Lecture Notes Oblicon 1156 To 1230 RMC 1

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LECTURE NOTES OBLIGATIONS AND CONTRACTS

RP JANET GRACE B. DALISAY-FABRERO
ARTICLES 1156-1304
PART I - OBLIGATION –
Taken from Latin term “obligare” or “obligation” meaning to tie or

bind
Article 1156: An obligation is a juridical necessity to give, to do or not

to do
Criticism as to the definition of the Civil Code by Justice J.B.L. Reyes.
It views obligation from the debit side. There is no debt with

credit and the credit is an asset in the patrimony of the creditor just
as the debt is the liability of the obligor.
Better definition: the one given by Arias Ramos, one of the

commentators of the Civil Code:
An obligation is a juridical relation whereby a person

(called creditor) may demand from another (called debtor) the
observance of a determinative conduct (the giving, doing or not
doing) and in case of breach, may demand satisfaction from assets of
the latter.
Kinds of obligations based on its definition:
Real obligation – obligation to give

Personal obligation – obligation to do or not to do
Two kinds of personal obligation

a) Positive personal obligation – to do
b) Negative personal obligation – not to do
ELEMENTS:
1. Active subject ( obligee/creditor ) – the one in whose favor the
obligation is constituted
2. Passive subject ( obligor/debtor ) – the one who has the duty of
giving, doing or not doing
3. Object – prestation; the conduct which has to be observed by the
debtor/obligor
4. Vinculum Juris – juridical/legal tie
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Additional elements
5. Causa or cause – the why of the obligation. If object refers to
what to the obligation, causa pertains to the why?
Example D will deliver a car to C since D expects to get P 500,000
from C. The Php 500,000 is the causa of the obligation
6. Form – refers to some manifestation of intent
Article 1356 provides contracts are valid in whatever form except
when required for validity, enforceability or convenience
It does not indicate that it must be in writing but at least intent to

enter the contract is expressed.
Requisites of Object:
a. licit - if illicit, it is void
b. possible - if impossible, it is void
c. determinate or determinable - or else, void
d. pecuniary value
Meaning of Juridical Necessity:
Obligation is a juridical necessity because in case of non-

compliance, the courts of justice may be called upon to enforce its
fulfillment or in default thereof, the economic value that it
represents. In a proper case, the debtor may be made liable for
damages for the injury or harm suffered by the creditor for the
violation of the latter’s right.
Classification:
a. Civil obligations – give a right of action to compel their

performance.
b. Natural obligations – not based on positive law but on equity and
natural law. It does 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.
c. Moral obligations – those that cannot be enforced by action but
which is binding on the party who makes it in conscience and natural
law. Under our law, moral obligations are not merged with natural
obligations.
Characteristics of obligations:
1. It represents an exclusively private interest
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2. It creates ties which by nature transitory. Reason: obligations

are extinguished in many forms… like arrival of the period or
fulfillment of the condition
3. It involves the power to make the juridical tie defective in case
of non-fulfillment through satisfaction of debtor’s property
An obligation is a juridical necessity to give, to do or not to do (Art.

1156, Civil Code). The obligation is constituted upon the concurrence
of the essential elements thereof, viz: (a) The vinculum juris or
juridical tie which is the efficient cause established by the various
sources of obligations (law, contracts, quasi-contracts, delicts and
quasi-delicts); (b) the object which is the prestation or conduct,
required to be observed (to give, to do or not to do); and (c) the
subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
The cause is the vinculum juris or juridical tie that essentially binds
the parties to the obligation. This linkage between the parties is a
binding relation that is the result of their bilateral actions, which gave
rise to the existence of the contract. G.R. No. 167519 , January
14, 2015,THE WELLEX GROUP, INC., Petitioner, vs. U-LAND
AIRLINES, CO., LTD., Respondent. *
*Case discusses issues on resolution (Art. 1191) vs Rescission (Art.

1381), interpretation of contract (1373), Novation (1291-1292)
SOURCES OF OBLIGATION:
Article 1157 enumerated sources of obligations:

a. Law
b. Contracts
c. Quasi-contracts
d. Acts or omission punished by law; and
e. Quasi-delicts
Strictly speaking, two sources only. One is law and the other one is
contract. Reason quasi-contracts, acts or omission punished by law
and quasi-delicts are all derived from law or from a mandate.
Is the enumeration exclusive?
SAGRADA ORDEN VS NACOCO G.R. NO. L-3756 JUNE 30, 1952

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FACTS:
The land in question belongs to plaintiff Sagrada Orden in whose

name the title was registered before the war
On January 4, 1943, during the Japanese military occupation, the

land was acquired by a Japanese corporation by the name of Taiwan
Tekkosho
After liberation on April 4, 1946, the Alien Property Custodian of the

United States of America took possession, control, and custody of the
property pursuant to the Trading with the Enemy Act
The property was occupied by the Copra Export Management

Company under a custodian agreement with US Alien Property
Custodian. When it vacated the property, it was occupied by
defendant National Coconut Corporation
The plaintiff made claim to the said property before the Alien
Property Custodian. Alien Property Custodian denied such claim
It bought an action in court which resulted to the cancellation of the

title issued in the name of Taiwan Tekkosho which was executed
under threats, duress, and intimidation; reissuance of the title in
favor of the plaintiff; cancellation of the claims, rights, title, interest
of the Alien property Custodian; and occupant National Coconut
Corporation’s ejection from the property. A right was also vested to
the plaintiff to recover from the defendants rentals for its occupation
of the land from the date it vacated.
Defendant contests the rental claims on the defense that it occupied

the property in good faith and under no obligation to pay rentals.
ISSUE: Whether or not the defendant is obliged to pay rentals to the

plaintiff
HELD: No. Nacoco is not liable to pay rentals prior the judgment. If
defendant-appellant is liable at all, its obligations, must arise from
any of the four sources of obligations, namley, law, contract
or quasi-contract, crime, or negligence. (Article 1089, Spanish
Civil Code.) Defendant-appellant is not guilty of any offense at all,
because it entered the premises and occupied it with the permission
of the entity which had the legal control and administration thereof,
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the Alien Property Administration. Neither was there any negligence

on its part.
By implication or indication, it appears that it is exclusive.

Nevertheless some commentators insist it is not exclusive. Profession
Balane proposes that there is another possible source of obligations –
public offer
Example: In commercials, there is an offer to replace 30 sachets of

Tide for one Venetian-cut glass until the end of the year. There is no
contract or quasi-contract. But if before the end of the year, you
present your Tide sachets, you can demand for your glass. Public
offer is in fact a source of obligation under the BGB (the German Civil
Code), Article 657 which provides that a person who by public notice
announces a reward in the performance of the act is liable even if
such person did not act in view of such reward.
Although public officers are supplemented by DTI regulations,
Professor Balane thinks that public offer should be made part of the
law since regulations easily change.
A. Definition, NCC 1156

B. Sources, NCC 1157
MetroBank v. Rosales, G.R. No. 183204, January 13, 2014

The “Hold Out” clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated
in Article 1157 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict .— In this case, petitioner failed to
show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a
criminal case was filed by petitioner against respondent Rosales, this
is not enough reason for petitioner to issue a “Hold Out” order as the
case is still pending and no final judgment of conviction has been
rendered against respondent Rosales. In fact, it is significant to note
that at the time petitioner issued the “Hold Out” order, the criminal
complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there
was no legal basis for petitioner to issue the “Hold Out” order.
Accordingly, we agree with the findings of the RTC and the CA that
the “Hold Out” clause does not apply in the instant case. In view of
the foregoing, we find that petitioner is guilty of breach of contract
when it unjustifiably refused to release respondents’ deposit despite
demand. Having breached its contract with respondents, petitioner is
liable for damages.
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Bank deposits, which are in the nature of a simple loan or mutuum,

must be paid upon demand by
Sources:
1. LAW – EX LEGE
Art. 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.
Must be expressly or impliedly set forth and cannot be presumed (

1158)
a) Obligation ex-lege (arising from law) not presumed.
b) Obligations arising from law are not presumed. To be

demandable and enforceable, the obligation must be stayed by
the law, which created the obligation. Such being the case the
agreement of the parties under this obligation is no longer
necessary because it is the law, which governs their obligation.
c) Law governing obligations derived from law. Obligations

derived from law shall be governed by the law, which establishes
them. In case of insufficiency, the provisions of the Civil Code
shall supplement the same.
Examples:
a. The obligation of husband and wife to support each other.
(Art.195, Civil Code)
b. The obligation of a taxpayer to file his income tax return.
(Title VI. Section 44,
NLRC amended by RA 8424 (Tax Reform Act of 1997), RA
10963 (Tax Reform For Acceleration & Inclusion Act)
c. The obligation of the legitimate ascendants and descendants
to support each other.(Art 195, Civil Code)
Case:
THE OFFICE OF THE SOLICITOR GENERAL, Petitioner vs AYALA

LAND INCORPORATED, ROBINSONS LAND CORPORATION,
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SHANGRI-LA PLAZA CORPORATION and SM PRIME HOLDINGS,

INC., Respondents, GR No. 1777056, Sept 18, 2009
FACTS:
Respondents Ayala Land, Robinsons, Shangri-la and SM Prime maintain
and operate shopping malls in various locations in Metro Manila. The
shopping malls operated or leased out by respondents have parking
facilities for all kinds of motor vehicles, either by way of parking spaces
inside the mall buildings or in separate buildings and/or adjacent lots that
are solely devoted for use as parking spaces. In 1999, the Senate
Committees on Trade and Commerce and on Justice and Human Rights
question the legalities of parking rates of the said shopping malls. The
Committees find that the collection of parking fees by shopping malls is
contrary to the National Building Code, that the reasonable and logical
interpretation of the Code is that the parking spaces should be free.
ISSUE:
Whether mall operators should provide parking facilities, free of charge.
HELD:
The National Building Code, which is the enabling law and the
Implementing Rules and Regulations do not impose that parking spaces
shall be provided by the mall owners free of charge. Absent such
directive, Ayala Land, Robinsons, Shangri-la and SM are under no
obligation to provide them for free.
When there is a taking or confiscation of private property for public use,

the State is no longer exercising police power, but another of its inherent
powers, namely, eminent domain. Eminent domain enables the State to
forcibly acquire private lands intended for public use upon payment of just
compensation to the owner.
The State is not only requiring that respondents devote a portion of the
latter’s properties for use as parking spaces, but is also mandating that
they give the public access to said parking spaces for free. Such is already
an excessive intrusion into the property rights of respondents.
Undoubtedly, respondents also incur expenses in the maintenance and
operation of the mall parking facilities, such as electric consumption,
compensation for parking attendants and security, and upkeep of the
physical structures. Thus, to compel Ayala Land, Robinsons, Shangri-La
and SM to provide parking spaces for free can be considered as an
unlawful taking of property right without just compensation.
As stated by the Supreme Court, The explicit directive of the afore-

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quoted statutory and regulatory provisions, garnered from a plain reading

thereof, is that respondents, as operators/lessors of neighborhood
shopping centers, should provide parking and loading spaces, in
accordance with the minimum ratio of one slot per 100 square meters of
shopping floor area. There is nothing therein pertaining to the collection
(or non-collection) of parking fees by respondents. In fact, the term
parking fees cannot even be found at all in the entire National Building
Code and its IRR.

Statutory construction has it that if a statute is clear and
unequivocal, it must be given its literal meaning and applied without any
attempt at interpretation.[26] Since Section 803 of the National Building
Code and Rule XIX of its IRR do not mention parking fees, then simply,
said provisions do not regulate the collection of the same. The RTC and
the Court of Appeals correctly applied Article 1158 of the New Civil Code,
which states:

Art. 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. (Emphasis ours.)

Hence, in order to bring the matter of parking fees within the ambit
of the National Building Code and its IRR, the OSG had to resort to
specious and feeble argumentation, in which the Court cannot concur.

The OSG cannot rely on Section 102 of the National Building Code
to expand the coverage of Section 803 of the same Code and Rule XIX of
the IRR, so as to include the regulation of parking fees. The OSG limits its
citation to the first part of Section 102 of the National Building Code
declaring the policy of the State to safeguard life, health, property, and
public welfare, consistent with the principles of sound environmental
management and control; but totally ignores the second part of said
provision, which reads, and to this end, make it the purpose of this Code
to provide for all buildings and structures, a framework of minimum
standards and requirements to regulate and control their location,
site, design, quality of materials, construction, use, occupancy, and
maintenance. While the first part of Section 102 of the National Building
Code lays down the State policy, it is the second part thereof that explains
how said policy shall be carried out in the Code. Section 102 of the
National Building Code is not an all-encompassing grant of regulatory
power to the DPWH Secretary and local building officials in the name of
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life, health, property, and public welfare. On the contrary, it limits the
regulatory power of said officials to ensuring that the minimum standards
and requirements for all buildings and structures, as set forth in the
National Building Code, are complied with.

Consequently, the OSG cannot claim that in addition to fixing the
minimum requirements for parking spaces for buildings, Rule XIX of the
IRR also mandates that such parking spaces be provided by building
owners free of charge. If Rule XIX is not covered by the enabling law,
then it cannot be added to or included in the implementing rules. The
rule-making power of administrative agencies must be confined to details
for regulating the mode or proceedings to carry into effect the law as it
has been enacted, and it cannot be extended to amend or expand the
statutory requirements or to embrace matters not covered by the
statute. Administrative regulations must always be in harmony with the
provisions of the law because any resulting discrepancy between the two
will always be resolved in favor of the basic law.
2. CONTRACT -OBLIGATION CONTRACTU

Art. 1159. Obligations arising from contracts
have the force of law between the contracting parties
and should be complied with in good faith.
 Contract is only 1 of the sources of obligations.

 This provision combines two concepts of Roman law –
equity or good faith (ius gentium) and strict compliance
by the parties (ius chinile).
 A contract is a meeting of minds between 2 persons
whereby one binds himself, with respect to the other, to
give something or to render some service (Article 1305)
 Contractual obligations have the force of law between the
contracting parties and should be complied with in good
faith (Article 1159).
 The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy
(Article 1306).
 Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment
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of what has been expressly stipulated but also to all the

consequences which, according to their nature, may be in
keeping with good faith, usage and law (Article 1315).
 In case of doubt, the interpretation consistent with good
faith is followed (People’s Car vs. Commando Security).
 Party cannot excuse themselves on the ground that it has
become unprofitable. Law will not protect you from your
own bad judgment.
- Must be complied with in good faith because it is the “law”

between parties; (1159) neither party may unilaterally evade his
obligation in the contract, unless:
a) contract authorizes it
b) other party assents
Meaning of contract – 1305 – Meeting of the minds between 2

persons whereby one binds himself with respect to the other to
give something or render some service.
Parties may freely enter into any stipulations, provided they are
not contrary to law, morals, good customs, public order or public
policy
Principles
1. Autonomy of Will ( 1306)
2. Mutuality (1308)
3. Obligatory in Force and Compliance in Good Faith (Art. 1159)
4. Consensuality of Contracts (1315)
5. Relativity (1311)
a) Validity of Contract.
In contract as to their general formation this is what we
call freedom to contract or autonomy of will, the “contract” entered
into between the parties shall have the force of law between the
parties. Any violation by either party shall produce a cause of action
against the violator. However, in order for a contract to be valid and
enforceable it must not be contrary to law, morals, good customs,
public order or public policy, otherwise the contract is void.
(Art.1306, 1409, Civil Code)
b) Effect if part of the contact is void.

If part of the contract is void but the contract is
susceptible of division, the part, which is not affected, may be
enforced disregarding the part, which is void. Such that if the
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contract is falsified by the unauthorized insertion of additional

stipulation, this falsified insertion shall be considered inexistent and
part unaffected shall be enforced.
Cited in the case of Daisy B. Tiu vs. Platinum Plans Phils Inc., GR No.
163512, February 28, 2007:
In any event, Article 1306 of the Civil Code provides that parties to a
contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
Article 1159 of the same Code also provides that obligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith. Courts cannot stipulate
for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy,
for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect
thereto. Not being contrary to public policy, the non-involvement
clause, which petitioner and respondent freely agreed upon, has the
force of law between them, and thus, should be complied with in
good faith.
(a) Law, NCC 1158

(b) Contract, NCC 1159
PSBA v CA, GR 84698, Feb. 4, 1992

An academic institution enters into a contract when it accepts
students for enrollment; The contract between school and student is
one "imbued with public interest". — Institutions of learning must also
meet the implicit or "built-in" obligation of providing their students
with an atmosphere that promotes or assists in attaining its primary
undertaking of imparting knowledge. Certainly, no student can
absorb the intricacies of physics or higher mathematics or explore the
realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the school
premises a constant threat to life and limb. Necessarily, the school
must ensure that adequate steps are taken to maintain peace and
order within the campus premises and to prevent the breakdown
thereof.
A contractual relation is a condition sine qua non to the school's

liability. The negligence of the school cannot exist independently on
the contract, unless the negligence occurs under the circumstances
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set out in Article 21 of the Civil Code.
Cruz v Gruspe, GR 191431, March 13, 2013

Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the denomination
or title given by the parties in their document is not conclusive of the
nature of its contents. In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to be
pursued. If the terms of the document are clear and leave no doubt
on the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the
parties’ evident intention, the latter shall prevail over the former.
In order that the debtor may be in default, it is necessary that the

following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance
judicially and extrajudicially .—The 15% interest (later modified by the
CA to be 12%) was computed from November 15, 1999—the date
stipulated in the Joint Affidavit of Undertaking for the payment of the
value of Gruspe’s car. In the absence of a finding by the lower courts
that Gruspe made a demand prior to the filing of the complaint, the
interest cannot be computed from November 15, 1999 because until
a demand has been made, Cruz and Leonardo could not be said to be
in default. Default generally begins from the moment the creditor
demands the performance of the obligation. In this case, demand
could be considered to have been made upon the filing of the
complaint on November 19, 1999, and it is only from this date that
the interest should be computed.
ACE Foods, Inc. v. Micro Pacific, G.R. No. 200602, December

11, 2013.
The essential issue in this case is whether ACE Foods should pay
MTCL the purchase price for the subject products. The petition lacks
merit.A contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting
parties call it. The real nature of a contract may be determined from
the express terms of the written agreement and from the
contemporaneous and subsequent acts of the contracting parties.
However, in the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued.
The denomination or title given by the parties in their contract is not
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conclusive of the nature of its contents. The very essence of a

contract of sale is the transfer of ownership in exchange for a
price paid or promised. This may be gleaned from Article 1458 of
the Civil Code which defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain
in money or its equivalent.
A contract of sale may be absolute or conditional. (Emphasis

supplied)Corollary thereto, a contract of sale is classified as a
consensual contract, which means that the sale is perfected by
mere consent. No particular form is required for its validity. Upon
perfection of the contract, the parties may reciprocally demand
performance, i.e., the vendee may compel transfer of ownership of
the object of the sale, and the vendor may require the vendee to pay
the thing sold. In contrast, a contract to sell is defined as a
bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery thereof to
the prospective buyer, binds himself to sell the property exclusively
to the prospective buyer upon fulfillment of the condition agreed
upon, i.e., the full payment of the purchase price. A contract to sell
may not even be considered as a conditional contract of sale
where the seller may likewise reserve title to the property subject of
the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event
which may or may not occur.
3. Art. 1160. OBLIGATION EX QUASI CONTRACTU
Obligations derived from quasi-contracts shall be subject

to the provisions of Chapter 1, Title XVII, of this Book.
QUASI-CONTRACT - That juridical relation resulting from a

lawful, voluntary and unilateral act, and which has for its purpose,
the payment of indemnity to the end that no one shall be unjustly
enriched or benefited at the expense of another
Quasi Contract vs Natural Obligations
2 kinds:
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a. Negotiorum gestio - unauthorized management; This

takes place when a person voluntarily takes charge of
another’s abandoned business or property without the
owner’s authority
b. Solutio indebiti - undue payment ; This takes place when
something is received when there is no right to demand it,
and it was unduly delivered thru mistake.
Distinction between contract and quasi-contract:

The distinction of a quasi-contract from contract is that in
contract, there is consent of the parties while in quasi-contract, the
obligation arises without a contract.
What law governs Quasi-Contracts?

Chapter 1, Title XVII of the Civil Code ( Arts. 2142-2175) as
provided under Article 1160, CC.
Some examples of Quasi-Contract.
1) Art 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.
Examples of Quasi-Contracts:
1. A merchant-farmer and owner of a ten-hectare agricultural land
left for USA on a pleasure trip. While enroute to USA typhoon
“dading” devastated the entire Philippines including the land owned
by D. Before the typhoon reached our area of responsibility C, a
neighbor of D employed six (6) farmers to harvest the palay
planted on the obligation of D upon arrival is to reimburse C P600
because he must not be enriched at the expense of another.
2) Art.2154. If something is received when there is no right to

demand it and it was unduly delivered through mistake he
obligation to return it arises.
3) Art. 2164. When, without the knowledge of the person obliged

to give support, it is given by a stranger, the latter shall have a
right to claim the same from the former, unless it appears that he
gave it out of piety and without intention of being repaid.
4) Art. 2167. When, through an accident or other cause, a person
is injured or become seriously ill, and he is treated or helped while
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he is not in a condition to give consent to a contract he shall be

liable to pay for the services of the physician or other person aiding
him, unless the service has been rendered out of pure generosity.
5) Art. 2168. When, during a fire, flood, storm, or other calamity,

property is saved from destruction by another person without
knowledge of the owner, the latter is bound to pay the former just
compensation.
6) Art. 2174. When, in a small community a majority of the

inhabitants of age decided upon a measure for protection against
lawlessness, fire, flood, storm or other calamity, anyone who
objects to the plan and refuses to contribute to the expenses shall
be liable to pay his share of said expenses.
Difference between Quasi-contract and Natural Obligation:

Quasi-contracts are certain lawful, voluntary and unilateral acts
which give rise to the juridical relations of the party to the end that
no person shall be unjustly enriched or benefited at the expense of
another while natural obligations are those not based on positive
law but on equity and natural law. They are not demandable in
the courts of justice however when they are voluntarily performed
or fulfilled, they can already be retained and the debtor cannot
recover what has been paid or performed.
Example: If the debtor pays by mistake or not knowing that the

condition or period has not yet arrived, he can recover based on
undue payment (quasi-contract). A debtor paid his creditor
knowing that his obligation to pay has already expired cannot
anymore recover what he paid by reason of natural obligation.
Quasi-Contract, NCC 1160
Locsin II v. Mekeni Food Corporation, G.R. No. 192105,

December 9, 2013.
In the absence of specific terms and conditions governing the car
plan arrangement between the petitioner and Mekeni, a quasi-
contractual relation was created between them. Consequently,
Mekeni may not enrich itself by charging petitioner for the use of its
vehicle which is otherwise absolutely necessary to the full and
effective promotion of its business.—Under Article 22 of the Civil
Code, “[e]very person who through an act of performance by
another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground,
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shall return the same to him.” Article 2142 of the same Code likewise
clarifies that there are certain lawful, voluntary and unilateral acts
which 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. In the absence of specific terms and conditions governing
the car plan arrangement between the petitioner and Mekeni, a
quasi-contractual relation was created between them. Consequently,
Mekeni may not enrich itself by charging petitioner for the use of its
vehicle which is otherwise absolutely necessary to the full and
effective promotion of its business. It may not, under the claim that
petitioner’s payments constitute rents for the use of the company
vehicle, refuse to refund what petitioner had paid, for the reasons
that the car plan did not carry such a condition; the subject vehicle is
an old car that is substantially, if not fully, depreciated; the car plan
arrangement benefited Mekeni for the most part; and any personal
benefit obtained by petitioner from using the vehicle was merely
incidental.
4. Art. 1161. Civil obligations arising from criminal offenses

shall be governed by the penal laws, subject to the
provisions of article 2177, and of the pertinent provisions
of Chapter 2, Preliminary Title, on Human Relations, and
of Title XVIII of this Book, regulating damages.
DELICTS/ACTS OR OMISSION PUNISHABLE BY LAW

(CIVIL LIABILITY ARISING FROM CRIMINAL OFFENSE)
Every person who is criminally liable is also civilly liable under Art.
100 of the Revised Penal Code. If a person therefore is guilty of
the crime charged he must not only be imprisoned but he shall
also answer for damages as a civil obligation. Such civil obligation
is a necessary consequence of a criminal responsibility and it to be
declared and enforced in the same criminal proceeding except
when the injured party reserved his right to file the civil action
independently from the criminal action. (Sec. I, Rule III, Revised
Rules of Court)
Governing rules:
1. Pertinent provisions of the RPC and other penal laws subject
to Art 2177 Civil Code
 Art 100, RPC – Every person criminally liable for a felony
is also civilly liable
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ARTICLES 1156-1304
2. Chapter 2, Preliminary title, on Human Relations ( Civil

Code )
3. Title 18 of Book IV of the Civil Code – on damages
What civil liability arising from a crime includes:

a. Restitution - The thing itself shall be restored.
b. reparation of damage caused - The court determines the
amount of damage taking into consideration the value of the
thing, improvements and fruits and reparation shall be made
accordingly.
c. indemnity for consequential damages - It shall include not
only those suffered by the injured party but also those
suffered by his family and third person by reason of the
crime.
Enforcement of Civil liability arising from crimes or delicts:
Ordinarily, when the offended party files the criminal action, he

is deemed to have filed simultaneously the civil action for the civil
liability of the offender unless he reserves his right to institute a
separate civil action of the civil liability of the offender. Meaning the
civil liability shall be heard separately from the criminal action.
L.G. FOODS CORPORATION and VICTORINO GABOR, Vice-
President and General Manager, vs HON. PHILADELFA B.
PAGAPONG-AGRAVIADOR, in her capacity as Presiding Judge
of Regional Trial Court, Branch 43, Bacolod City, and SPS.
FLORENTINO and THERESA VALLEJERA, GR. NO 158995,
September 26, 2006
Article 1161 of the Civil Code provides that civil obligation arising
from criminal offenses shall be governed by penal laws subject to the
provision of Article 217720 and of the pertinent provision of Chapter 2,
Preliminary Title on Human Relation, and of Title XVIII of this Book,
regulating damages. Plainly, Article 2177 provides for the alternative
remedies the plaintiff may choose from in case the obligation has the
possibility of arising indirectly from the delict/crime or directly
from quasi-delict/tort. The choice is with the plaintiff who makes
known his cause of action in his initiatory pleading or
complaint,21 and not with the defendant who cannot ask for the
dismissal of the plaintiff's cause of action or lack of it based on the
defendant's perception that the plaintiff should have opted to file a
claim under Article 103 of the Revised Penal Code.
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ARTICLES 1156-1304
5. Art. 1162. Obligations derived from quasi-delicts shall be

governed by the provisions of Chapter 2, Title XVII of this
Book, and by special laws.
QUASI-DELICT/TORTS - It is a fault or act of negligence ( or

omission of care ) which causes damage to another, there being no
pre-existing contractual relations between the parties
One which causes damage to another, there being fault or

negligence, but there is no pre-existing contractual relation between
the parties. (Art. 1162)
Meaning of Culpa – Negligence (Culpa Aqulliana, torts) – omission of

that diligence required by the circumstances of person, place and
time. Negligence is a question of FACT.
The failure of a person to exercise or observe for the protection of

the interests of another person the degree of care, precaution &
vigilance which circumstances justify demand whereby such person
suffers injury.
Meaning of Proximate Cause: Adequate and efficient cause which in

the natural order of events necessarily produces the damage or
injury complained of
What are the different kinds of Culpa (Negligence)?

a) Culpa contractual (Contractual negligence)- negligence in the
performance of the contract.
Example: A passenger in a taxi who was not able to bring the
passenger to his destination due to the malicious act of the driver
which caused the delay or damage to the vehicle. This is culpa
contractual because of the existence of contract of carriage
between the owner of the taxi and the passenger.
b) Culpa Aquiliana (Civil Negligence) – wrong or negligence

committed independent of a contract and without criminal
intent.
Example: A pedestrian was hit by an over speeding taxi and
suffered physical injuries. This is an example of culpa aquiliana
because of the absence of any contractual relation between the
pedestrian and owner of the taxi.
c) Culpa Criminal (Criminal negligence) – Those resulting to the

commission of the crime punishable under Article 365 of the
Revised Penal Code)
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ARTICLES 1156-1304
Q – What are the requisites of quasi-delict?

Answer: The requisites of quasi-delict are the following:
(a) there must be an act or omission;
(b) such act or omission causes damage to another;
(c) such act or omission is caused by fault or negligence; and
(d) there is no pre-existing contractual relation between the parties.

(Chan, Jr. v. Iglesia Ni Cristo, Inc., G.R. No. 160283, October 14,
2005).
Quasi-delict is a civil law term while tort is a common law term.
Difference between Contractual Liability and Quasi-Delict

 In quasi-delict, the obligation arises only when there is
a violation. Without violation, there is no obligation.
It is the breach itself which gives rise to the obligation.
 In contracts, there is already an obligation which exists
prior to or even without a breach. The breach of the
contract is immaterial to the legal obligation.
 Example: Contract of sale of watch. If both parties
perform their obligation, the contract is extinguished.
There is no breach, but there is an obligation.
(Compare the above example with the one below)
Example: Driving recklessly, A hits a child. When did
the obligation came to being? When there was injury
due to negligence. (Negligence per se does not give
rise to a quasi-delict unless there is injury.)
Breach and quasi-delict are inseparable. But contract
and breach may be separable.
Question: Are contracts and quasi-delicts mutually exclusive?

Answer: No.
In Gutierrez vs. Gutierrez, there was a collision between a
bus and a car and a passenger of the bus was injured. It
was proven that the driver of the car was a minor and an
incompetent driver. The passenger sued against them
20
ARTICLES 1156-1304
all. The Supreme Court held that the bus driver, bus
owner and the driver of the car (through his father) are
jointly and severally liable to the passenger. The liability
of the owner of the bus and the bus driver rests on that
of a contract. On the other hand, the father is
responsible for the acts of his son and is therefore
responsible for the negligence of the minor. Here, it is
clear that breach of contract and quasi-delict are
separate.
However, they can overlap as can be seen in the
following example: Bus driver drives recklessly and the
bus hits a tree. A passenger is injured. The passenger
and sue the driver for quasi-delict (due to negligence) or
for crime or the bus company for breach of contract of
carriage or for quasi-delict (negligence in the selection
and supervision).
The cause of action one chooses determines the:
1. Parties involved
2. Degree of proof
3. Defenses
One can tailor his suit depending on the cause of action
he chooses.
Garcia v. Ferro Chemicals, Inc. (2014)

The civil liability asserted by Ferro Chemicals, Inc. before the CA
arose from the criminal act. It is in the nature of civil liability ex
delicto. Ferro Chemicals did not reserve the right to institute the civil
action for the recovery of civil liability ex delicto or institute a
separate civil action prior to the filing of the criminal case. Thus, it is
an adjunct of the criminal aspect of the case.
People of the Philippines v. Dionaldo (2015)

The death of the accused pending appeal of his conviction
extinguishes his criminal liability as well as his civil liability ex delicto.
Barredo v Garcia, 73 Phil. 607 (1942)

There are two actions available for parents of Garcia. One is under
the A100RPC wherein the employer is only subsidiarily liable for the
damages arising from the crime thereby first exhausting the
properties of Fontanilla. The other action is under A1903CC (quasi-
delict or culpa aquiliana) wherein as the negligent employer of
Fontanilla, Barredo is held primarily liable subject to proving that he
exercising diligence of a good father of the family. The parents
21
ARTICLES 1156-1304
simply took the action under the Civil Code as it is more practical to
get damages from the employer bec he has more money to give than
Fontanilla who is yet to serve his sentence.
Obiter: Difference between Crime and Quasi-delict 1) Crimes –

public interest; Quasi-delict – only private interest 2) Penal code
punishes or corrects criminal acts; Civil Code by means of
indemnification merely repairs the damage 3) Delicts are not as
broad as quasi-delicts; Crimes are only punished if there is a penal
law; Quasi-delicts include any kind of fault or negligence. (NOTE: Not
all violations of penal law produce civil responsibility, e.g.
contravention of ordinances, violation of game laws, infraction of
rules of traffic when nobody is hurt); 4) Crime – guilt beyond
reasonable doubt; Civil – mere preponderance of evidence.
Gutierrez v Gutierrez, No. 34840, September 23, 1931

BG was an incompetent chauffer as he was driving in an excessive
speed. The guarantee the father gave at the time the son was
granted a license to operate motor vehicles gave the father
responsible for the acts of his son. - SCor and AV’s liability is based
on the contract. The position of the truck on the bridge and the
speed in operating the machine and the lack of care employed
reached such conclusion. The fact that 2 drivers were approaching a
narrow bridge, neither willing to slow up and give right of way
inevitably resulted to the collision and the accident.
- The contention that there was contributory negligence as the

plaintiff kept his foot outside the truck was not pleaded and was
dismissed as speculative. Ratio In the US it is uniformly held that the
head of the house, the owner of the vehicle, who maintains it for the
general use of his family is liable for its negligent operation by one of
his children, whom he designates or permits to run it, where the car
is occupied and being used for the pleasure of the other members of
the family, other than the child driving it.
Llana v. Biong, G.R. No. 182356, December 4, 2013.

