing he credi or ha I am illing o pa m
deb i hi a alid ender of pa men NO In order
for tender of payment to be a valid tender of payment, you
have to actually offer the amount to the creditor; IT IS THE
ACT OF OFFERING THE AMOUNT WHICH CONSTITUTES A
VALID TENDER OF PAYMENT.
In to the requisites of a valid consignation:
i. There must be a debt to be extinguished a sum
of money is delivered not to extinguish a debt
but to exercise a right, like the right of
redemption, if the other party refuses to accept
the money, then the person who has the right is
not required to deliver to the court the amount
by way of consignation because he is not
intending to extinguish an obligation. Example: A
had the right to redeem, he offered to redeem,
the other party refused to accept, when the
action was filed the defendant claimed that the
action should be dismissed because the
redemptioner was not sincere in redeeming the
property because if the redemptioner was
sincere, when I refused to accept the money he
should have deliver the money to the court by
way of consignation. The SC: the claim is
erroneous, because the redemptioner is
exercising a right, and in the exercise thereof
there was refusal without just cause, there is no
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need for consignation. But if the intention is to
extinguish an obligation and the money was
refused, that is when the debtor has to go to the
court and deliver the money by way of
consignation.
ii. The consignation must be based on a ground
provided by law Is the enumeration under
1256 an exclusive enumeration? Atty. Uribe
agrees with the position that the enumeration
does not have to be exclusive because as long as
it would be more burdensome to the debtor if he
will not be allowed to deliver the thing or the
money to the court, consignation should be
allowed. Some of the grounds are:
a. When without just cause the creditor
refuses to issue a receipt is the
issuance of the receipt the operative
fact which extinguishes the
obligation? NO! in our jurisdiction
PAYMENT IS THE MODE OF
EXTINGUISHMENT, THE RECEIPT IS
MERELY AN EVIDENCE. But if the
creditor refuses to issue a receipt or
does not want to issue a receipt, it is
better that the debtor does not give
the payment to him, because he can
easily deny that the debtor did not
pay. Actually, in other jurisdiction, it is
the issuance of the receipt that
extinguishes the obligation, this rule
seems to have an advantage because
it would minimize the litigation
involving issues as to payment.
b. When two or more persons claim the
same right to collect A good
example is an obligation to deliver a
carabao, in this obligations three
creditors are claiming from the
debtor, because three persons are
claiming to the carabao that will give
the person a right to deliver the
carabao to the court by way of
consignation? Not necessarily. The SC
held that the debtor should determine
for himself the person who has the
right over the thing or the money.
iii. Notices required for consignation to be valid: AT
LEAST TWO: Why? Because if the obligation
pertain to an obligation to pay on a monthly
basis, like rental, the SC as rule in the case of
SOCO, THERE MUST BE AT LEAST TWO NOTICES
FOR EACH AMOUNT WHICH BECAME DUE (so
every month that the payment is not accepted
sent notice prior the consignation). But if there is
only one debt, there should be two notices
required, is it required that both notices should
come from the debtor? NO! But the first notice
should come from the debtor prior the
consignation and the second notice may come
into the form of summons. Is notice really an
essential requisite for the validity? TOLENTINO
DOES NOT AGREE WITH THIS VIEW, he thinks that
even without such notice the consignation may
still be considered as valid. But it can be the basis
of holding the debtor liable, this rule is better but
THIS IS NOT THE RULE LAID DOWN BY THE
SUPREME COURT. SECOND: if the payment is
monthly and the creditor already refused to
accept the payment in the first month the
defendant will question the necessity of second
notices, since the creditor already knows that the
debtor will again deliver to the court the
payment by way of consignation RATIONALE:
THIS IS TO GIVE THE CREDITOR THE
OPPORTUNITY TO CHANGE HIS MIND. Which is
very true, the bigger the amount the more
difficult to refuse.
There are only two questions in consignation:
After the delivery of the money or the thing with the
court, what if thereafter the money was withdrawn from
the court, thereafter the debtor failed to pay the creditor,
can the creditor still go after those who are subsidiarily
liable for the debt (like the mortgagor)? PREMISE HERE IS:
A is indebted to B, A delivered a sum of money to the
court by way of consignation however, A withdrew the
money, the debt is secured by a mortgage, thereafter A
failed to pay the creditor, can the creditor foreclose the
mortgage? It depend on the manner how A was able to
withdraw the money from the court. IF A WITHDREW THE
MONEY AS A MATTER OF RIGHT (when even the court
cannot refuse the withdrawal, and this can happen if the
creditor has not yet accepted and the court has not yet
declared the consignation to be valid, in this scenario, the
debtor can still withdraw the money as a matter of right
at anytime), THUS, NO DEBT HAS BEEN EXTINGUISHED,
BECAUSE IN CONSIGNATION THE DEBT WILL ONLY BE
EXTINGUISHED EITHER BECAUSE THE CREDITOR HAS
ALREADY ACCEPTED OR THE COURT HAS ALREADY
DECLARED THAT THE CONSIGNATION IS VALID, ABSENCE
OF THE TWO NO OBLIGATION IS EXTINGUISHED,
THEREFORE NO OBLIGATION IS REVIVED, THEREFORE IF
THE DEBTOR WITHDREW UNDER THIS SCENARIO AND
FAILED TO PAY, THE CREDITOR MAY STILL FORECLOSE THE
MORTGAGE, BECAUSE THE OBLIGATION WAS NEVER
EXTINGUISHED. HOWEVER, IF THE WITHDRAWAL IS NOT
AS A MATTER OF RIGHT, THEREFORE HE WAS ONLY ABLE
TO WITHDRAW WITH THE CONSENT OF THE CREDITOR
(this may happen either when the withdrawal was made
after the acceptance or the withdrawal was made after
the declaration by the court that the consignation was
valid.) IN THIS CASE, THE CREDITOR CONSENTED TO THE
WITHDRAWAL. WHAT HAPPENS TO THE OBLIGATION,
UPON THE ACCEPTANCE BY THE CREDITOR OR
DECLARATION BY THE COURT THAT THE CONSIGNATION IS
VALID, THE OBLIGATION IS EXTINGUISHED, AND
THEREFORE, WHEN THE AMOUNT WAS WITHDREW BY THE
DEBTOR THE OBLIGAITON WAS REVIVED, UPON REVIVAL
THE DEBTOR FAILED TO PAY, THE CREDITOR CAN NO
LONGER FORECLOSE THE MORTGAGE, WITH THE
EXTINGUISHMENT OF PRINCIPAL OBLIGAITON THE
ACCESSORY CONTRACTS ARE ALSO EXTINGUISHED.
Liability to pay interest: Let us assume that the
obligation became due on 1. Jan. 1, 2002, 2. tender of
payment was made Jan. 1, 2003 which is the due date, and
3. consignation was made January 2, 2006 three years after
the tender. 4. Thereafter the court’s decision was released
January 2, 2008, QUESTION: can the debtor be held liable
from period 3 to period 4? If the court declared the
consignation to be VOID there is no question that the
debtor is liable to pay interests, on the premise that there
was demand and that demand was necessary for the
debtor to incur in delay. However, what if the court
declared the consignation to be valid? Is he liable for
interest? Is he liable from period 2 to 4? Obviously he is
liable because he made the tender of payment only period
number two, but from the time of consignation to the time
the declaration of decision of the court is he liable for
interest? NO! because the effect of the declaration
retroact to the time of the delivery of the amount to the
court as if the obligation was extinguished at the time the
consignation was made, therefore there will be no
obligation to pay the interest. The problem is in period of
tender of payment to the consignation, can he be made
liable for payment of interest? Juridically speaking, there is
basis to the SC ruling that the debtor is still liable because
the effect of consignation will only be from the time the
thing is delivered to the court, so until the obligation is
extinguished the debtor should still be held liable for
interest. However, in the recent cases of the SC, it was
held that from the time tender of payment was made the
debtor is no longer required to pay interest, here, the law
requires that if the creditor refuses acceptance, the
debtor should immediately go to court, otherwise the
debtor will have no reason to go to the court because he
no longer has liability for interest. However, in the recent
ruling of the SC, it held that BY REASON OF JUSTICE AND
EQUITY, why? Because here as the consignation is valid it
means that the creditor refused to accept without just
cause, if the creditor accepted it would there be liability
on the part of the debtor to pay interest? None! So, under
the principle of justice and equity the debtor should no
longer be held liable to pay interest from the time tender
of payment was made up to the time of consignation
even if the consignation was made years after. ATTY.
URIBE: This is quite inconsistent with consignation, there is
a much better basis than justice and equity, if you
remember our discussion in period, in periods two to
three the debtor is liable for interest, but when the
creditor refused to accept without just cause, is it not that
he is also in delay which is known as mora xxx so if both
parties are already in delay, following the ruling of the SC
in Agcaoili v. GSIS, in contemplation of law, no one is in
delay and if no one is in delay could there be liability to
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pay interest? None. Without invoking justice and equity,
this decision seems to be more correct.
4. LOSS OF A THING DUE Can this mode of extinguishment be invoked in
all kinds of obligations meaning obligations to do? It does not seem like
it because it says loss of the thing. If you will read the provisions under
this mode, loss of the thing due, there are provisions pertaining to
obligation to do, thus, authors would consider a better name for this
mode, instead of loss of the thing due a better name would be
Impossibility of Performance. In impossibility of performance it would
already include even obligations to give or to deliver, in case of
obligations to give it will be impossible to perform because the thing to
be delivered is lost.
a. May this mode apply to obligations to deliver generic
thing? YES. If you remember the doctrine genus non quam
peruit this applies to a scenario where the loss or
destruction of anything of the same kind does not extinguish
the obligation. EXAMPLE: there is an obligation to deliver a
brand new 2009 Toyota camry, just because the brand new
Toyota camry was lost does not mean that the obligation is
extinguished under this doctrine. GOING BACK TO THE
ORIGINAL QUESTION: May an obligation to deliver a generic
thing be extinguished because the obligation became
impossible to perform? YES! As the law would define loss it
is a scenario where the thing goes out of commerce, so if the
thing went out of commerce there is nothing to deliver.
Another scenario, is when it became legally impossible to
perform, impossibility of performance may either be
physical impossibility or legal impossibility. Pesigan v.
Angeles Delivery of carabao from one province to another,
along the way the carabaos were confiscated because a law
became effective during the pendency of the obligation,
therefore the obligation was considered legally impossible
to perform. TAKE NOTE THAT when the law became
effective, there must already be an obligation which will
become impossible to perform because if the law became
effective before the obligation was instituted in the first
place the obligation is void and there is nothing to be
extinguished.
b. Obligations to deliver a determinate thing: if the thing to be
delivered was lost or destroyed, is the obligation
extinguished? If you will read 1262 literally, it will depend on
the cause of the loss. If the cause of the loss was due to the
fault of the debtor then the obligation is not extinguished
1263 provides that if the thing is lost or destroyed without
the fault of the debtor, the obligation is extinguished,
therefore, if the loss is caused by the debtor the obligations
is not extinguished. However, Prof. Tolentino opines even if
the loss is due to the fault of the debtor, what will be
delivered? None, so here, there is physical impossibility,
and therefore the obligation should be deemed to be
extinguished without prejudice to his liability to pay
damages because the loss is due to his fault. Nonetheless if
you want stick with the opinion of Tolentino you can always
cite 1262 as the basis but this does not seem to be correct.
BUT ULTIMATELY IN CASES DECIDED BY THE SUPREME
COURT: As to the thing to be delivered is lost or destroyed,
what is the issue that is always mentioned in the case, is it
on he obliga ion a e ing i hed No he ISSUE IS
WHEHTER THE DEBTOR CAN BE HELD FOR DAMAGES in
other words it does not matter whether the obligation was
extinguished or not, what matters is is the debtor liable for
the damages caused by the loss of the thing. If the loss was
due to his fault he is liable for damages, otherwise he
cannot be held liable for damages. In fact Sta. Maria also
take this position, Sta. Maria will not state whether the
obligation is extinguished or not, the issue that will be
posted is that whether or not the obligation to deliver a
thing is converted to an obligation to pay a sum of money.
However, if this is your position, you actually take the
position that there was extinguishment. If you remember in
prescription, prescription is a mode of extinguishing an
obligation because it converts the civil obligation to natural
obligation, there is a change in the obligation therefore
there is extinguishment, in the same manner if the
obligation to deliver is converted to a monetary obligation
then there is an extinguishment of an obligation.
Who has the burden of proving as to the
cause of the loss? The creditor or the one claiming that it
was the debtor’s fault who caused the loss. Reasonable,
because this follows the rule that whoever alleges the fact
must prove the fact. However, in certain circumstances, the
creditor or the plaintiff may not have the burden, because
the law provides for a presumption that the cause of the loss
was due to the debtor, when will this happen? If at the time
of the loss the thing is in the possession of the debtor. But
take note that the presumption is not an absolute
presumption because the debtor can always post a defense
that even if the thing was in his possession the loss was
due to the fault of somebody else. However, even if a thing
is lost while in his possession is it possible that there is no
presumption that it was due to his fault? Yes if the loss
happened during a calamity or on the occasion of a
calamity. Because even if the thing was lost even if in the
possession of the debtor but it was during a calamity, more
often than not, the calamity is the cause of the loss and not
the fault of the debtor, therefore the burden again will be
shifted to the creditor or plaintiff if he would claim that the
loss was caused by the debtor.