Elements of Quasi-Delicts—Article 2176 of the Civil Code provides
that “[w]hoever 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 a quasi-delict.” Under this provision,
the elements necessary to establish a quasi-delict case are: (1)
damages to the plaintiff; (2) negligence, by act or omission, of the
defendant or by some person for whose acts the defendant must
22
ARTICLES 1156-1304
respond, was guilty; and (3) the connection of cause and effect
between such negligence and the damages. These elements show
that the source of obligation in a quasi-delict case is the breach or
omission of mutual duties that civilized society imposes upon its
members, or which arise from noncontractual relations of certain
members of society to others.
Under Article 2176 of the Civil Code, in relation with the fifth
paragraph of Article 2180, “an action predicated on an employee’s
act or omission may be instituted against the employer who is held
liable for the negligent act or omission committed by his
employee.”—Once negligence, the damages and the proximate
causation are established, this Court can then proceed with the
application and the interpretation of the fifth paragraph of Article
2180 of the Civil Code. The rationale for these graduated levels of
analyses is that it is essentially the wrongful or negligent act or
omission itself which creates the vinculum juris in extra-contractual
obligations.
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ARTICLES 1156-1304
NATURE AND EFFECT OBLIGATIONS (ARTS. 1163-1178)
To give (Articles 1163-1166)
Art. 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.
Art. 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.
Art. 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.
Art. 1166. The obligation to give a

determinate thing includes that of delivering all its
24
ARTICLES 1156-1304
accessions and accessories, even though they may

not have been mentioned.
EFFECTS OF OBLIGATION
1. Obligation to give - obligation to deliver the thing agreed upon
2. Obligation to do/not to do - obligation to do/not to do the service
agreed upon
ACCESSORY OBLIGATIONS:
1. Exercise diligence / Preserve the thing
standard of care: that of a good father of a family – only when

there is no law or stipulation requires another standard of care.
See Article 1173 last paragraph.
Classification of the thing ( subject matter) in a real obligation.

a) Specific or determinate thing – when the thing is particularly
designated or segregated from all others of the same class.
b) Generic or indeterminate thing –when it is not particularly
designated or segregated. Hence, it still belongs to the class or
genus.
Article 1163 provides, “every person obliged to give

something is 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.”
2nd paragraph of Article 1173 also provides, “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 family shall be required.”
In other words Diligence required is:

a. The one stipulated by the parties or required by law and in
the absence thereof,
b. Diligence of a good father of the family.
Meaning of Diligence of a Good father of the Family
a. That which is required by the nature of the obligation

and corresponds with the circumstances of person,
time and place (Art. 1173, Civil Code). This is also
25
ARTICLES 1156-1304
called as Ordinary Diligence or Diligence of a Good

Father of the family or Diligence of a Prudent Man.
b. However, if the law or contract provides for a
different standard of care, said law or must prevail
(Art. 1163)
Other names for Diligence of a Good Father of the Family -

a) Ordinary Diligence
b) Diligence of a Prudent Man
c) Diligence that depends on the nature of the obligation and
corresponds with the circumstances of person, of time and
of the place.
When EXTRAORDINARY DILIGENCE IS REQUIRED? If it is

stipulated or required by law
Example of a case where the law requires extraordinary care (not

merely that of a prudent man):
“A common carrier is bound to carry the passengers safely as far

as human care and foresight can provide, using the utmost
diligence of a very cautious persons, with due regard for all the
circumstances.” Art. 1755 of the Civil Code.
Notes:
The diligence required of a private carrier is only ordinary, that is, the
diligence of a good father of the family. In contrast, a common
carrier is a person, corporation, firm or association engaged in the
business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering such services to the
public.[1] Contracts of common carriage are governed by the
provisions on common carriers of the Civil Code, the Public Service
Act,[2] and other special laws relating to transportation. A common
carrier is required to observe extraordinary diligence, and is
presumed to be at fault or to have acted negligently in case of the
loss of the effects of passengers, or the death or injuries to
passengers.[3] (Sps Pereña vs. Sps Zarate, G.R. No. 157917, August
29, 2012, [Bersamin, J.])
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ARTICLES 1156-1304
ART. 1755. 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.
ART. 1755. 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.
ART. 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755.
The Code Commission, in justifying this extraordinary diligence
required of a common carrier, says the following:
A common carrier is bound to carry the passengers safely as far as

human care and foresight can provide, using the utmost deligence of
very cautions persons, with due regard for all circumstances. This
extraordinary diligence required of common carriers is calculated to
protect the passengers from the tragic mishaps that frequently occur
in connection with rapid modern transportation. This high standard of
care is imperatively demanded by the precariousness of human life
and by the consideration that every person must in every way be
safeguarded against all injury. (Report of the Code Commission, pp.
35-36)” (Padilla, Civil Code of the Philippines, Vol. IV, 1956 ed., p.
197).
From the above legal provisions, we can make the following

restatement of the principles governing the liability of a common
carrier: (1) the liability of a carrier is contractual and arises upon
breach of its obligation. There is breach if it fails to exert
extraordinary diligence according to all circumstances of each case;
(2) a carrier is obliged to carry its passenger with the utmost
diligence of a very cautious person, having due regard for all the
circumstances; (3) a carrier is presumed to be at fault or to have
27
ARTICLES 1156-1304
acted negligently in case of death of, or injury to, passengers, it

being its duty to prove that it exercised extraordinary diligence; and
(4) the carrier is not an insurer against all risks of travel. ( Isaac vs.
A.L. Ammen Transportation Co., Inc., G.R. No. L-9671, August 23,
1957, [J., Bautista-Angelo])
Common carriers are obliged to observe extraordinary diligence in

the vigilance over the goods transported by them.[4] Accordingly,
they are presumed to have been at fault or to have acted negligently
if the goods are lost, destroyed or deteriorated.[5] There are very
few instances when the presumption of negligence does not attach
and these instances are enumerated in Article 1734.[6] In those
cases where the presumption is applied, the common carrier must
prove that it exercised extraordinary diligence in order to overcome
the presumption. (Bascos vs. CA, G.R. No. 101089, April 7, 1993,
[Campos, Jr., J])
B) Duty of a person obliged to give generic thing:
a) To deliver a thing which is of the quality

intended by the parties taking into
consideration the purpose of the obligation and
other circumstances (Art. 1246) Rule on
Medium Quality
Liability:
b) To be liable for damages in case of fraud,

negligence or delay, in the performance of his
obligation or contravention of the tenor thereof
(Art. 1170)
Insurance Case Digest: Gaisano Cagayan, Inc. V. Insurance Company

Of North America (2006)
G.R. No. 147839 June 8, 2006
Lessons Applicable: Existing Interest (Insurance)

28
ARTICLES 1156-1304
Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil

Code, Section 13 of Insurance Code

FACTS:
 Intercapitol Marketing Corporation (IMC) is the maker of

Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc. (LSPI) is the
local distributor of products bearing trademarks owned by Levi
Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of
North America fire insurance policies for their book debt
endorsements related to their ready-made clothing materials
which have been sold or delivered
to various customers and dealers of the Insured anywhere in
the Philippines which are unpaid 45 days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de
Oro City, owned by Gaisano Cagayan, Inc., containing the ready-
made clothing materials sold and delivered by IMC and LSPI was
consumed by fire.
 February 4, 1992: Insurance Company of North America filed a
complaint for damages against Gaisano Cagayan, Inc. alleges that
IMC and LSPI filed their claims under their respective fire
insurance policies which it paid thus it was subrogated to their
rights Gaisano Cagayan, Inc: not be held liable because it
was destroyed due to fortuities event or force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods
until fully paid, it must bear the loss (res perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504
(1) of the Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against

Gaisano Cagayan for the debt that was isnured
HELD: YES. petition is partly GRANTED. order to pay P535,613 is

DELETED
 insurance policy is clear that the subject of the insurance is

the book debts and NOT goods sold and delivered to the
customers and dealers of the insured
ART. 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been
made or not, except that:
29
ARTICLES 1156-1304
(1) Where delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such
delivery;
 IMC and LSPI did not lose complete interest over the goods.
They have an insurable interest until full payment of the value of
the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has
substantial economic interest in the property
 Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might
directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in:
(a) an existing interest; (b) an inchoate interest founded on
existing interest; or (c)
an expectancy, coupled with an existing interest in that out of
which the expectancy arises.
 Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction.
 it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it
be injured or destroyed by the peril against which it is insured
 an insurable interest in property does not necessarily
imply a property interest in, or a lien upon, or possession of, the
subject
matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest
 insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid
45 days after the fire - obligation is pecuniary in nature
 obligor should be held exempt from liability when the loss
occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event
30
ARTICLES 1156-1304
Article 1263 of the Civil Code in an obligation to deliver a

generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation (Genus
nunquan perit)
 The subrogation receipt, by itself, is sufficient to establish not

only the relationship of respondent as insurer and IMC as the
insured, but also the amount paid to settle the insurance claim
 Art. 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.
 As to LSPI, no subrogation receipt was offered in evidence.
 Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613
Case: DILIGENCE OF A GOOD FATHER OF THE FAMILY
G.R. No. L-6913 November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin
de la Peña, defendant-appellant.
Lopez Vito, for appellant.

Arroyo and Horrilleno, for appellee.
MORELAND, J.:
FACTS: In 1898 Fr. De la Peña assigned as trustee of the sum of

P6,641, collected by him for the charitable purposes he deposited in
his personal account P19,000 in the Hongkong and Shanghai Bank at
Iloilo. During the war of the revolution, Father De la Peña was
arrested by the military authorities as a political prisoner. The arrest
of Father De la Peña and the confiscation of the funds in the bank
were the result of the claim of the military authorities that he was an
insurgent and that the funds deposited had been collected by him is
for revolutionary purposes. The money was taken from the bank by
the military authorities by virtue of such order, was confiscated and
turned over to the Government.
31
ARTICLES 1156-1304
ISSUES: Whether or not Father De la Peña is liable for the loss of the
funds?
RULLING: No, he is not liable because there is no negligent act on

the part of Fr. De la Peña. It was so happened that during that time
the money was taken from him by the U.S. military forces which is
unforeseen event. Although the Civil Code states that “a person
obliged to give something is also bound to preserve it with
the diligence pertaining to a good father of a family”, it also
provides, following the principle of the Roman law that “no
one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the
exception of the cases expressly mentioned in the law or
those in which the obligation so declares.”
2. Delivery of fruits
 When does the right begin to exist : from the time the
obligation to deliver the thing arises (Art. 1164)
 Exception law on sales – Art 1537 2 nd paragraph – all the fruits
shall pertain to the vendee from the day on which the contract
was perfected.
a) when there is no term/condition – from the perfection of the
contract
b) when there is a term/condition – from the moment the term
or condition arises
Personal right (jus in personam) – power demandable by one

[person to another – to give, to do or not to do.
Real right (jus in re) – power over a specific thing.
Kinds of fruits:
a. Natural fruits – spontaneous product of nature without
human intervention.
b. Civil fruits (like rents) a result of civilization arising from
juridical transactions.
c. Industrial fruit – products of nature bolstered with human
intervention.
3. Delivery of accessories & accessions ( obligation to deliver

determinate thing, even if the stipulation does not mention
delivery of accessories & accessions)
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ARTICLES 1156-1304
Art. 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.
 Accessories - those joined to or included with the principal for

the latter’s better use, perfection or enjoyment
 Accessions – additions to or improvements upon a thing
As a rule, accessories and accessions are included in the

delivery of the thing even if they are not mentioned.
Effect of stipulation: If there is a stipulation and accessories are

not included, such stipulations are valid and binding upon the
parties.
To account and deliver to the creditor the fruits if
the thing bears fruits upon the time the
obligation to deliver it arises (Article 1164).
 However, ownership is transferred only by

delivery. Hence, creditor’s right over the
fruits is merely personal.
 Example: A sold B a mango plantation to be
delivered on January 1. Come January 1, A
did not deliver. A instead sold the fruits to C,
a buyer in good faith. B sues A for specific
performance. Court awards the plantation to
B. Does B have a right to the fruits? Yes, as
against A. No, as against C, because B’s
right over the fruits is only personal. B’s
remedy is to go against A for the value of the
fruits.
4. Deliver of the thing itself (Article 1165):
Art. 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.
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ARTICLES 1156-1304
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.
Kinds of Delivery:
Delivery may be either actual or constructive.
I. Actual delivery (tradition) – where physically the property

changes hands.
Example: If A sells to B a fountain pen, the giving of the fountain
pen by A to B is
actual tradition.
II. Constructive Delivery – That where the physical transfer is

implied. This may be done by:
a. Traditio symbolica (symbolic tradition) – as when the keys of a
bodega are given.
b. Traditio longa manu (delivery by mere consent or the pointing of
the object.
c. Traditio brevi manu – (delivery by short hand; that kind of delivery
whereby a possessor of a thing not as an owner becomes the
possessor as an owner. Example: when a tenant already in
possession of the house buys the house from the owner.
d. Traditio Constitutum Possessorium – the opposite of brevi manu;
thus the delivery whereby a possessor of a thing as an owner retains
possession no longer as an owner, but in some other capacity (like a
house owner who sells a house but remains in possession as tenant
of the same house)
e. Tradition by the execution of legal forms and solemnities.
ADDISON V. FELIX (August 03, 1918)

FACTS:
Petitioner Addison sold four parcels of land to Defendant spouses
Felix and Tioco located in Lucena City. Respondents paid 3K for the
purchase price and promised to pay the remaining by installment.
The contract provides that the purchasers may rescind the contract
within one year after the issuance of title on their name.
The petitioner went to Lucena for the survey designaton and delivery
of the land but only 2 parcels were designated and 2/3 of it was in
possession of a Juan Villafuerte.
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ARTICLES 1156-1304
The other parcels were not surveyed and designated by Addison.
Addison demanded from petitioner the payment of the first

installment but the latter contends that there was no delivery and as
such, they are entitled to get back the 3K purchase price they gave
upon the execution of the contract.
ISSUE:
WON there was a valid delivery.
HELD:
The record shows that the plaintiff did not deliver the thing sold. With
respect to two of the parcels of land, he was not even able to show
them to the purchaser; and as regards the other two, more than two-
thirds of their area was in the hostile and adverse possession of a
third person.
It is true that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the
object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall
have had such control over the thing sold that, at the moment of the
sale, its material delivery could have been made. It is not enough to
confer upon the purchaser the ownership and the right of possession.
The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public instrument is sufficient. But
if there is an impediment, delivery cannot be deemed effected.
Answer for damages in case of non-fulfillment of the

obligation:
Under the Civil Code, what are the different acts or omissions of
the obligor or debtor that will result in the breach of the obligation
for he can be held liable for damages?
a. Default (Mora) – delay on the part of the debtor

( See discussions of mora below)
b. Fraud (Dolo) in the performance of the obligation.

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ARTICLES 1156-1304
Kind of Dolo:
a) Incidental Fraud (dolo incidente) – referred

to under Article 1170.
b) Causal Fraud ( dolo causante) –fraud
employed in the execution of the contract
under Article 1338 which vitiate consent.
Note: The law refers to incidental fraud only as reiterated in Article

1344, 2nd paragraph, “incidental fraud obliges the person employing it
to pay damages.”
Illustration
D is obliged to deliver 5 bags of powder soap to C 7 days from their
agreement. On due date, D delivered 5 bags of powder soap mixed
with chalk. What is the status of the agreement between D and C?
* The agreement is valid. The fraud was committed during the

performance of the obligation and not during the agreement of the
parties. This is a case of incidental fraud ( dolo incidente) not causal
fraud (dolo causante).
c. Negligence (Culpa)
d. Contravention of the tenor of the obligation (Art.

1170)
Concept of Damage and Damages:
Damages – Monetary equivalent of the legal wrong or injury

sustained.
Damage, wrong of Injury – the result of the violation of a right
recognized by law.
KINDS OF DAMAGES
M – Moral damages referring to mental and physical anguish;

E - Exemplary – corrective or to set example
N - Nominal -to vindicate a right -when no other kind of damages
may be recovered.
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ARTICLES 1156-1304
T – Temperate – when the exact amount of damage cannot be

determined
A – Actual losses as well as unrealized profit
L – Liquidated (predetermined beforehand – by agreement)
Measure of liability for damages.
Article 2201 of the Civil Code states:
In contracts and quasi-contracts, the damages fir which the obligor

who acted in good faith is liable shall be those that are the natural
and probable consequences of the breach of obligation and which the
parties have foreseen or could have reasonably foreseen at the time
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.
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable

for all damages which are the natural and probable consequences of
the act or omission complained of. It is not necessary that such
damages have been foreseen or could have reasonably been
foreseen by the defendant.
International Corporate Bank vs. Sps. Gueco

March 25, 2016
G.R. No.141968
February 12, 2001
FACTS
Spouses Gueco obtained a loan from petitioner International
Corporate Bank (now Union Bank of Philippines) to purchase a car.
Respondent spouses executed a promissory note in consideration,
which were payable in monthly installment and chattel mortgage over
the car.
The spouses however, defaulted payment. The car was detained by
the bank. When Dr. Gueco delivered the manger’s check of P150,000,
the car was not released because of his refusal to sign the Joint
Motion to Dismiss (JMD).
The bank insisted that the JMD is a standard operating procedure to
effect a compromise and to preclude future filing of claims or suits
for damages. Gueco spouses filed an action against the bank for
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ARTICLES 1156-1304
fraud, failing to inform them regarding JMD during the meeting & for
not releasing the car if they do not sign the said motion.
ISSUE
Whether or not International Corporate Bank was guilty of fraud.
HELD
No. Fraud has been defined as the deliberate intention to cause
damage or prejudice. It is the voluntary execution of a wrongful act,
or a willful omission, knowing and intending the effects which
naturally and necessarily arise from such act or omission. The fraud
referred to in Article 1170 of the Civil Code is the deliberate and
intentional evasion of the normal fulfillment of obligation. The court
fails to see how the act of the petitioner bank in requiring the
respondent to sign the joint motion to dismiss could constitute as
fraud.
The joint motion to dismiss cannot in any way have prejudiced Dr.
Gueco. The motion to dismiss was in fact also for the benefit of Dr.
Gueco, as the case filed by petitioner against it before the lower
court would be dismissed with prejudice.
The joint motion to dismiss was but a natural consequence of the
compromise agreement and simply stated that Dr. Gueco had fully
settled his obligation, hence, the dismissal of the case. Petitioner’s
act of requiring Dr. Gueco to sign the joint motion to dismiss cannot
be said to be a deliberate attempt on the part of petitioner to renege
on the compromise agreement of the parties.
Gutierrez v Gutierrez, 56 Phil 177 (1932)

The head of a house, the owner of an automobile, who maintains it
for the general use of his family, is liable for its negligent operation
by one of his children, whom he designates or permits to run it,
where the car is occupied and being used at the time of the injury for
the pleasure of other members of the owner's family than the child
driving it.
Vasquez v Borja, 74 Phil 560 (1944)

We think both the trial court and the Court oi Appeals erred in law in
so holding. They have manifestly failed to distinguish a contractual
from an extracontractual obligation, or an obligation arising from
contract from an obligation arising from culpa aquiliana. The fault
and negligence referred to in articles 1101-1104 of the Civil Code are
those incidental to the fulfilment or nonfulfilment of a contractual
obligation; while the fault or negligence referred to in article 1902 is
the culpa aquiliana of the civil law, homologous but not identical to
tort of the common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R. R. Co. vs. Cia.
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ARTICLES 1156-1304
Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R. R. Co., 38

Phil., 768.) The fact that the corporation, acting thru Vazquez as its
manager, was guilty of negligence in the fulfilment of the contract,
did not make Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporation's contract, its nonfulfilment,
whether due to negligence or.fault or to any other cause, made the
corporation and not its agent liable.
On the other hand, if independently of the contract Vazquez by his

fault or negligence caused damage to the plaintiff, he would be liable
to the latter under article 1902 of the Civil Code. But then the
plaintiff's cause of action should be based on culpa aquiliana and not
on the contract alleged in his complaint herein; and Vazquez liability
would be principal and not merely subsidiary, as the Court of Appeals
has erroneously held.
Federal Builders v Foundation Specialists, GR 194507, Sept.

8, 2014
When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
When an obligation, not constituting a loan or forbearance of money,

is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or
damages, except when or until the demand can be established with
reasonable certainty.
FAILURE TO COMPLY WITH PERFORMANCE/REMEDIES:
3 kinds of Performance:
1. SPECIFIC PERFORMANCE - performance of the prestation
itself
2. SUBSTITUTE PERFORMANCE - someone else performs or
something else is performed at the expense of debtor
3. EQUIVALENT PERFORMANCE – damages
In obligations to give what are the different rights, which are

available to the creditor?
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ARTICLES 1156-1304
If the obligation is an obligation that is determinate, the

creditor may:
1. Compel specific performance (Art. 1165)
2. To recover damages in case of breach of the
obligation (Art 1170)
3. If reciprocal, demand specific performance or
rescission with right damages in either case
(Art. 1191)
If the obligation is indeterminate or generic, the creditor may:
a. Ask for the performance of the obligation (Art. 1246)

b. To ask that the obligation be complied with at the expense
of the debtor (Art. 1165, par. 2 CC)
c. To recover damages in case of breach of obligations. (Art.
1170)
Rules regarding Improvement, Loss or Deterioration (Articles 1189,

1190, 1194 )
Art. 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;
40
ARTICLES 1156-1304
(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.
Art. 1190. When the conditions have for

their purpose the extinguishment of an
obligation to give, the parties, upon the
fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or
improvement of the thing, the provisions
which, with respect to the debtor, are laid
down in the preceding article shall be applied
to the party who is bound to return.
As for the obligations to do and not to
do, the provisions of the second paragraph of
article 1187 shall be observed as regards the
effect of the extinguishment of the
obligation.
Art. 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.
1. Requisites
a. Obligation has a suspensive condition, a
resolutory condition or term
b. The obligor is obligated to deliver a
determinate thing
c. There is improvement, loss or deterioration
before the fulfillment of the condition or the
period
41
ARTICLES 1156-1304
d. The condition is fulfilled or the period

arrives
2. Rules Proper
a. If the thing is lost without the fault of
the debtor, the obligation is extinguished
b. If the thing is lost through the fault of
the debtor, he must pay damages
 The thing is lost when it perishes, goes out
of commerce or disappears in such a way
that its existence is unknown or cannot be
recovered.
c. If the thing deteriorates without the fault of
the debtor, the creditor must accept the thing
in its impaired condition
d. If the thing deteriorates through the
fault of the debtor, the creditor may choose
between
i. Resolution (Article 1189) plus damages
ii. Fulfillment of the obligation plus
damages
e. If the thing is improved by nature or by time,
the improvement shall inure to the benefit of
the creditor
f. If the thing is improved at the expense of the
debtor, the debtor shall the same rights as a
usufructuary
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY v.
BENJAMIN TUDTUD, et al. 571 SCRA 165 (2008)
The National Airports Corporation (NAC) filed a complaint for

expropriation in order to expand the Cebu Lahug Airport. It sought to
acquire, by negotiated sale or expropriation, several lots adjoining
the then existing airport which included the parcels of land owned by
the predecessors-in- interest of respondents Benjamin Tudtud et al.
NAC assured the owners that they would reacquire the land if it is
no longer needed by the airport. The Court of First Instance of Cebu
granted the expropriation. No structures related to the operation of
the Cebu Lahug Airport were constructed on the land expropriated.
Respondent Lydia Adlawan (Lydia), acting as attorney-in-fact of the
original owners, sent a letter to the general manager of the petitioner
Mactan Cebu International Airport Authority (MCIAA), the new owner
42
ARTICLES 1156-1304
of the lot and demanded to repurchase the lot at the same price paid
at the time of the taking, without interest. Lydia filed a complaint
before the Regional Trial Court (RTC) of Cebu City for reconveyance
and damages against the MCIAA. The RTC of Cebu
rendered judgment in favor of Tudtud et al. MCIAA appealed to the
Court of Appeals but it affirmed the RTC decision. MCIAA then filed a
Motion for Reconsideration but was denied.
ISSUE:
Whether or not Tudtud et al. are entitled for the re-conveyance of

the land expropriated
HELD:
Tudtud et al.’s witness respondent Justiniano Borga declared that the

original owners did not oppose the expropriation of the lot upon the
assurance of the NAC that they would reacquire it if it is
no longer needed by the airport. The rights and duties between the
MCIAA and Tudtud et al are governed by Article 1190 of the Civil
Code which provides: When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they
have received. In case of the loss, deterioration, or improvement of
the thing, the provisions which, with respect to the debtor, are laid
down in the preceding article [Article 1189] shall be applied to the
party who is bound to return. While the MCIAA is obliged to re-
convey Lot No. 988 to Tudtud et al., they must return to the MCIAA
what they received as just compensation for the expropriation of Lot
No. 988, plus legal interest to be computed from default, which in
this case runs from the time the MCIAA complies with its obligation to
the respondents. Tudtud et al., must likewise pay the MCIAA the
necessary expenses it may have incurred in sustaining Lot No. 988
and the monetary value of its services in managing it to the extent
that Tudtud et al., were benefited thereby. Following Article 1187 of
the Civil Code, the MCIAA may keep whatever income or fruits it may
have obtained from Lot No. 988, and Tudtud et al., need
not account for the interests that the amounts they received as just
compensation may have earned in the meantime.
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ARTICLES 1156-1304
ii. To give a generic thing

 Remedies Available to the Creditor
1. Specific performance – the debtor must
perform it personally
2. Substitute performance – done by someone else
(perform at the expense of the debtor)
3. Equivalent performance – damages
Damages may be obtained exclusively or in addition to the 1 st 2

actions.
NOT TO DO
To do (Article 1167)
Art. 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.
i. Only the obligor can do (personalisimo)

1. Equivalent performances – damages
ii. Anyone else can do it (not personalisimo)
1. Substitute performance – done by someone
else (perform at the expense of the debtor)
2. Equivalent performance – damages
 Damages may be obtained exclusively or in
addition to the 1st 2 actions.
If obligation is to do and debtor fails to perform it, the creditor

may
a. Ask another person to perform the obligation at the expense
of the debtor
( Art. 1167) unless act is personal in character and/or
44
ARTICLES 1156-1304
b. He may also demand damages from the debtor. Damages

only when obligation is personal in character.
If debtor performs it but in contravention of the tenor of the

obligation or done in a poor manner, creditor may:
a. Have the same be undone at the debtor’s expense (Art.
1167) and
b. Demand damages from the debtor (Art. 1170)
a. Not to do (Article 1168)
Art. 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.
 This includes the obligation not to give.

i. Substitute performance - done by someone else
(perform at the expense of the debtor)
ii. Equivalent performance - damages
 Damages may be obtained exclusively or in
addition to the 1st 2 actions.
If debtor does what has been forbidden, creditor may

a. Demand what has been done be undone.
b. Demand damages from the debtor
45
ARTICLES 1156-1304
Summary of the rules regarding remedies available to the

creditor in obligations to give, to do and not to do.
Specific Equivalent Substitute
Obligation Performan Performan Performan
ce ce ce
1 To give
.
a. Determinate √ √ ×
thing
b. Determinable √ √ √
thing
2 To do
.
a. Very personal × √ ×
b. Not very × √ √
personal
3 Not to do × √ √
.
Specific performance is the performance of the prestation

itself.
 In obligations to do or not to do, specific performance
is not available since it will go against the
constitutional prohibition against involuntary servitude.
 Equivalent performance is the payment of damages
 Substitute performance is when someone else performs
or something else is performed at the expense of the
debtor.
Chavez v Gonzales, 32 SCRA 547

Under Article 1167 of the Civil Code, a person who is obliged to do
something and fails to do it shall be liable for the cost of executing
the obligation in a proper manner. The cost of execution of the
obligation to repair a typewriter is the cost of the labor or service
expended in the repair of the typewriter. In addition, the obligor,
under Article 1170 of the Code, is liable for the cost of the missing
parts because in his obligation to repair the typewriter he is bound to
return the typewriter in the same condition it was when he received
it.
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ARTICLES 1156-1304
Tanguilig v CA, 266 SCRA 78 (1997)

Petitioner’s argument that private respondent was already in default
in the payment of his outstanding balance of P15,000.00 and hence
should bear his own loss, is untenable. 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. When the windmill failed to function properly it became
incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is
petitioner who should bear the expenses for the reconstruction of the
windmill. Article 1167 of the Civil Code is explicit on this point that if
a person obliged to do something fails to do it, the same shall be
executed at his cost.
Mackay v. Caswell (2014)

For Owen’s failure to provide quality work, he is to reimburse the
rectification costs the Caswells had shouldered as the latter’s actual
damages; the unpaid compensation Owen is claiming shall be set-off
from the Caswell’s monetary claims supported by receipts.
IRREGULARITY OF PERFORMANCE/BREACH
A. CAUSES ATTRIBUTABLE TO DEBTOR
1. Delay (Mora)
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 declare; 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
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ARTICLES 1156-1304
(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.
 Delay has nothing to do with quality but only with

punctuality.
 Delay is the non-fulfillment of the obligation with
respect to time. In fraud and negligence, the
question is the quality even if performed on time.
In delay, even if the quality is excellent but the
performance is not in due time, the debtor is liable.
 Requisites of delay (SSS vs. Moonwalk)
 Obligation is demandable and liquidated
 Delay is through fault or negligence
 Creditor requires performance either judicially
(through court action) or extrajudicially (any
communication by the creditor to debtor).
 In reciprocal obligations (obligations with a
counterpart prestation) which require simultaneous
performance, demand is still needed.
 What is the form of such demand? Any
communication of a party that he is ready and
willing to comply with his obligation. If after
receipt of demand and the other party does not
comply with his obligation, he is in delay.
 3 Kinds of Delay
1. Mora solvendi
 Delay in performance incurred by the debtor.
 Requisites:
a. The obligation is demandable and
liquidated
b. Debtor delays performance either because
of dolo or culpa
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ARTICLES 1156-1304
c. The creditor demands the performance

either judicially or extrajudicially
 General Rule: Demand is necessary. (mora
solvendi ex persona). Thus, no demand, no
delay.
 Exceptions: (mora solvendi ex re) – Article
1169
a. When the obligation or the law expressly
so declares
 Mere setting of due date is not enough.
This does not constitute automatic
delay.
 There must be an express stipulation to
the following effect: “Non-performance
on that day is delay without need of
demand.” (Dela Rosa vs. BPI)
b. When it appears from the nature and
circumstances of the obligation that time
was a controlling motive for the
establishment of the contract.
 Example: The wedding gown has to be
ready before the wedding.
c. When demand would be useless, when
obligor has rendered it beyond his power
to perform.
 Example: A sold the fruits of the mango
plantation he already sold to B to C. B
need not make a demand on A to
deliver the fruits since demand would be
useless.
 Effects of Mora Solvedi
a. When the obligation is to deliver a
determinate thing, the risk is placed on the
part of the debtor (Article 1165)
b. Damages
 Art. 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.
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ARTICLES 1156-1304
c. Rescission/ Resolution (Article 1191)

2. Mora accipiendi
 The creditor incurs in delay when debtor
tenders payment or performance, but the
creditor refuses to accept it without just
cause.
 Mora accipiendi is related to payment
(consignation).
Requisites:
a. An offer of performance by the debtor
who has the required capacity
b. The offer must be to comply with the
prestation as it should be performed
c. The creditor refuses the performance
without just cause.
 Effects of Mora Accipiendi:
a. Responsibility of debtor for the thing is
limited to fraud and gross negligence
b. Debtor is exempted from risk of loss of
thing w/c automatically pass to creditor
c. Expenses incurred by debtor for
preservation of thing after the delay shall
be chargeable to creditor.
d. If the obligation has interest, debtor shall
not have obligation to pay the same from
the time of the delay
e. Creditor becomes liable for damages
f. Debtor may relieve himself by consignation
of the thing
3. Compensatio morae
 Delay on both sides in reciprocal obligations,
cancel each other out.
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation

G.R. No. 176868 (July 26, 2010)
Facts:
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ARTICLES 1156-1304
1. The petitioner (Solar Harvest, Inc., Solar for brevity) entered

into an agreement with respondent, Davao Corrugated Carton
Corporation (DCCC for brevity), for the purchase of corrugated carton
boxes, specifically designed for petitioners business of exporting
fresh bananas.The agreement was not reduced into writing. To start
the production, Solar deposited in DCCC’s US Dollar Savings Account
with Westmont bank, as full payment for the ordered boxes. Despite
such payment, Solar did not receive any boxes from DCCC .Solar
wrote a demand letter for reimbursement of the amount paid. DCCC
replied that the boxes had been completed as early as April 3, 1998
and that Solar failed to pick them up from the formers warehouse 30
days from completion, as agreed upon. It was also mentioned that
Solar placed an additional order, out of which, half had been
manufactured without any advanced payment from Solar. (Solar
alleges that the agreement was for DCCC to deliver within 30 days
from payment the said cartons to Tagum Agricultural Development
Corporation (TADECO) which the latter failed to manufacture and
deliver within such time.) DCCC then demanded Solar to remove the
boxes from the factory and to pay the balance for the additional
boxes.
Issue/s:
Whether or not the respondent (Davao Corrugated Carton

Corporation) is in default.
Ruling:
No. It was unthinkable that, over a period of more than two years,
Solar did not even demand for the delivery of the boxes. Even
assuming that the agreement was for DCCC to deliver the boxes, the
latter would not be liable for breach of contract as Solar had not yet
demanded from it the delivery of the boxes.
Rodrigo Rivera Vs. Spouses Salvador C. Chua and Violeta S.

Chua/Spouses Salvador C. Chua and Violeta S. Chua Vs.
Rodrigo Rivera
G.R. Nos. 184458/184472. January 14, 2015
J. Perez (Commercial Law)
A negotiable promissory note within the meaning of this Act is an

unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to
51
ARTICLES 1156-1304
bearer. Where a note is drawn to the maker’s own order, it is not

complete until indorsed by him.
FACTS:
Petitioner Rodrigo Rivera obtained a load from his friends Spouses

Salvador and Violeta Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay

spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One
Hundred Twenty Thousand Philippine Currency (120,000.00) on
December 31, 1995.
It is agreed and understood that failure on my part to pay the

amount of (120,000.00) One Hundred Twenty Thousand Pesos on
December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE
PERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for.
x x x x
In October 1998, Rivera issued and delivered to the Spouses Chua,

as payee, a check numbered 012467, dated 30 December 1998, in
the amount of 25,000.00 and on 21 December 1998, another check
numbered 013224, duly signed and dated, but blank as to payee.
The second check was issued, as per understanding by the parties, n
the amount of 133,454.00 with “cash” as payee. Both checks were
dishonored for the reason “account closed.”
Due to Rivera’s unjustified refusal to pay, respondents were

constrained to file a suit on 11 June 1999.
In his Answer with Compulsory Counterclaim, Rivera countered,

among others, that the subject Promissory Note was forged and that
here was no demand for payment of the amount of 120,000.00 prior
to the encashment of PCIB Check No. 0132224. Respondents
presented documentary and oral evidence of NBI Senior Document
Examiner Antonio Magbojos who concluded that the questioned
signature appearing in the Promissory Note and the Rivera’s
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ARTICLES 1156-1304
specimen signatures on other documents written by one and the

same person.
The MeTC ruled in Spouses Chua’s favor. On appeal, the RTC

affirmed the MeTC decision but deleted the award of attorney’s fees.
The CA also affirmed Rivera’s liability under the Promissory Note but
reduced the imposition of interest on the loan from 60% to 12% per
annum.
Both parties appealed before the SC. Respondent’s petition for review
on certiorari was denied for failure to show any reversible on the CA
ruling concerning the correct rate of interest on Rivera’s indebtnesses
under the Promissory Note. Rivera continued to deny that he
executed the Promissory Note and alleged that the Spouses Chua
“never demanded payment for the loan nor interest thereof (sic)
from [Rivera] for almost four (4) years from the time of the alleged
default in payment.
ISSUES:
1. Whether the CA erred in ruling that there was a valid promissory
note.
2. Whether the promissory note is negotiable instrument, thus the
Negotiable Instruments Law (NIL) applies to this case.
3. Whether Rivera is still liable under the terms of the Promissory
Note assuming that it is not a negotiable instrument.
4. Whether the CA erred in reducing the interest rate from 60% to
12% per annum.
HELD:
1. Yes.
First, [the court] cannot give credence to such a naked claim of
forgery over the testimony of the National Bureau of Investigation
(NBI) handwriting expert on the integrity of the promissory note.
Indeed, Rivera had the burden of proving the material allegations

which he sets up in his Answer to the plaintiff’s claim or cause of
action, upon which issue is joined, whether they relate to the whole
case or only to certain issues in the case.
In this case, Rivera’s bare assertion is unsubstantiated and directly

disputed by the testimony of a handwriting expert from the NBI.
While it is true that resort to experts is not mandatory or
indispensable to the examination or the comparison of handwriting,
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ARTICLES 1156-1304
the trial courts in this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed document valid.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced

claim of forgery and a discordant defense to assail the authenticity
and validity of the Promissory Note. Although the burden of proof
rested on the Spouses Chua having instituted the civil case and after
they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense. Consequently,
Rivera failed to discharge the burden of evidence, refute the
existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder. On
the whole, there was no question left on where the respective
evidence of the parties preponderated—in favor of plaintiffs, the
Spouses Chua.
2. No. The subject promissory note is not a negotiable instrument

and the provisions of the NIL do not apply to this case. Section 1 of
the NIL requires the concurrence of the following elements to be a
negotiable instrument:
(a)It must be in writing and signed by the maker or drawer;

(b)Must contain an unconditional promise or order to pay a sum
certain in money;
(c)Must be payable on demand, or at a fixed or determinable future
time;
(d)Must be payable to order or to bearer; and
(e)Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is:
SECTION 184. Promissory Note, Defined. – A negotiable

promissory note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or to bearer. Where a
note is drawn to the maker’s own order, it is not complete until
indorsed by him.
The Promissory Note in this case is made out to specific persons,

herein respondents, the Spouses Chua, and not to order or to bearer,
or to the order of the Spouses Chua as payees.
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ARTICLES 1156-1304
3. Yes, even if Rivera’s Promissory Note is not a negotiable

instrument and therefore outside the coverage of Section 70 of the
NIL which provides that presentment for payment is not necessary to
charge the person liable on the instrument, Rivera is still liable under
the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the

obligation falls due and becomes demandable—31 December 1995.
As of 1 January 1996, Rivera had already incurred in delay when he
failed to pay the amount of 120,000.00 due to the Spouses Chua on
31 December 1995 under the Promissory Note
Article 1169 of the Civil Code explicitly 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 declare; 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.
There are four instances when demand is not necessary to constitute

the debtor in default: (1) when there is an express stipulation to that
effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the
obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date
for performance; it must further state expressly that after the period
lapses, default will commence.
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ARTICLES 1156-1304
The date of default under the Promissory Note is 1 January 1996, the
day following 31 December 1995, the due date of the obligation. On
that date, Rivera became liable for the stipulated interest which the
Promissory Note says is equivalent to 5% a month. In sum, until 31
December 1995, demand was not necessary before Rivera could be
held liable for the principal amount of 120,000.00. Thereafter, on 1
January 1996, upon default, Rivera became liable to pay the Spouses
Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who
are guilty of delay, in the performance of their obligations is laid
down on Article 1170 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment

of interest as an indemnity for damages when the obligor incurs in
delay:
Art. 2209. If the obligation consists in the payment of a

sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent per annum.
4. No. At the time interest accrued from 1 January 1996, the date of
default under the Promissory Note, the then prevailing rate of legal
interest was 12% per annum under Central Bank (CB) Circular No.
416 in cases involving the loan or forbearance of money. Thus, the
legal interest accruing from the Promissory Note is 12% per annum
from the date of default on 1 January 1996.
However, the 12% per annum rate of legal interest is only applicable
until 30 June 2013, before the advent and effectivity of Bangko
Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing
the rate of legal interest to 6% per annum. Pursuant to our ruling
in Nacar v. Gallery Frames, BSP Circular No. 799 is prospectively
applied from 1 July 2013. In short, the applicable rate of legal
interest from 1 January 1996, the date when Rivera defaulted, to
date when this Decision becomes final and executor is divided into
two periods reflecting two rates of legal interest: (1) 12% per annum
from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM
1 July 2013 to date when this Decision becomes final and executory.
SSS v Moonwalk, G.R. No. 73345. April 7, 1993

A penal clause is an accessory undertaking to assume greater liability
56
ARTICLES 1156-1304
in case of breach. It has a double function: (1) to provide for

liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of
breach. From the foregoing, it is clear that a penal clause is intended
to prevent the obligor from defaulting in the performance of his
obligation. Thus, if there should be default, the penalty may be
enforced.
To be in default “x x x is different from mere delay in the

grammatical sense, because it involves the beginning of a special
condition or status which has its own peculiar effects or results.” In
order that the debtor may be in default it is necessary that the
judicially and extrajudicially. Default generally begins from the
moment the creditor demands the performance of the obligation.
Nowhere in this case did it appear that SSS demanded from
Moonwalk the payment of its monthly amortizations. Neither did it
show that petitioner demanded the payment of the stipulated penalty
upon the failure of Moonwalk to meet its monthly amortization. What
the complaint itself showed was that SSS tried to enforce the
obligation sometime in September, 1977 by foreclosing the real
estate mortgages executed by Moonwalk in favor of SSS. But this
foreclosure did not push through upon Moonwalk’s requests and
promises to pay in full. The next demand for payment happened on
October 1, 1979 when SSS issued a Statement of Account to
Moonwalk And in accordance with said statement, Moonwalk paid its
loan in full. What is clear, therefore, is that Moonwalk was never in
default because SSS never compelled performance.
Rivera v. Sps. Chua (2015)

The parties stipulated that in case of default, Rivera will pay interest
at the rate of 5% a month or 60% per annum. It bears emphasizing
that the undertaking based on the promissory note clearly states the
date of payment to be 31 December 1995. Therefore, demand by the
creditor is no longer necessary in order that delay may exist since the
contract itself expressly so declares. The mere failure of Spouses
Chua to immediately demand or collect payment of the value of the
note does not exonerate Rivera from his liability therefrom.
Maybank Philippines v. Sps. Tarrosa (2015)

57
ARTICLES 1156-1304
In order that the debtor may be in default, it is necessary that: (a)

the obligation be demandable and already liquidated; (b) the debtor
delays performance; and (c) creditor requires the performance
judicially or extrajudicially, unless demand is not necessary – i.e.
when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal
inducement for the creation of the obligation; and where demand
would be useless. Moreover, it is not sufficient that the law or
obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence.
Paragraph 5 of the REM merely articulated Maybank’s right to elect

foreclosure upon Tarrosa’s failure or refusal to comply with the
obligation secured, which is one of the rights duly accorded to
mortgagess in a similar situation. In no way did it affect the general
paramateres of default, particularly the need of prior demand under
Art. 1169 of the NCC. In the absence of showing that demand is
unnecessary for the loan obligation to become due and demandable,
Maybank’s right to foreclose the REM accrued only after the lapse of
5 days from receipt of the final demand letter. Maybank’s right to
foreclose had not yet prescribed.
Kinds of delay
(A) mora solvendi, NCC 1169
Abella v Gonzaga, 55 Phil 447 (1931)

Having agreed that the selling price (even supposing it was a
contract of sale) would be paid not later than December, 1928, and
in view of the fact that the vendor executed said contract in order to
pay off with the proceeds thereof certain obligations which fell due in
the same month of December, it is held that the time fixed for the
payment of the selling price was essential in the transaction, and,
therefore, the vendor, under article 1124 of the Civil Code, is entitled
to resolve the contract for failure to pay the price within the time
specified.
Foundation v Santos, GR 153004, November 4, 2004

Delay as used in Art. 1169 of the New Civil Code is synonymous to
default or mora which means delay in the fulfillment of obligations—
it is the non-fulfillment of the obligation with respect to time. —Article
1169 of the New Civil Code provides: 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 .
In order for the debtor to be in default, it is necessary that the
58
ARTICLES 1156-1304

judicially or extrajudicially.
Vasquez v Ayala Corp., GR 149734, November 19, 2004

In order that the debtor may be in default it is necessary that the
judicially or extrajudicially.
Agner v BPI, G.R. No. 182963. June 3, 2013

Prior demand is not a condition precedent to an action for a writ of
replevin, since there is nothing in Section 2, Rule 60 of the Rules of
Court that requires the applicant to make a demand on the possessor
of the property before an action for a writ of replevin could be filed.
In civil cases, one who pleads payment has the burden of proving it;
the burden rests on the defendant to prove payment, rather than on
the plaintiff to prove non-payment.
Settled is the principle which the Supreme Court has affirmed in a
number of cases that stipulated interest rates of three percent (3%)
per month and higher are excessive, iniquitous, unconscionable, and
exorbitant.
(B) mora accipiendi
Vda. de Villaruel v Manila Motor Co., 104 Phil 926 (1958)

Importer Refusal to Accept Rents Places Lessors in Default; Liability
for Supervening Risk.—Since the lessee was exempt from paying the
rents for the period of its ouster, the insistence of the lessors to
collect the rentals, corresponding to said period was unwarranted
and their refusal to accept the current rents tendered by the lessee
was unjustified. Such refusal places the lessors in default (mora) and
they must shoulder the subsequent accidental loss of the premises
leased.
Mora of Lessors Not Cured by Failure of Lessee to Consign Rents in

Court.—T’he mora of the lessors was not cured by the failure of the
lessee to make the consignation of the rejected payments, but the
lessee remained obligated to pay the amounts tendered and not
consigned by it in court.
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ARTICLES 1156-1304
Tengco v CA, GR 49852, October 19, 1989

Under the circumstances, the refusal to accept the proffered rentals
is not without justification. The ownership of the property had been
transferred to the private respondent and the person to whom
payment was offered had no authority to accept payment. It should
be noted that the contract of lease between the petitioner and
Lutgarda Cifra, the former owner of the land, was not in writing and,
hence, unrecorded. The Court has held that a contract of lease
executed by the vendor, unless recorded, ceases to have effect when
the property is sold, in the absence of a contrary agreement. The
petitioner cannot claim ignorance of the transfer of ownerhip of the
property because, by her own account, Aurora Recto and the private
respondent, at various times, had informed her of their respective
claims to ownership of the property occupied by the petitioner. The
petitioner should have tendered payment of the rentals to the private
respondent and if that was not possible, she should have consigned
such rentals in court.
(C) compensatio morae
Central Bank v CA, 139 SCRA 46 (1985)

Where the bank failed to release the entire approved loan, but the
borrower also failed to pay the partial loan release he got after it fell
due, both are in default and their respective liability for damages
shall be offset equitably, exclusive of the interest due on the overdue
loan portion.—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 P17,000.00 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.
IRREGULARITY OF PERFORMANCE/BREACH
CAUSES ATTRIBUTABLE TO DEBTOR
a. Attributable to the Debtor (culpable)

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ARTICLES 1156-1304
 Article 1170 provides that those who in the

performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
According to Professor Balane, the phrase “ who in any
manner contravene the tenor thereof” is a catch-all
provision. However, such is unnecessary. Nothing will
escape fraud, negligence or delay.
i. Fraud (Articles 1170, 1171)
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.
Art. 1171. Responsibility arising from

fraud is demandable in all obligations. Any
waiver of an action for future fraud is void.
 The problem with fraud is the term. It is used in

different meanings in the Code.
 Fraud may be defined as the voluntary execution of
a wrongful act, or willful omission, knowing and
intending the effects which naturally and necessarily
arise from such act or omission. Fraud is the
deliberate and intentional evasion of the normal
fulfillment of the obligation. It is distinguished from
negligence by the presence of deliberate intent,
which is lacking in the latter. (Legaspi Oil vs. CA)
 Fraud under Article 1170 is more properly called as
malice.
 Fraud under Article 1170 must not be confused with
fraud under Article 1338. Fraud under Article 1338
is more properly called as deceit.
 In Article 1338, fraud preexists the obligation, thus
the obligation is voidable. Deceit vitiates consent in
contracts. Deceit is antecedent fraud. The deceit
occurs by using insidious words machinations.
 Art. 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.
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ARTICLES 1156-1304
Without this deceit, the other party would not have

entered into the contract.
In Article 1171, there was already an obligation
before the fraud exists. Malice is subsequent fraud.
Example of fraud as deceit under Article 1338: A
and B entered into a contract of sale of a diamond
necklace. However, the necklace was really made
of glass. Fraud here is deceit. There was vitiation
of consent hence the contract is voidable.
Example of fraud as malice under Article 1171. A
and B entered into a contract. B will deliver
furniture made of narra but B delivered one made
of plywood. Fraud here is malice. It will not affect
the validity of the contract.
Fraud / Dolo – Voluntary execution of a wrongful act or willful

omission, knowing and intending the effects which naturally
and necessarily arise from such act or omission
a. Causante ( causal ) - makes contract voidable
b. incidente – ( incidental ) - fraud in performance of
obligation; does not affect validity of obligations
Remedies of Person in fraud under obligations are:

a. insist on specific performance (Art 1233)
b. resolve/rescind contract (art 1191) if reciprocal
c. claim damages, in either case
d. Otherwise if above remedies is not possible, claim
damages only.
Note: Annulment is a remedy in causal fraud but not a remedy in

incidental fraud.
ii. Negligence
 Negligence is the absence of due diligence (Article
1173)
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 the time and of the place. When
negligence shows bad faith, the provisions of
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ARTICLES 1156-1304
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.
Art. 1172. Responsibility arising from

negligence in the performance of every kind of
obligation is also demandable, but such liability
may be regulated by the courts, according to
the circumstances.
 Like fraud, negligence results in improper

performance. But it is characterized by lack of care,
unlike fraud which is characterized by malice.
 Lack of care means lack of due diligence or the care
of a good father of the family (bonus paterfamilias)
under Article 1163.
 In English law, due diligence is called the diligence
of a prudent businessman, since they are more
commerce-oriented.
 2 Types of Negligence
1. Simple
2. Gross
 The determination of due diligence is always
relative. It will depend on
1. The nature of the obligation
2. Nature of the circumstances of
a. Person
b. Time
c. Place
 Example: The diligence required in shipping
hinges is different from the diligence required
in shipping the Pieta de Michaelangelo. The
shipper must observe the diligence of a good
father of the family in both cases but the
standard of care is different. It is much
higher for the Pieta.
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ARTICLES 1156-1304
 The diligence of a good father of the family is

the imaginary standard.
 Effects of Negligence (Articles 1170, 1172)
1. Creditor may insist on proper substitute or
specific performance (Article 1233); or
2. Rescission/Resolution (Article 1191)
3. Damages in either case (Article 1170)
Negligence /Culpa - absence of due diligence
Elements:
a) Omission of diligence required
b) Diligence required – per nature of obligation, circumstances
of persons, time and place
FRAUD DISTINGUISHED FROM NEGLIGENCE

FRAUD NEGLIGENCE
There is deliberate intention to There is no deliberate intention to
cause damage. cause damage.
Liability cannot be mitigated. Liability may be mitigated.
Waiver for future fraud is void. Waiver for future negligence may
be allowed in certain cases:
a) gross – can never be excused
in advance; against public
policy
b) simple – may be excused in
certain cases
Effect of waiver of fraud or negligence in an obligation:
a) If fraud is present in the obligation, the same is immediately

demandable. WAIVER OF FUTURE FRAUD IS VOID. Waiver of
past fraud is allowed. (Art. 1171) Reason: Fraud is absolutely not
encouraged by the law because of its evil effects. Past fraud
because the act was already done. Such waiver is an act of
liberality on the part of the creditor.
b) If negligence is present in the obligation, it is likewise

demandable. Waiver of future negligence may be allowed except
where the nature of the obligation requires exercise of
extraordinary diligence as in the case of common carriers and also
where negligence shows bad faith. (Art. 1172)
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ARTICLES 1156-1304
B. CAUSES NOT ATTRIBUTABLE TO DEBTOR
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.
1. Fortuitous Events - event which could not be foreseen, or

which though foreseen, were inevitable
REQUIREMENTS (Nakpil & Sons vs. CA):

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
3. The event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner
4. The debtor must be free from any participation in, or
aggravation of injury to the creditor
Rule on Fortuitous Event:

1. General Rule – no liability for fortuitous event
2. Exemption –
a) when expressly declared by law ( bad faith, subject
matter is generic, debtor is in delay )
b) when expressly declared by stipulation or contract
c) when nature of obligation requires assumption of risk
Also governed by Article 1221 but is called ‘loss’ there, a cause

for extinguishment of obligation.
Also called caso fortuioto, force marjeure, act of God.
d) General Rule: When a debtor is unable to fulfill his obligation
because of a fortuitous event or force majeure, he cannot be
held liable for damages or non-performance.
e) Exceptions:
1. When the law so provides (i.e. Article 1165, par
2)
2. When there is express stipulation, Fortuitous
event yields to contrary stipulation.
3. When the nature of the obligation requires the
assumption of risk (i.e. insurance contracts)
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ARTICLES 1156-1304
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC.

vs. SPOUSES JORGE
G.R. No. 159617, August 8, 2007
FACTS: On different dates, Lulu Jorge pawned several pieces

of jewelry with Agencia de R. C. Sicam located in Parañaque to
secure a loan.
On October 19, 1987, two armed men entered the pawnshop
and took away whatever cash and jewelry were found inside
the pawnshop vault.
On the same date, Sicam sent Lulu a letter informing her of the
loss of her jewelry due to the robbery incident in the
pawnshop. Respondent Lulu then wroteback expressing
disbelief, then requested Sicam to prepare the pawned jewelry
for withdrawal on November 6, but Sicam failed to return the
jewelry.
Lulu, joined by her husband Cesar, filed a complaint against

Sicam with the RTC of Makati seeking indemnification for the
loss of pawned jewelry and payment of AD, MD and ED as well
as AF.
The RTC rendered its Decision dismissing respondents’

complaint as well as petitioners’ counterclaim. Respondents
appealed the RTC Decision to the CA which reversed the RTC,
ordering the appellees to pay appellants the actual value of the
lost jewelry and AF. Petitioners MR denied, hence the instant
petition for review on Certiorari.
ISSUE: are the petitioners liable for the loss of the pawned
articles in their possession? (Petitioners insist that they are not
liable since robbery is a fortuitous event and they are not
negligent at all.)
HELD: The Decision of the CA is AFFIRMED.
YES 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.
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ARTICLES 1156-1304
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.
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.
The burden of proving that the loss was due to a fortuitous

event rests on him who invokes it. 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. Sicam had testified that there was a
security guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop business
in 1983, he thought of opening a vault with the nearby bank for
the purpose of safekeeping the valuables but was discouraged
by the Central Bank since pawned articles should only be stored
in a vault inside the pawnshop. The very measures which
petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but actually
foreseen and anticipated. Sicam’s testimony, in effect,
contradicts petitioners’ defense of fortuitous event. Moreover,
petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have
been occasioned. Robbery per se, just like carnapping, is not a
fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. 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
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ARTICLES 1156-1304
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.
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. Gangan 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. 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
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ARTICLES 1156-1304
the same situation. Petitioners were guilty of negligence in the

operation of their pawnshop business. Sicam’s testimony
revealed that there were no security measures adopted by
petitioners in the operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were adopted by petitioners
to protect the pawnshop from unlawful intrusion. There was no
clear showing that there was any security guard at all. Or if
there was one, that he had sufficient training in securing a
pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious individuals
were allowed to enter the premises. In fact, it is even doubtful
that there was a security guard, since it is quite impossible that
he would not have noticed that the robbers were armed with
caliber .45 pistols each, which were allegedly poked at the
employees. Significantly, the alleged security guard was not
presented at all to corroborate petitioner Sicam’s claim; not one
of petitioners’ employees who were present during the robbery
incident testified in court.Furthermore, petitioner Sicam’s
admission that the vault was open at the time of robbery is
clearly a proof of petitioners’ failure to observe the care,
precaution and vigilance that the circumstances justly
demanded.
The robbery in this case happened in petitioners’ pawnshop

and they were negligent in not exercising the precautions justly
demanded of a pawnshop.
NOTES:
We, however, do not agree with the CA when it found
petitioners negligent for not taking steps to insure themselves
against loss of the pawned jewelries. Under Section 17 of
Central Bank Circular No. 374, Rules and Regulations for
Pawnshops, which took effect on July 13, 1973, and which was
issued pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged must be
insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of

business of a pawnshop and the pawns pledged to it must be
insured against fire and against burglary as well as for the
latter(sic), by an insurance company accredited by the
Insurance Commissioner.
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ARTICLES 1156-1304
However, this Section was subsequently amended by CB

Circular No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office

building/premises and pawns of a pawnshop must be insured
against fire. (emphasis supplied).
where the requirement that insurance against burglary was
deleted. Obviously, the Central Bank considered it not feasible
to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and

considering the above-quoted amendment, there is no statutory
duty imposed on petitioners to insure the pawned jewelry in
which case it was error for the CA to consider it as a factor in
concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that

petitioners failed to exercise the diligence required of them
under the Civil Code.
Nakpil v CA, L-47851, October 3, 1986

To exempt the obligor from liability under Article 1174 of the Civil
Code, for a breach of an obligation due to an “act of God,’ the
following must concur: (a) the cause of the breach of the obligation
must be independent of the will of the debtor; (b) the event must be
either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.
Having made substantial deviations from plans and specifications,

having failed to observe requisite workmanship in construction, and
the architect made plans that contain defects and inadequacies, both
contractor and architect cannot escape liability for damages
sustained by the building that collapsed in the wake of an
earthquake on Aug. 2, 1968
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan

(49 O.G. 4379, 4380) which may be in point in this case, reads: “One
who negligently creates a dangerous condition cannot escape liability
for the natural and 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.” As already discussed, the
destruction was not purely an act of God. Truth to tell hundreds of
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ARTICLES 1156-1304
ancient buildings in the vicinity were hardly affected by the

earthquake. Only one thing spells out the fatal difference; gross
negligence and evident bad faith, without which the damage would
not have occurred.
JUAN F. NAKPIL v. CA, GR No. L-47851, 1986-10-03

Facts:
The plaintiff, Philippine Bar Association, a civic-non-profit association,
incorporated under the Corporation Law, decided to construct an
office building on its 840 square meters lot located at the corner of
Aduana and Arzobispo Streets, Intramuros, Manila.
The construction was undertaken by the United Construction, Inc. on
an "administration" basis, on the suggestion of Juan J. Carlos, the
president and general manager of said corporation.
The proposal was approved by plaintiff's board of directors and
signed by its president Roman Ozaeta, a third-party defendant in this
case.
The plans and specifications for the building were prepared by the
other third-party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong
earthquake hit Manila and its environs and the building in question
sustained major damage. The front columns of the building buckled,
causing the building to tilt forward dangerously.The tenants vacated
the building in view of its precarious condition. As a temporary
remedial measure, the building was shored up by United
Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the
recovery of damages arising from the partial collapse of the building
against United Construction, Inc. and its President and General
Manager Juan J. Carlos as defendants. Defendants in turn filed a
third-party complaint against the architects who prepared the plans
and specifications, alleging in essence that the collapse of the
building was due to the defects in the said plans and specifications.
Issues:
The pivotal issue in this case is whether or not an act of God, - an
unusually strong earthquake - which caused the failure of the
building, exempts from liability, parties who are otherwise liable b
ecause of their negligence.
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ARTICLES 1156-1304
Ruling:
The applicable law governing the rights and liabilities of the parties
herein is Article 1723 of the New Civil Code, which provides:
"Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen
years from the completion of the structure the same should collapse
by reason of a defect in those plans and specifications, or... due to
the defects in the ground. The contractor is likewise responsible for
the damage if the edifice falls within the same period on account of
defects in the construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms... of the
contract. If the engineer or architect supervises the construction, he
shall be solidarily liable with the contractor.
On the other hand, the general rule is that no person shall be
responsible for events which could not be foreseen or which, though
foreseen, were inevitable
There is no dispute that the earthquake of August 2, 1968 is a
fortuitous event or an act of God.
The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and all human agencies are to be excluded from creating or
entering into the cause of the mischief.
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower court
and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial deviations
from the plans... and specifications, and to have failed to observe the
requisite workmanship in the construction as well as to exercise the
requisite degree of supervision; while the third-party defendants
were found to have inadequacies or defects in the plans and
specifications prepared by... them.
In any event, the relevant and logical observations of the trial court
as affirmed by the Court of Appeals that "while it is not possible to
state with certainty that the building would not have collapsed were
those defects not present, the fact remains that several buildings in...
the same area withstood the earthquake to which the building of the
plaintiff was similarly subjected", cannot be ignored.
There should be no question that the NAKPILS and UNITED are liable
for the damage resulting from the partial and eventual collapse of the
PBA building as a result of the earthquakes.
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ARTICLES 1156-1304
Principles:
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 that loss or damage may have been occasioned.
Art. 1175. Usurious transactions shall be

governed by special laws.
 Article 1175 is dead letter law because of the lifting of the

ceiling on interest rates. Thus, usury has been
decriminalized, but the decriminalization cannot be given
retroactive effect (with respect to the civil aspect).
 Some decisions have struck down high interests, not
because they were usurious but because such rates were
unconscionable.
 Correlate Article 1175 with Articles 1957, 1413 and
1961.
Usury Law governed by special law.
The law governing usurious transactions is Act No. 2655

otherwise known as the Usury Law as amended by Act Nos.
3291, 3998, 4070, Commonwealth Act No. 339. However, the
Monetary Board of the Central Bank is empowered to change
the rates of interest from time to time “whenever economic and
social conditions warrant or may eliminate, exempt or suspend
the same. The ceiling of interest may not be uniform.
Central Bank circular 905-A dated December 10, 1982,

suspended application of the Usury law when it provided that rate
of interest and other charges in loan or forbearance of money,
goods or credits, regardless of maturity and whether secured or
 Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. The borrower may recover in accordance with
the laws on usury.
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of the payment.
Art. 1961. Usurious contracts shall be governed by the Usury Law and other special
laws, so far as they are not inconsistent with this Code.
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ARTICLES 1156-1304
unsecured, that may be charged or collected shall not be subject

to any ceiling prescribed under the Usury law.
Note: Usury law has not been repealed but merely suspended.
Only Congress can repeal laws.
Rules on interest payments:
The rule is “no interest” shall be due unless it has been
expressly stipulated in writing.
There being a stipulation as to interest but the rate is not fixed,
then the creditor may only recover the legal rate.
Meaning of legal Rate: Legal rate of interest is that rate which
will prevail in the absence of any special agreement as to the
rate of interest between the parties to a contract.
Central Bank Circular on Interest Rates.
Previously the Monetary Board of the Central Bank issued
December 3, 1982, Circular No. 905, fixing the rates of interest
on loans or forbearance of money goods or credit. Section 1 of
the circular provides as follows:
“The rate of interest, including commissions, premiums, fees
and other charges on a loan or forbearance of any money, goods or
credits, regardless of maturity and whether secured or unsecured
that may be charged or collected by any person, whether natural or
juridical shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law as amended.”
New Rule on Legal Interest:
The Bangko Sentral Issued
Circular No. 799 Series of 2013
dated July 1, 2013. It provides:
The Monetary Board in its

Resolution No. 796 dated May 16,
2013 approved the following
revisions governing the rate of
interest in the absence of stipulation
in loan contracts, thereby amending
Section 2of Circular No. 905, Series
of 1982:
Section 1. The Rate of interest for

the loan or forebearance of any
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ARTICLES 1156-1304
money, goods or credit and the rate

allowed in judgments, in the
absence of an express contract as to
such rate of interest, shall be six
percent (6%) per annum
Section 2. In view of the above,

Subsection X305.1 of the Manual of
Regulations for Banks and Sections
4305Q.1, 4305S.3, and 4303P.1 of
the Manual of Regulations for Non-
Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on

July 1, 2013
Everybody knows about “5-6” and similar lending schemes.