We have already discussed that even if the
loss was caused during fortuitous event that will not
necessarily exempt the debtor from liability. That may be
the general rule under 1174 but there are EXCEPTIONS
APPLICABLE TO OBLIGAITONS TO DELIVER A DETERMINATE
THING: stipulation of the party that the debtor will be
liable whatever may be the cause of the loss, or may be the
law provides for liability even if the loss was caused by a
fortuitous event.
Occenia v. Jobson 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. THE LAW GRANTS THE COURT
THE POWER TO RELEASE THE DEBTOR IN WHOLE OR IN
PART BUT IT DID NOT VEST THE COURT THE POWER TO
CHANGE THE TERMS AND CONDITIONS AGREED UPON BY
THE PARTIES. Requirements:
i. The performance of the obligation has become
so difficult. This should not be confused with
impossible; if the obligation has become
impossible to perform then 1267 will not apply in
fact as a rule the obligation will be considered
extinguished.
ii. The difficulty to perform must be due to a
fortuitous event or beyond the contemplation of
the parties.
Effect of partial loss. A scenario could be an
obligation to deliver a cell phone with housing, what if the
cell phone was lost but the housing is still available, is the
obligation totally extinguished, can the debtor still be
compelled to deliver the housing? The answer depends on
the intention of the parties as to really what was the
principal motivation in entering the transaction. But is it
possible that the housing is more valuable than the cell
phone? Yes it is possible for instance it has diamonds. So if
the delivery of the housing was the intention, apparently the
buyer cannot be compelled to accept the cell phone.
5. Condonation or Remission of the debt or a.k.a donation of credit As
to the kinds of condonation:
a. Extent of extinguishment whether total or partial:
Condonation may be partial. PARTIAL: the principal amount
may not even be reduced and the creditor will only condone
the interest or the principal amount nor the interest will not
be condoned but the accessory obligations will be condoned
and therefore it will result to partial condonation.
b. Whether Condonation is express or implied: if the
condonation is EXPRESS you should consider the rules as to
formalities of donation. BAR QUESTION: The son is
indebted to his father 500K, the son paid 300K through a
check, thereafter the father died, the executor demanded
for the payment of the balance 200K, the son claimed that
the 200K was condoned by his father as can be seen from
the writing at the back of the check stating that the check is
for the full payment of the debt, was there extinguishment
by condonation? U.P. LAW CENTER: the effect of the writing
on the check will depend on who wrote the same, if the son
is the one who wrote the writing the obligation was not
totally extinguished, if the father was the one who wrote
was there a valid condonation? Yes because this is a form of
implied condonation and therefore the law does not require
a particular form nor acceptance is required, Do you agree
to this? ATTY URIBE: I do not agree to this answer, I agree
more to the alternative answer that as can be seen from the
facts, what could be more express than that? How express
can this be? And therefore if this is an express condonation
this has to comply to the formalities of law as to donation,
this is a donation of credit and therefore under the law, if
the credit is more than 5K, the condonation must be in
writing and that there must be acceptance in writing, so
there was a condonation in writing, but there was no
acceptance in writing, hence, there was no valid
condonation. IMPLIED CONDONATION, WHEN WILL THIS
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HAPPEN? 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 the
obligation extinguished? At best there was only a
presumption, a presumption that the promissory note was
voluntarily returned to the debtor. If it is voluntarily
returned the effect is that the obligation is extinguished.
Then when would the presumption arise that the delivery
was a voluntary delivery? It will only arise if the document
is a private document, but if it is a public instrument, there is
no such presumption because a public document has several
copies in custody of several people. At any rate, the
presumption here is only a disputable presumption. But
ultimately if it was voluntarily returned to the debtor, how
was the obligation extinguished? DE LEON: Not by
condonation but by payment. Thus, it was voluntarily
returned because there was payment, however, if the
debtor cannot prove that payment, like for instance he
does not have a receipt, maybe he can invoke the
presumption of the law that there was a condonation, but
again, the presumption is disputable. LAST RULE: A debtor
of B, a ring was delivered to B as a security, ordinarily this
will be a pledge, now, after the perfection of the pledge,
the thing again was found in the possession of A the
debtor, is the obligation of A to B extinguished? NO! Is
there a presumption that this obligation is extinguished if
there is a presumption under the law it will pertain to the
pledge. If the thing to be delivered by way of pledge is
thereafter found in the possession of the debtor there may
arise a presumption that it was voluntarily delivered and
therefore the pledge was extinguished. PRESUMPTION
MAY ARISE because the presumption may not arise, why?
The law requires that after the perfection of the pledge,
the thing must be found in the possession of the owner of
the thing pledged. Is the debtor necessarily the owner of
the thing pledged? No because pledge may be constituted
by a third person, so if it was found in the possession of the
debtor, then no presumption will arise, the presumption of
voluntarily returned if thereafter it is found in the
possession of the owner of the thing pledged. Again, this
presumption is disputable presumption, because there are
hundred and one reasons why the debtor would return the
thing to the owner, one of the reasons may be for safe
keeping. So again it is a DISPUTABLE PRESUMPTION.
6. CONFUSION OR MERGER OF RIGHTS this mode can easily be
understood by just imagining the merger of banks in the past few years.
Now, it is common that before the merger, one of the banks is indebted
to the other banks and therefore instead of xxx the creditor may agree
to just buy the debtor bank. Obviously this is by agreement of the
parties. Can there be confusion by operation of law? Yes if the
creditor for example died and the only heir is the debtor, of course
the heir will inherit the credit, the heir now who is the debtor will
now become the creditor, therefore there will be a meeting in one
person of the character of the debtor and creditor and therefore the
obligation will be extinguished. What if the decedent is the debtor and
the heir is the creditor, will the obligation be extinguished? It seems
like it will not be extinguished because the heir will not accept the
obligation. So the creditor will normally demand from the executor
payment. Can a guarantor invoke a merger or confusion? YES! But he
may invoke merger and confusion as to the character of debtor and
creditor because if the principal obligation is extinguished then the
guaranty will also be extinguished, the guarantors will benefit with the
confusion of the character of the principal debtor and the creditor, but
if the confusion was between the guarantor and the debtor will the
principal obligation be extinguished? NO! What will happen here is
that there will no longer be security because the debtor and the
guarantor will be one. CAN THERE BE A PARTIAL EXTINGUISHMENT IN
CONFUSION OR MERGER? YES! By express provision of law, in joint
obligations and there was a confusion pertaining to one of the joint
debtors in the person of the creditor, the extinguishment will only be
to the extent of the debt of the joint debtor. This is different of course
if the obligation is solidary, if there is confusion between the creditor
and one of the solidary creditor the obligation is totally extinguished.
PROBLEM: THE OBLIGATION BECAME OVERDUE IN 1992, THE
OBLIGATION IS 1M PESOS AND THERE WAS MEREGER IN 1999
BETWEEN THE DEBTOR AND THE CREDITOR, BUT JUST LIKE ANY
OTHER AGREEMENT THE AGREEMENT MAY BE RESCINDED, AND
ASSUMING THAT THE CONTRACT WAS RESCINDED IN 2007, 2008 B
FILED AN ACTION AGAINST A TO RECOVER THE 1M, WHY? In rescission
the effect is restitution, the parties will be reverted back to their status
prior to the merger, so as if A owes B 1M, so B files an action today
against A to recover the 1M, may the action prosper? It seems that not
anymore the action already prescribed, the obligation was due in 1992
and the action was filed only in 2008, 16 years after. BUT THE SC HELD
THAT IT YES IT WILL PROSPER, THE TIME OF THE MERGER TO THE
TIME OF RESCISSION SHOULD NOT BE INCLUDED IN THE
COMPUTATION OF THE PRESCRIPTIVE PERIOD. This a very good
decision because creditor and the debtor are one at that time.
Therefore only 8 years has lapsed so the action has not yet prescribed.
7. COMPENSATION By express provision of law, compensation may be
total or partial. With partial compensation may there be two or ten
debts extinguished as partial compensation? Yes, there can be two or
100 debts extinguished by compensation but it is still partial
compensation why? As long as the debts of one are not equal to the
debts of the other the compensation will only be to the concurrent
amount and there will be no total extinguishment. Total
extinguishment will only take place when the debts are totally equal
for instance if the debt is 1M and the other is 1M. Scenario: A owes B
100K, but B has several debts to A 2K, 1K, 5K, 20K but if you add it all up
it is only 80K, with compensation, all the debts will be totally
extinguished, because the extinguishment is for the concurrent
amount, the 80K will be totally extinguished, but A would still owe B
20K, why is this so important? This is important as to the liability to pay
interest or as to whether or not there can be valid foreclosure etc.
EXAMPLE: A obligation to B, B has obligation to A, A’s obligation is
interest bearing, after compensation can B still collect interest can A
be held liable for interest? It will depend on the amount involved, if B’s
debt is smaller may be 50K, A’s debt is 100K, can be collect interest?
Not anymore because the debt will be totally extinguished, the 100K
will be reduced by 50K to the concurrent amount. On the other hand
what if the 100K is secured by a mortgage after compensation may A
foreclose the mortgage? Yes! because there will still be a balance of
50K, a mortgage is an indivisible contract, until the obligation is not
extinguished the mortgage will remain in force. And therefore if B failed
to pay A the fifty thousand A can still foreclose the mortgage. BAR
EXAM QUESTION: A opened a savings account with Y bank in the
amount of 1M, thereafter A borrowed money from the same bank
800K, thereafter A wanted to withdraw the 1M, the bank said no you
cannot withdraw the 1M because your obligation to pay the 800K is
already due we are invoking compensation, you can only withdraw
200K less the charges, A claimed you cannot do that because under
1287 there can be no compensation when one of the debts arises from
a deposit. WHO IS CORRECT? The bank was correct because a savings
account deposit is not a deposit it is a contract of loan, that is why 1287
(compensation will not be proper if one of the obligations arises from
depositum) will not apply. So if both are simple loan there can be
compensation. 1287 provides that there can be no compensation when
1 of the obligations is arises from a deposit, this is known as, as some
authors would name it, a facultative obligation. However, other
authors does not see this as independent obligation, this is just treated
as a modification of the other kinds of compensation recognized by law
which is a facultative or conventional compensation the third one is
judicial compensation the first obviously is legal compensation. Legal
compensation is considered as the xxx if the examiner does not
mention any kind of compensation he is referring to LEGAL
COMPENSATION. Voluntary compensation: the consent of both parties
is required. In facultative: it is only the consent of one of the parties
which is required. Judicial: this would normally happen when a case is
filed for a sum of money but what would normally happen in cases, the
defendant will have counterclaim, usually the counterclaim is bigger, so
in the end the plaintiff becomes liable on the premise that the claim of
plaintiff is valid and was granted and the court also granted the
counterclaim it is compensated up to the concurrent amount. The
obligations which are not yet liquidated at the time of the filing of the
action, they can be liquidated during the proceedings. In compensation
it is also called as set off or counterclaim but it seems that this word is
proper in judicial compensation because counterclaim is usually used
in the court.
a. VOLUNTARY COMPENSATION this is by agreement of the
parties, even if not all of the requirements for legal
compensation are present it does not matter the obligations
will be extinguished by agreement of the parties. For
example: the debts are not yet due and they want to
compensate, what can we do? The parties already agreed.
Also, probably one of the debts pertain to a carabao and the
other to a car, we cannot do anything about it. In fact in lay
man’s term we call this “quits”.
b. FACULTATIVE COMPENSATION it occurs in depositum,
commodatum, gratuitous support, and civil liability arising
from crime- this will arise if one of the debts arises from a
depositum, in a depositum a thing is delivered to the
depositary for safekeeping, this can happen even also with a
bank. If a person for example would deliver 1M pesos to the
bank only for safekeeping, this will be a DEPOSITUM What if
A deposited 1M not as a savings account but in the safety
deposit box, and A borrowed 800K, now if A would want to
withdraw the 1M from the safety deposit box can the bank
invoke compensation? The depositary cannot invoke
compensation but the DEPOSITOR CAN! Aside from
depositum, mentioned COMMODATUM when one of the
debts arises from commodatum xxx in this obligation the
thing has to be returned upon demand however here, the
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bailor can invoke consignation but not the bailee. SUPPORT
should be gratuitous support and not contractual support
why? if this is legal support, a person needs this to survive
thus, it cannot be subject to compensation. But if it is
support in arrears compensation may take place. CIVIL
LIABILITY ARISING FROM CRIME probably the scenario
here is A is indebted to B 100K when B tried to collect A
cannot be so he stabbed A, so B was held criminally liable,
then there was a monetary award, what if the award to A is
120K, if A demands for 100K from B can B invoke
compensation? NO! The convict cannot invoke
compensation but the aggrieved party can invoke
compensation.
c. LEGAL COMPENSATION, THIS IS BY OPERATION BY LAW
From the moment all the essential requisites are present
compensation takes place even without the knowledge of
the parties, even before they invoke compensation .