Everybody also knows that, ironically, those who are in financial
trouble are forced to accept ridiculously high interest rates – which,
in many (almost all?) instances, leads to more trouble (financial or
otherwise).
Indeed, with the suspension of the Usury Law and the removal of
interest ceilings, the parties are free to stipulate the interest rates to
be imposed on monetary obligations. However, while the Supreme
Court (SC) recognizes the right of the parties to enter into contracts,
this rule is not absolute.
In the case of Trade & Investment Development Corporation of
the Philippines vs. Roblett Industrial Construction Corporation (G.R.
No. 139290, 9 May 2006), the SC again dealt with the validity of an
interest rate agreed upon by the parties. According to the SC:
Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. In
exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each
case. What may be iniquitous and unconscionable in one case, may
be just in another.
For instance, in Garcia v. Court of Appeals [1988], the SC sustained
the interest rate of 24% per annum.
The agreed interest rate of 21% per annum was also sustained
in Bautista vs. Pilar Development Corporation [1999].
On the other hand, in Medel vs. Court of Appeals [1988], the SC

voided the interest rate of 5.5% per month (or 66% per annum) on a
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ARTICLES 1156-1304
P500,000.00 loan, the same being excessive, iniquitous,

unconscionable and exorbitant, hence, contrary to morals (“contra
bonos mores”), if not against the law.
In Development Bank of the Philippines vs. Court of Appeals [2000],

the SC reduced the stipulated interest rate from 18% to 10% per
annum.
Now, going back to the case of Trade & Investment Development

Corporation of the Philippines, the SC reduced the interest rate from
18% per annum to 12% per annum. The SC noted, among others,
that the amount involved in that case has ballooned to the
outrageous amount of more than 45 Million Pesos, which is four
times the principal debt.
Medel et. al. vs Court of Appeals 299 SCRA 481 (1998)
March 12, 2016

Petitioners: LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO
FRANCO
Respondents: COURT OF APPEALS, SPOUSES VERONICA R.
GONZALES and DANILO G. GONZALES, JR., doing lending business
under the trade name and style “GONZALES CREDIT ENTERPRISES”
FACTS
Defendants obtained a loan from Plaintiff in the amount P50, 000.00,

payable in 2 months and executed a promissory note. Plaintiff gave
only the amount of P47, 000.00 to the borrowers and retained P3,
000.00 as advance interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the amount of

P90, 000.00, payable in 2 months, at 6% interest per month. They
executed a promissory note to evidence the loan and received only
P84, 000.00 out of the proceeds of the loan.
For the third time, Defendants secured from Plaintiff another loan in
the amount of P300, 000.00, maturing in 1 month, and secured by a
real estate mortgage. They executed a promissory note in favor of
the Plaintiff. However, only the sum of P275, 000.00, was given to
them out of the proceeds of the loan.
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ARTICLES 1156-1304
Upon maturity of the three promissory notes, Defendants failed to

pay the indebtedness.
Defendants consolidated all their previous unpaid loans totalling

P440, 000.00, and sought from Plaintiff another loan in the amount
of P60, 000.00, bringing their indebtedness to a total of P50,000.00.
They executed another promissory note in favor of Plaintiff to pay the
sum of P500, 000.00 with a 5.5% interest per month plus 2% service
charge per annum, with an additional amount of 1% per month as
penalty charges.
On maturity of the loan, the Defendants failed to pay the

indebtedness which prompt the Plaintiffs to file with the RTC a
complaint for collection of the full amount of the loan including
interests and other charges.
Declaring that the due execution and genuineness of the four

promissory notes has been duly proved, the RTC ruled that although
the Usury Law had been repealed, the interest charged on the loans
was unconscionable and “revolting to the conscience” and ordered
the payment of the amount of the first 3 loans with a 12% interest
per annum and 1% per month as penalty.
On appeal, Plaintiff-appellants argued that the promissory note,

which consolidated all the unpaid loans of the defendants, is the law
that governs the parties.
The Court of Appeals ruled in favor of the Plaintiff-appellants on the

ground that the Usury Law has become legally inexistent with the
promulgation by the Central Bank in 1982 of Circular No. 905, the
lender and the borrower could agree on any interest that may be
charged on the loan, and ordered the Defendants to pay the Plaintiffs
the sum of P500,000, plus 5.5% per month interest and 2& service
charge per annum , and 1% per month as penalty charges.
Defendants filed the present case via petition for review on certiorari.
ISSUE
WON the stipulated 5.5% interest rate per month on the loan in the
sum of P500, 000.00 is usurious.
HELD. No.
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ARTICLES 1156-1304
A stipulated rate of interest at 5.5% per month on the P500, 000.00

loan is excessive, iniquitous, unconscionable and exorbitant, but it
cannot be considered “usurious” because Central Bank Circular No.
905 has expressly removed the interest ceilings prescribed by the
Usury Law and that the Usury Law is now “legally inexistent.”
Jurisprudence provides that CB Circular did not repeal nor in a way

amend the Usury Law but simply suspended the latter’s effectivity
(Security Bank and Trust Co vs RTC). Usury has been legally non-
existent in our country’s jurisdiction. Interest can now be charged as
lender and borrower may agree upon.
Hence, the decision of the Court of Appeals was reversed. The

decision dated December 9, 1991, of the Regional Trial Court of
Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90,
was revived and affirmed.
Art. 1176. The receipt of the principal by the

creditor without reservation with respect to the
interest, shall give rise to the presumption that said
interest has been paid.
The receipt of a later installment of a debt
without reservation as to prior installments, shall
likewise raise the presumption that such installments
have been paid.
 Two (2 )Presumptions regarding:

a. Interest bearing debt
 Presumption that interest has been paid if the
principal has been received without reservation
regarding interest,
b. Debt payable in installments
 Presumption that earlier installments have been
paid if the later installment has been received
without reservation regarding the previous
installments.
 These are only rebuttable presumptions, you can prove
through other evidence. You can prove mistake.
Applicable Presumptions:
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ARTICLES 1156-1304
Meaning of Presumption – By presumption is meant the

inference as to the existence of certain facts which if not
contradicted is considered true.
Two kinds of Presumption
a) Conclusive – one which cannot be contradicted
b) Disputable (Rebuttable) – one which may be contradicted by
presenting satisfactory proof to the contrary.
Remedies which are available to the creditors in order to

protect his rights against the debtor act defrauding the
former: (Art. 1177)
Art. 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.
 Enforcement of Creditor’s Remedies

a. Exact payment ((specific performance)
b. Levy and execution of the debtor’s non-exempt
properties (Articles 1177, 2236)- exhaust debtor’s
properties, generally by attachment except properties
exempted by law. (See Art. 226, Civil Code)
b. Accion subrogatoria
 Subrogatory action premised on the theory that
“the debtor of my debtor is my debtor.”
 Requisites:
i. Creditor has a right of credit against the debtor.
ii. Credit is due and demandable.
iii. Failure of debtor to collect his own credit from a
third person either through malice or negligence.
iv. Insufficiency of assets of the debtor to satisfy
the creditor’s credit
v. Right (of account) is not intuitu personae
c. Accion pauliana (Articles 1380-1389)
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ARTICLES 1156-1304
 Right of creditors to rescind alienations by debtor

which are prejudicial to them to the extent of the
prejudice.
 Example: A donates land to C but he owes B. A
has no other property. B can rescind the donation
to C. The donation is rescissible to the extent of
the debt.
 Requisites:
i. There is a credit in favor of the plaintiff
ii. The debtor has performed an act subsequent to
the contract, giving advantage to other persons.
iii. The creditor is prejudiced by the debtor’s act
which are in favor of third parties and rescission
will benefit the creditor.
iv. The creditor has no other legal remedy.
v. The debtor’s acts are fraudulent.
d. Accion directa
 A direct (not subrogatory) action by the creditor
against his debtor’s debtor, a remedy which gives
the creditor the prerogative to act in his own name,
such as the actions of the lessor against the
sublessee (Article 1652, the laborer of an
independent contractor against the owner (Article
1729*), the principal against the subagent (Article
1893), and the vendor-a-retro against the
transferee of the vendee (Article 1608).
 This is an exception to the relativity of contracts.
Other Provisions, NCC 1175, 1957, 1413, 1961, 1176
** Art. 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.
 Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal
may furthermore bring an action against the substitute with respect to the obligations which
the latter has contracted under the substitution.
 Art. 1608. The vendor may bring his action against every possessor whose right is
derived from the vendee, even if in the second contract no mention should have been made of
the right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land
Registration Law with respect to third persons.
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ARTICLES 1156-1304
(d) Remedies of creditors
(i). Levy and execution, NCC 1177, 2236
(ii). Accion Subrogatoria, NCC 1177, 772
(iii). Accion Pauliana, NCC 1177, 1380-1389
Khe Hong Cheng v CA, 355 SCRA 701 (2001)

Article 1383 of the Civil Code provides as follows: Art. 1383. An
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. It is thus apparent that an action to rescind
or an accion pauliana must be of last resort, availed of only after all
other legal remedies have been exhausted and have been proven
futile. For an accion pauliana to accrue, the following requisites must
concur: 1) That the plaintiff asking for rescission has a credit prior to
the alienation, although demandable later; 2) That the debtor has
made a subsequent contract conveying a patrimonial benefit to a
third person; 3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission of the conveyance
to the third person; 4) That the act being impugned is fraudulent; 5)
That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.
Siguan v Lim, 318 SCRA 725 (1999)

The action to rescind contracts in fraud of creditors is known as
accion pauliana. For this action to prosper, the following requisites
must be present: (1) the plaintiff asking for rescission has a credit
prior to the alienation, although demandable later; (2) the debtor has
made a subsequent contract conveying a patrimonial benefit to a
third person; (3) the creditor has no other legal remedy to satisfy his
claim; (4) the act being impugned is fraudulent; (5) the third person
who received the property conveyed, if it is by onerous title, has
been an accomplice in the fraud.
While it is necessary that the credit of the plaintiff in the accion

pauliana must exist prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial—even if the judgment be
subsequent to the alienation, it is merely declaratory, with retroactive
effect to the date when the credit was constituted.
(iv). Accion Directa, NCC 1652, 1729, 1608, 1893

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Art. 1178. Subject to the laws, all rights acquired in virtue of

an obligation are transmissible, if there has been no
stipulation to the contrary.
Principle of Transmissibility of Rights (Article 1178)
General Rule:
Subject to the laws, all rights acquired in virtue of an
obligation are transmissible if there has been no
stipulation to the contrary.
Principle of Transmissibility of Rights to be read together with Article

1311 on the Principle of Relativity of Contracts. (“Contracts bind only
the contracting parties, their heirs and assigns”)
INTANCES WHERE PRINCIPLE OF TRANSMISSIBILITY WILL NOT

APPLY (Exceptions)
a) If the law provides otherwise i.e In contract of
partnership,
agency & commodatum, there is no
transmissibility of rights.
b) If the contract provides otherwise
c) If the obligation is purely personal
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ARTICLES 1156-1304
Different Kinds of Obligations

1. According to Demandability (Articles 1179-1192)
Art. 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.
Art. 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.
Art. 1181. In conditional obligations, the

acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the
happening of the event which constitutes the
condition.
Art. 1182. When the fulfillment of the condition

depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends
upon chance or upon the will of a third person, the
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ARTICLES 1156-1304
obligation shall take effect in conformity with the

provisions of this Code.
Art. 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.
Art. 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.
Art. 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.
Art. 1186. The condition shall be deemed

fulfilled when the obligor voluntarily prevents its
fulfillment.
Art. 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
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intention of the person constituting the same was

different.
In obligations to do and not to do, the courts
shall determine, in each case, the retroactive effect
of the condition that has been complied with.
Art. 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.
Art. 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.
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Art. 1190. When the conditions have for their

purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.
In case of the loss, deterioration or
improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding
article shall be applied to the party who is bound to
return.
As for the obligations to do and not to do, the
provisions of the second paragraph of article 1187
shall be observed as regards the effect of the
extinguishment of the obligation.
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.
Art. 1192. In case both parties have committed

a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. 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.
DIFFERENT KINDS OF OBLIGATIONS (Arts. 1179-1230)
1. A. Primary Classes of Obligations:

a) Pure
b) Condition
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ARTICLES 1156-1304
c) With a term or a period

d) Alternative
e) Facultative
f) Joint
g) Solidary
h) Divisible
i) Indivisible
j) With a Penal Clause
a. Pure
 A pure obligation is one which has neither a condition
nor a term attached to it. It is one which is subject to
no contingency.
 A pure obligation is demandable at once (Article 1179).
b. Conditional
 A condition is a future and uncertain event.
 All conditions are future.
 Article 1179 mentions the term “past event unknown
to the parties”. This has been criticized by many
commentators. This is a contradiction in terms. The
condition in a past even unknown to the parties is
knowledge by the parties of the past event.
 In conditional obligation, the happening of the
condition determines its birth or death. In term, the
happening of the term determines its demandability.
 Types of Conditions
i. 1. Suspensive
 The fulfillment of a suspensive condition
results in the acquisition of rights arising out
of the obligation.
 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 (Article 1184)
 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 (Article
1185).
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 The moment the suspensive condition

happens, the obligation becomes effective and
enforceable. However, the effects of the
obligation retroact to the moment when such
obligation was constituted or created. By the
principle of retroactivity, therefore, a fiction is
created whereby the binding tie of the
conditional obligation is produced from the
time of its perfection, and not from the
happening of the condition (Article 1187)
 The law does not require the delivery or
payment of the fruits or interests accruing
before the happening of the suspensive
condition. The right to the fruits of the thing
is not within the principle of retroactivity of
conditional obligations (Article 1187)
 If the obligation imposes reciprocal
prestations, fruits and interest are deemed
mutually compensated.
Example: I promise to sell my mango
plantation at P5000/hectare if you pass the
bar examination.
I do not have to give you the fruits from the
time of the agreement to the release of the
bar exams.
 If the obligation is unilateral, debtor
appropriates the fruits.
 In obligations to do and not to do, the courts
shall use sound discretion to determine the
retroactive effect of the fulfillment of the
condition (Article 1187)
 The creditor may, before the fulfillment of the
condition, bring the appropriate actions for
the preservation of his right (Article 1188, 1st
¶). JBL Reyes criticizes the use of the word
“bring”. The 1st ¶ of Article 1188 does not
limit itself to judicial actions. Thus, the word
“take” is better.
 The debtor who paid before the happening of
the condition may recover only when he paid
by mistake and provided the action to recover
is brought before the condition (Article 1188).
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2. Resolutory
 The fulfillment of the resolutory condition
results in the extinguishments of rights arising
out of the obligation.
 If the resolutory condition is fulfilled, the
obligation is treated as if it did not exist.
Thus, each party is bound to return to the
other whatever he has received, so that they
may be returned to their original condition
before the creation of the obligation (Article
1190).
 Resolution (Article 1191) is found on the
conditional obligations because if there is a
breach, the breach is a resolutory condition
which extinguishes the obligation.
 Article 1191 uses the term “rescission”. The
better term is “resolution”. The term
rescission is also found in Article 1381 ,
rescissible contracts. Resolution is different
from rescission. Resolution is based on the
non-fulfillment of the obligation. Rescission is
based on economic prejudice. Furthermore,
the character of resolution is principal and
retaliatory while the character of rescission is
subsidiary. This means that in resolution
there is no need to show that there is no
other remedy. In rescission, the plaintiff must
show that there is no other recourse.
 The right of resolution applies to reciprocal
obligations.
 A reciprocal obligation has 2 elements
1. 2 prestations arising from the same
source
 Art. 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.
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2. Each prestation is designed to be the

counterpart of the other
 An example of a reciprocal obligation is a
contract of sale.
 Summary of Rulings on Resolution
1. The right to resolve is in inherent in
reciprocal obligations.
2. The breach of the obligation must be
substantial. Proof of substantial breach is
a prerequisite for resolution.
3. The right of resolution can be exercised
extrajudicially and will take effect upon
communication to the defaulting party.
This notice of resolution is necessary.
4. The exercise of this right can be the
subject of judicial review.
5. Upon resolution, there must be mutual
restitution of the object and its fruits
 The parties are returned to their original
situation – status quo ante.
6. If the aggrieved party has not performed
the prestation and resolves extrajudicially,
then all the aggrieved party has to do is to
refuse to perform his prestation.
7. If the aggrieved party has performed the
prestation, the aggrieved party can
demand recovery. If the defaulting party
refuses to return it, the aggrieved party
must go to court in order to recover.
 In Ilingan vs.CA (September 26, 2001) case,
there was an obiter dictum that the operative
act that resolves a contract is the decree of
court and the right should be exercised
judicially. Professor Balane says this is wrong.
However, the ratio of the case said that the
communication must be a notarial notice.
ii. 1. Potestative
 In a potestative condition, the fulfillment of
the condition depends upon the will of a party
to the obligation.
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 If the condition depends upon the will of the

creditor, then the obligation is valid. In this
case, there is a vinculum juris. The creditor
can compel the debtor to perform the
obligation.
Example: I will give you my pomelo
plantation if you establish permanent
residence in Davao.
This is a suspensive condition dependent on
the sole will of the creditor. It becomes pure
and demandable at once.
 Article 1182 prohibits a suspensive potestative
condition dependent on the will of the debtor.
The entire obligation is void.
Example: I will sell you my car if I want to.
Why does it annul the entire obligation?
Because there is no juridical tie. Remember,
an obligation is one which has to be
performed regardless of the will of the debtor.
There is no element of compulsion. In the
example above, the creditor can never
compel, can never have a cause of action.
 In reciprocal obligations, the law only talks
about the first prestation, the reciprocal
prestation is not taken into consideration.
2. Casual
 In a casual condition, the fulfillment of the
condition depends upon chance and/or upon
the will of a 3rd person and not on the will of a
party.
 Example: I will give you my house if the
Philippines renounces its foreign debt in 5
years. (Dependent solely on the will of a third
person or on chance).
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3. Mixed
 In a mixed condition, the fulfillment of the
condition depends partly upon the will of a
party to the obligation and partly upon chance
and/or the will of a 3rd person.
 When the condition depends not only upon
the will of the debtor, but also upon chance or
will of the others, the obligation is valid.
 Example: I will give you my house if you
marry him within 3 years. (The condition
here is a mixed condition. In this case, the
condition of marriage depends partly on the
creditor, a party to the obligation, and partly
on a 3rd person.)
 Doctrine of Constructive Compliance
 The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment
(Article 1186).
 The principle underlying constructive
fulfillment of conditions is that a party to a
contract may not be excused from performing
his promise by the non-occurrence of an
event which he himself prevented.
 Requisites
1. Intent of the debtor to prevent
fulfillment of the obligation
 Where the act of the debtor, however,
although voluntary, did not have for its
purpose the prevention of the fulfillment
of the condition, it will not fall under the
doctrine of constructive compliance.
2. Actual prevention of compliance
 The doctrine of constructive compliance
applies to potestative and mixed
conditions.
iii. 1. Possible
 A condition is possible when it is capable of
realization according to nature, law, public
policy or good customs.
2. Impossible
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 A condition is impossible when it is not

capable of realization according to nature,
law, public policy or good customs.
 The effect of an impossible condition is to
annul the obligation (Article 1183). The effect
of an impossible condition regarding
donations and succession is different. In
donations and succession, an impossible
condition is simply disregarded. The
distinction can be explained by the fact that
Article 1183 refers to onerous obligation
whereas donations and succession are
gratuitous.
 However, if the obligation is divisible and that
part of the obligation is not unaffected by the
impossible condition, then the obligation is
valid (Article 1183).
 Justice Paras distinguishes as follows:
1. Positive condition to do something
impossible
 Void condition and obligation
2. Negative condition not to do something
impossible
 Disregard the condition, the obligation is
valid
3. Negative condition not to do something
illegal
 Valid condition and obligation
iv. 1. Positive
 A condition is positive when the condition
involves the performance of an act.
2. Negative
 A condition is negative when the condition
involves the non-performance of an act.
v. 1. Divisible
 A condition is divisible when the condition is
susceptible of partial realization.
2. Indivisible
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 A condition is indivisible when the condition is

not susceptible of partial realization.
vi. 1. Conjunctive
 A condition is conjunctive when there are
several conditions, all of which must be
realized.
2. Alternative
 A condition is alternative when there are
several conditions, only one of which must be
realized.
vii. 1. Express
 A condition is express when the condition is
stated expressly.
2. Implied
 A condition is implied when the condition is
tacit.
DIFFERENT KINDS OF OBLIGATIONS

CATEGORIES:
a. Demandability - pure, conditional or with a term

b. Plurality of object - simple, alternative or facultative
c. Plurality of subject - simple, joint or solidary
d. Performance - divisible or indivisible
e. Sanctions for breach - with or without a penal clause
(1) Pure – demandable at once, no term, no condition
(2) Conditional - A condition is a future and an uncertain event

or a past event unknown to the parties
Kinds:
Suspensive – happening of condition gives rise to obligation
Effects:
1. effectivity is retroactive… reference to protection of the rights
of the creditor pending the happening of the condition as
against 3rd person whom debtor transacted with re object
before happening of the suspensive condition.
2. no retroactivity with reference to fruits or interest &
prescription. Mutually compensated if prestations are reciprocal.
3. creditor may preserve rights (Art. 1188)
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4. debtor – recovery of payment by mistake or even w/o mistake

(Article 1188)
A. According to demandability, NCC 1179-1192
1. Pure obligations
2. Conditional obligations
Gaite v Fonacier, 2 SCRA 830 (1961)

What characterizes a conditional obligation is the fact that its efficacy
or obligatory force is subordinated to the happening of a future and
uncertain event; so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had
never existed.
Gonzales v Heirs of Thomas, 314 SCRA 585 (1999)

Because the ninth clause required respondents to obtain a separate
and distinct TCT in their names and not in the name of petitioner, it
logically follows that such undertaking was a condition precedent to
the latter’s obligation to purchase and pay for the land. Put
differently, petitioner’s obligation to purchase the land is a conditional
one and is governed by Article 1181 of the Civil Code.
Constructive Fulfillment of a Condition
If the debtor prevents voluntarily the fulfillment of the

condition the said act would result to
CONSTRUCTIVE FULFILLMENT SAID CONDITION
UNDER Art. 1186.
Note: It is not even required that debtor is in bad faith. It is

sufficient that he prevented the
happening of the condition.
Labayen vs Talisay-Silay Milling Co. Inc. G.R. No. L-29298 (1928)
FACTS
Reynaldo Labayen and Teodoro Labayen are the owners of Dos

Hermanos, a hacienda in Talisay, Negros Occidental. They entered
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ARTICLES 1156-1304
into a contract with Talisay-Silay Milling Company Incorporated, also

called the Central, for the milling of sugar canes from their hacienda.
Stipulated in the contract is the construction of a railroad with three

and a half meters right of way and maintenance of such railroad by
the central. However, the central was only able to construct a
railroad reaching hacienda Esmeralda No. 2, four kilometers away
from hacienda Dos Hermanos. For a railroad to extend to hacienda
Dos Hermanos, the construction would require a gradual elevation of
4.84% to 7%, would necessitate 26 curves and would cost
Php80,000.00. A civil engineer testifying in behalf of the defendants
allege that to construct such would be possible but it would be very
dangerous.
This led to an action for damages in the amount of Php 28,620.00 by

the petitioners for the alleged breach of contract to grind sugar canes
at the Court of First Instance of Negros Occidental. The court ruled
against the petitioners and on the cross-complaint of the defendants,
condemned the petitioners to pay the sum of Php 12, 114.00.
Hence, this petition.
ISSUE
Whether or not the action for damages should prosper.
HELD
No. If the obligor voluntarily prevented the fulfillment of the condition

of the obligation, such condition shall be deemed fulfilled (article
1186 of the New Civil Code). The path of the railroad has to pass
through the haciendas of Esteban de la Rama. Since he would not
grant permission to use his land, therefore preventing the compliance
of the obligation to grind, the action cannot prosper.
Effect if suspensive condition takes place:

Rule is retroactive effects of fulfillment of suspensive condition.
In an obligation to give subject to a suspensive condition becomes
demandable only upon the fulfillment of the condition. However,
once the condition is fulfilled, its effects shall retroact to the day
when the obligation is constituted. Reason: condition is mere
accidental element of the contract.
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If obligation is reciprocal, there is no retroactivity because the

fruits and interests received during the pendency of the condition
are deemed to have been mutually compensated.
In unilateral obligation, there is usually no retroactive effect
because they are gratuitous. The debtor receives nothing from
the creditor unless from the nature and other circumstances it can
be inferred that the intention is to apply retroactivity.
In obligation to do or not to do, the courts shall determine, in
each case, the retroactive effect of the condition that has been
complied with. (Article 1187)
Rights of creditor /debtor pending fulfillment of suspensive
condition:
Creditor may bring appropriate actions of preservation of his
right.
Debtor may recover what has been paid by mistake in case of a
suspensive condition. (Article 1188)
If subject to a period and there is payment by mistake Article
1195 provides that aside from recovery of what was paid by mistake,
debtor can also recover fruits and interests, if any.
Rodrigo Enriquez Et. Al. vs. Soccoro Ramos
Case Digest
G.R. No. L-23616 September 30, 1976
Rodrigo Enriquez, Aurea Soriano de Dizon and Urbano Dizon, Jr.,

plaintiffs-appellants, Vs.Socorro A. Ramos, defendant-appellee.
Castro, C.J. :
Facts:
On November 24, 1958 Enriquez and spouses Dizon sold to Ramos

20 subdivision lots in Quezon City for the sum of P235,056 of which
only P35,056 had been paid. The balance of P200,000 was to be
liquidated within 2 years from the date of the execution of the deed
of sale, with interest at 6% for the 1st year and 12% thereafter until
fully paid. To secure the payment of that balance, Ramos executed in
the same document a deed of mortgage in favor of the vendors on
several parcels of land variously situated in Quezon City, Pampanga
and Bulacan. The deed of mortgage embodies certain stipulations
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ARTICLES 1156-1304
which Ramos invoked. But according to the appellants the defendant

violated the terms of their agreement in the following respects:
The defendant refuse to pay the sum of P200,000 within the

stipulated period.
The mortgage on Bulacan property was never registered and,
The realty tax for 1959 on the lots mortgage were not paid by the
defendant.
Ramos admit that she has not paid the realty taxes and has not
registered the mortgage on Bulacan property but argues that it was a
minor ones and still her obligation to pay the sum of P200,000 has
not arisen as no previous notice and demand for payment has been
made and according to her the road is not completed because the
appellants have not yet planted trees nor put up water facilities as
required by the ordinance.
The court held that the non-payment of 1959 realty taxes as well as
the non-registration of the mortgaged on Bulacan estate by the
defendant were minor matters. On the issue of the completion of
road the appellant adduced the testimonies of 2 witnesses that the
road was completed on May 9, 1960 in accordance with the
ordinances of Quezon City and there is nothing in Ordinance 2969
which would indicate that a street may be considered completed with
water facilities are built on the subdivision and these activities are
definitely segregable. As to be alleged lack of previous notice
completion and demand for payment, the filling of the case is
sufficient notice to the defendant of the completion of the roads in
question and of the appellee’s desire to be paid the purchase price of
the questioned lots.
Issue: Whether or not Ramos should pay her balance to Enriquez

and spouses Dizon even though she is not yet fully satisfied with her
demand?
Ruling: Yes, the effect of such demand retroacts to the day of the
constitution of the defendant obligation as it was stated in Art. 1187
provides that “THE EEFECTS OF A CONDITIONAL OBLIGATION TO
GIVE, ONCE THE CONDITION HAS BEEN FULFILLED, SHALL
RETROACT TO THE DAY OF THE CONSTITUTION OF THE
OBLIGATION.” her demand on the road is already considered
completed and the filling of the case against her is sufficient notice to
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her therefore she is obligated to pay her balance of P200,000 to the

appellant’s within 2 years from the date the roads in question are
completed.
LOSS DETERIORATION AND IMPROVEMENT DURING THE

PENDENCY OF CONDITION.
(See discussion on ARTICLE 1165)
(The same rule applies for both obligations with suspensive and
resolutory condition and obligation with a period) Article 1189
a. For conditional obligation, if suspensive, it is required that

condition is fulfilled and the object is specific. For resolutory
condition, the happening of the condition extinguishes the obligation,
hence mutual restitution follows.
b. The above rules also apply to suspensive and resolutory period
except that in a period, it will necessarily come.
A) The object may be lost:

1. without the fault of the debtor - extinguishes obligation
2. with the fault of the debtor – require debtor payment of damages.
B) The object deteriorates without the fault of the debtor, the

impairment is borne by the
creditor. If it deteriorates thru the fault of the debtor, creditor
may choose either
rescission of the contract or of the fulfillment, with claim for
damages either of the
selected remedy.
C) If the object improves by nature, the improvement inures to the
benefit of the creditor
And if the debtor at his expense improve it, the debtor’s right is
merely of a
usufructuary.
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Rules on loss, impairment, improvement of the subject

matter pending the happening of suspensive condition/ term
Loss/ Impairment Improvement
w/ fault or at Indemnity & specific performance

expense of obligor/ damages rescission &
usufructuary damages
If it improved at the
expense of the debtor,
he shall have no other
right than that granted
to the usufructuary. (art
1189)
w/o fault or not at Extinguished Creditor to bear
expense of obligor damages
Creditor gets it
REQUISITES FOR THE AFOREMENTIONED RULE:

1. There is a suspensive condition
2. There is an obligation to deliver a determinate thing
3. There is loss, deterioration or improvement before the
happening of the condition
4. The condition happens
Resolutory – happening of condition extinguishes obligation

Effects:
1. no retroactive effect
2. obligation extinguished
3. restore to each other what was received plus
interest/fruits
Potestative – dependent on sole will of 1 party; if on part of

debtor & suspensive - void
Casual – dependent on chance or hazard
Mixed – chance, or any of parties
With term -
a) Positive – extinguished if time expires or indubitable
of condition to happen
b) Negative – effective from moment of time elapsed or
evident it can't happen
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Impossible and illegal –

(1) To do - both the condition and the obligation are
void
(2) Not to do –disregard the condition, the obligation is
still valid
Impossible condition – physically not feasible

Illegal condition – prohibited by law, good custom, public
policy and morals
CASES
Types of Conditions
a. As to effect on obligation -
i. Suspensive (condition precedent)
Gonzales v Heirs of Thomas, supra

When the consent of a party to a contract is given subject to the
fulfillment of a suspensive condition, the contract is not perfected
unless that condition is first complied with. —Condition has been
defined as “every future and uncertain event upon which an
obligation or provision is made to depend. It is a future and uncertain
event upon which the acquisition or resolution of rights is made to
depend by those who execute the juridical act.” Without it, the sale
of the property under the Contract cannot be perfected, and
petitioner cannot be obliged to purchase the property. “When the
consent of a party to a contract is given subject to the fulfillment of a
suspensive condition, the contract is not perfected unless that
condition is first complied with.”
The obligatory force of a conditional obligation is subordinated to the

happening of a future and uncertain event, so that if that event does
not take place, the parties would stand as if the conditional obligation
had never existed. There can be no rescission of an obligation as yet
non-existent, because the suspensive condition has not happened.
Coronel v CA, 253 SCRA 15 (1996)

In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will
definitely affect the seller’s title thereto. In fact, if there had been
previous delivery of the subject property, the seller’s ownership or
title to the property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to any third
person. Applying Article 1544 of the Civil Code, such second buyer of
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the property who may have had actual or constructive knowledge of

such defect in the seller’s title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer’s title. In case
a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
In a contract to sell, upon the fulfillment of the suspensive condition,

ownership will not automatically transfer to the buyer — the
prospective seller still has to convey title to the prospective buyer by
entering into a contract of absolute sale.
(ii) Resolutory (condition subsequent)
Parks v Prov of Tarlac, 49 Phil 142 (1926)

The characteristic of condition precedent is that the acquisition of the
right is not effected while said condition is not complied with or is not
deemed complied with. Meanwhile nothing is acquired and there is
only an expectancy of right. Consequently, when a condition is
imposed, the compliance of which cannot be effected except when
the right is deemed acquired, such condition cannot be a condition
precedent.
Central Philippines v CA, 246 SCRA 511 (1995)

If there is no fulfillment or compliance with the resolutory condition,
the donation may now be revoked and all rights which the donee
may have acquired under it shall be deemed lost and extinguished.—
It is not correct to say that the schoolhouse had to be constructed
before the donation became effective, that is, before the donee could
become the owner of the land, otherwise, it would be invading the
property rights of the donor. The donation had to be valid before the
fulfillment of the condition.
Quijada v CA, 299 SCRA 695 (1998)

It has been ruled that when a person donates land to another on the
condition that the latter would build upon the land a school, the
condition imposed is not a condition precedent or a suspensive
condition but a resolutory one.—In this case, that resolutory
condition is the construction of the school. It has been ruled that
when a person donates land to another on the condition that the
latter would build upon the land a school, the condition imposed is
not a condition precedent or a suspensive condition but a resolutory
one. Thus, at the time of the sales made in 1962 towards 1968, the
alleged seller (Trinidad) could not have sold the lots since she had
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earlier transferred ownership thereof by virtue of the deed of

donation. So long as the resolutory condition subsists and is capable
of fulfillment, the donation remains effective and the donee continues
to be the owner subject only to the rights of the donor or his
successors-in-interest under the deed of donation. Since no period
was imposed by the donor on when must the donee comply with the
condition, the latter remains the owner so long as he has tried to
comply with the condition within a reasonable period.
b. As to cause or origin -
i. Potestative
Lim v CA, 191 SCRA 156 (1990)

The disputed stipulation “for as long as the defendant needed the
premises and can meet and pay said increases” is a purely
potestative condition because it leaves the effectivity and enjoyment
of leasehold rights to the sole and exclusive will of the lessee. It is
likewise a suspensive condition because the renewal of the lease,
which gives rise to a new lease, depends upon said condition. It
should be noted that a renewal constitutes a new contract of lease
although with the same terms and conditions as those in the expired
lease. It should also not be overlooked that said condition is not
resolutory in nature because it is not a condition that terminates the
lease contract. The lease contract is for a definite period of three (3)
years upon the expiration of which the lease automatically
terminates.
Silos v PNB, G.R. No. 181045, July 2, 2014

Escalation clauses are not basically wrong or legally objectionable so
long as they are not solely potestative but based on reasonable and
valid grounds. Here, as clearly demonstrated above, not only [are]
the increases of the interest rates on the basis of the escalation
clause patently unreasonable and unconscionable, but also there are
no valid and reasonable standards upon which the increases are
anchored.
In loan agreements, it cannot be denied that the rate of interest is a
principal condition, if not the most important component. Thus, any
modification thereof must be mutually agreed upon; otherwise, it has
no binding effect.
ii. Casual
Naga Telephone v CA, 230 SCRA 351 (1994)