SCENARIO: A owes B due 1992, B owes A due in 1999,
possible that it’s both 1M based on different transaction, A
filed an action against B the defense of B is compensation,
however, A may claim that no you cannot invoke
compensation because you credit has already prescribed
since my debt has become due in 1992 is A correct? NO!!! in
1999 even without their knowledge when the debts become
due and demandable compensation took place.
REQUIREMENTS OF LEGAL COMPENSATION:
i. THEY MUST BE MUTUAL CREDITORS AND
DEBTORS - but if you have read one case and a
few authors would consider this instead of
mutual they would use reciprocal creditors ATTY.
URIBE: I would not encourage you to use
reciprocal creditors, if reciprocal debtors and
creditors it will imply reciprocal obligations, if it is
reciprocal obligations then this obligations arose
from the same transactions if this is the case one
of the requisites for legal compensation to take
place will never be complied with. CASE: Francia
vs. IAC was there legal compensation? NONE
because in the case Francia was indebted to the
city government of pasay because of xxx
however, Francia was invoking legal
compensation because he was the creditor of an
expropriation proceedings, it just so happen that
the city government did not expropriate his
property the national government did since the
requirement no. 1 is not present there is no legal
compensation. CASE: PNB v. ACERO: PNB was
debtor of Isabela, this is simple loan, so PNB
owed Isabela, however ACERO was the judgment
debtor of isabela who wants to have the savings
of Isabela garnished, however PNB claimed that
they invoked compensation because Isabela was
also their debtor, who is correct? No claim is
correct, although PNB is the debtor of Isabela,
there was no proof that Isabela is the debtor of
PNB.
ii. BOTH DEBTS MUST BE IN SUMS OF MONEY OR
IF THEY PERTAIN TO GOODS THEY MUST BE OF
THE SAME KIND AND QUALITY in other words
may the obligations be both in sums of money if
they are reciprocal obligations? It cannot happen.
In reciprocal obligations there are different
prestations one is delivery and the other
monetary, it can never be both sums of money.
Reading several cases it might appear that this
compensation may occur only when the
obligation arise from contracts, is this correct,
will there be legal compensation only if the debt
in money arose from contract? NOT TRUE! Even
if the obligation arose from other sources there
can be compensation. In fact if you read the
CASES: Mindanao Portland xxx in these two
cases the amounts which are the subject of
compensation were attorney’s fees, these fees
did not arise from contract. Mindanao Portland
is unlikely, company A filed a case against
company B, one of them won and the court
awarded attorney’s fees, in another case the
other company won and attorney’s fees were
also awarded, so the award is of the same
amount, the obligation is of the same nature,
COMPENSATION TOOK PLACE. Ultimately the
QUESTION HERE IS: Does it mean that all
monetary obligations may be the subject of
legal compensation? No! If you have read the
case of Francia v. IAC certain monetary
obligations cannot be subject of legal
compensation like payment of taxes, customs
duties, tariff etc.
iii. BOTH PARTIES MUST BE PRINCIPALLY BOUND
Principally bound because in a scenario where A
is indebted to B and this obligation is secured by
a guarantor G on the other hand B is the debtor
of G in this obligation, if G demands payment
from G Can he claim that G is also indebted to
him because he is a guaran or in B obliga ion
to A? In its face NO, because the guarantor is
not principally bound but take note the moment
A defaults and his properties are already
exhausted, the GUARANTOR WILL NOW BE
LIABLE TO B AND FROM THEN ON
COMPENSATION WILL TAKE PLACE.
iv. THEY MUST BE CREDITORS AND DEBTORS OF
EACH OTHER IN THEIR OWN RIGHT: SYCIP v. CA:
the owner of the shares of stocks authorized
Lapuz to sell the shares of stock, lapuz on then
authorized Sycip to sell the shares of stock, the
latter was able to sell the shares of stock (5K),
however, despite the demand to Sycip to remit
the proceeds of the sale he refused to do so. A
complaint for estafa was filed against Sycip, he
was convicted in the lower court, on appeal Sycip
claimed that Lapuz owed him (5K) so
compensation took place, therefore he cannot be
liable for estafa, is S cip con en ion correc
NO, even assuming that Lapuz is indebted to
Sycip, the latter is really not indebted to Lapuz
in his own right. The real creditor of Lapuz is the
buyer of the shares.
v. BOTH DEBTS MUST ALREADY BE DUE AND
DEMANDABLE The MOST COMMON MISTAKE
WHEN ASKED WHY IS THERE NO LEGAL
COMPENSATION IS BECAUSE THE OBLIGAITON
HAS NOT YET BECOME DUE AT THE SAME TIME.
REMEMBER: the requirement of the law is that
both debts are due and it is not required that
the debts are due at the same time. But if one
debt became due 3 years ago and the other debt
became due today, compensation will only take
place today, but there can be compensation.
ANOTHER COMMON MISTAKE: EXAMPLE: A
borrowed money, the other one bought on
credit, so they are debtors and creditors of each
other, however, they say that there can be no
legal compensation because the obligations do
not pertain to sums of money, one is money the
other one car. HERE THE OBLIGATION OF THE
BUYER IS TO PAY THE PRICE SO IT IS ALSO
MONETARY LEGAL COMPENSATION WILL TAKE
PLACE.
vi. THE DEBTS MUST BE LIQUIDATED AND
DEMANDABLE In other words there should be
no claim by a third person over this right or
credit, because if the claim is subject of legal
proceeding, there can be no legal compensation.
Example: International Corporate Bank v. IAC:
Fajardo borrowed money from ICB 50M the bank
released only 20M to secure this obligation,
Fajardo mortgaged properties amounting to
110M, thereafter she also delivered 1M to the
bank for money market investment, so just like
any other investments it matured, so she
demanded for the return of the 1M, the bank
claimed that she has nothing to recover from the
bank because as to her loan which she failed to
pay, when the foreclosed the mortgage she still
has deficiency of 6M, so compensation took
place, however Fajardo questioned the mortgage
the SC HELD: there can be no legal
compensation because one of the claims is still
being litigated.
vii. ONE OF THE DEBTS MUST NOT ARISE FROM
1287 AND 1288 Because in such cases legal
compensation will not take place since in
depositum the depositor or the bailor must
invoke legal compensation.
d. EFFECT OF ASSIGNMENT OF A CREDIT AS TO THE RIGHT TO
INVOKE COMPENSATION Scenario: A was indebted to B
50K, 30K, and 20K, B on the other hand is indebted to A
100K, A assigned his credit to X, X demanded payment from
B, how much can X demand from B? Questions on
assignment the first thing to look at is the DATE OF
ASSIGNMENT! If the date of assignment took place long
!"#$%&%'(")*+#,%-(.#/%
after the deed of assignment took place, For example: 50K
June 15, 2002, 30K Oct. 15, 2002, 20K Dec. 15 2002, the
100K due November 15, 2002, if the assignment was
made, Jan. 15, 2003, how much can X demand from B?
10,000 Pesos only as of Dec. 15, 2002, compensation took
place as to the extent of 90K pesos. PROBLEM: Let us
assume the 100K obligation became due on November 15,
2002, this obligation may be assigned even in March of the
same year, so it was assigned in March 2002, if the demand
was made Oct. 1, 2002, how much can X demand from B?
NONE!!! Because the obligation is not yet due! PROBLEM:
Due date, November 15, 2002, assignment July 2002, as of
November 15, the X demanded from B, how much can B be
compelled to pay? The first factor you have to consider:
WHETHER THE ASSIGNMENT WAS WITH THE KNOWLEDGE
OF B OR WITHOUT KNOWLEDGE: IF WITH KNOWLEDGE,
YOU HAVE TO DETERMINE WHETHER OR NOT THERE WAS
CONSENT TO THE ASSIGMENT OR NONE: IF CONSENT IS
GIVEN, YOU HAVE TO DETERMINE WHETHER OR NOT HE
MADE A RESERVATION OR NO RESERVATION: (so the
scenario here is A and X advised B that A is assigning the
credit to X, B consented but he reserved his right to invoke
compensation) IF B RESERVED, HOW MUCH CAN X COLLECT
FROM B? ONLY 50K BECAUSE AS OF THE DATE OF THE
ASSIGNMENT WHICH WAS WITH THE KNOWLEDGE OF B,
THE DEBT IN JUNE 15 IS ALREADY DUE, AS TO DEBTS OWING
TO B WHICH ARE ALREADY DUE HE CAN INVOKE
COMPENSATION OR AT LEAST RESERVE COMPENSAITON
BECAUSE COMPENSATION WILL TAKE PLACE ONLY NOV. 15,
SO AS TO 30K AND 10K B CANNOT INVOKE COMPENSATION,
AT THE TIME OF ASSIGNMENT JULY 15, THE CREDITS ARE
NOT YET DUE TO HIM. NO RESERVATION HOW MUCH CAN
X DEMAND FROM B? 100K BECAUSE BY AGREEING
WITHOUT RESERVATION HE WAIVED HIS RIGHT TO
COMPENSATION, B’S REMEDY HERE IS TO DEMAND THE
PAYMENT OF THE DEBTS FROM A. WITHOUT KNOWLEDGE:
X demanded from B in December, how much can B be
compelled to pay? 10K he can invoke compensation to those
debts which became due if the assignment is without his
knowledge.
MODES OF EXTINGUISHMENT OF OBLIGATIONS
CLASS DISCUSSIONS
Illustrations:
1. All kinds of obligations as to prestations may be extinguished by
payment? NOT ALL.
2. Who are persons who pays, being called? PAYOR or PAYER
because person who pays is NOT ALWAYS the debtor.
3. A debtor, B creditor; if A is a minor and he paid B, may that
amount be recovered from B? YES, because one of the requisites is
that there must be capacity to pay and the minor being a minor
d e h a e h e c a a c i nnot
therefore be considered as a valid payment. A is a minor may a
minor have a valid obligation? YES. What could be the source of
the obligation? Common is: in Quasi-delict or if there is a law
which requires a minor to pay a sum of money, say, to PAY TAX
and also from Delict (12-14 years old) = criminal liability.
4. What if A this time is under receivership and A paid B, may that
amount paid to B may be recovered from B? Yes, because aside
from the requirement that the payor should have the capacity to
pay, he must also have the capacity to freely dispose of his
property. I h a i a c e h e e a
freedom to dispose his property?
Under receivership
Civil interdiction
Those ordered by the court to retain the property by way
of attachment/ garnishment Custodia Legis
5. X offered to pay B. He offered to pay the debt of A to B, A
borrowed 1 year ago from B for the amount of 100k, and this is
secured by a guaranty executed by G, may this obligation be
extinguished upon the payment of X to B? When? It DEPENDS if
B would accept. Can B be compelled to accept payment by X?
General Rule: Creditor may not be compelled to accept payment
from a third person. EXCEPTIONS:
a. If there is a STIPULATION that a 3rd person would
perform or pay the obligation.
b. 3rd party has an interest in the fulfilment of the
obligation.
6. DIFFERENCE between 3rd person who has INTEREST IN
THE FULFILMENT of the obligation vs. 3rd person who has
interest IN THE EXTINGUISHMENT of the obligation?
Because payment or performance is just one mode or form of
extinguishment law is very specific that it said performance as
there are other modes of extinguishment this provision pertains to
the right of the 3rd person to seek reimbursement from the principal
debtor if you think this is a condonation, there is a right to seek
reimbursement? No h a h h e l a
interest in the fulfilment of the obligation and not extinguishment
in general.
7. How come the law expressly provides as a rule that the creditor
cannot be compelled to accept payment? Because here if the
creditor refuses to accept and when compelled, there will be breach
of consent due to the supposed consideration to the personal
qualification of the debtor. In the OLD CIVIL CODE the
provision only pertains to obligations To Do l i k e l e
repair a car, so why would the creditor accepts performance of the
3rd e i l l e a i h i c a , ma
at repairing cars. In NEW CIVIL CODE there is no more
distinction as to what obligation e.g. why would the creditor not
compelled to accept? These days money can easily be
counterfeited. That is why creditor may not want to accept
payment from a 3rd person.
8. Example of 3rd person who would have an interest in the
fulfilment of the obligation: Mortgagor, Pledgor, or a Guarantor.
Guarantor vs. Surety surety: bonds but is just like guarantor, it
is subsidiarily liable with the debtor. Executor he represents the
estate, if it pertains to a Right owing to the estate, the executor is?
They are called CREDITORS but they are NOT creditors in
THEIR OWN RIGHT. Why are they called creditors? Because
they have the power to demand fulfilment but they are only
representing somebody else.
9. If there are 5 debtors in an obligation, one of them has an interest
in the fulfilment of the obligation? It DEPENDS. If it is a JOINT
or SOLIDARY Obligations but regardless of whether the
obligation is Joint or Solidary each of the debtors has an interest in
the fulfilment of the entire obligation. It is easy to understand if the
obligation is Solidary, because any one of them may be responsible
or liable for the entire obligation so each one would have an
interest in the fulfilment of the entire obligation. But if this is
JOINT, BASIS:
a. If it is a divisible obligation like to pay a sum of money,
he would not have an interest. Each debtor has an
interest in the fulfilment of the entire obligation? YES.
SC ruled that even if the obligation is joint then 4 of
them cannot pay or refuse to pay, the 5th one will be
affected by the refusal or inability to pay his credit
standing and reputation would be affected as the
creditor can easily tell the whole world that this person
d e k h a h i
way.
10. X paid B, like 100k, scenario: A borrowed from B a year ago 100k
and this was secured by a guaranty by G, and X today paid B 100k.
a. How much can X validly demand from A? You have to
qualify. If A did not give his consent to the payment , X
would only have the right to demand to the extent that
A was benefited from the payment made. Is it possible
that A did give consent to the payment but still would
have the right to demand from X for reimbursement to
the extent of 100k? YES, as long as A has benefited
thereto. If X paid B wi h A c e
demand to the extent that A was benefited from the
payment made, only if accepted by B.
b. If A refuses to pay the reimbursement to X, can X run
after the guarantor G? Whether or not X will have a
a l i e a e hright
i e
of action against a
the guarantor d willc depend
a on
whether it is subrogated in the rights of the creditor.
Does it matter if A gave consent to the payment? When
X paid B, the obligation of A to B was extinguish, does
it matter if A consented to the payment or not as to the
extinguishment of the obligation? The obligation is
extinguished because there is payment, and payment
is a mode of extinguishment. The consent of A would
only matter as to the rights of the payor. In other words,
if X paid with the consent of A, first he would have the
e d righte h a
to seek reimbursemente as toh the
e entire amount and
second, X will be subrogated in the rights of the
creditor, does it matter that the guaranty was not
constituted in favour of X? I d e ma
d h i e ogated will h i
acquire all the rights of the creditor, could have
exercised not only against the debtor but also against
anyone who are subsidiarily obliged, just like
guarantors. Otherwise, if X paid B without the
knowledge or against the will of A , he will not be
subrogated. Following the rule, when he paid, the
obligation was extinguished, and this being a principal
obligation and accessory is that of the guaranty, the
accessory was also extinguished due to the principle of
subrogation being applicable; hence, he cannot run after
the guarantor.
c. What if X and B had an agreement, that instead of A, X
will be the one to pay B, with the agreement thereafter
X paid B and this is without the knowledge of A, it was
also agreed upon by X and B that upon payment that X
will be subrogated in the right of the creditor. X then
paid B but A failed to reimburse X. Can X run after the
guarantor? A f a a e i g i h me
consent is NOT REQUIRED because as long as there is
payment there is extinguishment. In the facts, there was
i e e c i nothing
f i c :said h that
e B h awas compelled.
a It was by
agreement . Was B subrogated by X by reason of the
agreement between X and B? Article appears not to be
!"#$%&%'(")*+#,%-(.#/%
well formulated and that there is an implication that if
there is an agreement that the 3rd person will be
subrogated to the rights of the creditor then he can be
subrogated because he was not compelled, therefore
3rd person can subrogate the creditor. THIS IS A
WRONG INTERPRETATION considering the fact that
this provision is intended to protect debtors. In other
words, REGARDLESS of the agreement between the
creditor and the 3 rd person , as long as the payment was
without the knowledge or against the will of the debtor,
B will never be subrogated by X or 3rd person will
never be subrogated in the rights of the creditor. This
will only be true if X doesn t have an interest in the
fulfilment of the obligation.
11. If X is a guarantor and he paid B, will he be subrogated in the
rights of B even if the payment was made without the knowledge
of A? YES. And the basis is under Article 1302. Under certain
circumstances there would be legal subrogation and one of the
three scenarios there is that when a person has an interest in the
fulfilment of the obligation pays with or without the consent of the
debtor. This is also true in guaranty, except?
a. General Rule: If he pays, he is subrogated.
b. EXCEPTION: Under the law on guaranty
12. If X paid B without the intention of seeking reimbursement from
A, but 2 weeks thereafter X demanded that B return the amount he
paid for A, claiming that A did not give consent to the payment.
Can B be compelled to pay the amount or to return the amount to
X? What appears to be the argument of X? Why would he have the
right to demand the return in this scenario? What is his theory? NO
because the law expressly provides that the creditor has the right to
retain even if it was without the consent of the donee or even if the
donee did not accept the donation. So there was a valid payment.
When X paid B, it was like a donation to A , and therefore A is a
donee known as indirect donation. Why the donor did not give
the money to the donee? Because the donor has no confidence or
trust in the donee because the donee may just spend the money and
not pay his debts. If this is a valid payment even without the
consent of the donee, what is the relevance of the acceptance by
the donee? It is relevant because in donation, acceptance is needed.
And if the donation will accordingly be void, upon the death of the
donor, that amount may still be considered part of the estate.
13. The person to whom payment is made is known as? PAYEE, again
not necessarily the creditor. For a payment to be a valid payment,
to whom should it be made? Who is the payee? Under Article
1240, the persons are enumerated thereto.
14. What if the payment was made not to the person whom the
obligation was constituted in favour to does it mean that it was a
payment to the wrong party? Therefore will it not extinguish the
obligation? NOT NECESSARILY. It could be successor in
interest. E.g. heir, assignee but is he a creditor? YES at the
TIME of the FULFILMENT OF THE OBLIGATION. For
a me b e a l i d h e d e
of the constitution. Finally if the payee is not in whose favour the
person authorizes to receive it nor a successor in interest, then it is
a payment made to a wrong person? NOT NECESSARILY. He
may be a proper party. The authority as to where it came from was
not specified by the law. So it may be from the law or from the
creditor.
15. ARANAS CASE: Obligation involved is to pay cash dividends.
ISSUE: whether the payment by UTEX to Castaneda did
extinguish the obligation to spouses Aranas? The creditor here is
Aranas and the basis of the claim that they are creditors: Judgment
of the court but still UTEX paid it to a 3rd party. If you were the
counsel of UTEX, what would be your advice? Instead of paying
to the 3rd person, Castaneda, you should have availed of
consignation which is to deposit the money to the court until a
party will be claimed as the rightful creditor. General rule was
applied in this case that payment made to a wrong party did not
extinguish obligation. Exception: when the payment redounded to
the benefit of the creditor even when it was paid to a wrong party.
16. When the payment redounded to the benefit of the creditor who
has the burden of proof? PAYOR or DEBTOR. Will the payor
always have the burden of proof? NO. When would the payor not
have the burden? Article 1241.
a. If after payment, 3rd per on acq ire he credi or
rights. Why after? If before it will be a payment to the
right or proper party successor in interest.
b. If the creditor ratifies the payment to the 3rd person.
This raises a conclusive presumption that it redounded
to the benefit of the creditor.
c. If b he credi or cond ct, the debtor has been led to
believe that the 3rd person had authority to receive the
payment also known as Estoppel in pais.
d. When without notice of the assignment of the credit he
pays to the original debtor (Article 1626)
e. When in good faith he pays to one on possession of the
credit (Article 1242)
17. A debtor of B, A borrowed 100k and it was evidenced by a PN
which A executed and delivered to B, but before obligation
became due and demandable, PN was already in the possession of
X and premise here is that X doe n ha e he righ o credi . So
when PN became due and demandable, X demanded for the
payment, then A paid X. Who is the creditor? B is the creditor.
Because A paid X, A b l i g a i h a a l e a
It DEPENDS. If X was in possession o f the credit and payment
was made in good faith, then the obligation is extinguished.
When would X be considered in possession of the credit?
a. If it is a bearer instrument. Possession of credit means
that this person only appears to have the right to the
cre d i b i h a d i f
right.
b. Had this been, when would X be in not possession of
the credit? If it was said in the bearer instrument that it
was payable to a certain person and that person is not
X. not necessarily also. No if it is a negotiable
instrument. Yes if this is a non-negotiable instrument
because there is no endorsement.
c. For the payment to be considered made in Good Faith,
it must be required that? The debtor does not know or is
not aware of any defect.
d. If X was in possession of the PN, why would there be a
defect is it is in the possession of X? If it may be stolen.
18. A debtor of B, then B assigned his credit to X, normally when
would B assign the right to 3rd person? Before. Why would assign
to other? Maybe because the creditor also has an outstanding debt
to the 3rd person or he owes to X. Say, in Sale or donation or
creditor needs money but such obligation is not yet due or lastly, in
checks e d i c i g .
19. If B assigned the credit to X but after assignment A paid B. Who is
creditor here? X is now the creditor because he is the successor in
interest. If thereafter A paid B, would that extinguish the obligation
of B? If payment was made without the knowledge of the
assignment. This matters as to the time, because before he may not
have the knowledge but after the assignment, he may already have
the knowledge.
Illustrations:
8. Special forms of payment:
a. Dation
b. Application Before the courts do not consider application
as special form of payment.
c. Tender of payment and consignation Tender of
payment is not a form of payment consignation is a special
form of payment.
d. Cession
9. Distinguish one from the other or the rest:
a. Consent: is consent of both parties required in this special
form of payment? There is no question that as to debtors
consent is obviously there because he is the one offering to
pay, so if he is the one offering to pay then there must be
consent, but as to creditor?
i. Dation in payment the creditor has to accept
h a e b e theh delivery
e c of e da i thing instead
a of theh other
e i me
prestation for the satisfaction of the debt, if there
is no consent on the part of the creditor, there can
be no dation in payment. CASE: Filinvest v.
Phil. Acetelyn
ii. Application of payment As a rule the consent
of the creditor is not required, it is only under
certain circumstances that the consent of the
creditor will be present.
iii. Payment by cession Definitely the consent of
the creditor is required, if the creditor would not
agree that the debtor would abandon the
properties for the creditors to sell, there can be no
payment by cession.
iv. Consignation The consent of the creditor is not
required even if the creditor refuses to accept the
thing delivered by the debtor to the court by way
of consignation, the court may declare the
consignation to be valid.
b. As to the effect of the delivery of the thing from the
debtor to the creditor or from the debtor to the court is
there transfer of ownership?
i. Dation in payment yes there is transfer of
ownership, because that thing is being delivered
and the ownership thereof is being transferred in
satisfaction of his debt.
ii. Application of payment Yes there is transfer of
ownership. If money is delivered by the debtor to
the creditor ownership passes to the creditor. The
only question here in this form of payment is to
which debt the payment will apply? This is the
issue in this kind of payment, but as to ownership
it passes immediately to the creditor.
iii. Cession - Ownership does not pass because the
creditor upon delivery because the creditors just
accept the things or those things to be sold and the
proceeds thereof to be applied to the indebtedness.
iv. Consignation Upon the delivery of the thing to
the court ownership does not automatically pass to
the creditors because the consignation may be
void, if it is void, then ownership does not pass to
!"#$%&%'(")*+#,%-(.#/%
the creditor. However, if the creditor will accept
thereafter, may be months or years thereafter, or
maybe the court declares the consignation valid,
then the ownership passes, however, by law the
effect of acceptance or the declaration by the
court that the consignation is valid retroacts to
the time of the delivery of the court as if the
creditor is already the owner of the thing at the
time of the delivery.
c. Extent of Extinguishment: May there be total
extinguishment of the debt?
i. Application of payment No, there can never be
total extinguishment, precisely because there is a
need to determine to which debt the payment is to
be applied. Because the amount paid is not
sufficient to cover all the debts, because you will
no longer have a problem is the amount is
sufficient to cover all the debts you just have to
invoke the rules on application on payments.
Necessarily there is no total extinguishment of the
debts under the rules on application of payment.
ii. Cession the extinguishment will only be to the
extent of the net profits of the sale, unless the
parties agree that the abandonment will result to
the extinguishment of the entire debt. So here, the
net proceeds is the basis of the extent of the
extinguishment of the debt.
iii. Consignation Because this is a special form of
payment it follows the rule in payment, thus as a
l e a i a l e f
therefore if the debtor delivers only a portion of
his debt, then the consignation is null and void.
The exception will only be if the creditor would
agree to the delivery of partial amount, then to
that extent there will be partial
extinguishment.
iv. Dation in payment There are authors who will
take the position that if there is Dation in payment
then the obligation is totally extinguished unless it
is clear in the intention of the parties that it will
result only to partial extinguishment. But is this
the better rule? For example if A is the debtor of
B in the amount of 1M and A delivered to B a car
stating that it is to be applied to the amount that B
owes A, the value of the car is 150K, if the
creditor accepted the car, does that mean that the
entire obligation is extinguished? This rule does
not seem to be equitable, the BETTER RULE:
As a rule the extinguishment is only to the
extent of the value of the thing delivered unless
it is clear from the agreement of the parties
that the delivery of a thing, no matter the
value, is equivalent to the amount of the
obligation.