A potestative condition is a condition, the fulfillment of which
depends upon the sole will of the debtor, in which case, the
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conditional obligation is void. Based on this definition, respondent

court’s finding that the provision in the contract, to wit:
“(a) That the term or period of this contract shall be as long as the
party of the first part (petitioner) has need for the electric light posts
of the party of the second part (private respondent) x x x.”
is a potestative condition, is correct. However, it must have

overlooked the other conditions in the same provision, to wit:
“x x x it being understood that this contract shall terminate

when for any reason whatsoever, the party of the second part
(private respondent) is forced to stop, abandoned (sic) its operation
as a public service and it becomes necessary to remove the electric
light post (sic);” which are casual conditions since they depend on
chance, hazard, or the will of a third person. In sum, the contract is
subject to mixed conditions, that is, they depend partly on the will of
the debtor and partly on chance, hazard or the will of a third person,
which do not invalidate the aforementioned provision.
iii. Mixed
Osmena v Rama, 14 Phil 99 (1909)

A condition imposed upon a contract by the promisor, the
performance of which depends upon his exclusive will, is void, in
accordance with the provisions of article 1115 of the Civil Code.
Smith Bell v Sotelo Matti, 44 Phil 874 (1922)

Where the fulfillment of the condition does not depend on the will of
the obligor, but on that of a third person who can in no way be
compelled to carry it out, the obligor's part of the contract is
complied with, if he does all that is in his power, and it then becomes
incumbent upon the other contracting party to comply with the terms
of the contract.
Rustan Pulp v IAC, 214 SCRA 665 (1992)

It is a truism in legal jurisprudence that a condition which is both
potestative (or facultative) and resolutory may be valid even though
the saving clause is left to the will of the obligor. —A purely
potestative imposition of this character must be obliterated from the
face of the contract without affecting the rest of the stipulations
considering that the condition relates to the fulfillment of an already
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existing obligation and not to its inception (Civil Code Annotated, by

Padilla, 1987 Edition, Volume 4, Page 160).
Romero v CA, 250 SCRA 223 (1995)

The undertaking required of private respondent does not constitute a
“potestative condition dependent solely on his will” that might,
otherwise, be void in accordance with Article 1182 of the Civil Code
but a “mixed” condition “dependent not on the will of the vendor
alone but also of third persons like the squatters and government
agencies and personnel concerned.” We must hasten to add,
however, that where the so-called “potestative condition” is imposed
not on the birth of the obligation but on its fulfillment, only the
condition is avoided, leaving unaffected the obligation itself.
As to possibility
Roman Catholic Archbishop v CA, 198 SCRA 100 (1991)

Donation, as a mode of acquiring ownership, results in an effective
transfer of title over the property from the donor to the donee. Once
a donation is accepted, the donee becomes the absolute owner of
the property donated. Although the donor may impose certain
conditions in the deed of donation, the same must not be contrary to
law, morals, good customs, public order and public policy. The
condition imposed in the deed of donation in the case before us
constitutes a patently unreasonable and undue restriction on the
right of the donee to dispose of the property donated, which right is
an indispensable attribute of ownership. Such a prohibition against
alienation, in order to be valid, must not be perpetual or for an
unreasonable period of time.
The prohibition in the deed of donation against the alienation of the

property for an entire century, being an unreasonable emasculation
and denial of an integral attribute of ownership, should be declared
as an illegal or impossible condition within the contemplation of
Article 727 of the Civil Code. Consequently, as specifically stated in
said statutory provision, such condition shall be considered as not
imposed. No reliance may accordingly be placed on said prohibitory
paragraph in the deed of donation.
d. As to mode – Positive and Negative
e. As to expression – Express and Implied
(a) Positive
(b) Negative
(c) Divisible
(d) Indivisible
(e) Conjunctive
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(f) Alternative
(g) Express
(h) Implied
RECIPROCAL OBLIGATIONS:
The power to rescind obligations implied in reciprocal ones, in

case one of the obligors should not comply what is incumbent upon
him. (Art. 1181, par. 1)
Remedies of the injured party in reciprocal obligations:

1. Action for specific performance of the obligation with damages; or
2. Action for rescission of the obligation also with damages.
The above remedies are alternative. He may however choose

rescission if after he has chosen fulfillment, the latter become
impossible.
RESCISSION contemplated by the law is JUDICIAL RESCISSION.
Further, the court in some instance may instead grant the party a
term for performance instead of ordering rescission such as in case
when the breach is slight or when right of third person is affected.
Hence court may deny rescission.
When it is the court rescinds the obligation, this is known as

JUDICIAL RESCISSION, which is initiated upon the filing of complaint
in court by the injured party.
Rescission under Article 1380 vs Rescission under Article

1191 (Resolution)
An action for rescission can proceed from either Article 1191 or

Article 1381. It has been held that Article 1191 speaks of rescission in
reciprocal obligations within the context of Article 1124 of the Old
Civil Code which uses the term “resolution.” Resolution applies only
to reciprocal obligations such that a breach on the part of one party
constitutes an implied resolutory condition which entitles the other
party to rescission. Resolution grants the injured party the option to
pursue, as principal actions, either a rescission or specific
performance of the obligation, with payment of damages in either
case.
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Rescission under Article 1381, on the other hand, was taken from
Article 1291 of the Old Civil Code, which is a subsidiary action, not
based on a party’s breach of obligation. The four-year prescriptive
period provided in Article 1389 applies to rescissions under Article
1381.
Adelfa S. Rivera, Cynthia S. Rivera, and Jose S. Rivera vs. Fidela del
Rosario (deceased and substituted by her co-respondents), and her
children, Oscar Rosita, et.al.
March 16, 2016

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S.
RIVERA, petitioners,
vs.
FIDELA DEL ROSARIO (deceased and substituted by her co-

respondents), and her children, OSCAR, ROSITA, VIOLETA,
ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed
DEL ROSARIO,respondents.
FACTS
Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique

Jr., Carlos, Juanito and Eloisa, all surnamed Del Rosario, were the
registered owners of Lot No. 1083-C, a parcel of land situated at
Lolomboy, Bulacan. This lot spanned an area of 15,029 square
meters and was covered by TCT No. T-50.668 (M) registered in the
Registry of Deeds of Bulacan.
On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and
Eloisa, executed a Special Power of Attorney in favor of their mother
and co-respondent, Fidela, authorizing her to sell, lease, mortgage,
transfer and convey their rights over Lot No. 1083-C. Subsequently,
Fidela borrowed P250,000 from Mariano Rivera in the early part of
1987. To secure the loan, she and Mariano Rivera agreed to execute
a deed of real estate mortgage and an agreement to sell the
land. Consequently, on March 9, 1987, Mariano went to his lawyer,
Atty. Efren Barangan, to have three documents drafted: the Deed of
Real Estate Mortgage, a Kasunduan (Agreement to Sell), and a Deed
of Absolute Sale. The Kasunduan provided that the children of
Mariano Rivera, the petitioners, would purchase Lot No. 1083-C for a
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consideration of P2,141,622.50. This purchase price was to be paid in

three installments: P250,000 upon the signing of
the Kasunduan, P750,000 on August 31, 1987, and P1,141,622.50 on
December 31, 1987. It also provided that the Deed of Absolute Sale
would be executed only after the second installment is paid and a
postdated check for the last installment is deposited with Fidela. As
previously stated, however, Mariano had already caused the drafting
of the Deed of Absolute Sale. But unlike the Kasunduan, the said
deed stipulated a purchase price of only P601,160, and covered a
certain Lot No. 1083-A in addition to Lot No. 1083-C. This deed, as
well as the Kasunduan and the Deed of Real Estate Mortgage, was
signed by Marianos children, petitioners Adelfa, Cynthia and Jose, as
buyers and mortgagees, on March 9, 1987.
March 10, 1987, Mariano Rivera returned to the office of Atty.

Barangan, bringing with him the signed documents with him Fidela
and her son Oscar del Rosario to sign the mortgage and
the Kasunduan there. Hoever, Fidela inadvertently affixed her
signature on all the three documents in the office of Atty.
Barangan . Mariano then gave Fidela the amount of P250,000.
On October 30, 1987, he also gave Fidela a check for P200,000. In

the ensuing months, also, Mariano gave Oscar del Rosario several
amounts totaling P67,800 upon the latters demand for the payment
of the balance despite Oscars lack of authority to receive payments
under the Kasunduan.While Mariano was making payments to Oscar,
Fidela entrusted the owners copy of TCT No. T-50.668 (M) to
Mariano to guarantee compliance with the Kasunduan.
When Mariano unreasonably refused to return the TCT, one of the

respondents, Carlos del Rosario, caused the annotation on TCT No.
T-50.668 (M) of an Affidavit of Loss of the owners duplicate copy of
the title on September 7, 1992. This annotation was offset, however,
when Mariano registered the Deed of Absolute Sale on October 13,
1992, and afterwards caused the annotation of an Affidavit of
Recovery of Title on October 14, 1992. Thus, TCT No. T-50.668 (M)
was cancelled, and in its place was issued TCT No. 158443 (M) in the
name of petitioners Adelfa, Cynthia and Jose Rivera.
Meanwhile, the Riveras, representing themselves to be the new

owners of Lot No. 1083-C, were also negotiating with the tenant,
Feliciano Nieto, to rid the land of the latters tenurial right. When
Nieto refused to relinquish his tenurial right over 9,000 sq. m. of the
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land, the Riveras offered to give 4,500 sq. m. in exchange for the
surrender. Nieto could not resist and he accepted. Subdivision Plan
No. Psd-031404-052505 was then made on August 12, 1992 and was
inscribed on TCT No. 158443 (M), and Lot No. 1083-C was divided
into Lots 1083 C-1 and 1083 C-2.
February 18, 1993, respondents filed a complaint in the RTC of

Malolos, asking that the Kasunduan be rescinded for failure of the
Riveras to comply with its conditions, with damages. They also
sought the annulment of the Deed of Absolute Sale on the ground of
fraud, the cancellation of TCT No. T-161784 (M) and TCT No. T-
161785 (M), and the reconveyance to them of the entire property
with TCT No. T-50.668 (M) restored.
Respondents claimed that petitioners acquired possession of the TCT

through fraud and machination.Fidela never intended to enter into a
deed of sale at the time of its execution and that she signed the said
deed on the mistaken belief that she was merely signing copies of
the Kasunduan. The position where Fidelas name was typed and
where she was supposed to sign her name in the Kasunduan was
roughly in the same location where it was typed in the Deed of
Absolute Sale. The documents were stacked one on top of the other
at the time of signing, Fidela could have easily and mistakenly
presumed that she was merely signing additional copies of
the Kasunduan.
Petitioners denied the allegations and averred that the Deed of

Absolute Sale was validly entered into by both parties. According to
petitioners, Fidela del Rosario mortgaged Lot No. 1083-C to their
predecessor in interest, Mariano Rivera, on March 9, 1987. But on the
following day Fidela decided to sell the lot to petitioners
for P2,161,622.50. When Mariano agreed (on the condition that Lot
No. 1083-C will be delivered free from all liens and encumbrances),
the Kasunduan was consequently drawn up and signed. After that,
however, Fidela informed Mariano of the existence of Feliciano Nietos
tenancy right over the lot to the extent of 9,000 sq. m. When
Mariano continued to want the land, albeit on a much lower price of
only P601,160, as he had still to deal with Feliciano Nieto, the parties
drafted the Deed of Absolute Sale on March 10, 1987, to supersede
the Kasunduan.
Petitioners also filed a counterclaim asking for moral and exemplary

damages and the payment of attorneys fees and costs of suit.
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After trial, the RTC ruled in favor of RESPONDENTS:
1. Declaring the Deed of Absolute Sale dated March 10, 1987 as

null and void;
2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M)
both in the names of Adelfa, Cynthia and Jose, all surnamed Rivera;
3. Declaring the plaintiffs to be the legitimate owners of the land
covered by TCT No. T-161785 (M) and ordering defendant Adelfa,
Cynthia, and Jose, all surnamed Rivera, to reconvey the same to the
plaintiffs;
4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-
161785 (M) and to issue in its place a new certificate of title in the
name of the plaintiffs as their names appear in TCT No. T-50.668;
5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto
as valid;
6. Ordering the defendant Riveras to pay the plaintiffs
solidarily P191,246.98 as balance for the 4,500 square-meter portion
given to defendant Feliciano Nieto, P200,000.00 as moral
damages, P50,000.00 as exemplary damages, P50,000.00 as
attorneys fees and costs of the suit.
7. Dismissing the counterclaim of the defendant Riveras;
8. Dismissing the counterclaim and the crossclaim of defendant
Feliciano Nieto.
The trial court ruled that Fidelas signature in the Deed of Absolute
Sale was genuine, but found that Fidela never intended to sign the
said deed. Noting the peculiar differences between
the Kasunduan and the Deed of Absolute Sale, the trial court
concluded that the Riveras were guilty of fraud in securing the
execution of the deed and its registration in the Registry of
Deeds. This notwithstanding, the trial court sustained the validity of
TCT No. T-161784 (M) in the name of Feliciano Nieto since there was
no fraud proven on Nietos part. The trial court found him to have
relied in good faith on the representations of ownership of Mariano
Rivera. Thus, Nietos rights, according to the trial court, were akin to
those of an innocent purchaser for value.
The trial court rescinded the Kasunduan but ruled that the P450,000

paid by petitioners be retained by respondents as payment for the
4,500 sq. m. portion of Lot No. 1083-C that petitioners gave to Nieto.
On appeal to the Court of Appeals, the trial courts judgment was

modified and the judgment appealed from was AFFIRMED with the
MODIFICATION that the Deed of Absolute Sale dated March 10, 1987
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is declared null and void only insofar as Lot No. 1083-C is concerned,
but valid insofar as it conveyed Lot No. 1083-A, that TCT No. 158443
(M) is valid insofar as Lot No. 1083-A is concerned and should not be
annulled, and increasing the amount to be paid by the defendants-
appellants to the plaintiffs-appellees for the 4,500 square meters of
land given to Feliciano Nieto to P323,617.50.
Contrary to the ruling of the Court of Appeals that the Deed of

Absolute Sale is void only insofar as it covers Lot No. 1083-C, we find
that the said deed is void in its entirety. Noteworthy is that during
the oral arguments before the Court of Appeals, both petitioners and
respondents admitted that Lot No. 1083-A had been expropriated by
the government long before the Deed of Absolute Sale was entered
into.Whats more, this case involves only Lot No. 1083-C. It never
involved Lot 1083-A. Thus, the Court of Appeals had no jurisdiction to
adjudicate on Lot 1083-A, as it was never touched upon in the
pleadings or made the subject of evidence at trial.
Respondents counter that Article 1383 of the New Civil Code applies
only to rescissible contracts enumerated under Article 1381 of the
same Code, while the cause of action in this case is for rescission of a
reciprocal obligation, to which Article 1191 of the Code
applies. Rescission of reciprocal obligations under Article 1191 of the
New Civil Code should be distinguished from rescission of contracts
under Article 1383 of the same Code.
Through this case it was again emphasize that rescission of reciprocal

obligations under Article 1191 is different from rescissible contracts
under Chapter 6 of the law on contracts under the Civil Code. While
Article 1191 uses the term rescission, the original term used in Article
1124 of the old Civil Code, from which Article 1191 was based,
was resolution. Resolution is a principal action that is based on
breach of a party.
The Kasunduan does not fall under any of those situations mentioned

in Article 1381. Consequently, Article 1383 is inapplicable. Hence, It
was ruled in favor of the respondents.
ISSUE
May the contract entered into between the parties, however, be

rescinded based on Article 1191?
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HELD
The decision of the Court of Appeals is MODIFIED. The Deed of

Absolute Sale in question is declared NULL and VOID in its entirety.
Petitioners are ORDERED to pay respondents P323,617.50 as actual
damages, P30,000.00 as moral damages, P20,000.00 as exemplary
damages and P20,000.00 as attorneys fees. No pronouncement as to
costs.
A careful reading of the Kasunduan reveals that it is in the nature of

a contract to sell, as distinguished from a contract of sale. In a
contract of sale, the title to the property passes to the vendee upon
the delivery of the thing sold; while in a contract to sell, ownership is,
by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. In a contract to sell,
the payment of the purchase price is a positive suspensive
condition the failure of which is not a breach, casual or serious, but a
situation that prevents the obligation of the vendor to convey title
from acquiring an obligatory force.
Respondents in this case bound themselves to deliver a deed of

absolute sale and clean title covering Lot No. 1083-C after petitioners
have made the second installment. This promise to sell was subject
to the fulfillment of the suspensive condition that petitioners
pay P750,000 on August 31, 1987, and deposit a postdated check for
the third installment of P1,141,622.50.Petitioners, however, failed to
complete payment of the second installment. The non-fulfillment of
the condition rendered the contract to sell ineffective and without
force and effect. It must be stressed that the breach contemplated
in Article 1191 of the New Civil Code is the obligors failure to comply
with an obligation already extant, not a failure of a condition to
render binding that obligation. Coming now to the matter of
prescription. Contrary to petitioners assertion.
On the matter of damages, the Court of Appeals awarded

respondents P323,617.50 as actual damages for the loss of the land
that was given to Nieto, P200,000 as moral damages,P50,000 as
exemplary damages, P50,000 as attorneys fees and the costs of suit.
Respondents were amply compensated through the award of actual

damages, which should be sustained. The other damages awarded
total P300,000, or almost equivalent to the amount of actual
damages. Practically this will double the amount of actual damages
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awarded to respondents. To avoid breaching the doctrine on

enrichment, award for damages other than actual should be
reduced. Thus, the amount of moral damages should be set at
only P30,000, and the award of exemplary damages at
only P20,000. The award of attorneys fees should also be reduced
to P20,000, which under the circumstances of this case appears
justified and reasonable.
Rescission (vs. resolution) of contract
If the heirs of a lot buyer were evicted from the lot because of a final
judgment based on a right prior to the sale (i.e., the seller did not
validly acquire the lot from the person who sold the lot to the seller),
should the evicted heirs file an action for rescission under article
1381 or an action for rescission/resolution under Article 1191? Within
what period should the appropriate action be filed? Should the
prescriptive period be four years as provided under Article 1389 of
the Civil Code, which states that “the action to claim rescission must
be commenced within four years”? Or should the prescriptive period
be 10 years as provided under Article 1144 of the Civil Code, which
states that actions “upon a written contract” must be brought “within
10 years from the date the right of action accrues”?
In Heirs of Sofia Quirong, etc. vs. Development Bank of the

Philippines, G.R. No. 173441, December 3, 2009, the late Emillo
Daloppe left a parcel of land to his wife Felisa and nine children. To
enable one of the children (Rosa Dalope-Funcion) to get a loan from
the Development Bank of the Philippines (DBP), Felisa sold the parcel
of land to Funcions. The Funcions failed to pay the loan. DBP
subsequently foreclosed the mortgage and made a conditional sale of
the land to Sofia Quirong for PhP78,000. In their contract of sale,
Sofia Quirong waived any warranty against eviction. The contract
provided that the DBP did not guarantee possession of the property
and that it would not be liable for any lien or encumbrance on the
same. Quirong gave a down payment of P14,000.00.
Two months after the conditional sale to Quirong, Felisa and her
eight other children subsequently filed an action for partition and
declaration of nullity of documents with damages against DBP and
the Funcions before the Regional Trial Court (RTC) of Dagupan City.
Notwithstanding the suit, the DBP executed a deed of absolute sale
of the subject lot in Sofia Quirong’s favor. The deed of sale carried
substantially the same waiver of warranty against eviction and of any
adverse lien or encumbrance.
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Sofia Quirong having since died, her heirs filed an answer in

intervention in which they asked the RTC to award the lot to them
and, should it instead be given to the Dalopes, to allow the Quirong
heirs to recover the lot’s value from the DBP. Because the heirs failed
to file a formal offer of evidence, the trial court did not rule on the
merits of their claim to the lot and, alternatively, to relief from DBP.
The RTC rendered a decision, declaring DBP’s sale to Sofia Quirong

valid only with respect to the shares of Felisa and Rosa Funcion in
the property. It declared Felisa’s sale to the Funcions, the latter’s
mortgage to the DBP, and the latter’s sale to Sofia Quirong void
insofar as they prejudiced the shares of the eight other children of
Emilio and Felisa who were each entitled to a tenth share in the
subject lot.
The Quirong heirs then filed an action against DBP before the RTC of
Dagupan City for rescission of the contract of sale between Sofia
Quirong, their predecessor, and the DBP and praying for the
reimbursement of the price of P78,000.00 that she paid the bank plus
damages. The heirs alleged that they were entitled to the rescission
of the sale because the decision in Civil Case D-7159 stripped them
of nearly the whole of the lot that Sofia Quirong, their predecessor,
bought from DBP. DBP filed a motion to dismiss the action on ground
of prescription and res judicata but the RTC denied their motion.
After hearing the case, the RTC rendered a decision, rescinding the
sale between Sofia Quirong and DBP and ordering the latter to return
to the Quirong heirs the PhP78,000.00 Sofia Quirong paid the bank.
On appeal by DBP, Court of Appeals (CA) reversed the RTC decision
and dismissed the heirs’ action on the ground of prescription. The CA
concluded that, reckoned from the finality of the December 16, 1992
decision in Civil Case D-7159, the complaint filed on June 10, 1998
was already barred by the 4-year prescriptive period under Article
1389 of the Civil Code. The Quirong heirs filed a motion for
reconsideration of the decision but the CA court denied it.
According to DBP, the prescriptive period should be 4 years as

provided under Article 1389 of the Civil Code, which provides that
“the action to claim rescission must be commenced within four
years.” On the other hand, the Quirong heirs argue that it should be
10 years as provided under Article 1144 which states that actions
“upon a written contract” must be brought “within 10 years from the
date the right of action accrues.”
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The Supreme Court agreed with DBP that the prescriptive period was
4 years because the action involved was one for rescission under
Article 1381. The Court distinguished between a rescission under
Article 1381 and a rescission under Article 1191:
The remedy of “rescission” is not confined to the rescissible

contracts enumerated under Article 1381. Article 1191 of the
Civil Code gives the injured party in reciprocal obligations,
such as what contracts are about, the option to choose
between fulfillment and “rescission.” Arturo M. Tolentino, a
well-known authority in civil law, is quick to note, however,
that the equivalent of Article 1191 in the old code actually
uses the term “resolution” rather than the present
“rescission.” The calibrated meanings of these terms are
distinct.
“Rescission” is a subsidiary action based on injury to the

plaintiff’s economic interests as described in Articles 1380
and 1381. “Resolution,” the action referred to in Article
1191, on the other hand, is based on the defendant’s breach
of faith, a violation of the reciprocity between the parties. As
an action based on the binding force of a written contract,
therefore, rescission (resolution) under Article 1191
prescribes in 10 years. Ten years is the period of prescription
of actions based on a written contract under Article 1144.
The distinction makes sense. Article 1191 gives the injured

party an option to choose between, first, fulfillment of the
contract and, second, its rescission. An action to enforce a
written contract (fulfillment) is definitely an “action upon a
written contract,” which prescribes in 10 years (Article
1144). It will not be logical to make the remedy of
fulfillment prescribe in 10 years while the alternative
remedy of rescission (or resolution) is made to prescribe
after only four years as provided in Article 1389 when the
injury from which the two kinds of actions derive is the
same.
The Court noted that the action filed by the Quirong heirs was an
action for rescission (not resolution):
Here, the Quirong heirs alleged in their complaint that they were
entitled to the rescission of the contract of sale of the lot between
the DBP and Sofia Quirong because the decision in Civil Case D-7159
deprived her heirs of nearly the whole of that lot. But what was the
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status of that contract at the time of the filing of the action for
rescission? Apparently, that contract of sale had already been fully
performed when Sofia Quirong paid the full price for the lot and
when, in exchange, the DBP executed the deed of absolute sale in
her favor. There was a turnover of control of the property from DBP
to Sofia Quirong since she assumed under their contract, “the
ejectment of squatters and/or occupants” on the lot, at her own
expense.
Actually, the cause of action of the Quirong heirs stems from their
having been ousted by final judgment from the ownership of the lot
that the DBP sold to Sofia Quirong, their predecessor, in violation of
the warranty against eviction that comes with every sale of property
or thing. Article 1548 of the Civil Code provides:
Article 1548. Eviction shall take place whenever by a final judgment

based on a right prior to the sale or an act imputable to the vendor,
the vendee is deprived of the whole or of a part of thing purchased.
xxxx
With the loss of 80% of the subject lot to the Dalopes by reason of
the judgment of the RTC in Civil Case D-7159, the Quirong heirs had
the right to file an action for rescission against the DBP pursuant to
the provision of Article 1556 of the Civil Code which provides:
Article 1556. Should the vendee lose, by reason of the eviction, a

part of the thing sold of such importance, in relation to the whole,
that he would not have bought it without said part, he may demand
the rescission of the contract; but with the obligation to return the
thing without other encumbrances than those which it had when he
acquired it. x x x
Finally, the Court concluded that the action for rescission was barred
by prescription as it was filed beyond the 4-year prescriptive period:
And that action for rescission, which is based on a subsequent

economic loss suffered by the buyer, was precisely the action that
the Quirong heirs took against the DBP. Consequently, it prescribed
as Article 1389 provides in four years from the time the action
accrued. Since it accrued on January 28, 1993 when the decision in
Civil Case D-7159 became final and executory and ousted the heirs
from a substantial portion of the lot, the latter had only until January
28, 1997 within which to file their action for rescission. Given that
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they filed their action on June 10, 1998, they did so beyond the four-
year period.
Rule when both parties are guilty of breach
Art. 1192. In case both parties have committed a breach of the

obligation, the liability of the first infractor shall be equitably
tempered by the courts. 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. Application of
the “pari delicto rule”
Term (Articles 1193-1198)
Art. 1193. Obligations for whose fulfillment a

day certain has been fixed, shall be demandable
only when that day comes.
Obligations with a resolutory period take
effect at once, but terminate upon arrival of the
day certain.
A day certain is understood to be that which
must necessarily come, although it may not be
known when.
If the uncertainty consists in whether the day
will come or not, the obligation is conditional, and
it shall be regulated by the rules of the preceding
Section.
Art. 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.
Art. 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.
Art. 1196. Whenever in an obligation a

period is designated, it is presumed to have been
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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.
Art. 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
courts may fix the duration thereof.
The courts shall also fix the duration of the
period when it depends upon the will of the
debtor.
In every case, the courts shall determine such
period as may under the circumstances have been
probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by
them.
Art. 1198. The debtor shall lose every right to

make use of the period:
(1) When after the obligation has been
contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has
promised;
(3) When by his own acts he has impaired said
guaranties or securities after their
establishment, and when through a
fortuitous event they disappear, unless he
immediately gives new ones equally
satisfactory;
(4) When the debtor violates any undertaking,
in consideration of which the creditor
agreed to the period;
(5) When the debtor attempts to abscond.
 A term is a length of time which, exerting an influence

on an obligation as a consequence of juridical acts,
suspends its demandability or determines its
extinguishment.
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 A term is a future and certain event (i.e. death)

 When the debtor binds himself to pay when his means
permit him to do so, the obligation is one with a term
(Article 1180). Although Article 1180 looks like a
condition dependent on the sole will of the debtor, the
law treats it as a term.
 If prepayment is made without the debtor being aware
that the period had not yet arrived, then the thing and
the fruits can be recovered (Article 1195). If
prepayment is made and the debtor was aware that
the period had not yet arrived, then the debtor waives
the benefit of the term.
 An obligation was entered on May 1, 2002 between
A and B. The obligation is to be performed on
October 1, 2002. A delivers on September 1, 2002
by mistake to B. A discovers his mistake and tells B
to return the object and the fruits delivered.
Article 1195 does not answer who is entitled to the
fruits which have been produced in the meantime
(May 1, 2002 to October 1, 2002).
According to the Spanish Code, the debtor (A) can
only fruits.
There are 2 views:
i. The debtor is entitled to the fruits produced in
the meantime (Tolentino)
 This is because delivery is not required until
October 1.
ii. The creditor is entitled to the fruits since the
obligation is demandable only when the period
arrives
 This is because the obligation is already
existing although it is not yet demandable.
 Professor Balane believes that the fruits belong
to the debtor. Why would Article 1195 allow the
debtor to recover the fruits if he should still give
them back after the term comes.
 Instances when the Fruits Cannot be Recovered
i. When the obligation is reciprocal and there has
been prepayment of both sides
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ii. When the obligation is a loan and the debtor

is bound to pay interest
iii. When the period is exclusively for the
creditor’s benefit
iv. When the debtor is aware of the period and
pays anyway – waiver
 The presumption is that the period is for the benefit of
both the debtor and the creditor (Article 1196). The
effect of this presumption is that the creditor cannot
demand payment before the period arrives nor can the
debtor demand the creditor to accept payment before
the period arrives.
Example: A issues a promissory note to B demandable
on October 15. A cannot insist on prepayment nor can
B insist that he be paid on September.
 If the period is for the benefit of the creditor only, the
creditor can demand performance at any time, but the
debtor cannot compel him to accept payment before
the period expires.
 If the period is for the benefit of the debtor only, the
debtor can he may oppose a premature demand for
payment, but may validly pay at any time before the
period expires.
 When the obligation is worded such that payment it
to be made “within 6 months”, the period is for the
benefit of the debtor.
 When the obligation is worded such that payment is
to be made “on or before”, the period is for the
benefit of the debtor.
 The debtor shall lose every right to make use of the
period:
i. When after the obligation has been contracted, the
debtor becomes insolvent unless he gives a
guaranty or security for the debt (Article 1198 (1))
 The insolvency here need not be judicial. It can
be actual insolvency.
ii. When he does not furnish to the creditor the
guaranties or securities which he has promised
(Article 1198 (2))
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iii. When by his own acts he has impaired the

said guaranties or securities after their
establishment, and when through a fortuitous event
hey disappear, unless he immediately gives new
ones equally satisfactory (Article 1198 (3))
iv. When the debtor violates any undertaking, in
consideration of which the creditor agreed (Article
1198 (4))
v. When the debtor attempts to abscond (Article
1198 (5))
vi. When the creditor is deceived on the
substance or quality of the thing pledged, the
creditor may either claim another thing in its stead
or demand immediate payment of the principal
obligation (Article 2109)
 Types of Periods
i. 1. Suspensive (ex die)
 The period is suspensive when the obligation
becomes demandable only upon the arrival of
the period.
2. Resolutory (in diem)
 The period is resolutory when the
performance must terminate upon the arrival
of the period.
ii. 1. Legal
 A period is legal when it is granted by law.
2. Voluntary
 A period is voluntary when it is stipulated by
the parties.
3. Judicial
 A period is judicial when it is fixed by the
courts.
 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
courts may fix the duration thereof (Article
1197, 1st ¶).
 2 steps involved in an action for fixing a
period:
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1. The court should determine that the

obligation does not fix a period but it can
be inferred that a period is intended due to
the circumstances OR the period is
dependent on debtor’s will.
2. Court shall decide what period was
probably contemplated by the parties.
 Court should make an educated guess.
 Court should not fix a period which it
thinks is fair or reasonable but rather
the period which was probably
contemplated by the parties.
 Generally, you cannot ask for specific
performance because fixing a period
contemplates something in the future, hence
to ask for specific performance would be
illogical.
 Instances When Court May Fix a Period
1. Article 1197,
Art. 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 courts may fix the duration
thereof.
 Exceptions
a. Articles 1682 and 1687, 1st sentence
Art. 1682. The lease of a

piece of rural land, when its
duration has not been fixed, is
understood to have been 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 have to elapse for the
purpose.
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Art. 1687, 1st sentence. 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; and from day to day, if
the rent is to be paid daily.
b. Pacto de retro sales (Article 1606)
Art. 1606. The right

referred to in article 1601, in the
absence of an express
agreement, shall last four years
from the date of the contract.
Should there be an
agreement, the period cannot
exceed ten years.
However, the vendor may
still exercise the right to
repurchase within thirty days
from the time final judgment
was rendered in a civil action on
the basis that the contract was a
true sale with right to
repurchase.
c. Contract of services for an indefinite

period
 Court cannot fix a period or else it
would amount to involuntary
servitude.
2. Article 1197,
Art. 1197, The courts shall also

fix the duration of the period when it
depends upon the will of the debtor.
3. Article 1191,
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Art. 1191, The court shall decree

the rescission claimed, unless there
be just cause authorizing the fixing of
a period.
4. Article 1687, 2nd, 3rd and 4th sentences
Art. 1687, 2nd, 3rd and 4th

sentences. However, even though a
monthly rent is paid, and no period
for the lease has been set, the courts
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 courts may likewise
determine a longer period after the
lessee has been in possession for over
six months. In case of daily rent, the
courts may also fix a longer period
after the lessee has stayed in the
place for over one month.
5. Article 1180
Art. 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.
iii. 1. Express
 A period is express when the period is
specifically stated.
2. Tacit
 A period is tacit when a person undertakes to
do some work which can be done only during
a particular season.
iv. 1. Original
2. Grace
 A grace period is an extension fixed by the
parties or by the court.
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v. 1. Definite
 A period is definite when it refers to a fixed
known date or time.
2. Indefinite
 A period is indefinite when it refers to an
event which will necessarily happen but the
date of its happening is unknown (i.e. death)
With a period – future & certain, past & uncertain, payable when
able
A space of time which has an influence on obligations as a

consequence of a juridical act and either suspends their
demandability or produces their extinguishment.
It is one that arises upon the arrival of the term or period

agreed upon, hence demandable only on that instance.
Term or Period is that time or event which necessarily

must come, whether the parties know when it would
happen/come or not
Day certain – means one, which must necessarily come

although it may not be known when.
Examples:
1) “I’ll pay you P20,000 on the 25th of December next year.”
2) “I’ll pay you P20,000 if Imelda Marcos dies”. Death is certain
even if we cannot
really ascertain when it will come.
But this one is conditional:

I’ll pay you P20,000 if Imelda Marcos dies of malaria “ Reason:
She might die of “bangungot”.
NOTE: When the debtor binds himself to pay when his means
permit him to do so, the obligation is deemed to be one with a
Term or Period (Article 1180).
Example : “I’ll pay you P10,000 when my means permit me to

do so.
“I’ll pay you P10,000 little by little
“I’ll pay you P10,000 as soon as possible.