10. Specific Rules:
a. Dation in payment Again in Dation a thing is delivered
and ownership thereof is delivered by the debtor to the
creditor in satisfaction of his debt. Dation apparently will
only apply to the delivery of the thing. THIS IS NOT
TRUE. The SC has ruled that even rights can be the
subject of Dation for example: if hereditary right is
already vested to the debtor, the debtor can deliver his
rights to his creditor for the satisfaction of his debt. Also,
in one case, a credit owing to the debtor may be delivered
by him to his creditor for the satisfaction of his debt. But
just like the other modes of payment, in order that there be
Dation there has to be an obligation to be extinguished
(CASE: Citizen s Surety v. CA: Perez was claiming that
with the execution of deed of assignment that practically
extinguishes his obligation under the indemnity agreement by
way of Dation, the scenario here was: a contract of sale was
entered into, payable by installment, the buyer is Pascual
enterprises, to secure the fulfillment of his obligation, a
e b d a e e c e d
surety executed an indemnity agreement just in case it will be
held liable under the bond, Pascual Perez and his wife being
h e a h e e , Ci i e
assignment over certain stocks. The surety obviously was
held liable under the bond, the surety went after Perez under
the indemnity agreement. Perez claimed that the execution
of deed of assignment was a form of Dation, but the facts
showed that at the time the deed of assignment was
executed there was no obligation under the indemnity
agreement nor under the surety bond. Why? Because the
contracts were all dated earlier than the time he was
made liable, therefore there was no obligation yet. So
what is really the nature of deed of assignment? It was a
form of security arrangement. Other facts relied upon by
the SC in ruling that the deed of assignment was not
Dation in payment was that after the deed of assignment
was executed, Perez also executed a real estate mortgage,
so why would he execute a real estate mortgage if his
obligation was already extinguished by Dation. Also, in
deed of assignment, there were partial payments made, if
there was Dation then he would not have made the
payments.)
What is the law governing Dation? Others would say
that this is governed by the law of sales. If you will read
Article 1245, it would appear that Dation is governed by law
of sales, but reading it more closely; the law on sales will
only apply if the obligation is in money . For instance, A
owes B 20K, instead of paying cash, A offered his cell phone
to B in satisfaction of the obligation, there is here Dation and
this will be governed by the law on sales as provided for in
Article 1245. Tolentino criticized this provision,
considering that the trend worldwide is to consider this as
a form of novation because practically there is a change
in the object, from money to a thing. REMEMBER! 1245
will not apply if the pre-existing obligation is not in
money. For example: A is obliged to deliver to B a horse, so
instead of delivering a horse he delivered a car to B. 1245
will not apply here because the pre-existing obligation is not
in money, but it is to deliver a horse. So in this case
Novation shall apply because there was a changed in the
object of the obligation, from horse to car. Again, going
b a c k T l e he said i that regardless
c of ipre- i c i m,
existing obligation whether money or thing, still the law that
will apply is the law of novation. Atty. Uribe: I find wisdom
in Article 1245 because, instead of paying in cash, (refer to
the cell phone example) the debtor paid by giving his phone
to the creditor, but is this not almost similar to the scenario
where the debtor paid in cash and the creditor used the cash
ma c e i to buy the cell
e phone
f ofmthe
a debtor.
c e And therefore the law on
sales will govern.
b. Application of payment the only question relevant in this
l eto which
i debt will the payment be applied? the
premise of this question is a debtor has two or more debts to
one creditor but may the rules on application of payments
be invoked if the debtor has two or more creditors? Yes.
As long as to one creditor he has two or more debts. The
law does not require that the debtor should only have one
creditor. For e ample: A credi ors are XYZ, for the rules to
be invoked, he must have two debts to one creditor. Let us
say A owes X 100K, 50K, and 20K, now if A delivers to X
30K, the question here is to which debt will the payment
apply?
i. AS A RULE: The debt designated by the
debtor, under the law, the debtor has the right
to designate to which debt the payment will
apply. So here, A can designate the 30K to apply
to 100K or to 50K or to 20K or 30K. But having
said that, if A instructed the creditor to apply the
30K to 50K, can the creditor be compelled to
apply the payment to the 50K debt? AS A RULE
THE ANSWER IS NO because this is a special
form of payment, the rules of payment shall
apply, the creditor cannot be compelled to accept
partial payment, nor the debtor be compelled to
perform partial payment. Therefore, unless there
is a stipulation giving the debtor a right to
designate to a debt that will constitute partial
payment, he cannot designate payment to which
the payment should be applied. What are the
limitations on the right of the debtor to designate
the application for payment?
1. Partial Payment- In the first place
why would he designate it to the 50K?
The 50K may be interest bearing.
THEREFORE, THE RIGHT OF
THE DEBTOR TO DESIGNATE
TO WHICH PAYMENT SHALL
APPLY IS NOT ABSOLUTE, ONE
OF THE EXCEPTIONS IS AS TO
PARTIAL PAYMENT.
2. Payment of Interest first- A delivered
i f a f h e e l l the
e 30K,, he designated
c i iti for e the
payment of the 30K debt, however, the
30K debt is interest bearing, can he
a l h a d P e e ecompel
e c the ecreditor
a to
d e apply
e d the f
payment to the principal first, then he
will just pay the interest later? NO BY
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.
3. Debts already due and demandable-
A designated the 30K for the payment
of the 30K debt, but the 30K debt is
not yet due. THE LAW REQUIRES
THAT THE DEBT IS ALREADY
DUE IN ORDER THAT THE
!"#$%&%'(")*+#,%-(.#/%
DEBTOR WOULD HAVE THE
RIGHT TO DESGINATE SUCH
PAYMENT TO THE DEBT. What is
the meaning of due here? The period
must be fixed for the benefit of the
creditor or for both of them. If it is not
yet due, but the period is fixed solely
for the benefit of the debtor it does not
matter the debtor can designate such
debt because the period is for his
benefit. But also he cannot vary an
agreement which they had as to
which debt the payment to be
applied.
PROBLEM: What if A entrusted X to apply the 30K to 30K
debt, but the debt is secured by a mortgage, as instructed, X
applied the payment, he issued a receipt stating that the 30K
is applied to the 30K debt, however, days thereafter, A asked
X to apply the amount to another debt, the 50K, though the
creditor cannot be compelled to accept, he may accept if he
wants to. So, if X agrees, and he applied the payment of the
50K debt instead of the 30K, thereafter A was not able to
pay X as to the 30K debt,can X foreclose the mortgage?
NOT ANYMORE! A already paid the 30K, although it was
revived (when he chose that the payment be applied to 50K
instead) the mortgage was not revived (mo rtgage is not
revived without the consent of the mortgagor).
ii. SECOND RULE: What if the debtor did not
designate the debt to which the payment shall
apply? The debt designated by the creditor. He
would have the right to designate to which debt
the payment shall apply. However, is the debtor s
consent required in the designation made by
the creditor? Yes! By express provision of the
law, if in the receipt the debtor sees that the
payment was applied to a particular debt, and the
debtor does not agree to such application, he
may refuse to accept the application.
iii. THIRD RULE: Neither the debtor nor the
creditor made the designation. Scenario: the
debtor made payment; the creditor accepted and
issued a receipt without designating the particular
debt, so to which debt the payment shall apply?
IT WILL DEPEND ON WHETHER THE
DEBT OF THE SAME NATURE AND
BURDEN OR WHETHER THE DEBT IS
MOST ONEROUS OF THEM ALL. If all the
debts are of the same nature and burden, the
law requires proportional application. As
regards to the most onerous debt, apply the
payment to the most onerous obligation. TAKE
NOTE! That you should only go into these rules
if the law would not guide you as to which debt
the payment should be applied, there are guides
like partial payment, interest bearing, and the
circumstances which may show the intention of
the parties, if these guides are not present, then
that is the time you go into the rules
considering the nature and burden of the
debts. IN DETERMINING WHICH DEBT IS
THE MOST ONEROUS: is there a particular
rule? None. The SC held that there is no hard and
fast rule! This is because each debt has its own
features, for example, there are debts which
consist of bigger amount the other smaller amount
but interest bearing, the other one secured. For
example one debt is secured by real estate
mortgage and another debt is secured by pledge,
what is more burdensome? The debt secured by
a real estate mortgage. However, real estate
mortgage may be constituted by one real estate, so
consider if the real estate mortgage constitutes a
small lot and the pledge constitutes ships, which
is more onerous? Obviously the debt secured by
pledge constituting ships. TAKE NOTE THAT
ALL FACTORS ARE CONSIDERED IN
DETERMINING WHICH IS MORE
ONEROUS. If for instance in one debt the debtor
is merely the guarantor and other debt he is the
principal, apparently the debt in which he is the
principal debtor is more onerous, but the common
reason given by few authors is because in this
debt where he is a guarantor, his liability is only
subsidiary, in fact inchoate, he may or may not be
held liable because the principal debtor should
first be held in default then his properties
dissolved before the guarantor may be held liable,
BUT THIS IS A WRONG REASON WHY? If
the rules on applications of payment are to be
invoked, it presupposes as to the two debts he is
already liable, his liability is not merely inchoate,
and even if it is only subsidiary, he is already
liable, in other words in this scenario for the rules
to be applied, the principal debtor should have
defaulted and his properties exhausted that is why
the guarantor is liable, if he is not yet liable there
is no reason to apply the rules on application of
payment because there is only one debt, which is
the debt to which he is the principal debtor.
But even considering that in the contract of
guaranty the guarantor is already liable, which is
more onerous, Atty. Uribe: the debt more onerous
is the debt to which the debtor is a principal,
because in guaranty the guarantor may be able to
recover what he paid to the creditor from the
debtor, in the debt to which he is a principal, he
cannot recover anything by way of
reimbursement. One author would claim: bigger
amount is more onerous than smaller amount.
Is there any basis for this claim? Atty. Uribe: I
beg to disagree to this claim, first, if the debt is
one peso or two pesos or even one thousand pesos
bigger in amount, does that really matter in this
country? But if you go by the rules, if you follow
this claim, then what will happen to the rule that
there are debts of the same nature and burden
because if the debts would have 1 peso difference,
then that debt is already more onerous, since the
law provides that proportional application to
debts, presupposes that the debts are of
different amounts. Example this is 1M the
other debt is 10K, you think 1M is more
onerous, not necessarily, l e a h e
only 10K but it is interest bearing, what should I
pay first? Of course the 10K interest bearing. Who
cares about the 1M, after 2 years it is still 1M!
Again the amount is irrelevant. Another, OLDER
DEBT IS MORE ONEROUS. There is no basis
to this claim. In fact, older debts may be less
onerous why? Because it is about to prescribe.
c. Payment by Cession or Assignment Here the debtor
would abandon or assign all his properties to the creditor
which properties will have to be sold by the creditor the net
proceeds shall be applied to the credit.
i. FIRST ISSUE: All the properties of the debtor
shall be delivered? No, there are properties
which are exempt from execution. But can the
debtor deliver to the creditor properties which are
exempt from execution? Yes! Because that is a
right which the debtor can waive, though he
cannot be compelled he may abandon those
properties to the creditor. However, there are
certain properties which cannot be the subject
of the claim of the creditor even with the
consent of the debtor LIKE THE FAMILY
HOME, of course there are beneficiaries of the
family home who can object to the sale thereof.
ii. What if the debtor is willing to abandon all his
properties and the creditors would refuse, what
is the remedy of the debtor? Authors would say
that the best remedy of the debtor is to file an
action for insolvency. In a way insolvency
proceeding has its advantages, however, here in
the Philippines businessmen are really not keen on
filing an insolvency proceedings.
iii. What if the creditors did agree for this kind of
payment but they failed to agree as to how they
will partition/distribution the proceeds? Atty.
Uribe agrees that the rules on concurrence and
preference of credits because in these rules there
are preferred debts and those debts which are not
preferred they shall be paid proportionately.
iv. Alleged requirement of few authors that in
this form of payment, the debtor is insolvent.
In other words, there can be no cession if the
debtor is not insolvent. Atty. Uribe CANNOT
AGREE TO THIS REQUIREMENT because if
you read Article 1265 there is no requirement that
the debtor must be insolvent for payment of
cession to take place. Another important reason is
the fact that this is by agreement of parties, there
can only be payment of cession because the
creditor agreed, as long as the debtor is willing to
abandon the properties and the creditors agree and
the proceeds shall be applied to the debt, there is
cession.
v. Other authors claim that the debtor should be
partially insolvent, is there any basis to this?
NONE! Once a debtor failed to comply with his
obligations, he is in delay, is likewise insolvent.
There is no such thing as partial insolvent. The
statement of Professor Sta. Maria is a better
statement hi mode of e ing i hing obliga ion
would normally be resorted to by debtors who are
in a financiall diffic l po i ion.
!"#$%&%'(")*+#,%-(.#/%
d. Tender of payment and consignation Fist, let us go to the
claim of Prof. Jurado, as a rule tender of payment is
necessary for consignation to be valid, correct? Reading
Article 1256, there are how many grounds or causes for
consignation wherein the law expressly provides that tender
of payment is not required. In 1256 there are about 5
grounds, where the law provides that in those grounds tender
of payment is not required, obvious because in those grounds
the creditor is not present. So in those causes, there is no
tender of payment but the consignation is valid. What are
the grounds or causes for consignation where tender of
payment is necessary under the law? Where the creditor
refuses to accept without just cause. Therefore going back
to the statement tender of payment is required for
consignation to be valid, it seems wrong. AS A RULE
TENDER OF PAYMENT IS NOT REQUIRED, THE
ONLY EXCEPTION TO THAT RULE IS WHEN THE
GROUND FOR CONSIGNATION IS THAT THE
CREDITOR REFUSES TO ACCEPT WITHOUT JUST
CAUSE.
i. On the other hand, Jurado is very much correct
in his statement that
very nature is extrajudicial” as you have read in
the case of Soco v. Milintante, tender of payment
is made during the pendency of the action, that
consignation is void. Tender of payment should
be made prior to consignation not during the
pendency of the action. SO IT IS BY ITS VERY
NATURE EXTRAJUDICIAL IN
CHARACTER.
ii. Now, if the ground for consignation requires
tender of payment and the debtor sent
probably three letters to the creditor informing
the creditor that I am willing to pay my debt
xxx is this a valid tender of payment? NO! In
order for tender of payment to be a valid tender of
payment, you have to actually offer the amount to
the creditor; IT IS THE ACT OF OFFERING
THE AMOUNT WHICH CONSTITUTES A
VALID TENDER OF PAYMENT.
iii. Into the requisites of a valid consignation:
1. There must be a debt to be
extinguished a sum of money is
delivered not to extinguish a debt but
to exercise a right, like the right of
redemption, if the other party refuses
to accept the money, then the person
who has the right is not required to
deliver to the court the amount by way
of consignation because he is not
intending to extinguish an obligation.
Example: A had the right to redeem,
he offered to redeem, the other party
refused to accept, when the action
was filed the defendant claimed that
the action should be dismissed
because the redemptioner was not
sincere in redeeming the property
because if the redemptioner was
sincere, when I refused to accept the
money he should have deliver the
money to the court by way of
consignation. The SC: the claim is
erroneous, because the
redemptioner is exercising a right,
and in the exercise thereof there was
refusal without just cause, there is
no need for consignation. But if the
intention is to extinguish an
obligation and the money was
refused, that is when the debtor has
to go to the court and deliver the
money by way of consignation.
2. The consignation must be based on a
ground provided by law Is the
enumeration under 1256 an exclusive
enumeration? Atty. Uribe agrees with
the position that the enumeration does
not have to be exclusive because as
long as it would be more burdensome
to the debtor if he will not be allowed
to deliver the thing or the money to the
court, consignation should be allowed.
Some of the grounds are:
a. When without just cause
the creditor refuses to
issue a receipt is the
issuance of the receipt the
operative fact which
extinguishes the obligation?
NO! In our jurisdiction
PAYMENT IS THE
MODE OF
EXTINGUISHMENT,
THE RECEIPT IS
MERELY AN
EVIDENCE. But if the
creditor refuses to issue a
receipt or does not want to
issue a receipt, it is better
that the debtor does not
give the payment to him,
because he can easily deny
that the debtor did not pay.
Actually, in other
jurisdiction, it is the
issuance of the receipt that
extinguishes the obligation,
this rule seems to have an
advantage because it would
minimize the litigation
involving issues as to
payment.
b. When two or more
persons claim the same
right to collect A good
example is an obligation to
deliver a carabao, in this
obligations three creditors
are claiming from the
debtor, because three
persons are claiming to
the carabao that will give
the person a right to
deliver the carabao to the
court by way of
consignation? Not
necessarily. The SC held
that the debtor should
determine for himself the
person who has the right
over the thing or the
money.
3. Notices required for consignation to
be valid: AT LEAST TWO: Why?
Because if the obligation pertain to an
obligation to pay on a monthly basis,
like rental, the SC as rule in the case of
SOCO, THERE MUST BE AT
LEAST TWO NOTICES FOR
EACH AMOUNT WHICH
BECAME DUE (so every month that
the payment is not accepted sent notice
prior the consignation). But if there is
only one debt, there should be two
notices required, is it required that both
notices should come from the debtor?
NO! But the first notice should come
from the debtor prior the consignation
and the second notice may come into
the form of summons. Is notice really
an essential requisite for the
validity? TOLENTINO DOES NOT
AGREE WITH THIS VIEW, he thinks
that even without such notice the
consignation may still be considered as
valid. But it can be the basis of holding
the debtor liable, this rule is better but
THIS IS NOT THE RULE LAID
DOWN BY THE SUPREME
COURT. SECOND: if the payment is
monthly and the creditor already
refused to accept the payment in the
first month the defendant will question
the necessity of second notices, since
the creditor already knows that the
debtor will again deliver to the court
the payment by way of consignation
RATIONALE: THIS IS TO GIVE
THE CREDITOR THE
OPPORTUNITY TO CHANGE HIS
MIND. Which is very true, the
bigger the amount the more difficult
to refuse.
iv. There are only two questions in consignation:
After the delivery of the money or the thing
with the court, what if thereafter the money
was withdrawn from the court, thereafter the
debtor failed to pay the creditor, can the
creditor still go after those who are subsidiarily
liable for the debt (like the mortgagor)?
PREMISE HERE IS: A is indebted to B, A
delivered a sum of money to the court by way
of consignation however, A withdrew the
money, the debt is secured by a mortgage,
thereafter A failed to pay the creditor, can the
!"#$%&%'(")*+#,%-(.#/%
creditor foreclose the mortgage? It depend on Question: The problem is in period of tender of
the manner how A was able to withdraw the payment to the consignation, can he be made
money from the court. liable for payment of interest?
1. IF A WITHDREW THE MONEY 1. Juridically speaking, there is basis to the SC
AS A MATTER OF RIGHT (when ruling that the debtor is still liable because the
even the court cannot refuse the effect of consignation will only be from the
withdrawal, and this can happen if time the thing is delivered to the court, so until
the creditor has not yet accepted and the obligation is extinguished the debtor should
the court has not yet declared the still be held liable for interest. However, in the
consignation to be valid, in this recent cases of the SC, it was held that from
scenario, the debtor can still the time tender of payment was made the
withdraw the money as a matter of debtor is no longer required to pay interest,
right at anytime), THUS, NO DEBT here, the law requires that if the creditor
HAS BEEN EXTINGUISHED, refuses acceptance, the debtor should
BECAUSE IN CONSIGNATION immediately go to court, otherwise the
THE DEBT WILL ONLY BE debtor will have no reason to go to the court
EXTINGUISHED EITHER because he no longer has liability for
BECAUSE THE CREDITOR HAS interest. However, in the recent ruling of the
ALREADY ACCEPTED OR THE SC, it held that BY REASON OF JUSTICE
COURT HAS ALREADY AND EQUITY, why? Because here as the
DECLARED THAT THE consignation is valid it means that the
CONSIGNATION IS VALID, creditor refused to accept without just
ABSENCE OF THE TWO NO cause, if the creditor accepted it would there
OBLIGATION IS EXTINGUISHED, be liability on the part of the debtor to pay
THEREFORE NO OBLIGATION interest? None! So, under the principle of
IS REVIVED, THEREFORE IF THE justice and equity the debtor should no
DEBTOR WITHDREW UNDER longer be held liable to pay interest from the
THIS SCENARIO AND FAILED TO time tender of payment was made up to the
PAY, THE CREDITOR MAY STILL time of consignation even if the consignation
FORECLOSE THE MORTGAGE, was made years after. ATTY. URIBE: This is
BECAUSE THE OBLIGATION WAS quite inconsistent with consignation, there is a
NEVER EXTINGUISHED. much better basis than justice and equity, if
2. HOWEVER, IF THE you remember our discussion in period, in
WITHDRAWAL IS NOT AS A periods two to three the debtor is liable for
MATTER OF RIGHT, interest, but when the creditor refused to
THEREFORE HE WAS ONLY accept without just cause, is it not that he is
ABLE TO WITHDRAW WITH also in delay which is known as
THE CONSENT OF THE compensation morae if both parties are
CREDITOR (this may happen already in delay, following the ruling of the
either when the withdrawal was SC in Agcaoili v. GSIS, in contemplation of
made after the acceptance or the law, no one is in delay and if no one is in
withdrawal was made after the delay could there be liability to pay interest?
declaration by the court that the None. Without invoking justice and equity,
consignation was valid.) IN THIS this decision seems to be more correct.
CASE, THE CREDITOR
CONSENTED TO THE 11. LOSS OF THE THING DUE Can this mode of extinguishment be
WITHDRAWAL. WHAT HAPPENS invoked in all kinds of obligations meaning obligations to do? It does
TO THE OBLIGATION, UPON THE not seem like it because it says loss of the thing. If you will read the
ACCEPTANCE BY THE CREDITOR provisions under this mode, loss of the thing due, there are provisions
OR DECLARATION BY THE pertaining to obligation to do, thus, authors would consider a better
COURT THAT THE name for this mode, instead of loss of the thing due a better name would
CONSIGNATION IS VALID, THE be Impossibility of Performance. In impossibility of performance it
OBLIGATION IS EXTINGUISHED, would already include even obligations to give or to deliver, in case of
AND THEREFORE, WHEN THE obligations to give it will be impossible to perform because the thing to
AMOUNT WAS WITHDREW BY be delivered is lost.
THE DEBTOR THE OBLIGAITON
WAS REVIVED, UPON REVIVAL c. May this mode apply to obligations to deliver generic
THE DEBTOR FAILED TO PAY, thing? YES. If you remember the doctrine genus non quam
THE CREDITOR CAN NO LONGER peruit this applies to a scenario where the loss or destruction
FORECLOSE THE MORTGAGE, of anything of the same kind does not extinguish the
WITH THE EXTINGUISHMENT obligation. EXAMPLE: there is an obligation to deliver a
OF PRINCIPAL OBLIGAITON brand new 2009 Toyota camry, just because the brand
THE ACCESSORY CONTRACTS new Toyota camry was lost does not mean that the
ARE ALSO EXTINGUISHED. obligation is extinguished under this doctrine. GOING
v. Liability to pay interest: Let us assume these BACK TO THE ORIGINAL QUESTION: May an
material dates and events to have occurred: obligation to deliver a generic thing be extinguished because
the obligation became impossible to perform? YES! As the
% law would define loss it is a scenario where the thing goes
%% out of commerce, so if the thing went out of commerce there
1%|2332%4Due) 2 |2335%(Tender of Payment) 3 |2336%(Consignation) 4 |2337%(Decision) is nothing to deliver. Another scenario, is when it became
% legally impossible to perform, impossibility of performance
%
may either be physical impossibility or legal impossibility.
QUESTION: Can the debtor be held liable from Pesigan v. Angeles Delivery of carabao from one province to
period 3 to period 4? another, along the way the carabaos were confiscated because
1. If the court declared the consignation to be a law became effective during the pendency of the obligation,
VOID, there is no question that the debtor is therefore the obligation was considered legally impossible to
liable to pay interests, on the premise that there perform. TAKE NOTE THAT when the law became
was demand and that demand was necessary effective, there must already be an obligation which will
for the debtor to incur in delay. become impossible to perform because if the law became
2. However, what if the court declared the effective before the obligation was instituted in the first
consignation to be valid, he is not liable from place the obligation is void and there is nothing to be
period 3 to 4 because the effect of the extinguished.
declaration retroact to the time of the delivery
of the amount to the court as if the obligation d. Obligations to deliver a determinate thing: if the thing to
was extinguished at the time the consignation be delivered was lost or destroyed, is the obligation
was made, therefore there will be no obligation extinguished? If you will read Article 1262 literally, it will
to pay the interest. depend on the cause of the loss.
Question: Can he be liable from period 1 to 2? a. If the cause of the loss was due to the fault of the
1. Obviously he is liable because he made the debtor then the obligation is not extinguished
tender of payment only period number two and 1263 provides that if the thing is lost or destroyed
the obligation has long been due and without the fault of the debtor, the obligation is
demandable. extinguished, therefore, if the loss is caused by the
debtor the obligations is not extinguished.
!"#$%&%'(")*+#,%-(.#/%
However, Prof. Tolentino opines even if the loss
is due to the fault of the debtor, what will be
delivered? None, so here, there is physical
impossibility, and therefore the obligation
should be deemed to be extinguished without
prejudice to his liability to pay damages
because the loss is due to his fault. Nonetheless
if you want stick with the opinion of Tolentino
you can always cite 1262 as the basis but this
does not seem to be correct. BUT
ULTIMATELY IN CASES DECIDED BY
THE SUPREME COURT: As to the thing to
be delivered is lost or destroyed, what is the
issue that is always mentioned in the case, is it
WON the obligation was extinguished? No,
the ISSUE IS WHETHER THE DEBTOR
CAN BE HELD FOR DAMAGES in other
words it does not matter whether the obligation
was extinguished or not, what matters is the
debtor liable for the damages caused by the loss of
the thing. If the loss was due to his fault he is
liable for damages, otherwise he cannot be held
liable for damages. In fact Sta. Maria also take
this position, Sta. Maria will not state whether the
obligation is extinguished or not, the issue that
will be posted is that whether or not the
obligation to deliver a thing is converted to an
obligation to pay a sum of money. However, if
this is your position, you actually take the position
that there was extinguishment. If you remember in
prescription, prescription is a mode of
extinguishing an obligation because it converts
the civil obligation to natural obligation, there is a
change in the obligation therefore there is
extinguishment, in the same manner if the
obligation to deliver is converted to a monetary
obligation then there is an extinguishment of an
obligation.
e. Who has the burden of proving as to the cause of the loss?
a. The creditor or the one claiming that it was the
d e b f a l h c a
because this follows the rule that whoever alleges
the fact must prove the fact.
b. However, in certain circumstances, the creditor or
the plaintiff may not have the burden, because the
law provides for a presumption that the cause of
the loss was due to the debtor, when will this
happen? If at the time of the loss the thing is in
the possession of the debtor. But take note that
the presumption is not an absolute
presumption because the debtor can always
post a defense that even if the thing was in his
possession the loss was due to the fault of
somebody else.