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“I’ll pay you as soon as I have the money.
When stipulation says “payable when able “ – it is with a

period, remedy:
a) agreement among parties
b) court shall fix period of payment when parties unable to
agree
Distinction between Period and Condition:

Period Condition
As to fulfillment
It is sure to happen or the event It is uncertain event

would necessarily happen
As to influence on the obligation:
Fixes the time of efficaciousness of Causes the obligation to arise or to

an obligation. cease.
As to time:
Refers to the future. Refers future or a past event

unknown tot he parties.
Computation of Period
A period shall be based on time as defined by the law in terms of:
 years - are of three hundred sixty-five (365) days each,
whether it is a regular year or a leap year; or twelve (12)
calendar months.
 months - are of thirty (30) days; unless it refers to a specific
calendar month in which case it shall be computed according to
the number of days the specific month contains.
 days - of twenty-four (24) hours.
 nights - from sunset to sunrise.
 calendar month - without regard to the number of days it may
contain.
In computing a period, the first day shall be excluded, and the last
day included.
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It is also important to note that the phrases “within 10 years” (eg.

Jan. 1, 2020 - Jan. 1, 2030) and “within the 10th year” (eg. Jan. 1,
2030 - Dec. 31, 2030) are different.
Effect of Payment before the Period

A thing or money given before the arrival of the period may be
recovered by the debtor:
 if he is unaware of such period.
 if he mistakenly thought that such period has arrived.
The debtor shall have the burden of proof of either such
circumstances, otherwise he is presumed to be knowledgeable of the
period.
The creditor, for his part, has the obligation to return the thing or
money received under such circumstances. This obligation arises
from solutio indebiti that prevents unjust enrichment.
The thing or money should be returned with its fruits and interests.
But if the period has already arrived, only the fruits and insterests
should be recovered
The recovery of the thing or money is not applicable if the period

depends on the sole-will of the debtor; he is deemed to have
impliedly renounced the period.
Examples
 D is obliged to give C a book on June 30, 2020. D is unaware of
the period and prematurely give it on May 30, 2020. In this
case, D may recover the cellphone from C who has the duty to
return it.
 D is obliged to pay C Php10,000 on June 30, 2020. D paid the
amount to C on June 20, 2020, mistakenly believing that it was
already due. If before June 30, 2020, D may recover the
Php10,000 plus interests. If after June 30, 2020, D may only
recover the interests.
Benefits of the Period
A period fixed by the parties is presumed to have been established
for the benefit of both the debtor and the creditor. This presumption
is rebuttable.
A period may be established in favor of one of the parties as shown

in the tenor (actual wording) of the obligation or other
circumstances. The period may either be:
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ARTICLES 1156-1304
 for the benefit of the debtor; he cannot be compelled to

perform the obligation before the arrival of the period and may
perform the obligation in advance.
 for the benefit of the creditor; he cannot be compelled to
accept the performance before the arrival of the period and may
demand the performance of the obligation in advance.
A period may also be waived if the creditor accepts a partial payment
or performance from the debtor without any explanation. Such partial
performance is presumed to be intentional and voluntary on the part
of the creditor.
Examples
 D is obliged to give C a book 'on or before' June 30, 2020.
Here, the period is for the benefit of D (the debtor).
 D is obliged to pay C Php10,000 'on exactly' June 30, 2020 with
the stipulation that the payment may be demanded by C before
the said date. Here, the period is for the benefit of C (the
creditor).
 D is obliged to pay C Php10,000 on exactly July 30, 2020. D
paid Php5,000 (as partial) to C who unconditionally accepted it.
Here, the period is presumed to be waived by C (the creditor).
Power to Fix Period by the Court
The court may fix a period:
 when there is no fixed period, but it can be inferred that a
period was intended by the parties from its nature and the
circumstances.
 when the duration of the period depends upon sole will of the
debtor.
In determining a period, the court aims:
 to enforce the intention of the parties, not to modify the
obligation.
 to prevent the possibility of breach of obligation.
A complaint for right of action (to fix a period) should be supported
by:
 facts showing or inferring that a period for the performance of
obligation was intended by the parties.
 facts showing that obligation is favorable to one party but
forced upon unfavorably to the other.
Such complaint must expressly ask for the court for a period, unless
the facts are sufficient to show the need for such right of action.
A period cannot be fixed by the court:

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ARTICLES 1156-1304
 if such period is agreed upon by the parties and has already

lapsed or expired.
 if such period was already (previously) fixed by the court with
the consent and acceptance by the parties.
However, the parties may create a new period under a new
agreement.
Examples
 D is obliged to deliver C a book, but there is no fixed period for
the delivery. Their obligation has a stipulation of late delivery
penalty. Here, the court can fix the period based on the fact that
the obligation has a stipulation of late delivery penalty indicating
the intention of the parties that the book be delivered at a
definite time.
 D is obliged to pay C a rent of Php10,000 every month for a
lease beginning on July 1 of this year to continue as long as the
rent is being paid. Here, the court can fix the period as the
duration depends upon the will of D (the debtor), since he may
extend the lease that should have been temporary.
 D is obliged to pay C Php10,000 on July 30, 2020, which is the
period agreed upon by both parties. After July 30, 2020, D filed
for a right of action to fix the expired period. Here, the court
shall deny D such action.
 D is obliged to pay C Php10,000 on July 30, 2020, which is the
period set by the court. D filed for a right of action to fix the
period again. Here, the court shall deny D such action.
Benefit of the Period lost by the Debtor
The debtor shall lose every right to make use of the period:
 when he becomes insolvent (assets<liabilities) or unable to pay
his debts as they mature, unless he gives a sufficient guaranty
or security for such debts.
 when he does not furnish or provide the guarantees or
securities promised to the creditor.
 when the guarantees or securities promised are either impaired
(due to his fault or negligence) or have disappeared/lost (due to
a fortuitous event), unless immediately replaced with something
of equal value.
 when he violates any undertaking that are taken into
consideration in the agreement to the period by the creditor.
 when he attempts to abscond or escape the obligation secretly.
In such cases, the period is extinguished and the obligation becomes
obligation becomes pure, and hence demandable at once.
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Examples
 D is obliged to pay C Php10,000 on June 30, 2020. If D
becomes bankrupt (insolvent) before that date, C can demand
immediate delivery from D who cannot give any guaranty or
security for the debt.
 D is obliged to pay C Php10,000 on July 30, 2020 with the
promise to mortgage his land to secure the debt. D failed to pay
the debt and hence his land can be claimed by C. If D also fails
to furnish his land, C can demand immediate action.
 D is obliged to pay C Php10,000 on July 30, 2020 with a house
as security.
 If that house is damaged by a fire caused by D, then C
can demand immediate action, unless D give a new security
that is equally satisfactory
 If that house is destroyed (disappeared) by a storm
(fortuitous event), then C can demand immediate action,
unless D give a new security that is equally satisfactory.
The destruction shall be to the point that the house can no
longer be deemed a 'house'.
 D is obliged to give C a book on June 30, 2020. C agreed to
that date since D promised to give him a free e-book. If D fails
to give the promised e-book, C can demand immediate action.
 D is obliged give C a book on June 30, 2020. D changed his
contact number without informing C. If D did that to escape the
obligation, C can demand immediate action.
SUMMARY
WHEN COURTS MAY FIX PERIOD:

a) art 1197
b) art 1197, 2nd paragraph
c) art 1191, 3rd paragraph
d) art 1687, 2nd, 3rd, 4th sentence
e) art 1180
Art. 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 courts may fix the duration
thereof.
The courts shall also fix the duration of the period when it
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ARTICLES 1156-1304
In every case, the courts shall determine such period as

may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts,
the period cannot be changed by them.
Article 1191 3rd paragraph
The court shall decree the rescission claimed, unless

there be just cause authorizing the fixing of a period.
Art. 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.
Art. 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; and
from day to day, if the rent is to be paid daily. However,
even though a monthly rent is paid, and no period for the
lease has been set, the courts 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 courts may
likewise determine a longer period after the lessee has
been in possession for over six months. In case of daily
rent, the courts may also fix a longer period after the
lessee has stayed in the place for over one month.
Period is generally for the benefit of both parties, unless

otherwise stipulated
(Art.1196)
Meaning: The debtor cannot pay prematurely and the creditor
cannot demand prematurely.
If term is for the benefit of the debtor alone. He may only be

required to pay only at the end of the term, but he may pay
even before the period.
If term is for the benefit of the creditor. Creditor can demand
anytime even before the expiration of the period and he cannot
be compelled by the debtor to accept payment before the term.
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ARTICLES 1156-1304
WHEN DEBTOR LOSES RIGHT TO PERIOD:

a. insolvency of debtor, unless security provided
b. did not deliver security
c. impaired security- thru fault or fortuitous event
d. violate undertaking in consideration of extension of period
e. attempts to abscond
1. Types of Period/Term
(a) As to effect on obligation - Suspensive (ex die) and

Resolutory (in diem)
(b) As to source - Legal, Voluntary, and Judicial, NCC
1197, 1191, 1687 (2,3,4 sentences), 1180
Araneta v Phil Sugar Estate, 20 SCRA 330

(1967)
Where the issue raised in the pleadings was whether
the seller of the land was given in the contract of sale
a reasonable time within which to construct the streets
around the perimeter of the land sold, the court, in an
action for specific performance to compel the
construction of said streets or for recovery of'
damages, cannot fix a period within which the seller
should construct the streets. The court should
determine whether the parties had agreed that the
seller 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 the suit
was filed. If it had passed, then the court should'
declare that the 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 pleadings, the
intervention of the court to fix the period for
performance was warranted, for Article 1197 of the
New Civil Code is precisely predicated. On the absence
of any period fixed by the parties.
Article 1197 of the New Civil Code involves a two-step

132
ARTICLES 1156-1304
process. The court must first determine that the

obligation does not fix a period (or that the period
depends upon the debtor's will) and that the intention
of the parties, as may be inferred from the nature and
circumstances of the obligation, is to have a period for
its performance. The second step is to ascertain the
period probably contemplated by the parties. The court
cannot arbitrarily fix a period out of thin air.
Central Philippines v CA, supra
(c) As to expression - Express and Implied

(d) As to definiteness - Definite and Indefinite
(e) OriginalPeriod and Grace Period
G.R. No. L-16449 August 31, 1962
PAUL SCHENKER, plaintiff-appellant,
vs.
WILLIAM F. GEMPERLE, defendant-appellee.
Campos, Mendoza & Hernandez, Jose C. Zulueta and A. R. Narvasa

for plaintiff-appellant.
Angel S. Gamboa for defendant-appellee.
PAREDES, J.:
The amended complaint, in a nutshell, avers that sometime in the

summer of 1953, at Zurich, Switzerland, plaintiff Paul Schenker and
defendant William F. Gemperle agreed to organize a Philippine
Corporation, later named as "The Philippine Swiss Trading Co., Inc.",
and to divide the capital stock equally between themselves and/or
their associates. This verbal agreement was acknowledged and
confirmed in writing by defendant in his letter of September 14, 1953
(Annex A, amended complaint). Defendant caused articles of
incorporation to be drafted and sent to plaintiff at Zurich. In a
moment of indiscretion and mistaken trust, according to him, the
plaintiff signed and remitted to the defendant at Manila, the said
articles which placed in the name of plaintiff only 24% of the total
subscription and the balance of 76% being in the name of defendant
and his relatives. Explaining the discrepancy between the articles and
their verbal covenant, the defendant stated in said letter Annex A,
that "Temporarily, I had to place in my name 75% of the shares
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ARTICLES 1156-1304
because there is a local law which provides that when one intends to
make contracts with the government, 75% of the subscribed capital
has to be Filipino as otherwise the Flag Law will be applied." In the
same letter, how ever defendant assured the plaintiff that he would
give the latter "exactly the same share holding as I have". The
plaintiff paid to the defendant the sum of P7,000. for his subscription.
In view of the consistent refusal of the defendant to live up to their
agreement, notwithstanding repeated demands, the plaintiff filed the
present complaint, praying that defendant be condemned:
(a) upon the first cause of action, to transfer or cause to be

transferred or assigned to the plaintiff 26% of the entire capital
stock issued and subscribed, as of the date he obeys said
judgment, of Philippine Swiss Trading Co., Inc., or enough
thereof to make the plaintiff's interest and participation in said
corporation total 50% of said entire capital stock issued an
subscribed, which ever may be more;
(b) upon the second cause of action, to return to the plaintiff or

properly account to him for the unexpended balance, in the
sum of P2,000.00, Philippine Currency, of the remittance
alleged in paragraph 18(a) of the complaint;
(c) Upon the third cause of action, to pay the plaintiff the sum
of P25,000.00, Philippine Currency, by way of recompense for
business lost, profits unrealized and goodwill impaired or
destroyed; and
(d) upon all three causes of actions, to pay the plaintiff the
additional sum of P100,000.00, Philippine Currency, .... The
plaintiff also prays for costs, and for such other an further relief
as to the Court may appear just and equitable.
An Answer was filed, with the customary admissions an denials

and with affirmative defenses and counterclaims.
On November 21, 1958, the defendant filed a pleading styled

"manifestation and motion to dismiss" (Section 10 Rule 9) — alleging
that — "With reference to the first cause of action, the amended
complaint states no cause of action".
In support of the motion to dismiss, defendant claimed that
There is no allegation in the amended complaint that the

alleged obligation of the defendant to have the plaintiff's share
holding in the capital stock subscribed in Articles of
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ARTICLES 1156-1304
Incorporation in the proportion of 50% thereof is already

due.1äwphï1.ñët
Such being the situation, the demands allegedly made upon the
defendant for his compliance with the obligation sued upon
have been futile, because legally the alleged obligation is not
yet due. It not having fixed a period for its compliance, there
has been no default thereof.
xxx xxx xxx
In his opposition to the motion to dismiss, filed on November 3,

1958, plaintiff contended that the oral agreement was the actual as
well as the expressed basis of plaintiff's cause of action; the letter
Annex A, was not the agreement but only an evidence of it and if the
references of Annex A were deleted from the amended complaint,
the latter would not, for that reason alone, cease to state a cause of
action; the obligation being pure, it is demandable immediately (Art.
1179, Civil Code); the filing of the complaint itself constituted a
judicial demand for performance, thereby making the defendant's
obligation to become due; even if Annex A is considered as the basis
of the action, it is still a pure obligation, because it says "will give
you, however, exactly the same share holding as I have" — which
imparts an unconditional promise; and supposing that from the
allegations of the complaint, it may reasonably be inferred that it was
intended to give the defendant time to fulfill his obligation, the
present action can be considered one for the fixing of such time (Art.
1197, Civil Code).
On September 30, 1959; the trial court granted the motion to dismiss
in so far as the first cause of action is concerned, predicating its
ruling upon the following considerations: that the agreement did not
fix the time within which the defendant sought to perform its alleged
promise and, therefore, the obligation was not due and the action for
its compliance was premature (Barreto v. City of Manila, 7 Phil. 416-
420); that the obligation is not pure, because its compliance is
dependent upon a future or uncertain event; that the alleged oral
agreement had been novated, after the execution of the articles of
incorporation, and that the action being for specific performance and
there being a need to fix the period for compliance of the agreement
and the present complaint does not allege facts or lacks the
characteristics for an action to fix the period, a separate action to
that effect should have been filed, because the action to that effect
be brought in order to have a term fixed is different from the action
to enforce the obligation; thus conveying the notion that the fixing of
135
ARTICLES 1156-1304
the period is incompatible with an action for specific performance.

Plaintiff appealed questions of law.
Article 1197 of the Civil Code, provides —
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 courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
In every case, the courts shall determine such period may

under the circumstances have been probably contemplate by
the parties. Once fixed by the courts, the period cannot be
changed by them.
The ultimate facts to be alleged in a complaint to properly and

adequately plead the right of action granted the above quoted
provision of law are (1) Facts showing that a contract was entered
into, imposing on one the parties an obligation or obligations in favor
of the other; (2) Facts showing that the performance of the
obligation was left to the will of the obligor or clean showing or from
which an inference may reasonably drawn, that a period was
intended by the parties. The first cause of action, under
consideration, sets out fact describing an obligation with an indefinite
period, there by bringing the case within the pale of the article above
quoted, albeit it fails to specifically and categorically demand that the
court fix the duration of the period. Under the circumstances, the
court could render judgment granting the remedy indicated in said
article 1197, notwithstanding standing the fact that the complaint
does not positive and by explicit expression ask for such relief. What
determines the nature and character of an action is not the prayer
but the essential basic allegations of fact set forth in the pertinent
pleading. A judgment may grant the relief to which a party in whose
favor it is entered is entitled, even if the party has not demanded
such relief in his pleadings (Sec. 9, Rule 35; Baguioro v. Barrios, 77
Phil. 120). The amended complaint in question moreover, "prays for .
. . such other and further relief as the Court may appear just and
equitable" which is broad and comprehensive enough, to justify the
extension of a remedy different from or together with, the right to be
declared owner or to recover the ownership or the possession of
Twenty-six (26%) percent of the capital stock of the Philippine Swiss
Trading Co., Inc. presently in the name of the defendant. The case
of Barrette v. City of Manila, supra , cited by the trial court, is of little
136
ARTICLES 1156-1304
help to the defendant-appellee. It strengthens rather the plaintiff-

appellant's position. In the Barreto case as in the present, the
essential allegations of the pleadings made out an obligation subject
to an indefinite period. In the Barretto case, like the one at bar, the
complaint did not risk for the fixing of the period, but for immediate
and more positive relief, yet this Court remanded the said case to the
court of origin "for determination of the time within which the
contiguous property must be acquired by the city in order to comply
with the condition of the donation" — all of which go to show that
the fixing of the period in the case at bar, may and/or could be
properly undertaken by the trial court.
Even discarding the above considerations, still there is no gainsaying

the fact that the obligation in question, is pure, because "its
performance does not depend upon a future or uncertain event or
upon a past event unknown to the parties" and as such, "is
demandable at once" (Art. 1179, New York Code). It was so
understood and treated by the defendant-appellee himself. The
immediate payment by the plaintiff-appellant of his subscriptions,
after the organization of the corporation, can only mean that the
obligation should be immediately fulfilled. giving the defendant only
such time as might reasonably be necessary for its actual fulfillment.
The contract was to organize the corporation and to divide equally,
after its organization, its capital stock.
IN VIEW HEREOF, the order appealed from is reversed and the case
remanded to the court of origin, for further and appropriate
proceedings. No costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,

Barrera, Dizon, Regala and Makalintal, JJ.,concur.
According to Plurality of Object (Articles 1199-1206)
Art. 1199. A person alternatively bound by

different prestations shall completely perform one of
them.
The creditor cannot be compelled to receive part
of one and part of the other undertaking.
Art. 1200. The right of choice belongs to the

debtor, unless it has been expressly granted to the
creditor.
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ARTICLES 1156-1304
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.
Art. 1201. The choice shall produce no effect

except from the time it has been communicated.
Art. 1202. The debtor shall lose the right of

choice when among the prestations whereby he is
alternatively bound, only one is practicable.
Art. 1203. If through the creditor's acts the

debtor cannot make a choice according to the terms
of the obligation, the latter may rescind the contract
with damages.
Art. 1204. The creditor shall have a right to

indemnity for damages when, through the fault of
the debtor, all the things which are alternatively the
object of the obligation have been lost, or the
compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis
the value of the last thing which disappeared, or that
of the service which last became impossible.
Damages other than the value of the last thing
or service may also be awarded.
Art. 1205. When the choice has been expressly

given to the creditor, the obligation shall cease to be
alternative from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall
be governed by the following rules:
(1) If one of the things is lost through a fortuitous
event, he shall perform the obligation by
delivering that which the creditor should
choose from among the remainder, or that
which remains if only one subsists;
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim
any of those subsisting, or the price of that
which, through the fault of the former, has
disappeared, with a right to damages;
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ARTICLES 1156-1304
(3) If all the things are lost through the fault of

the debtor, the choice by the creditor shall fall
upon the price of any one of them, also with
indemnity for damages.
The same rules shall be applied to obligations to
do or not to do in case one, some or all of the
prestations should become impossible.
Art. 1206. When only one prestation has been

agreed upon, but the obligor may render another in
substitution, the obligation is called facultative.
The loss or deterioration of the thing intended
as a substitute, through the negligence of the
obligor, does not render him liable. But once the
substitution has been made, the obligor is liable for
the loss of the substitute on account of his delay,
negligence or fraud.
a. Alternative
 An obligation is alternative when several objects or
prestations are due, but the payment or performance
of 1 of them would be sufficient.
 A promises to deliver either 500 kgs of rice or 1000
liters of gas. The obligation is alternative. The debtor
cannot perform the obligation by giving 250 kgs of rice
and 500 liters of gas unless the creditor agrees. In
which case there is a novation.
 General Rule: The right of choice the right to belongs
to the debtor.
 Exceptions:
i. When it is expressly granted to the creditor
ii. When it is agreed upon by the parties that a
rd
3 person shall make the choice
 The act of making the choice is called concentration.
Once the choice has been made, then the obligation is
concentrated in 1 object.
 Whoever has the right of choice must communicate it
to the other party (Article 1201). The creditor has to
communicate his choice to the debtor so that the
debtor will know. On the other hand, in Ong Guan vs.
Century Insurance, the Supreme Court said that the
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ARTICLES 1156-1304
purpose for notice to the creditor is to give the creditor

the opportunity to express his consent or to impugn
the election made by the debtor. Professor Balane
does not agree with this statement since the creditor
does not have the right to impugn, otherwise, the
obligation would not be an alternative obligation. A
better reason according to Professor Balane is to give
the creditor time to prepare.
Example: The choice is either to give diamond ring or
a Mercedes Benz. The debtor should notify the
creditor so the creditor can either rent a safety deposit
box or prepare a garage.
However, according to Professor Balane, the best
reason is because once the choice is communicated,
the obligation ceases to be alternative. The risk of loss
belongs to the creditor now.
 Choice Belongs to the Debtor
i. When through fortuitous event or through the
debtor’s acts, there is only 1 prestation left, the
obligation ceases to be alternative (Article 1202).
ii. When the choice of the debtor is limited through
the creditor’s own acts, then the debtor has the
remedy of resolution (Article 1191) plus damages
(Article 1203)
iii. When all the things are lost due to the debtor’s
fault, the creditor can sue for damages (Article
1204)
iv. When some things are lost due to the debtor’s fault
but there are still some things remaining, then the
debtor can choose from what’s left
v. When all the things are lost due to a fortuitous
event, the obligation is extinguished
vi. When all but 1 of the things are lost due to a
fortuitous event and the last object is lost through
the debtor’s fault, then the creditor can sue for
damages
vii.When all but 1 of the things are lost through the
debtor’s own acts and the last object is lost through
a fortuitous event, the obligation is extinguished
 Choice Belongs to the Creditor (Article 1205)
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ARTICLES 1156-1304
i. When 1 or some of the objects are lost through

fortuitous events, then the creditor chooses from
the remainder
ii. When 1 or some of the objects are lost due to the
debtor’s fault, the creditor may choose from the
remainder or get the value of any of the objects lost
plus damages in either case
iii. When all of the things are lost due to the debtor’s
fault, the creditor can get the value of any of the
objects lost plus damages
iv. When some are lost through the debtor’s fault, the
creditor chooses from the remainder
v. When all the objects are lost due to a fortuitous
event, then the obligation is extinguished
vi. When all the objects are lost due to the creditor’s
fault, the obligation is extinguished
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ARTICLES 1156-1304
b. Facultative
 An obligation is facultative when only 1 object or
prestation has been agreed upon by the parties to the
obligation, but the debtor may deliver or render
another in substitution.
 Facultative obligations bear a resemblance to
alternative obligations particularly when the choice in
an alternative obligation is with the debtor.
 In a facultative obligation, the right of choice is always
with the debtor.
 In an alternative obligation, if 1 of the prestations is
impossible, then there are other choices. In a
facultative obligation, if the principal obligation is
impossible, then everything is annulled.
 In theory, it is easy to distinguish a facultative
obligation from an alternative obligation. In practice, it
is difficult to do so since most of the time, the words
are ambiguous. For example, I promise to deliver my
Honda Accord, but I reserve my right to substitute
this with my Gold Rolex. In this case, it is not very
clear whether the obligation is alternative or
facultative. According to Professor Balane, the rule is
that one must look at the circumstances of the
obligation. If it is impossible to determine which one,
then the doubt should be resolved in the favor of an
alternative obligation since its effects are less radical.
Requisites for making the choice:

a) Made properly so that creditor or his agent will actually know
b) Made with full knowledge that a selection is indeed being made
c) Made voluntarily and freely
d) Made in due time – before or upon maturity
e) Made to all proper persons
f) Made w/o conditions unless agreed by the creditor
g) May be waived, expressly or impliedly
DISTINCTIONS BETWEEN ALTERNATIVE AND FACULTATIVE

OBLIGATIONS
ALTERNATIVE FACULTATIVE
a) Various things are due but a) Only one thing is due but a substitute
the giving principally of one may be given to render
is sufficient payment/fulfillment easy
b) If one of prestations is illegal, b) If principal obligations is void and
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ARTICLES 1156-1304
others may be valid but there is no necessity of giving the

obligation remains substitute; nullity of P carries with it
nullity of S
c) If it is impossible to give all c) If it is impossible to give the
except one, the last one must principal, the substitute does not
still be given have to be given; if it is impossible to
give the substitute, the principal
must still be given
d) Right to choose may be d) The right of choice is given only to
given either to debtor or the debtor
creditor
Illustration:
D is obliged to give C a specific watch, a specific ring or a specific
bracelet. The parties agreed that C will have the right to choose the
thing which will be given to him. Before C could make his choice, the
watch and the ring are lost through D’s fault, successively. What is
the right of C?
* C may choose the delivery to him of the bracelet, or the price
of the watch or the price of the ring plus damages.
According to Plurality of Subject (Articles 1207-1222)
Art. 1207. The concurrence of two or more

creditors or 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. There 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 obligations to which the preceding
article refers the contrary does not appear, the credit
or debt shall be presumed to be divided into as many
shares as there are creditors or debtors, the credits
or debts being considered distinct from one another,
subject to the Rules of Court governing the
multiplicity of suits.
Art. 1209. If the division is impossible, the right

of the creditors may be prejudiced only by their
collective acts, and the debt can be enforced only by
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ARTICLES 1156-1304
proceeding against all the debtors. If one of the

latter should be insolvent, the others shall not be
liable for his share.
Art. 1210. The indivisibility of an obligation

does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.
Art. 1211. Solidarity may exist although the

creditors and the debtors may not be bound in the
same manner and by the same periods and
conditions.
Art. 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.
Art. 1213. A solidary creditor cannot assign his

rights without the consent of the others.
Art. 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.
Art. 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.
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.
Art. 1217. Payment made by one of the solidary

debtors extinguishes the obligation. If two or more
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ARTICLES 1156-1304
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.
Art. 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.
Art. 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.
Art. 1220. The remission of the whole

obligation, obtained by one of the solidary debtors,
does not entitle him to reimbursement from his co-
debtors.
Art. 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 and the payment of damages and 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
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ARTICLES 1156-1304
creditor, the provisions of the preceding paragraph

shall apply.
Art. 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
and of those which are personal to him, or pertain to
his own share. With respect to those which
personally belong to the others, he may avail himself
thereof only as regards that part of the debt for
which the latter are responsible.
a. Single
 An obligation is single when there is only 1 debtor and
1 creditor.
b. Joint
 An obligation is joint when each of the debtor is liable
only for a proportional part of the debt, and each
creditor is entitled only to a partial part of the credit.
 A joint obligation is also called mancomunada, pro
rata, mancomunada simple.
 General Rule: The obligation is joint since joint
obligations are less onerous.
 Exceptions:
i. Agreement of the parties
ii. Law (i.e. tort feasors are solidarily liable)
iii. Nature of the obligation
According to many commentators, this is
superfluous since a solidary obligation arises
because of law.
ESSENTIAL NATURE: There are as many obligations as
there are creditors multiplied by as many debtors.
Types of Joint Obligations
i. Active joint
 In active joint, there are multiple creditors.
 A, B, and C are creditors, and X is the debtor. If
the obligation is joint, there are 3 obligations –
X’s obligation to A, X’s obligation to B, and X’s
obligation to C.
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ARTICLES 1156-1304
 The demand of 1 creditor on 1 debtor will not

constitute a demand on the others.
 The prescription of 1 of the debts will not affect
the other debts.
ii. Passive joint
 In passive joint, there are multiple debtors.
 X, Y, and Z are debtor, and A is the creditor. If
the obligation is joint, there are 3 obligations –
X’s obligation to A, Y’s obligation to A, and Z’s
obligation to A.
 The demand of 1 creditor on 1 debtor will not
constitute a demand on the others.
 The prescription of 1 of the debts will not affect
the other debts.
 The insolvency of 1 of the debtors will not affect
the burden of the other debtors.
iii. Mixed joint
 In mixed joint, there are multiple creditors and
debtors.
 X, Y, and Z are debtors, and A, B, and C are the
creditors. If the obligation is joint, there are 9
obligations – X’s obligation to A, X’s obligation to
B, X’s obligation to C, Y’s obligation A, Y’s
obligation to B, Y’s obligation to C, Z’s obligation
to A, Z’s obligation to B, and Z’s obligation to C.
c. Solidary
 An obligation is solidary when any of the debtors can
be hled liable for the entire obligation, and any of the
creditors is entitled to demand the entire obligation.
 A solidary obligation is also called joint and several,
joint and individual, and in solidum.
 If a promissory says, “I promise to pay,” and it is
signed by K, B, and M, then the obligation is solidary.
 An obligation is solidary when
i. The parties so agree
ii. When the law so provides (i.e. tort feasors are
solidarily liable)
iii. When nature of the obligation requires the
obligation to be solidary
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ARTICLES 1156-1304
 According to many commentators, this is

superfluous since a solidary obligation arises
because of law.
 Types of Solidary Obligations
i. Active solidary
 In active solidary, there are multiple creditors.
 Characteristics of Active Solidary
 A credit once paid is shared equally among
the creditors unless a different intention
appears.
 The 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).
 Article 1214 can be open to abuse. For
example, if A writes Y demanding the
performance of the obligation and A
takes no further action, B and C cannot
demand from Y. This is open to
collusion.
 Suppose A, B, and C are creditors of X.
A demands the payment of the loan
worth P9,000. X instead pays to B. The
payment to B will be treated as a
payment to a 3rd person. Therefore, X
must still pay A the amount of the loan
minus the share of B. So, X has to pay
P6,000 to A.
ii. Passive solidary
 In passive solidary, there are multiple debtors.
 Characteristics of Passive Solidary
 Each debtor may be required to pay the entire
obligation but after payment, he can recover
from his co-debtors their respective shares.
iii. Mixed solidary
 In mixed solidary, there are multiple debtors and
creditors.
 Characteristics of Mixed Solidary
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 A credit once paid is shared equally among

the creditors unless a different intention
appears.
 The 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).
 According to Professor Balane, Article 1214
is problematic. For example, X owes A, B
and C. B makes an extrajudicial demand
on X. X cannot pay A or C anymore. The
problem is when B does not follow up the
demand, it can keep the obligation in
suspension indefinitely.
The rule in the Spanish Code was that the
debtor cannot pay the other non-
demanding solidary creditors only if one of
the solidary creditor makes a judicial
demand.
 Suppose the debtor upon whom the
demand is made pays a creditor who did
not make a demand. The payment is
considered a payment to a third person.
Therefore the debtor can still be made to
pay by the one who made the demand on
him.
Example: X owes A and B. B demanded
from X. X pays A. X must still pay B
P6000.
But the payment to the demanding creditor
can be reduced by the share of the paid
creditor.
The debtor can still recover from the paid
creditor (unjust enrichment).
 Suppose A and B are creditors while X and
Y are debtors. A demands from Y. Now, X
pays B. The payment of X to B
extinguishes the entire solidary obligation.
X is not bound by the demand by A on Y.
There is no violation of Article 1214.
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 Each debtor may be required to pay the entire

obligation but after payment, he can recover
from his co-debtors their respective shares.
Is there a conflict between Article 1212 and Article

1215? Article 1212 provides that each of the solidary
creditors may do whatever may be useful to the
others, but not anything which may be prejudicial to
the latter. But Article 1215 allows novation,
compensation, confusion or remission on the part of
the solidary creditor. Why? According to Professor
Balane, this is absurd.
One way of reconciling is that under Article 1215, any
creditor can remit or condone the obligation. But
because the obligation is extinguished, the condoning
creditor must be liable for the other creditor’s share.
Here, there is no prejudice.
However, another problem arises if the condoning
creditor later on becomes insolvent.
Art. 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.
 A is the creditor of W, X, Y, and Z. W, X, Y, and Z owe
A P6,000. The obligation is solidary. A remits Y’s
share – P1,500. A can go after X for only P4,500. The
remission benefits X initially since X only has to pay
P4,500 instead of 6,000. However, X can only recover
P3,000 from W and Z.
share – P1,500. A can go after Y for the balance since
Y is still a solidary debtor for the balance. Otherwise,
the effect of remission would be extended. However,
Y can recover P4,500 from W, X, and Z.
share – P1,500. Z becomes insolvent. A sues W for
the balance of P4,500. Art. 1217 must be applied.
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ARTICLES 1156-1304
Thus, the insolvency of Z is shouldered by W, X, and

Y. So, W can recover P2,000 from X and P500 from Y
instead of collecting P3,000. W has to shoulder P500
as a loss due to Z’s insolvency.
 3 Kinds of Defenses
i. Real defenses
 These are defenses derived from the nature of
the obligation.
 A real defense is a total defense. It benefits all
the debtors.
ii. Personal defenses
 Personal defenses may either be total or partial
defenses.
 An example of a total personal defense is if the
consent of the debtors were all vitiated.
 An example of a partial defense is that a certain
amount is not yet due. It is partial since there
may be amounts which are already due. Thus,
the debtor has to pay for those amounts which
are due.
iii. Defenses which are personal to the other co-
debtors
 The debtor can only avail himself of these
defenses only with regard to the part of the debt
which his co-debtors are responsible for.
 These defenses are partial.
 The debtor sued can invoke all three kinds of
defenses. The difference is whether such defense
would result in total or partial exculpation.
Additional Notes:
Kinds of Obligation according to number of parties:

1. Individual obligation – one where there is only one obligor an
one oblige; and
2. Collective obligation – one where there are two or more
debtors and/or two or more creditors.
Joint obligation
Solidary obligation
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(1) Joint – presumption when 2 or more creditors or 2 or more

debtors concur in one and the same obligation
Effects:
a. Demand on one produces delay only with respect to the debt
b. Interruption in payment by one does not benefit or prejudice
the other
c. Vices of one debtor to creditor has no effect on the others
d. Insolvency of one debtor does not affect other debtors
In the absence of stipulation, when there are multiplicity of parties

or collective obligation, said obligation is presumed JOINT.
Meaning, the share in the obligation is specified, the correlative
rights and obligation of the parties are known.
Implications:
a) There are as many debts as there are debtors;

b) There are as many credits as there are creditors;
c) The debts/credits are considered distinct and separate from
one another.
d) Each creditor is entitled only for a proportionate part of the
credit.
e) Each debtor is liable only for his proportionate part of the debt.
Presumption established under Article 1208 is only disputable.