c. However, even if a thing is lost while in his
possession is it possible that there is no
presumption that it was due to his fault? Yes if
the loss happened during a calamity or on the
occasion of a calamity. Because even if the thing
was lost even if in the possession of the debtor but
it was during a calamity, more often than not, the
calamity is the cause of the loss and not the fault
of the debtor, therefore the burden again will be
shifted to the creditor or plaintiff if he would
claim that the loss was caused by the debtor.
f. We have already discussed that even if the loss was caused
during fortuitous event that will not necessarily exempt the
debtor from liability. That may be the general rule under
1174 but there are EXCEPTIONS APPLICABLE TO
OBLIGAITONS TO DELIVER A DETERMINATE
THING: stipulation of the party that the debtor will be
liable whatever may be the cause of the loss, or may be
the law provides for liability even if the loss was caused
by a fortuitous event.
g. Effect of Difficulty of Performance- Occenia v. Jobson
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. THE LAW
GRANTS THE COURT THE POWER TO RELEASE
THE DEBTOR IN WHOLE OR IN PART BUT IT DID
NOT VEST THE COURT THE POWER TO CHANGE
THE TERMS AND CONDITIONS AGREED UPON BY
THE PARTIES. Requirements:
i. The performance of the obligation has become
so difficult. This should not be confused with
impossible; if the obligation has become
impossible to perform then Article 1267 will not
apply in fact as a rule the obligation will be
considered extinguished.
ii. The difficulty to perform must be due to a
fortuitous event or beyond the contemplation
of the parties.
h. Effect of partial loss. A scenario could be an obligation to
deliver a cell phone with housing, what if the cell phone was
lost but the housing is still available, is the obligation totally
extinguished, can the debtor still be compelled to deliver the
housing? The answer depends on the intention of the
parties as to really what was the principal motivation in
entering the transaction. But is it possible that the
housing is more valuable than the cell phone? Yes it is
possible for instance it has diamonds. So if the delivery of the
housing was the intention, apparently the buyer cannot be
compelled to accept the cell phone.
12. Condonation or Remission of the debt or a.k.a donation of credit
As to the kinds of condonation:
a. Extent of extinguishment whether total or partial:
Condonation may be partial. PARTIAL: the principal
amount may not even be reduced and the creditor will only
condone the interest or the principal amount nor the interest
will not be condoned but the accessory obligations will be
condoned and therefore it will result to partial condonation.
b. Whether Condonation is express or implied: if the
condonation is EXPRESS you should consider the rules
as to formalities of donation.
i. BAR QUESTION: The son is indebted to his
father 500K, the son paid 300K through a check,
thereafter the father died, the executor demanded
for the payment of the balance 200K, the son
claimed that the 200K was condoned by his father
as can be seen from the writing at the back of the
check stating that the check is for the full payment
of the debt, was there extinguishment by
condonation? U.P. LAW CENTER: the effect of
the writing on the check will depend on who
wrote the same, if the son is the one who wrote
the writing the obligation was not totally
extinguished, if the father was the one who wrote
was there a valid condonation? Yes because this is
a form of implied condonation and therefore the
law does not require a particular form nor
acceptance is required, Do you agree to this?
ATTY URIBE: I do not agree to this answer, I
e d h e l . agree
R more
e a to the alternative
a b l e , answer that as can be
seen from the facts, what could be more express
than that? How express can this be? And
therefore if this is an express condonation this
has to comply to the formalities of law as to
donation, this is a donation of credit and
therefore under the law, if the credit is more
than 5K, the condonation must be in writing
and that there must be acceptance in writing,
so there was a condonation in writing, but
there was no acceptance in writing, hence,
there was no valid condonation.
ii. IMPLIED CONDONATION, WHEN WILL
THIS HAPPEN? 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 the
obligation extinguished? At best there was only
a presumption, a presumption that the
promissory note was voluntarily returned to
the debtor. If it is voluntarily returned the
effect is that the obligation is extinguished.
Then when would the presumption arise that
the delivery was a voluntary delivery? It will
only arise if the document is a private document,
but if it is a public instrument, there is no such
presumption because a public document has
several copies in custody of several people. At
any rate, the presumption here is only a
disputable presumption. But ultimately if it
was voluntarily returned to the debtor, how
was the obligation extinguished? DE LEON:
Not by condonation but by payment. Thus, it
was voluntarily returned because there was
payment, however, if the debtor cannot prove
that payment, like for instance he does not
have a receipt, maybe he can invoke the
presumption of the law that there was a
condonation, but again, the presumption is
disputable.
iii. LAST RULE: A debtor of B, a ring was
delivered to B as a security, ordinarily this will
be a pledge, now, after the perfection of the
pledge, the thing again was found in the
possession of A the debtor, is the obligation of
A to B extinguished? NO! Is there a presumption
that this obligation is extinguished if there is a
presumption under the law it will pertain to the
pledge. If the thing to be delivered by way of
pledge is thereafter found in the possession of the
debtor there may arise a presumption that it was
voluntarily delivered and therefore the pledge was
extinguished. PRESUMPTION MAY ARISE
!"#$%&%'(")*+#,%-(.#/%
because the presumption may not arise, why? The
law requires that after the perfection of the
pledge, the thing must be found in the
possession of the owner of the thing pledged. Is
the debtor necessarily the owner of the thing
pledged? No because pledge may be constituted
by a third person, so if it was found in the
possession of the debtor, then no presumption will
arise, the presumption of voluntarily returned if
thereafter it is found in the possession of the
owner of the thing pledged. Again, this
presumption is disputable presumption, because
there are hundred and one reasons why the debtor
would return the thing to the owner, one of the
reasons may be for safe keeping. So again it is a
DISPUTABLE PRESUMPTION.
13. CONFUSION OR MERGER OF RIGHTS this mode can easily be
understood by just imagining the merger of banks in the past few years.
Now, it is common that before the merger, one of the banks is indebted
to the other banks and therefore instead of xxx the creditor may agree to
just buy the debtor bank. Obviously this is by agreement of the parties.
a. Can there be confusion by operation of law? Yes if the
creditor for example died and the only heir is the debtor,
of course the heir will inherit the credit, the heir now who
is the debtor will now become the creditor, therefore
there will be a meeting in one person of the character of
the debtor and creditor and therefore the obligation will
be extinguished.
b. What if the decedent is the debtor and the heir is the creditor,
will the obligation be extinguished? It seems like it will not
be extinguished because the heir will not accept the
obligation. So the creditor will normally demand from the
executor payment.
c. Can a guarantor invoke a merger or confusion? YES! But
he may invoke merger and confusion as to the character of
debtor and creditor because if the principal obligation is
extinguished then the guaranty will also be extinguished, the
guarantors will benefit with the confusion of the character of
the principal debtor and the creditor, but if the confusion was
between the guarantor and the debtor will the principal
obligation be extinguished? NO! What will happen here is
that there will no longer be security because the debtor
and the guarantor will be one.
d. CAN THERE BE A PARTIAL EXTINGUISHMENT IN
CONFUSION OR MERGER? YES! By express provision
of law, in joint obligations and there was a confusion
pertaining to one of the joint debtors in the person of the
creditor, the extinguishment will only be to the extent of
the debt of the joint debtor. This is different of course if
the obligation is solidary, if there is confusion between the
creditor and one of the solidary creditor the obligation is
totally extinguished. But there is NO partial confusion.
% is filed for a sum of money but what would
%%
%%%%%1%|1888%4Due) 2 |2339%(Merger) 3 |2338%(Rescission) 4 |2312%(Action filed for Collection)
%
%
e. PROBLEM: In the above illustration, the obligation of A to
B was for the amount of 1 Million. In rescission the effect is
restitution, the parties will be reverted back to their status
prior to the merger, so as if A owes B 1M, so B files an
action today against A to recover the 1M The defense of the
debtor was that the action will no longer prosper because it
has already prescribed. Will the action prosper during 2012
filed by B? YES SC HELD THAT IT YES IT WILL
PROSPER, BECAUSE THE TIME OF THE MERGER
TO THE TIME OF RESCISSION SHOULD NOT BE
INCLUDED IN THE COMPUTATION OF THE
PRESCRIPTIVE PERIOD. During those times, the
creditor will not file a case because it will be absurd given
that he is also the creditor of himself. This a very good
decision because creditor and the debtor are one at that
time. Therefore only 9 years has lapsed so the action has not
yet prescribed.
14. COMPENSATION By express provision of law, compensation may
be total or partial.
a. According to law, with partial compensation may there be
two or ten debts extinguished as partial compensation?
Yes, there can be two or 100 debts extinguished by
compensation but it is still partial compensation why? As
long as the debts of one are not equal to the debts of the other
the compensation will only be to the concurrent amount and
there will be no total extinguishment.
b. Total extinguishment will only take place when the debts
are totally equal for instance if the debt is 1M and the
other is 1M. Scenario:
i. A owes B 100K, but B has several debts to A
20K, 10K, 50K but if you add it all up it is only
80K, with compensation, all the debts will be
totally extinguished, because the extinguishment
is for the concurrent amount, the 80K will be
totally extinguished, but A would still owe B 20K,
why is this so important? This is important as to
the liability to pay interest or as to whether or not
there can be valid foreclosure
ii. EXAMPLE: A has obligation to B, B has
b l i g a i A, A b l i
after compensation can B still collect interest
can A be held liable for interest? It will depend
h e a m i l e d ,
ma b e 5 0 K, A can bed collect
e b i
interest? Not anymore because the debt will be
totally extinguished, the 100K will be reduced by
50K to the concurrent amount.
iii. On the other hand what if the 100K is secured
by a mortgage after compensation may A
foreclose the mortgage? Yes! Because there will
still be a balance of 50K, a mortgage is an
indivisible contract, until the obligation is not
extinguished the mortgage will remain in force.
And therefore if B failed to pay A the fifty
thousand, A can still foreclose the mortgage.
c. BAR EXAM QUESTION: A opened a savings account with
Y bank in the amount of 1M, thereafter A borrowed money
from the same bank 800K, then A wanted to withdraw the
1M, the bank said no you cannot withdraw the 1M because
your obligation to pay the 800K is already due we are
invoking compensation, you can only withdraw 200K less the
charges, A claimed you cannot do that because under Article
1287 there can be no compensation when one of the debts
arises from a deposit. WHO IS CORRECT? The bank was
correct because a savings account deposit is not a deposit it is
a contract of loan, that is why 1287 (compensation will not
be proper if one of the obligations arises from depositum)
will not apply. So if both are simple loan there can be
compensation. Article 1287 provides that there can be no
compensation when 1 of the obligations is arises from a
deposit, this is known as, as some authors would name it, a
facultative compensation. However, other authors does not
see this as independent obligation, this is just treated as a
modification of the other kinds of compensation recognized
by law which is a voluntary or conventional compensation
the third one is judicial compensation the first obviously
is legal compensation.
Kinds of Compensation
i. Legal compensation is considered as the true
kind of compensation. Hence, if the examiner
does not mention any kind of compensation he is
referring to LEGAL COMPENSATION.
ii. Voluntary/ Conventional compensation: the
consent of both parties is required.
1. In facultative: it is only the consent of
one of the parties which is required.
iii. Judicial: this would normally happen when a case
normally happen in cases, the defendant will have
counterclaim, usually the counterclaim is bigger,
so in the end the plaintiff becomes liable on the
premise that the claim of plaintiff is valid and was
granted and the court also granted the
counterclaim it is compensated up to the
concurrent amount. The obligations which are not
yet liquidated at the time of the filing of the
action, they can be liquidated during the
proceedings. In compensation it is also called as
set off or counterclaim but it seems that this
word is proper in judicial compensation
because counterclaim is usually used in the
court.
d. VOLUNTARY COMPENSATION this is by agreement
of the parties, even if not all of the requirements for legal
compensation are present, it does not matter because the
obligations will be extinguished by agreement of the parties.
For example: the debts are not yet due and they want to
compensate, what can we do? The parties already agreed.
Also, probably one of the debts pertain to a carabao and the
other to a car, we cannot do anything about it. In fact in lay
ma e m e c a l l h i i
e. FACULTATIVE COMPENSATION it occurs in
depositum, commodatum, gratuitous support, and civil
liability arising from crime-
i. This will arise if one of the debts arises from a
depositum, in a depositum a thing is delivered to
the depositary for safekeeping, this can happen
even also with a bank. If a person for example
would deliver 1M pesos to the bank only for
safekeeping, this will be a DEPOSITUM What if
A deposited 1M not as a savings account but in
the safety deposit box, and A borrowed 800K,
now if A would want to withdraw the 1M from
the safety deposit box can the bank invoke
compensation? The depositary cannot invoke
compensation but the DEPOSITOR CAN!
!"#$%&%'(")*+#,%-(.#/%
ii.