Other terms for joint obligation:
a) mancomunada
b) mancomunada simple
c) proportionately
d) pro-rata
(2) Solidary – must be expressed in stipulation or provided by

law or by nature of obligation
When solidarity exists:
As a general rule, the mere concurrence of two or more creditors or

two or more debtors in one and the same obligation does not imply
solidarity. By presumption of the law, the obligation is joint, unless:
a) Solidarity is expressly agreed upon (Conventional Solidarity)
b) Solidarity is declared by law (Legal Solidarity)
c) Solidarity is required by the nature of the obligation (Real
Solidarity)
a. Active – on the part of creditor or obligee

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ARTICLES 1156-1304
Effects:
1. Death of 1 solidary creditor transmits share to heirs (but
collectively)
2. Each creditor represents the other in the act of recovery of
payment
3. Credit is divided equally between creditors as among
themselves
4. Debtor may pay any of the solidary creditors
b. Passive – on the part of debtors or obligors
Effects:
1. Each debtor may be requested to pay whole obligation with
right to recover from co-debtors
2. Interruption of prescription to one creditor affects all
3. Interest from delay on 1 debtor is borne by all
c. Mixed – on the part of the obligors and obligees, or the part of

the debtors and the creditors
d. Conventional – agreed upon by the parties
e. Legal – imposed by law
Instances where law imposes solidary obligation:

1. obligations arising from tort
2. obligations arising from quasi-contracts
3. legal provisions regrading obligation of devisees and
legatees
4. liability of principals, accomplices, and accessories of a
felony
5. bailees in commodatum
Effects:
a. payment made before debt is due, no interest can be charged,
otherwise – interest can be charged
b. insolvency of one – others are liable for share pro-rata
c. if different terms & conditions – collect only what is due, later
on collect from any
d. no reimbursement if payment is made after prescription or
became illegal
d. remission made after payment is made – co-debtor still entitled
to reimbursement
e. effect of insolvency or death of co-debtor – still liable for whole
amount
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ARTICLES 1156-1304
f. fault of any debtor – every one is responsible – price, damage

& interest
g. complete/ personal defense – total or partial ( up to amount of
share only ) if not personal to him
Effect of loss or impossibility of the prestation:

a. if without fault – no liability
b. if with fault – there is liability (also for damage and interest)
c. loss due to fortuitous event after default – there is liability
(because of default)
Board Problems:
A, B and C joint debtors are obliged to give x, Y and Z, solidary
creditors of P 18,000. How much can X collect and from whom?
Answer: X being a solidary creditor can entirely collect P 18,000.

But since A, B and c are joint debtors, X may collect only P 6,000
from each of them. After collecting the sum of P 18,000, X must
give Y and Z’s share of P 6,000.
A, B and C solidary debtor are obliged to give X,Y and Z joint

creditors of P 18,000. How much may A be made liable?
Answer: A being a solidary debtor may be held liable for P
18,000. But since the creditors are merely joint ones, each one of
them can collect from A up to P 6,000.
Rules in case of Dual Nature of Obligation
If the obligation of the debtors is joint and the right of the

creditors is solidary, or if the obligation of the debtors is solidary
and right of creditors is joint, the rules on joint and solidary
obligation shall be applied in determining the liabilities and rights
of the debtors and creditors as the case maybe.
A. Joints debtors and solidary creditors (Active solidarity)

A, B, C and D, joint debtors are liable to X, Y and Z, solidary
creditors, in the amount of P 36,000. Any one of the creditors can
collect the entire amount of P 36,000 but each one of debtors can
be held liable for not more than P 9,000. Thus X can collect P
36,000 but he can collect not more than 9,000 from A, 9,000 from
B, 9,000 from C and 9,000 from D. After X has collected the P
36,000, he must give P 12,000 each to Y and Z.
B. Solidary debtors and Joint Creditors (Passive Solidarity)

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ARTICLES 1156-1304
A, B, C and D, solidary debtors are liable to X, Y and Z, joint

creditors in the amount of P 36,000. Anyone of the debtor can be
held liable for the entire amount of P 36,000, but each of the
creditors can collect only up to 12,000. Thus X, Y and Z can
collect 12,000 from A alone. After A has made the payment of P
36,000, he can demand reimbursement of P 9,000 each from B, C
and D
Illustrations:
1. A, B, C and D are obliged to give X, Y and Z P12,000. X may

collect from A how much?
* P1,000. When the obligation is silent, it is presumed joint.
2. A, B, C and D, joint debtors are obliged to give X, Y, and Z,

solidary creditors, P12,000. How much may X collect from A?
* P 3,000. As a solidary creditor, X may collect the whole
amount owed by the joint debtor A.
3. A, B, C and D, solidary debtors, are obliged to give X, Y and Z,

joint creditors, P12,000. How much may X collect from A?
* P4,000. As a joint debtor X is entitled only to his
proportionate share, and A being a solidary debtor may be
required to pay the said amount.
4. A, B, C and D, solidary debtors, are obliged to give X, Y and Z,

solidary creditors, P12,000. How much may X collect from A?
* P12,000. X being a solidarity creditor may ask for the
payment of the whole amount in behalf of his co-creditors subject
to a responsibility of X to give the latter their corresponding
shares. Similarly, A as a solidary debtor may be required to pay
the whole amount of the obligation subject to reimbursement from
his co-debtors.
5. A and B are indebted to X and Y for P10,000. A and B share in

the debt in the ratio of 1:3 while X and Y share in the credit in the
ratio of 2:3.
a. How much may X collect from A if the debtors are joint

debtors, while the creditors are joint creditors?
* P1,000. The obligation is joint on both the debtor and
creditor, therefore there are as many debts (credits) as debtors
(creditors).
COMPUTATION:
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ARTICLES 1156-1304
Proportionate Share of A:
¼ x P10,000 = P 2,500
Proportionate Share of B on A’s Proportionate Debt:

2/5 X P2,500= P 1,000
b. How much may X collect from A if there is active solidarity?
* P2,500(see computation above). The whole amount of
the proportionate share of A could be collected by X. As a solidary
creditor, X may collect the whole amount of the obligation
corresponding against one or more debtors.
c. How much may X collect from A if there is passive solidarity?

* P4,000. Being a joint creditor, X can collect only his
corresponding share in the credit. The full amount could be
collected to A, being a solidary debtor.
COMPUTATION:
Proportionate Share of X in the credit:
2/5 x P10,000 = P 4,000
d. How much may X collect from A if there is mixed solidarity?

P10,000. Since there is mixed solidarity the whole amount
of obligation may be collected by any of the solidary creditors
against any of the solidary debtors.
Problem 2 – Unequal shares
A and B owe X and Y P 20,000.00. The share of A in the debt

is one-fourth (1/4), while that of B is three-fourths (3/4). The
share of X in the credit is two-fifths (2/5), while that of Y is three-
fifths,
a. Joint debtors and creditors
A can be held liable for not more than P 5,000.00 (1/4 of P
20,000) while B not more than P 15,000 (3/4 of P 20,000). X can
collect not more than P 8,000 (2/5 of P 20,000) while & not more
than P 12,000 (3/5 of P 20,000)
1. How much may X collect from A? from B?

From A, X may recover P 2,000 (1/4 of P 8,000). From B, X may
collect P 6,000 (3/4 of P 8,000)
Alternate computations A, (P 5,000 x 2/5 – P 2,000); B, (P 15,000

x 2/5 – P 6,000)
2. How much may Y collect from A> form B?
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ARTICLES 1156-1304
From A, Y may collect P 3,000 (1/4 of P 12,000). From B, Y may

collect P 9,000 (3/4 of P 12,000).
Alternate computations: A, (P 15,000 x 3/5 - P 3,000) B, (P

15,000 x 3/5 – 9000)
b. Joint debtors and solidary creditors (active solidarity)
1. How much may X collect from A? From B?
X may collect the total amount of debt amounting to P 20,000 he
being a solidary creditor. However since the debtors are jointly
bound, he can collect not more than P 5,000 from A and not more
than P 15,000 from B. After collecting the amount of P 20,000, X
must give the share to Y amounting to P 12,000.
Other terms for solidary obligation:

a) In solidum
b) Jointly and severally
c) Juntos o separadamente
d) Solidarias
e) Mancomumanda o in solidum
f) Mancomunada soldarias
g) Individually and collectively
Effects if obligation is JOINT and INDIVISIBLE. Art 1209 and

Art.1224
A JOINT INDIVISIBLE OBLIGATION IS AN OBLIGATION WHERE

THERE ARE SEVERAL DEBTORS OR CREDITORS WHO ARE
JOINTLY BOUND BUT THE PRESTATION IS INDIVISIBLE.
The debt can be enforced by the collective acts of the

debtors or creditors in view of the indivisibility of the object. Like
in the case of the joint debtors the creditor has to proceed against
all of them, otherwise, failure of the other debtors to comply the
obligation would call for the conversion of the obligation to its
monetary value or indemnity for damages plus payment of
damages as to defaulting debtors. The same rule applies to joint
creditors they have to proceed to the debtor jointly to ensure the
fulfillment of the obligation.
Illustration:
A, B and C are obliged to deliver a specific horse to X, Y and Z.

What would be the legal effect when C cannot comply with his
obligation?
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ARTICLES 1156-1304
*This is a case of a jointly-indivisible obligation. Assuming there

was a valid demand made against all the debtors and since C
could not comply with his part of the obligation, the obligation is
converted into a monetary obligation to pay the value of the horse
plus damages. (1224)
Rules Governing Solidary Obligations:
Solidarity does not imply indivisibility. An obligation may be

divisible even if it is solidary. Indivisibility does not imply
solidarity. It is the intention of the parties that provides for the
nature of obligation (Art. 1210)
Solidarity may exist although the creditor and debtor may not be
bound in the same manner same period and conditions. ( Art.
1211)
Each one of the solidary creditors may do whatever may be useful

to others but not anything that is prejudicial to the others ( Art.
1212).
A solidary creditor cannot assign his rights without the consent of
the others (Art. 1213) – Essential feature is Mutual Agency.
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. (Article 1214)
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 1215)
Illustrations: Renunciation
1. A, B and C are solidary debtors of X, Y and Z, solidary creditors,
in the amount of P2,700. X renounces the whole obligation
without the consent of Y and Z. The debtors accepted the
renunciation. What is the legal effect of the renunciation?
* The whole obligation is extinguished, however X shall be
liable to the corresponding shares of the other co-creditors as they
have agreed upon.
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ARTICLES 1156-1304
2. A, B and C are solidary debtors of X in the amount of P3,000. X

renounces the share of A and A accepts the renunciation.
Thereafter B becomes insolvent. What is the legal effect of the
renunciation?
* A will be liable for P500, while C will be liable for P1,500
(P1,000 + P500). Since the remaining obligation is P2,000 after
the renunciation of A’s share, and thereafter B becomes insolvent,
A and C would have to absorb the debt corresponding to B in the
amount of P1,000. This shall be divided equally by A and C.
Solidary creditors can collect from some or all of the debtors at

one given time. If the creditor fails to collect from one debtor, he
can go against the other or others, until the whole obligation is
paid. It was held that the creditor may sue any of the solidary
debtors or all of them simultaneously. An action instituted against
one shall not a bar to those, which may be subsequently brought
against others, as long as the debt has not been entirely satisfied
(Article 1216)
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 1217)
Note:
In action filed by the creditors, a solidary debtor may
avail of the following defenses:
Defenses derived from the nature of the obligation which

constitute total defenses, such as
- absolute simulated contract
- illegal cause or consideration
- illegal object or subject matter
- non-fulfillment of the suspensive conditions
- other defenses which will nullify the contract which is the basis
of creditor’s action.
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ARTICLES 1156-1304
Defenses personal in nature – which may constitute a total or

partial defense
- factor which vitiate consent such as minority, insanity, fraud,
violence, intimidation, etc.
Defenses personal to the other co-debtors – which will constitute a

partial defense for the solidary debtor being sued, thus exempting
him from paying the proportionate share of the co-debtor whose
personal defense he is invoking. He is exempted to pay the
proportionate share of the invoking co-debtor but is still liable of
his share and of those co-debtors whose shares are not in
question.
Illustration:
A, B and C are solidary debtors of X in the amount of P30,000. C
was insane at the time the obligation was constituted. What is the
legal effect?
* X may collect from either A or C P20,000. Art. 1222 provides
that a solidary debtor may avail himself of the partial defense of
the insanity of C. Such defense is personal to C and would
therefore affect only the part of the debt to which C may be
responsible.
Salvador P. Escaño and Mario M. Silos vs. Rafael Ortigas Jr.
G.R. No. 151953 June 29, 2007
SALVADOR P. ESCAÑO and MARIO M. SILOS, petitioner,

vs.
RAFAEL ORTIGAS, JR., respondent.
FACTS
On 28 April 1980, Private Development Corporation of the Philippines

(PDCP) entered into a loan agreement with Falcon Minerals, Inc.
(Falcon) whereby PDCP agreed to make available and lend to Falcon
the amount of US$320,000.00, for specific purposes and subject to
certain terms and conditions. On the same day, three stockholders-
officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas),
George A. Scholey and George T. Scholey executed an Assumption of
Solidary Liability whereby they agreed “to assume in their individual
capacity, solidary liability with Falcon for the due and punctual
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ARTICLES 1156-1304
payment” of the loan contracted by Falcon with PDCP. Two separate

guaranties were executed to guarantee the payment of the same
loan by other stockholders and officers of Falcon, acting in their
personal and individual capacities. One Guaranty was executed by
petitioner Salvador Escaño (Escaño), while the other by petitioner
Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L.
Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez).
Two years later, an agreement developed to cede (give up) control of

Falcon to Escaño, Silos and Joseph M. Matti (Matti). Thus, contracts
were executed whereby Ortigas, George A. Scholey, Inductivo and
the heirs of then already deceased George T. Scholey assigned their
shares of stock in Falcon to Escaño, Silos and Matti. Part of the
consideration that induced the sale of stock was a desire by Ortigas,
et al., to relieve themselves of all liability arising from their previous
joint and several undertakings with Falcon, including those related to
the loan with PDCP. Thus, an Undertaking dated 11 June 1982 was
executed Escaño, Silos and Matti identified in the document as
“SURETIES,” on one hand, and Ortigas, Inductivo and the Scholeys
as “OBLIGORS,” on the other. The Undertaking reads in part:
3. That whether or not SURETIES are able to immediately cause

PDCP and PAIC to release OBLIGORS from their said guarantees ,
SURETIES hereby irrevocably agree and undertake to assume all of
OBLIGORs’ said guarantees to PDCP and PAIC under the following
terms and conditions:
1. Upon receipt by any of the OBLIGORS of any demand
from PDCP and/or PAIC for the payment of FALCON’s obligations
with it, any of [the] OBLIGORS shall immediately inform SURETIES
thereof so that the latter can timely take appropriate measures;
2. Should suit be impleaded by PDCP and/or PAIC against
any and/or all of OBLIGORS for collection of said loans and/or credit
facilities, SURETIES agree to defend OBLIGORS at their own
expense, without prejudice to any and/or all of OBLIGORS
impleading SURETIES therein for contribution, indemnity,
subrogation or other relief in respect to any of the claims of PDCP
and/or PAIC; and
3. In the event that any of [the] OBLIGORS is for any
reason made to pay any amount to PDCP and/or PAIC, SURETIES
shall reimburse OBLIGORS for said amount/s within seven (7)
calendar days from such payment;
4. OBLIGORS hereby waive in favor of SURETIES any and
all fees which may be due from FALCON arising out of, or in
connection with, their said guarantees.
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ARTICLES 1156-1304
Falcon defaulted in its payments. After PDCP foreclosed on the

chattel mortgage, there remained a subsisting deficiency
of P5,031,004.07, which Falcon did not satisfy despite demand.
On 28 April 1989, in order to recover the indebtedness, PDCP filed

a complaint for sum of money with the Regional Trial Court of
Makati (RTC) against Falcon, Ortigas, Escaño, Silos, Silverio and
Inductivo. The case was docketed as Civil Case No. 89-5128. For his
part, Ortigas filed together with his answer a cross-claim against his
co-defendants Falcon, Escaño and Silos, and also manifested his
intent to file a third-party complaint against the Scholeys and
Matti. The cross-claim lodged against Escaño and Silos was
predicated on the 1982 Undertaking, wherein they agreed to assume
the liabilities of Ortigas with respect to the PDCP loan.
Escaño, Ortigas and Silos each sought to seek a settlement with

PDCP. On December of 1993, Escaño entered into a compromise
agreement with PDCP whereby he agreed to pay the
bankP1,000,000.00. In exchange, PDCP waived or assigned in favor
of Escaño one-third (1/3) of its entire claim in the complaint against
all of the other defendants in the case. The compromise agreement
was approved by the RTC in a Judgment dated 6 January 1994.
Then on 24 February 1994, Ortigas entered into his own compromise

agreement with PDCP, allegedly without the knowledge of Escaño,
Matti and Silos. Thereby, Ortigas agreed to pay PDCP P1,300,000.00
as “full satisfaction of the PDCP’s claim against Ortigas,” in exchange
for PDCP’s release of Ortigas from any liability or claim arising from
the Falcon loan agreement, and a renunciation of its claims against
Ortigas.
In 1995, Silos and PDCP entered into a Partial Compromise

Agreement whereby he agreed to pay P500,000.00 in exchange for
PDCP’s waiver of its claims against him.
Ortigas then pursued his claims against Escaño, Silos and Matti, on
the basis of the 1982 Undertaking. He initiated a third-party
complaint against Matti and Silos, while he maintained his cross-claim
against Escaño. In 1995, Ortigas filed a motion for Summary
Judgment in his favor against Escaño, Silos and Matti.
On 5 October 1995, the RTC issued the Summary Judgment,

ordering Escaño, Silos and Matti to pay Ortigas, jointly and
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ARTICLES 1156-1304
severally, the amount of P1,300,000.00, as well

as P20,000.00 in attorney’s fees. The trial court ratiocinated that
none of the third-party defendants disputed the 1982 Undertaking,
and that “the mere denials of defendants with respect to non-
compliance of Ortigas of the terms and conditions of the
Undertaking, unaccompanied by any substantial fact which would be
admissible in evidence at a hearing, are not sufficient to raise
genuine issues of fact necessary to defeat a motion for summary
judgment, even if such facts were raised in the pleadings. “
Escaño and Silos appealed jointly while Matti appealed by his

lonesome. In a Decision dated 23 January 2002, the Court of
Appeals dismissed the appeals and affirmed the Summary
Judgment. The appellate court found that the RTC did not err in
rendering the summary judgment since the three appellants did not
effectively deny their execution of the 1982 Undertaking. The special
defenses that were raised, “payment and excussion,” were
characterized by the Court of Appeals as “appearing to be merely
sham in the light of the pleadings and supporting documents and
affidavits.”
ISSUES
First, petitioners dispute that they are liable to Ortigas on the basis
of the 1982 Undertaking, a document which they do not disavow and
have in fact annexed to their petition. Second, on the assumption
that they are liable to Ortigas under the 1982 Undertaking,
petitioners argue that they are jointly liable only, and not solidarily.
HELD
The Petition is GRANTED in PART. The Order of the Regional Trial

Court dated 5 October 1995 is modified by declaring that petitioners
and Joseph M. Matti are only jointly liable, not jointly and severally,
to respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00.
The Order of the Regional Trial Court dated 7 March 1996 is
MODIFIED in that the legal interest of 12% per annum on the
amount of P1,300,000.00 is to be computed from 14 March 1994, the
date of judicial demand, and not from 28 February 1994 as directed
in the Order of the lower court. The assailed rulings are affirmed in
all other respects. Costs against petitioners.
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ARTICLES 1156-1304
An examination of the document reveals several clauses that make it

clear that the agreement was brought forth by the desire of Ortigas,
Inductivo and the Scholeys to be released from their liability under
the loan agreement which release was, in turn, part of the
consideration for the assignment of their shares in Falcon to
petitioners and Matti. The whereas clauses manifest that Ortigas had
bound himself with Falcon for the payment of the loan with PDCP,
and that “amongst the consideration for OBLIGORS and/or their
principals aforesaid selling is SURETIES’ relieving OBLIGORS of any
and all liability arising from their said joint and several undertakings
with FALCON.” Most crucial is the clause in Paragraph 3 of the
Undertaking wherein petitioners “irrevocably agree and undertake to
assume all of OBLIGORs’ said guarantees to PDCP under the
following terms and conditions.”
Petitioners further observe that Ortigas made the payment to PDCP

after he had already assigned his obligation to petitioners through
the 1982 Undertaking. Yet the fact is PDCP did pursue a judicial claim
against Ortigas notwithstanding the Undertaking he executed with
petitioners. Not being a party to such Undertaking, PDCP was not
precluded by a contract from pursuing its claim against Ortigas based
on the original Assumption of Solidary Liability.
At the same time, the Undertaking did not preclude Ortigas from
relieving his distress through a settlement with the creditor bank.
Indeed, paragraph 1 of the Undertaking expressly states that
“nothing herein shall prevent OBLIGORS, or any one of them, from
themselves negotiating with PDCP the release of their said
guarantees .”Simply put, the Undertaking did not bar Ortigas from
pursuing his own settlement with PDCP. Neither did the Undertaking
bar Ortigas from recovering from petitioners whatever amount he
may have paid PDCP through his own settlement. The stipulation that
if Ortigas was “for any reason made to pay any amount to PDCP,
SURETIES shall reimburse OBLIGORS for said amount/s within seven
(7) calendar days from such payment”makes it clear that petitioners
remain liable to reimburse Ortigas for the sums he paid PDCP.
Petitioners submit that they could only be held jointly, not solidarily,
liable to Ortigas, claiming that the Undertaking did not provide for
express solidarity. They cite Article 1207 of the New Civil Code,
which states in part that “There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.“
164
ARTICLES 1156-1304
In case, there is a concurrence of two or more creditors or of two or

more debtors in one and the same obligation , Article 1207 of the Civil
Code states that among them, “There is a solidary liability only
when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.” Article 1210
supplies further caution against the broad interpretation of solidarity
by providing: “The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.”
These Civil Code provisions establish that in case of concurrence of

two or more creditors or of two or more debtors in one and the same
obligation, and in the absence of express and indubitable terms
characterizing the obligation as solidary, the presumption is that the
obligation is only joint. It thus becomes incumbent upon the party
alleging that the obligation is indeed solidary in character to prove
such fact with a preponderance of evidence.
The Undertaking does not contain any express stipulation that the
petitioners agreed “to bind themselves jointly and severally” in their
obligations to the Ortigas group, or any such terms to that effect.
Hence, such obligation established in the Undertaking is presumed
only to be joint. Ortigas, as the party alleging that the obligation is in
fact solidary, bears the burden to overcome the presumption of
jointness of obligations. It was ruled and so hold that he failed to
discharge such burden.
Escaño and Silos vs Ortigas Jr.
March 25, 2016

G.R. No. 151953 (2007)
Ponente: J. Tinga
Facts:
1. On April 28, 1980, Private Development Corp. of the Philippines

(PDCP) entered into a loan agreement with the Falcon Minerals, Inc.
(Falcon) whereby PDCP agreed to male available and lend to Falcon
the amount of US $320, 000.00 for specific purposes and subject to
certain terms and conditions.
2. Three stockholder officers of the Falcon assumed solidary
liability, in their individual capacity, with Falcon for the due and
punctual payment of the loan.
165
ARTICLES 1156-1304
3. Two years later, control of Falcon was ceded to Escaño, Silos

and Matti, and the shares of deceased Scholey, through his heirs
Ortigas, Scholey and Inductivo, were assigned to the three new
stock-holders, as well as all of their guaranteed to PDCP and PAIC.
4. On April 28, 1989, PDCP filed a complaint for sum of money
with the RTC of Makati. A counterclaim was filed by Ortigas.
5. The other parties entered into compromise agreement with
PDCP. Ortigas pursued his claim against Escaño, Silos and Matti, and
filing a motion for Summary Judgement in his favor against Escaño,
Silos and Matti.
6. The RTC ruled in favor of Ortigas, ordering the three to pay
jointly and severally the amount of P1,300,000.00 as well as
P20,000.00 in attorney’s fees.
7. On appeal, the Court of Appeals affirmed the Summary
Judgement. Hence, the present petition for review.
Issue: Whether or not there was solidary obligation.
Ruling:
No. The obligation was joint.
In this case, there is a concurrence of two or more creditors or of

two or more debtors in one and the same obligation. Article 1207 of
the Civil Code states that among them, there is a solidary liability
only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity. Article 1210 supplies
further caution against the broad interpretation of solidarity by
providing that the indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.
These Civil Code provisions establish that in case of concurrence of

two or more creditors or of two or more debtors in one and the same
obligation, and in the absence of express and indubitable terms
characterizing the obligation as solidary, the presumption is that the
obligation is only joint. It thus becomes incumbent upon the party
alleging that the obligation is indeed solidary in character to prove
such fact with a preponderance of evidence.
The Undertaking does not contain any express stipulation that the
petitioners agreed to bind themselves jointly and severally in their
obligations to the Ortigas group, or any such terms to that effect.
Hence, such obligation established in the Undertaking is presumed
166
ARTICLES 1156-1304
only to be joint. Ortigas, as the party alleging that the obligation is in

fact solidary, bears the burden to overcome the presumption of
jointness of obligations. The SC ruled that he failed to discharge such
burden.
Adv
G.R. No. 105774 April 25, 2002
GREAT ASIAN SALES CENTER CORPORATION and TAN

CHONG LIN, petitioners,
vs.
THE COURT OF APPEALS and BANCASIA FINANCE AND
INVESTMENT CORPORATION, respondents.
FACTS
Great Asian is engaged in the business of buying and selling general

merchandise, in particular household appliances. On March 17, 1981,
the board of directors of Great Asian approved a resolution
authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr.
(“Arsenio” for brevity) to secure a loan from Bancasia in an amount
not to exceed P1.0 million. The board resolution also authorized
Arsenio to sign all papers, documents or promissory notes necessary
to secure the loan. On February 10, 1982, the board of directors of
Great Asian approved a second resolution authorizing Great Asian to
secure a discounting line with Bancasia in an amount not exceeding
P2.0 million. The second board resolution also designated Arsenio as
the authorized signatory to sign all instruments, documents and
checks necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in

favor of Bancasia to guarantee, solidarily, the debts of Great Asian to
Bancasia. On January 29, 1982, Tan Chong Lin signed a
Comprehensive and Continuing Surety Agreement in favor of
Bancasia to guarantee, solidarily, the debts of Great Asian to
Bancasia. Thus, Tan Chong Lin signed two surety agreements
(“Surety Agreements” for brevity) in favor of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio,

signed four (4) Deeds of Assignment of Receivables (“Deeds of
Assignment” for brevity), assigning to Bancasia fifteen (15) postdated
checks. Nine of the checks were payable to Great Asian, three were
payable to “New Asian Emp.”, and the last three were payable to
167
ARTICLES 1156-1304
cash. Various customers of Great Asian issued these postdated

checks in payment for appliances and other merchandise.
Great Asian and Bancasia signed the first two Deed of Assignments
on January 12, 1982 covering four postdated checks each with a
total face value of P244,225.82 and P312,819.00, with maturity
dates not later than April 1, 1982. All these four checks were
dishonored. Great Asian and Bancasia signed the third Deed of
Assignment on February 11, and the 4th on March 5, 1982
respectively covering postdated checks and similarly, none of the
checks were honored.
Arsenio endorsed all the fifteen dishonored checks by signing his

name at the back of the checks. Eight of the dishonored checks bore
the endorsement of Arsenio below the stamped name of “Great Asian
Sales Center”, while the rest of the dishonored checks just bore the
signature of Arsenio. The drawee banks dishonored the fifteen checks
on maturity when deposited for collection by Bancasia, with any of
the following as reason for the dishonor: “account closed”, “payment
stopped”, “account under garnishment”, and “insufficiency of
funds”.Bancasia referred the matter to its lawyer, Atty. Eladia Reyes,
who sent by registered mail to Tan Chong Lin a letters dated March
18, 1982 and June 16, 1982 , notifying him of the dishonored checks
and demanding payment from him. Neither Great Asian nor Tan
Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First
Instance of Manila a petition for insolvency, verified under oath by its
Corporate Secretary, Mario Tan. Attached to the verified petition was
a “Schedule and Inventory of Liabilities and Creditors of Great Asian
Sales Center Corporation,” listing Bancasia as one of the creditors of
Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for collection of a sum

of money against Great Asian and Tan Chong Lin. Bancasia
impleaded Tan Chong Lin because of the Surety Agreements he
signed in favor of Bancasia. In its answer, Great Asian denied the
material allegations of the complaint claiming it was unfounded,
malicious, baseless, and unlawfully instituted since there was already
a pending insolvency proceedings, although Great Asian subsequently
withdrew its petition for voluntary insolvency. Great Asian further
raised the alleged lack of authority of Arsenio to sign the Deeds of
168
ARTICLES 1156-1304
Assignment as well as the absence of consideration and consent of all

the parties to the Surety Agreements signed by Tan Chong Lin.
The trial court rendered its decision on January 26, 1988 rendered

in favor of the plaintiff and against the two (2) defendants ordering
the latter, jointly and severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest thereon at the legal

rate from the filing of the complaint until the same is fully paid;
(b) Attorney’s fees equivalent to twenty per cent (20%) of the total
amount due; and
(c) The costs of suit.
On appeal, the Court of Appeals sustained the decision of the lower

court, deleting only the award of attorney’s fees. As against
appellants’ bare denial of it, the Court is more inclined to accept the
appellee’s version, to the effect that the subject deeds of assignment
are but individual transactions which — being collectively evidentiary
of the loan accommodation and/or credit line it granted the appellant
corporation — should not be taken singly and distinct therefrom. In
addition to its plausibility, the proposition is, more importantly,
adequately backed by the documentary evidence on record. Aside
from the aforesaid Deeds of Assignment and the Board Resolutions of
the appellant corporation’s Board of Directors , the appellee —
consistent with its theory — interposed the Surety Agreements the
appellant Tan Chong Lin executed , as well as the demand letters it
served upon the latter as surety . It bears emphasis that the second
Resolution of the appellant corporation’s Board of Directors even
closely coincides with the execution of the February 11, 1982 and
March 5, 1982 Deeds of Assignment . Were the appellants’ posturings
true, it seems rather strange that the appellant Tan Chong Lin did
not even protest or, at least, make known to the appellee what he —
together with the appellant corporation — represented to be a
corporate larceny to which all of them supposedly fell prey. In the
petition for voluntary insolvency it filed, the appellant corporation,
instead, indirectly acknowledged its indebtedness in terms of
financing accommodations to the appellee, in an amount which, while
not exactly matching the sum herein sought to be collected,
approximates the same.
169
ARTICLES 1156-1304
The appellants contend that the foregoing warranties enlarged or

increased the surety’s risk, such that appellant Tan Chong Lin should
be released from his liabilities. Without saying more, the appellants’
position is, however, soundly debunked by the undertaking expressed
in the Comprehensive and Continuing Surety Agreements to the
effect that the “surety/ies, jointly and severally among themselves
and likewise with the principal, hereby agree/s and bind/s himself to
pay at maturity all the notes, drafts, bills of exchange, overdrafts and
other obligations which the principal may now or may hereafter owe
the creditor.” With the possible exception of the fixed ceiling for the
amount of loan obtainable, the surety undertaking in the case at bar
is so comprehensive as to contemplate each and every condition,
term or warranty which the principal parties may have or may be
minded to agree on. The Court sees little or no reason to go into the
appellants’ remaining assignments of error, save the matter of
attorney’s fees. For want of a statement of the rationale therefore in
the body of the challenged decision, the trial court’s award of
attorney’s fees should be deleted and disallowed
The decision appealed from is MODIFIED, to delete the trial court’s

award of attorney’s fees. The rest is AFFIRMED in toto.
ISSUE
Whether Tan Chong Lin is liable to Great Asian under the Surety
Agreements.
HELD
The Decision of the Court of Appeals was AFFIRMED with

MODIFICATION. Petitioners are ordered to pay, solidarily, private
respondent the following amounts: (a) P1,042,005.00 plus 3%
penalty thereon, (b) interest on the total outstanding amount in item
(a) at the legal rate of 12% per annum from the filing of the
complaint until the same is fully paid, (c) attorney’s fees equivalent to
25% of the total amount in item (a), including interest at 12% per
annum on the outstanding amount of the attorney’s fees from the
finality of this judgment until the same is fully paid, and (c) costs of
suit.
Tan Chong Lin, the President of Great Asian, is being sued in his
personal capacity based on the Surety Agreements he signed wherein
170
ARTICLES 1156-1304
he solidarily held himself liable with Great Asian for the payment of
its debts to Bancasia.
Indisputably, Tan Chong Lin unconditionally bound himself to pay

Bancasia, solidarily with Great Asian, if the drawers of the checks fail
to pay on due date. The condition on which Tan Chong Lin’s
obligation hinged had happened. As surety, Tan Chong Lin
automatically became liable for the entire obligation to the same
extent as Great Asian. Tan Chong Lin maintains that these warranties
in the Deeds of Assignment materially altered his obligations under
the Surety Agreements, and therefore he is released from any liability
to Bancasia.
Under Article 1215 of the Civil Code, what releases a solidary

debtor is a “novation, compensation, confusion or remission
of the debt” made by the creditor with any of the solidary
debtors. These warranties, however, are the usual warranties made
by one who discounts receivables with a financing company or bank.
The Surety Agreements, written on the letter head of “Bancasia
Finance & Investment Corporation,” uniformly state that “Great Asian
Sales Center has obtained and/or desires to obtain loans,
verdrafts, discounts and/or other forms of credits from” Bancasia.
Tan Chong Lin was clearly on notice that he was holding himself as
surety of Great Asian which was discounting postdated checks issued
by its buyers of goods and merchandise. Moreover, Tan Chong Lin,
as President of Great Asian, cannot feign ignorance of Great Asian’s
business activities or discounting transactions with Bancasia. Thus,
the warranties do not increase or enlarge the risks of Tan Chong Lin
under the Surety Agreements. There is, moreover, no novation of the
debt of Great Asian that would warrant release of the surety.
The PRINCIPAL should fail to pay at maturity any of the obligations

or amounts due to the CREDITOR, or if for any reason the
PRINCIPAL fails to promptly respond to and comply with any other
lawful demand made by the CREDITOR, or if for any reason
whatsoever any obligation of the PRINCIPAL in favor of any person or
entity should be considered as defaulted, then both the PRINCIPAL
and the SURETY/IES shall be considered in default under the terms
of this Agreement. The SURETY/IES agree/s to pay jointly and
severally with the PRINCIPAL, all outstanding obligations of the
CREDITOR, whether due or not due, and whether owing to the
PRINCIPAL in its personal capacity or as agent of any person,
endorsee, assignee or transferee.
171
ARTICLES 1156-1304
Advertise
February 23, 1989
LUIS JOSEPH, petitioner
vs.
HON. CRISPIN V. BAUTISTA, PATROCINIO PEREZ, ANTONIO
SIOSON, JACINTO PAGARIGAN, ALBERTO CARDENO and
LAZARO VILLANUEVA, respondents.
Jose M. Castillo for petitioner.
Arturo Z. Sioson for private respondent, Patrocinio Perez.
Cipriano B. Farrales for private respondents except P. Perez.
REGALADO, J.:
FACTS
Respondent Patrocinio Perez is the owner of a cargo truck with

route from Dagupan City to Manila. On January 12, 1973, said cargo
truck driven by defendant Domingo Villa was on its way to
Valenzuela, Bulacan from Pangasinan. Petitioner, Luis Joseph, with a
cargo of livestock, boarded the cargo truck at Dagupan City after
paying the sum of P 9.00 as one way fare to Valenzuela, Bulacan.
Meanwhile, along the National Highway going to Manila, defendant
Domingo Villa tried to overtake a tricycle. At that time, a pick-up
truck, supposedly owned by respondents Antonio Sioson and Jacinto
Pagarigan, then driven by respondent Lazaro Villanueva, tried to
overtake the cargo truck which was then trying to overtake the
tricycle, consequently forcing the cargo truck to veer towards the
shoulder of the road and to ram a mango tree. As a result, petitioner
sustained a bone fracture in one of his legs.
Petitioner filed a complaint for damages against respondent

Patrocinio Perez, as owner of the cargo truck, and against
respondents Antonio Sioson and Lazaro Villanueva, as owner and
driver, respectively, of the pick-up truck. However, respondent
Sioson filed his answer alleging that he is not and never was an
owner of the pick-up truck and neither would he acquire ownership
172
ARTICLES 1156-1304
thereof in the future. On September 24, 1971, the petitioner filed his
amended complaint impleading respondents Jacinto Pagarigan and a
certain Rosario Vargas as additional alternative defendants. Petitioner
apparently could not ascertain who the real owner of said cargo truck
was, whether respondents Patrocinio Perez or Rosario Vargas, and
who was the real owner of said pick-up truck, whether respondents
Antonio Sioson or Jacinto Pagarigan.
Respondent Perez filed her amended answer with crossclaim against

her co-defendants for indemnity and subrogation in the event she is
ordered to pay petitioner’s claim, and therein impleaded cross-
defendant Alberto Cardeno as additional alternative defendant.
On September 27, 1974, respondents Lazaro Villanueva, Alberto

Cardeno, Antonio Sioson and Jacinto Pagarigan, thru their insurer,
Insurance Corporation of the Philippines, paid petitioner’s claim for
injuries sustained in the amount of P 1,300.00. By reason thereof,
petitioner executed a release of claim releasing from liability
the following parties, viz: Insurance Corporation of the
Philippines, Alberto Cardeno, Lazaro Villanueva, Antonio
Sioson and Jacinto Pagarigan.
On December 2, 1974, respondents Lazaro Villanueva,

Alberto Cardeno and their insurer, the Insurance Corporation
of the Philippines, paid respondent Patrocinio Perez’ claim
for damages to her cargo truck in the amount of P 7,420.61.
Consequently, respondents Sioson, Pagarigan, Cardeno and

Villanueva filed a “Motion to Exonerate and Exclude Defs/ Cross defs.
Alberto Cardeno, Lazaro Villanueva, Antonio Sioson and Jacinto
Pagarigan on the Instant Case”, alleging that respondents Cardeno
and Villanueva already paid P 7,420.61 by way of damages to
respondent Perez, and alleging further that respondents Cardeno,
Villanueva, Sioson and Pagarigan paid P 1,300.00 to petitioner by
way of amicable settlement.
Thereafter, respondent Perez filed her “Opposition to Cross-defs.’

motion dated Dec. 2, 1974 and Counter Motion” to dismiss. The so-
called counter motion to dismiss was premised on the fact that the
release of claim executed by petitioner in favor of the other
respondents inured to the benefit of respondent Perez, considering
that all the respondents are solidarity liable to herein petitioner.
173
ARTICLES 1156-1304
ISSUE
Whether or not the respondents were solidarity liable to the

petitioner and that the release of the paying solidary debtor results in
the simultaneous release from the same liability of the other co-
debtors.
HELD
There is no question that the respondents herein are solidarily liable

to petitioner. On the evidence presented in the court below, the trial
court found them to be so liable. It is undisputed that petitioner, in
his amended complaint, prayed that the trial court hold respondents
jointly and severally liable. Furthermore, the allegations in the
amended complaint clearly impleaded respondents as solidary
debtors.
The respondents having been found to be solidarity liable to

petitioner, the full payment made by some of the solidary debtors
and their subsequent release from any and all liability to petitioner
inevitably resulted in the extinguishment and release from liability of
the other solidary debtors, including herein respondent Patrocinio
Perez.
Diamond Builders Conglomeration vs Country Bankers

Insurance Corporation
G.R. No. 171820 (2007)
Ponente: J. Nachura
Facts:
1. A civil case was filed by Borja against Acidre, the owner of the
Diamond Builders Conglomeration for a breach of his obligation to
construct a residential and commercial building.
2. A compromise agreement was entered into, and was approved
by the RTC.
174
ARTICLES 1156-1304
3. In accordance with the agreement, Acidre obtained a Surety

Bond from Country Bankers in favor of Borja.
4. Country Bankers received a Motion for Execution of the surety
bond filed by Borja with the RTC. Coutry Bankers advised the
petitioners that in the event it is constrained to pay under the surety
bond of Borja, it shall proceed against the petitioners for
reimbursement. The petitioners informed Country Bank of the
Opposition to Borja’s Motion for Execution which they filed.
Subsequently, the RTC ruled in favor of Borja. Petitioners then filed a
motion for reconsideration.
5. Country Banks payed Borja, and demanded for reimbursement
from the petitioners. The petitioners refused. The Coutry Bankers
filed a complaint for sum of money. The RTC dismissed the
complaint. The CA reversed it.
Issue:Whether or not the payment was voluntary and thus absolves

petitioner from reimbursing.
Held:NO.
Article 2047 of the civil code specifically calls for the application of
the provisions on solidary obligations to surety-ship contracts. In
particular, article 1217 of the Civil Code recognizes the right of
reimbursement from a co-debtor in favor of the one who paid.
In contract, article 1218 of the Civil Code is definitive on when

reimbursement is unavailable such that only those payments made
after the obligation has prescribed or became illegal shall not entitle a
solidary debtor to management.
Braganza v. Villa Abrille
March 25, 2016

(Minor Signing Contract)November 11, 2010
FACTS
Rosario Breganza together with her two sons loaned from De Villa
Abrille on the amount of P70,000.00 in Japanese war notes and in
consideration thereof, promised in writing to pay him P10.oo + 2%
per annum. After two years they have not paid Abrille, so they were
sued.
175
ARTICLES 1156-1304
ISSUE
Whether or not the boys who were 16 and 18 respectively bound to

sign a contract?
HELD
The boys who were 16 and 18 respectively are bound to sign a

contract, but the Supreme Court still found they were liable to pay
the amount loaned since they did not disclose their real age during
signing of the contract neither did the mother Breganza.
Lafarge Cement v Continental Cement, 443 SCRA 522 (2004)

Obligations may be classified as either joint or solidary. “Joint” or
“jointly” or “conjoint” means mancum or mancomunada or pro rata
obligation; on the other hand, “solidary obligations” may be used
interchangeably with “joint and several” or “several.” Thus,
petitioners’ usage of the term “joint and solidary” is confusing and
ambiguous.
Obligations arising from tort are, by their nature, always solidary.
We have assiduously maintained this legal principle as early as 1912

in Worcester v. Ocampo, in which we held: “x x x The difficulty in the
contention of the appellants is that they fail to recognize that the
basis of the present action is tort. They fail to recognize the universal
doctrine that each joint tort feasor is not only individually liable for
the tort in which he participates, but is also jointly liable with his tort
feasors. x x x “It may be stated as a general rule that joint tort
feasors are all the 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. They are each liable as principals, to the same extent
and in the same manner as if they had performed the wrongful act
themselves. x x x “Joint tort feasors are jointly and severally liable for
the tort which they commit. The persons injured may sue all of them
or any number less than all. Each is liable for the whole damages
caused by all, and all together are jointly liable for the whole
damage. It is no defense for one sued alone, that the others who
participated in the wrongful act are not joined with him as
defendants; nor is it any excuse for him that his participation in the
tort was insignificant as compared to that of the others. x x x “Joint
tort feasors are not liable pro rata. The damages can not be
176
ARTICLES 1156-1304
apportioned among them, except among themselves. They cannot

insist upon an apportionment, for the purpose of each paying an
aliquot part. They are jointly and severally liable for the whole
amount. x x x
In a “joint” obligation, each obligor answers only for a part of the

whole liability; in a “solidary” or “joint and several” obligation, the
relationship between the active and the passive subjects is so close
that each of them must comply with or demand the fulfillment of the
whole obligation.
Sinamban v. China Banking Corp. (2015)

According to Article 2047 of the Civil Code, if a person binds himself
solidarily with the principal debtor, the provisions of Articles 1207 to
1222 of the Civil Code on joint and solidary obligations shall be
observed. Thus, where there is a concurrence of two or more
creditors or two or more debtors in one and the same obligation,
Article 1207 provides that among them, “there is a solidary liability
only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.” It is settled that when
the obligor or obligors undertake to be “jointly and severally” liable, it
means that the obligation is solidary. In this case, the spouses
Sinamban expressly bound themselves to be jointly and severallt, or
solidarily liable with the principal makers of the PNs, spouses
Manalastas.
LBP v. Belle (2015)

There is no legal provision nor jurisprudence in our jurisdiction, which
makes a third person who secures the fulfillment of another’s
obligation by mortgaging his own property to be solidarily bound with
the principal obligor. The signatory to the principal contract – loan –
remains to be primarily bound. It is only upon default of the latter
that the creditor may have recourse on the mortgagors by foreclosing
the mortgaged properties in lieu of an action for the recovery of the
amount of the loan. And the liability of the third-party mortgagors
extends only to the property mortgaged. Should there be any
deficiency, the creditor has recourse on the principal debtor.
According to Performance (Articles 1223-1225)
Art. 1223. The divisibility or indivisibility of the

things that are the object of obligations in which
there is only one debtor and only one creditor does
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ARTICLES 1156-1304
not alter or modify the provisions of Chapter 2 of this

Title.
Art. 1224. A joint indivisible obligation gives

rise to indemnity for damages from the time anyone
of the debtors does not comply with his undertaking.
The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity
beyond the corresponding portion of the price of the
thing or of the value of the service in which the
obligation consists.
Art. 1225. For the purposes of the preceding

articles, obligations to give definite things and 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.
 Divisible and indivisible obligations have nothing to do

with the object of the prestation. A common
misconception is if the object of the prestation is divisible,
then the obligation is also divisible.
a. Divisible
 An obligation is divisible when it is susceptible to
partial performance.
b. Indivisible
 An obligation is indivisible when it cannot be validly
performed in parts.
 General Rule: Obligations are indivisible.
 Exceptions:
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ARTICLES 1156-1304
i. When the parties provide otherwise (Articles 1225, 3rd

1248)
ii. When the nature of the obligation necessarily entails
the performance of the obligation in parts
 Example: Hiring a security guard to guard from
8pm to 2am daily for 6 months. This obligation
cannot be performed indivisibly. You can’t
compress time.
 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 (Article 1225, 2nd)
 Exception to the Exception: However, even
though the object or service may be physically
divisible, an obligation is indivisible if
1. So provided by law; or
2. Intended by the parties.
iii. When the law provides otherwise
 There are provisions on payment which provide that
performance may be divisible.
 Divisibility of the object does not mean that the obligation
is also divisible. But indivisibility of the object necessarily
means an indivisible obligation.
 The test of divisibility of an obligation is whether or not it
is susceptible of partial performance.
For example, if X is supposed to deliver 1000 kilos of
sugar, this does not mean that X can deliver the sugar
in installments.
Divisible – obligation that is capable of partial performance.
a. execution of certain no of days work

b. expressed by metrical units
c. nature of obligation – susceptible of partial fulfillment
Indivisible – one not capable of partial performance

a. to give definite things
b. not susceptible of partial performance
c. provided by law
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ARTICLES 1156-1304
d. intention of parties
Test for the distinction:
In determining whether an obligation is divisible or indivisible,

the controlling circumstance is not the possibility or impossibility of
partial prestation but the purpose of the obligation or the intention of
the parties.
What determined divisibility or indivisibility:

a) Intention
b) Law
c) Character of the prestation
When obligation is presumed indivisible.

a) Obligation to give definite things, such as an
obligation to give a specific car
b) Those which are not susceptible of partial
performance.
When obligation is presumed divisible

1. Execution of a certain number of days of work, such as
an obligation to work for 30 days
2. Accomplishment of work by metrical unit, such as when
five debtors are obliged to deliver five tons of sand and
gravel. The debtors are obliged to deliver one ton each.
3. Analogous thing which by their nature are susceptible of
division.
Rivelisa Realty v. First Sta. Clara Builders, G.R. No. 189618.

January 15, 2014.
First Sta. Clara is entitled to be compensated for the development
works it had accomplished on the project based on the principle of
quantum meruit. Case law instructs that under this principle, a
contractor is allowed to recover the reasonable value of the thing or
services rendered despite the lack of a written contract, in order to
avoid unjust enrichment. Quantum meruit means that, in an action
for work and labor, payment shall be made in such amount as the
plaintiff reasonably deserves. The measure of recovery should relate
to the reasonable value of the services performed because the
principle aims to prevent undue enrichment based on the equitable
postulate that it is unjust for a person to retain any benefit without
paying for it.
2. According to Sanction for Breach (Articles 1226-1230)

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ARTICLES 1156-1304
Art. 1226. 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. 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.
Art. 1227. The debtor cannot exempt himself

from the performance of the obligation by paying the
penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor
demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless
this right has been clearly granted him. However, if
after the creditor has decided to require the
fulfillment of the obligation, the performance thereof
should become impossible without his fault, the
penalty may be enforced.
Art. 1228. Proof of actual damages suffered by

the creditor is not necessary in order that the penalty
may be demanded.
Art. 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 courts if it is iniquitous or
unconscionable.
Art. 1230. The nullity of the penal clause does

not carry with it that of the principal obligation.
The nullity of the principal obligation carries
with it that of the penal clause.
 No penal clause
 With penal clause

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ARTICLES 1156-1304
 A penal clause is an accessory undertaking to assume

greater liability in case of breach (SSS vs. Moonwalk).
 Penal clauses are governed by Articles 2226-2228 ,
the provisions on liquidated damages since a penal
clause is the same as liquidated damages (Lambert vs.
Fox).
 Penal clauses may be reduced by the courts if
unconscionable.
 2 Functions of a Penal Clause (SSS vs. Moonwalk)
i. To provide liquidated damages
 The creditor can demand liquidated damages
without having to prove actual damages.
 The only limitation that the courts will reduce the
liquidated damages if the same is scandalously
unconscionable.
ii. To strengthen the coercive force of the obligation
by the threat of greater responsibility in case of
breach
 Stipulates a penalty which is greater than one
without a penal clause. Thus, Robes-Francisco
states that 4% interest is not a penal clause.
 2 Characteristics of a Penal Clause
i. Subsidiary or alternative (Article 1227)
 General Rule: Upon breach of the obligation,
the creditor has to choose whether to demand
the principal or the penalty.
 Exception: The principal obligation and the
penalty can be demanded when the penal clause
is joint or cumulative. This occurs when it is the
creditor has been clearly granted such right
(Article 1227, 2nd sentence), either expressly or
impliedly. The implied right must be one
ascertainable from the nature of the obligation.
An example is in the construction industry where
the contractor must pay the penalty if the work
 Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be
paid in case of breach thereof.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous or unconscionable.
Art. 2228. When the breach of the contract committed by the defendant is not the
one contemplated by the parties in agreeing upon the liquidated damages, the law shall
determine the measure of damages, and not the stipulation.
182
ARTICLES 1156-1304
is completed after the stipulated time frame but

must also finish the agreed construction.
ii. Exclusive (Article 1226)
 General Rule: The penalty clause takes the
place of other damages (that’s why in imposing a
penalty clause, make sure that the penalty is
stiff).
 Exception: Both the penalty and actual
damages may be recovered in the following:
1. Express stipulation
2. Refusal by the debtor to pay the penalty
3. The debtor is guilty of fraud (malice) in the
performance of the obligation.
 In Pamintuan vs. CA, the Supreme Court
said that the excess of damages absorbs
the penalty. Professor Balane said that this
is a wrong application. You can demand
both the excess and the penalty.
With penal clause - an accessory undertaking to assume greater

liability in case of breach;
Purpose:
a. To ensure performance of the obligation by creating an
effective deterrent against breach, making the consequences of
such breach as onerous as it may be possible.
b. To substitute a penalty for indemnity for damages and the
payment of interests in case of non-compliance (art. 1226); or to
punish the debtor for non-fulfillment or violation of his obligation.
In the first case, the purpose is reparation; in the second,
punishment.
Rules:
a. Penalty is not a substitute for performance except only when

this right has been expressly reserved for him.
b. Penalty clause is presumed subsidiary. Penal clause is joint or
the debtor has the right to pay penalty in lieu of performance only
when this right has been expressly reserved for him
Kinds of penal clause:
According to source:
a) Legal- penalty imposed by law
183
ARTICLES 1156-1304
b) Conventional – penalty agreed upon by parties
According to extent of liability

a) Subsidiary – when only the penalty can be recovered
in case of non-
performance of the obligation
b) Joint – when in case of non-performance of the

obligation both the
principal obligation and the penalty can be recovered.
Proof of actual damages suffered by the creditor is not

necessary in order that the penalty may be demanded (Art. 1228)
Right to recover damages and interest in addition to the penalty
The penalty shall substitute the indemnity for damages, and

interest in case the obligation is not fulfilled. Hence as a general
rule, the creditor cannot demand damages and interests in
addition to the penalty except:
a) When the parties so agreed;

b) When the debtor refuses to pay the penalty;
c) When the debtor is guilty of fraud in the fulfillment of the
obligation.
- Nullity of the principal carries with it the nullity of the accessory.
- Penalty shall be reduced by the court when

a. There is partial or irregular performance of the obligation or
Penalty may be reduced

b. Even when there has been no performance when the penalty
agreed upon is iniquitous or unconscionable. (Article 1229)
CHARACTERISTICS OF PENAL CLAUSES

1. Subsidiary - As a general rule, only penalty can be
demanded, principal cannot be demanded, except: Penalty is
joint or cumulative
2. Exclusive - takes place of damage, damage can only be
demanded in the ff. cases:
a. Stipulation – granting right
b. refusal to pay penalty
c. with dolo ( not of creditor )
184
ARTICLES 1156-1304
The Bacharach Motor Co. Inc. vs. Faustino Espiritu, Rosario Espiritu
March 25, 2016

Nov. 6, 1928
FACTS
a.) July 28, 1925-The defendant (Faustino Espiritu)purchased plaintiff

corp. a two-ton white truck for P11,983.50, paying P1,000.00 down
to apply on account of this price and obligating himself to pay the
remaining P10,983.50 within the period agreed upon.
b.) The defendants mortgaged the purchased trucks and three others
which are numbered 77197 and 92744 respectively to secure the
payments.
c.) The defendant failed to pay P10,477.82 of the price secured bu

mortgage.
d.) In case 28498 dated Feb. 18, 1925-defendant bought a one-ton

white truck of the plaintiff corporation for the sum of P7,136.50 and
the P500 cash deducted and 12 percent annual interest on the
unpaid principal, obligated himself to make payment within the
periods agreed upon and mortgage truck 77197 and 92744
respectively in purchased of the other truck.
e.)The defendant failed to pay P4,208.28 if the sum.
f.) In both sales, it was agreed that 12 percent to be paid upon

portion of the unpaid at execution of contracts, if failed to non-
payment in its maturity, 25 percent thereon as penalty.
g.) The defendant signed a promissory note solidarily with his brother
Rosario Espiritu for several sums secured by the two mortgages.
ISSUE
Whether or not that the plaintiff has the right to impose higher
interest as penalty twice the fixed rate by law.
HELD
185
ARTICLES 1156-1304
No, Article 1152 of the civil code permits the agreement upon a
penalty apart from the interest. Should there be such agreement,
penalty, does not include the interest; and which may be demanded
separately (as was held in case of Lopez vs. Hernaez-32 phil 631),
but considering that the obligation was partly performed and making
use of the power given to the court by article 1154 of the civil code,
the penalty is reduced to 10 percent of the unpaid debt.
The judgment appealed from is affirmed.
The Municipality of Hagonoy vs. Teofilo Evangelista
March 25, 2016

FACTS
The Municipality of Hagonoy filed a complaint against Teofilo

Evangelista for not complyingWith the contract and the penal clause
attach to it. This related to fishpond lease to him by the said
municipality for a period of ten years. Said penal clause mentioned
that he has to pay surcharge (cargo) of 20%. Actually the original
leases were Jose Evangelista,He transferred it to Josefa Evangelista
without the Municipality approving it as well as the non-payment of
the agreement. On the 9th year Josefa died and it was transferred to
Teofilo Evangelista who then requested for an extension of the lease
and the partial payment so that he could pay the amount required.
An ordinance was passed granting him his request.
ISSUE
Whether or not the leasee has the right to request for the extension
and for the partial payment?
HELD
Yes, in as much as the Municipal Council has given the defendant his
request as well as the partial payment in two basis, then let it be so.
Therefore, the judgment of the lower court dismissing the complaint
should be and is hereby affirmed, with costs against the plaintiff. So
ordered. (Yulo, C.J., Moran, Ozaeta, and Paras, JJ., concur).
A. Obligations with a Penal Clause, 2226-2228
Lambert v Fox, G.R. No. L-7991, January 29, 1914

186
ARTICLES 1156-1304
In this jurisdiction contracts are enforced as they read; and parties

who are competent to contract may make such agreements within
the limitations of the law and public policy as they desire, and the
courts will enforce them according to their terms. A penalty imposed
for the breach of a contract not to sell shares of stock for one year
will be enforced if the agreement is broken, no matter whether the
person seeking to enforce the penalty has suffered damages or not.
The only case in which the courts are authorized to intervene for the
reduction of a penalty stipulated in a contract is when the principal
obligation has been partly or irregularly fulfilled and the court can see
that the party demanding the penalty has received the benefits of
such part or irregular performance. In such case the court is
authorized to reduce the penalty to the extent of the benefits
received by the party seeking to enforce the penalty.
In enforcing a contract which provides a penalty in case of breach,

the party enforcing the penalty is entitled to recover the sum
stipulated without proving damages.
SSS v Moonwalk, supra

A penal clause is an accessory undertaking to assume greater liability
in case of breach. It has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of
breach. From the foregoing, it is clear that a penal clause is intended
to prevent the obligor from defaulting in the performance of his
obligation. Thus, if there should be default, the penalty may be
enforced.
Robes-Francisco v. CFI, G.R. No. L-41093 October 30, 1978

A contract of sale which stipulate payment of interest at 4% per
annum in case vendor fails to issue a certificate of title to vendee is
not a penal clause because even without it vendee would be entitled
to interest at the legal rate of 6% per annum. — The subject 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 aforecited 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.
187
ARTICLES 1156-1304
Rivera v. Chua (2015)

The SC did not consider the stipulation on payment of interest in this
case as a penal clause although Rivera, as obligor, assumed to pay
additional 5% monthly interest on the principal amount of P120K
upon default.
The penal clause is generally undertaken to insure performance and

works as either, or both, punishment and reparation. It is an
exception to the general rules on recovery of losses and damages. As
an exception to the general rule, a penal clause must be specifically
set forth in the obligation. In high relief, the stipulation in the
Promissory Note is designated as payment of interest, not as a penal
clause, and is simply an indemnity for damages incurred by the
Spouses Chua because Rivera defaulted in the payment of P120K.
The measure of damages for the Rivera’s delay is limited to the
interest stipulated in the PN. In apt instances, in default of
stipulation, the interest is that provided by law.
188
ARTICLES 1156-1304
New World Developers and Management v. AMA (2015)

The resolution of whether a penalty is reasonable, or iniquitous or
unconscionable would depend on factors including but not limited to
the type, extent and purpose of the penalty; the nature of the
obligation; the mode of the breach and its consequences; the
supervening realities; and the standing and relationship of the
parties. The appreciation of these factors is essentially addressed to
the sound discretion of the court.
Under the terms of the contract, and in light of the failure of AMA to
show that it is deserving of this Court’s indulgence, the payment of
liquidated damages in an amount equivalent to six months’ rent is
proper.
189
ARTICLES 1156-1304

Lecture Notes Oblicon 1156 To 1230 RMC 1

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Lecture Notes Oblicon 1156 To 1230 RMC 1

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1

LECTURE NOTES OBLIGATIONS AND CONTRACTS

Taken from Latin term “obligare” or “obligation” meaning to tie or

Article 1156: An obligation is a juridical necessity to give, to do or not

Criticism as to the definition of the Civil Code by Justice J.B.L. Reyes.

It views obligation from the debit side. There is no debt with

Better definition: the one given by Arias Ramos, one of the

An obligation is a juridical relation whereby a person

Kinds of obligations based on its definition:

Real obligation – obligation to give

Two kinds of personal obligation

It does not indicate that it must be in writing but at least intent to

Meaning of Juridical Necessity:

Obligation is a juridical necessity because in case of non-

a. Civil obligations – give a right of action to compel their

2. It creates ties which by nature transitory. Reason: obligations

An obligation is a juridical necessity to give, to do or not to do (Art.

*Case discusses issues on resolution (Art. 1191) vs Rescission (Art.

Article 1157 enumerated sources of obligations:

Is the enumeration exclusive?

SAGRADA ORDEN VS NACOCO G.R. NO. L-3756 JUNE 30, 1952

The land in question belongs to plaintiff Sagrada Orden in whose

On January 4, 1943, during the Japanese military occupation, the

After liberation on April 4, 1946, the Alien Property Custodian of the

The property was occupied by the Copra Export Management

It bought an action in court which resulted to the cancellation of the

Defendant contests the rental claims on the defense that it occupied

ISSUE: Whether or not the defendant is obliged to pay rentals to the

the Alien Property Administration. Neither was there any negligence

By implication or indication, it appears that it is exclusive.

Example: In commercials, there is an offer to replace 30 sachets of

A. Definition, NCC 1156

MetroBank v. Rosales, G.R. No. 183204, January 13, 2014

Bank deposits, which are in the nature of a simple loan or mutuum,

Art. 1158. Obligations derived from law are not presumed.

Must be expressly or impliedly set forth and cannot be presumed (

a) Obligation ex-lege (arising from law) not presumed.

b) Obligations arising from law are not presumed. To be

c) Law governing obligations derived from law. Obligations

THE OFFICE OF THE SOLICITOR GENERAL, Petitioner vs AYALA

SHANGRI-LA PLAZA CORPORATION and SM PRIME HOLDINGS,

When there is a taking or confiscation of private property for public use,

As stated by the Supreme Court, The explicit directive of the afore-

quoted statutory and regulatory provisions, garnered from a plain reading

2. CONTRACT -OBLIGATION CONTRACTU

 Contract is only 1 of the sources of obligations.

of what has been expressly stipulated but also to all the

- Must be complied with in good faith because it is the “law”

Meaning of contract – 1305 – Meeting of the minds between 2

b) Effect if part of the contact is void.

contract is falsified by the unauthorized insertion of additional

(a) Law, NCC 1158

PSBA v CA, GR 84698, Feb. 4, 1992

A contractual relation is a condition sine qua non to the school's

set out in Article 21 of the Civil Code.

Cruz v Gruspe, GR 191431, March 13, 2013

In order that the debtor may be in default, it is necessary that the

ACE Foods, Inc. v. Micro Pacific, G.R. No. 200602, December

conclusive of the nature of its contents. The very essence of a

Art. 1458. By the contract of sale one of the contracting parties

A contract of sale may be absolute or conditional. (Emphasis

3. Art. 1160. OBLIGATION EX QUASI CONTRACTU

Obligations derived from quasi-contracts shall be subject