Aside from depositum, mentioned
COMMODATUM when one of the debts arises
from commodatum. In this obligation the thing
has to be returned upon demand however here,
the bailor can invoke consignation but not the
bailee.
iii. SUPPORT should be gratuitous support and not
contractual support. Why? Because if this is legal
support, a person needs this to survive thus, it
cannot be subject to compensation. But if it is
support in arrears compensation may take place.
iv. CIVIL LIABILITY ARISING FROM CRIME
probably the scenario here is A is indebted to B
100K when B tried to collect A cannot be so he
stabbed A, so B was held criminally liable, then
there was a monetary award, what if the award to
A is 120K, if A demands for 100K from B can B
invoke compensation? NO! The convict cannot
invoke compensation but the aggrieved party
can invoke compensation.
f. LEGAL COMPENSATION, THIS IS BY OPERATION
BY LAW From the moment all the essential requisites are
present compensation takes place even without the
knowledge of the parties, even before they invoke
compensation.
i. SCENARIO: A owes B due 1992, B owes A due
i 1 9 9 9 , i b l e
different transaction, A filed an action against B
the defense of B is compensation, however, A
may claim that no, you cannot invoke
compensation because your credit has already
prescribed since my debt has become due in 1992.
Is A correct? NO!!! In 1999 even without their
knowledge when the debts become due and
demandable compensation took place.
REQUIREMENTS OF LEGAL
COMPENSATION:
1. THEY MUST BE MUTUAL
CREDITORS AND DEBTORS - but
if you have read one case and a few
authors would consider this instead of
mutual they would use reciprocal
creditors ATTY. URIBE: I would not
encourage you to use reciprocal
creditors, if reciprocal debtors and
creditors it will imply reciprocal
obligations, if it is reciprocal
obligations then this obligations arose
from the same transactions if this is the
case one of the requisites for legal
compensation to take place will never
be complied with. Here, debtors and
creditors must be principally bound
to each other. In a case, A is indebted
to B secured with a guaranty of G. G
paid to B; hence B is indebted to G.
Can B invoke legal compensation? If
the debtor is already in default, G will
now be liable; thus, legal
compensation take place.
a. CASE: X as the owner of
shares authorize Y to sell
shares of stock, Z bought it
from Y, but the latter fail to
remit to X, hence, he was
filed Estafa. Y is also
liable to Z. The trial court
convicted Y. Z argued that
Y is also liable to him
invoking compensation.
SC ruled that even if Y is
indebted to Z, Z is not
indebted to Y, the latter
being an agent to X.
Hence, parties are not
mutually indebted to each
other.
b. CASE: Francia vs. IAC,
was there legal
compensation? NONE
because in the case Francia
was indebted to the city
government of pasay
because of the
expropriation of the
f me
however, Francia was
invoking legal
compensation because he
was the creditor of an
expropriation proceedings,
it just so happen that the
city government did not
expropriate his property the
national government did.
Since the requirement no. 1
is not present there is no
legal compensation.
c. CASE: PNB v. ACERO:
PNB was debtor of Isabela,
this is simple loan, so PNB
owed Isabela, however
ACERO was the judgment
debtor of Isabela who
wants to have the savings
of Isabela garnished,
however PNB claimed that
they invoked compensation
because Isabela was also
their debtor, who is
correct? No claim is
correct, although PNB is
the debtor of Isabela, there
was no proof that Isabela is
the debtor of PNB.
2. BOTH DEBTS MUST BE IN SUMS
OF MONEY OR IF THEY
PERTAIN TO GOODS THEY
MUST BE OF THE SAME KIND
h a i b h 1 M b a ANDe d QUALITY in other words
may the obligations be both in sums of
money if they are reciprocal
obligations? It cannot happen. In
reciprocal obligations there are
different prestations one is delivery
and the other monetary, it can never
be both sums of money. Reading
several cases it might appear that this
compensation may occur only when
the obligation arises from contracts, is
this correct, will there be legal
compensation only if the debt in
money arose from contract? NOT
TRUE! Even if the obligation arose
from other sources there can be
compensation.
a. In fact if you read the
CASES: Mindanao
Portland xxx in these two
cases the amounts which
are the subject of
compensation were
a e f e e ,
did not arise from contract.
Mindanao Portland is
unlikely, company A filed a
case against company B,
one of them won and the
court awarded at e
fees, in another case the
other company won and
a e f e e
awarded, so the award is
of the same amount, the
obligation is of the same
nature,
COMPENSATION
TOOK PLACE.
Ultimately the
QUESTION HERE IS:
Does it mean that all
monetary obligations may
be the subject of legal
compensation? No! If you
have read the case of
Francia v. IAC certain
monetary obligations
cannot be subject of legal
compensation like payment
of taxes, customs duties,
tariff etc.
3. BOTH PARTIES MUST BE
PRINCIPALLY BOUND
Principally bound because in a
scenario where A is indebted to B and
this obligation is secured by a
guarantor G on the other hand B is the
debtor of G in this obligation, if G
e demands payment from G, Can he
claim that G is also indebted to him
because he is a guarantor in B s
obligation to A? In its face NO,
because the guarantor is not
principally bound but take note the
moment A defaults and his
properties are already exhausted,
!"#$%&%'(")*+#,%-(.#/%
the GUARANTOR WILL NOW BE because one of the claims
LIABLE TO B AND FROM THEN is still being litigated.
ON COMPENSATION WILL 7. ONE OF THE DEBTS MUST NOT
TAKE PLACE. ARISE FROM Article 1287 AND
4. THEY MUST BE CREDITORS Article 1288 because in such cases
AND DEBTORS OF EACH legal compensation will not take place
OTHER IN THEIR OWN RIGHT: since in depositum the depositor or the
SYCIP v. CA: the owner of the shares bailor must invoke legal compensation.
of stocks authorized Lapuz to sell the
shares of stock, lapuz on then
authorized Sycip to sell the shares of %
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stock, the latter was able to sell the
shares of stock (5K), however, despite Y is also indebted to X
the demand to Sycip to remit the
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compensation took place, therefore he %%
cannot be liable for estafa, is Sycip s %
contention correct? NO, even g. EFFECT OF ASSIGNMENT OF A CREDIT AS TO
assuming that Lapuz is indebted to THE RIGHT TO INVOKE COMPENSATION
Sycip, the latter is really not i. Can X validly claim compensation for these 3
indebted to Lapuz in his own right. debts?
The real creditor of Lapuz is the 1. X cannot be compelled to pay Z if the
buyer of the shares. obligation has not yet due and
5. BOTH DEBTS MUST ALREADY demandable. If the assignment was
BE DUE AND DEMANDABLE made before debts became due, and
The MOST COMMON MISTAKE you demand on that date, the person to
WHEN ASKED WHY IS THERE NO whom payment should be made cannot
LEGAL COMPENSATION IS yet be compelled.
BECAUSE THE OBLIGAITON HAS 2. Hence, the first thing to look at is the
NOT YET BECOME DUE AT THE DATE OF ASSIGNMENT!
SAME TIME. REMEMBER: The 3. To answer the question raised above,
requirement of the law is that both the first factor you have to consider:
debts are due and it is not required WHETHER THE ASSIGNMENT
that the debts are due at the same WAS WITH THE KNOWLEDGE
time. But if one debt became due 3 OF X OR WITHOUT
years ago and the other debt became KNOWLEDGE:
due today, compensation will only take a. IF WITH
place today, but there can be KNOWLEDGE, YOU
compensation. ANOTHER COMMON HAVE TO DETERMINE
MISTAKE: EXAMPLE: A borrowed WHETHER OR NOT
money, the other one bought on THERE WAS CONSENT
credit, so they are debtors and TO THE ASSIGMENT
creditors of each other, however, OR NONE:
they say that there can be no legal i. IF CONSENT
compensation because the IS GIVEN,
obligations do not pertain to sums of YOU HAVE
money, one is money the other one TO
car. HERE THE OBLIGATION OF DETERMINE
THE BUYER IS TO PAY THE WHETHER
PRICE SO IT IS ALSO OR NOT HE
MONETARY LEGAL MADE A
COMPENSATION WILL TAKE RESERVATIO
PLACE. N OR NO
6. THE DEBTS MUST BE RESERVATIO
LIQUIDATED AND N:
DEMANDABLE In other words 1. (so
there should be no claim by a third the
person over this right or credit, scena
because if the claim is subject of legal rio
proceeding, there can be no legal here
compensation. is Y
a. Example: International and
Corporate Bank v. IAC: Z
Fajardo borrowed money advis
from ICB 50M the bank ed X
released only 20M to that
secure this obligation, Y is
Fajardo mortgaged assig
properties amounting to ning
110M, thereafter she also the
delivered 1M to the bank credi
for money market t to
investment, so just like any Z, X
other investments it cons
matured, so she demanded ented
for the return of the 1M, the but
bank claimed that she has he
nothing to recover from the reser
bank because as to her loan ved
which she failed to pay, his
when the foreclosed the right
mortgage she still has to
deficiency of 6M, so invo
compensation took place, ke
however Fajardo comp
questioned the mortgage ensat
the SC HELD: there can ion)
be no legal compensation IF X
RES
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E IS to qualify if this is a case
TO of EXPROMISSION OR
DEM DELEGACION.
AND i. Expromission-
THE if there is
PAY substitution of
MEN debtor without
T OF or against the
THE i g i a l d e b
DEB will. If it is this
TS kind, X cannot
FRO run after the
M X. guarantor
b. WITHOUT because it is not
KNOWLEDGE: Z subrogated in
demanded from X in June the rights of B.
30, how much can X be Here, if payment
compelled to pay? Only to B was with
10K because he can invoke consent of A, X
compensation to those is subrogated in
debts which became due if the rights of B,
the assignment is without hence, Article
his knowledge, 70K. 1302 applies. In
case of
15. NOVATION- it is a peculiar mode of extinguishment because it creates insolvency, A
an obligation. This is somewhat the same as that of prescription, which here will never
the latter can extinguish civil obligations but can be converted into be liable
natural obligation. because the
a. What is the relevance of determining whether there is substitution was
novation or not? Because if there will be novation, it without his
consequently required a new set of requirements to be consent.
complied with since a new obligation arises. ii. Delegacion- the
b. Will change of person amounts to novation? No, say in a original debtor
case wherein A executed a PN dated 1996 to secure payment gave consent. If
of loan to B. In 2001, A died. Heirs of A filed in 2007. The in this kind, X
defense of A is prescription since it already lapsed as far as can run after the
time is concerned. B argued that there is novation. There is guarantor. B
NO novation here. Hence, not all change of person leads cannot demand
to novation since here the same obligation, hence, from A because
prescriptive period was not tolled. the obligation
c. In a case wherein A had a contract with B which was has already been
voidable, B thereafter assigned his right to C. Can A invoke extinguished by
vitiation of consent? No, because there was the creation of novation.
new obligation between B and C, hence A cannot raise the However, if A
defense he had against B. But if the assignment was done is in bad faith,
without knowledge of A, can A invoke vitiation against C? HE CAN BE
Yes, because this involved the same obligation; hence, A can HELD
raise his defense against C. LIABLE TO B.
d. In Fua case, these are subjected to agreement of parties, (1) If insolvent after
Reduction of amount, (2) Payment in installment; (3) Secured substitution,
with Real Estate Mortgage; (4) With order of payment of there is NO
a e f e e . B d e i e h e a g e e me , d e b BAD iFAITH. l l
failed to pay. Hence, the creditor continued with execution And if A and B
sale. Debtor questioned the execution sale arguing that there are aware of
WAS NOVATION. Hence, if there was, the sheriff must the insolvency
comply anew with the requirements, because such will give of X but still
rise to a new obligation. SC ruled that there was indeed allows
novation. The Dissenting opinion of this case made substitution, B
classification of Novation as follows: cannot held A
i. Subjective Novation/personal- pertaining to liable because
parties. both are in BAD
1. Active subjective- Subrogation in the FAITH.
rights of creditor ii. Objective Novation/real- pertaining to subject-
a. The change of creditor may matter.
not necessarily extinguish 1. Change in the object- easiest kind
the obligation because third a. In a case wherein A is the
person might subrogate. lessee and B is the lessor,
When? It could be express, when A surreptitiously left
that is with an agreement, the premises, he left along
or implied under Article with him the arrears in
1302, as an operation of a payment of telephone bills.
right. Then, the telephone
2. Passive subjective- Substitution of company sued B for the
the person of the debtor unpaid bills. The latter
a. In a scenario, A is indebted however argued that it
to B, X offers to pay B. should be A who will be
Will X subrogate in the held liable. Whether or not
rights of B? Not yet, there is substitution in the
because B did not accept person of debtor here? No,
such offer. because substitution was
b. In the scenario above, X without the consent of the
demanded from A, is A creditor.
bound to reimburse X? Yes, b. The case of Japan
insofar as A has been Airlines.
benefited under Article 2. Change in the principal conditions-
1236. If A fails to most difficult.
reimburse, can X run after a. There is no hard and fast
the guarantor, if any? And rule. In Fua case which
if B demanded payment was followed by a recent
from X, since X offered to case in Millare vs. CA, the
pay him, but later on X SC found that there was no
became insolvent, can he NOVATION, by reason set
recover from A? You have forth.
!"#$%&%'(")*+#,%-(.#/%
iii. Mixed- combination of the above two.
e. If the original obligation is void, parties had an
agreement which was also void, what will be the result?
THERE IS NO NOVATION because there is nothing to
extinguish. Can new agreement be enforced? No, because the
consideration is void.
f. If original obligation is void, and new agreement valid,
will there be novation? No.