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OBLIGATIONS AND CONTRACTS:

Definition: Art. 1156, obligation is a juridical necessity to give, to do or not to do.


From Latin word obligatio means tying or binding
Pertains only to civil obligation as per Art.1423 which grants a right of action

Classification of Obligation:
1. Obligation based on kind of Prestation involved:
 to give
 to do and
 not to do
It is important on rules on compliance and remedies
2. Art.1423 provides kind of obligation based on basis and enforceability:
 Civil- grants a right of action to fulfill obligation thru court action being with juridical necessity.
Basis: positive law or man-made law
Enforceability: right of action to demand fulfillment
 Natural (lacks elements of civil obligation)- no right of action
Basis: equity and natural law
Enforceability: no right of action; but it doesn’t mean that it cannot be fulfilled because when creditor
demanded fulfillment and debtor fulfilled voluntarily, then the creditor has the right to retain what was paid Commented [a1]: Means that the payor knew that under the
or delivered by debtor. law he could not be compelled to pay but nonetheless he paid.
Example: Action already prescribed (in prescription the civil obligation is converted into natural obligation) Reasons: Gratitude
Conscience
7 kinds of natural obligation: (enumeration not exclusive)
 Moral Obligation- no juridical tie Commented [a2]: It is not the obligation nor debt prescribed
3. Obligation as to perfection and extinguishment nut it is the right of action.
 Pure
 Conditional
 With a term
The usual question is “when would obligation due and demandable” , “when would obligation be extinguished” ,
“is the obligation valid? (Art. 1182)”
4. Obligation involving multiple parties
 Joint
 Solidary
5. Obligation with a Penal Clause
6. Obligation Divisible or Indivisible
7. Obligation with multiple prestations
 Possible Question: If one of the prestation became impossible to perform would that result to the
extinguishment of the obligation? It DEPENDS on what kind of obligation is involved, whether it is
Conjunctive, Facultative or Alternative Obligations.
CONJUNCTIVE- there must be at least two prestation which are both valid, thus if one becomes impossible
to perform the obligation is not extinguished because the debtor can perform the remaining prestation.
FACULTATIVE- if one of the prestation became impossible it depends, because if the loss happened before
the substitution and what was lost or destroyed was the substitute prestation, then it will not extinguished the
obligation since the principal prestation subsist. But if before the substitution the principal prestation became
impossible to perform then obligation is extinguished. Commented [a3]: The Reason behind is the debtor no longer
It is not true that the obligation consist only of 1 prestation, but unlike in alternative obligation which allow all want to substitute instead will choose the EXTINGUISHMENT
prestations due and demandable, here in facultative IT CANNOT HAPPEN, there’s only one prestation which
is due and demandable either the principal or the substitute. In other words before the substitution it will only
be the principal prestation which may be due. But if there’s a substitution then it is the one due. Commented [a4]: Upon communication. When can he exercise
Before substitution the principal prestation became impossible to perform, can the debtor be held liable to the the right to make the substitution?
substitute prestation and the creditor validly do so? NO, because the debtor has the right ALWAYS has the “When the PRINCIPAL prestation is impossible to perform” NOT
RIGHT because IT IS ALREADY EXTINGUISHED.
right to make the SUBSTITUTION thus he cannot be compelled to deliver or perform the substitute
The law provides no limitation. Thus anytime.
prestation.
What is the remedy of creditor? Hold debtor to pay damages but not to compel the debtor
Before the substitution the substitute prestation was lost was due to fault of debtor, can he be held liable by
the creditor? NO, because it is not the due prestation also the creditor is not the owner of the thing or object
lost. It is either owned by debtor or 3 rd person as such the debtor will bear the lost or the it is the 3 rd person
who has the right to held the debtor liable. The creditor instead can compel the debtor to perform the
principal prestation.
ALTERNATIVE- assuming there are 3 prestations involved, ie to give specific things a car (500k), a horse Commented [a5]: Conjunctive vs. Alternative the former the
(900k) or a watch (700k). The car was destroyed total wreck, what is the effect of the impossibility of the prestation is AND while the latter is OR
performance would that result to the extinguishment of obligation? Depends on circumstances because if it is
converted into a simple obligation, the moment the debtor communicate his acceptance not from the time he Commented [a6]: If there had been communication of the
made the choice but from the time he communicated the choice. And if he chooses the car, the obligation is choice. The debtor has the right to choose unless right had been
extinguished. expressly granted to the creditor. If the parties are silent the law
provides that it is the DEBTOR.
But what if there’s no communication of choice, the prestations become impossible to perform, the effect as
to right and liability depends to cause of loss and who has the right to choose. The premise is the car was
destroyed before the communication of choice.
FAULT OF DEBTOR: if he has the right to choose, he can still perform any of the prestation. Can he be held
liable for damages? NO, because he can still perform and it was him who has the right to choose.
But if creditor has the right to choose, and the loss was due to debtor’s fault of under the law creditor has two
option: he can demand for the value of the car plus damages OR demand performance of one of the
remaining prestations Commented [a7]: Also with damages? NO, as per Jurado not
FAULT OF CREDITOR: creditor cause loss of the car and debtor has the right to choose, debtor also has entitled to damages because 1st may be the creditor don’t want the
two option: he may treat this obligation rescinded OR perform one from remaining prestations. car
WHAT IF ALL PRESTATIONS BECAME IMPOSSIBLE TO PERFORM BEFORE THE COMMUNICATION Commented [a8]: Only an option, there’s no automatic
OF THE CHOICE, ONE AFTER THE OTHER, can the creditor hold the debtor liable? If he can, how much or recission.
extent of liability? Depends who cause the loss, if the creditor then NO, if due to fortuitous event then NO for Commented [a9]: Debtor may only do this, if the car is not
it is extinguished except under Art. 1174. owned by debtor. Thus the owner of the thing lost may held the
If it is due to fault of debtor, he can he held liable, but by how much depends who has the right to choose, creditor liable
because if he has the right to choose then it is the amount of the thing which was lost last. But if the choice is
with the creditor, then debtor be held liable to the value of any prestations plus damages.

Essential Elements of Obligation:


 No obligation will arise without the presence of these elements
 WHAT ARE OBLIGATIONS WITHOUT AN AGREEMENT? Commented [a10]: Means consent of BOTH not only one.
It do not require the consent of both parties, it will arise even without consent of both or one of the parties.
This would pertain to obligations arising from: law, quasi-contracts, delict, quasi-contract. IN EXCLUSION OF
CONTRACT.
1. Subject:
Creditor / Obligee (active) the one who has the right to ask or compel fulfillment from debtor
Debtor / Obligor (passive) the one who is obliged to fulfill or perform the obligation
In contract of sales the passive and active subject depends what kind of obligation is being required since it is a
RECIPROCAL OBLIGATIONS. Commented [a11]: It must always be in plural form. Thus with
2. Object: not the same as thing, it has may meaning but in relation to obligation is the Prestation: to give, to do or not to “S” because it involves two obligations.
do Commented [a12]: It is not a thing but a CONDUCT. It may
3. Juridical Tie or Vinculum Juris: The Function of which is to BINDS the parties to an obligation. Thus without which involved a thing or service as well.
there’s no civil obligation. SOURCES OF OBLIGATION is the binder.

Sources of Obligation:
1. Laws:
 Obligation arising from law are not presumed, a party claiming must prove the existence of such law to know
which law arose the obligation of such person.
2. Contracts:
Consent
Object
Consideration
3. Quasi Contract:
 If the act is punished by law can it be the basis of a claim under quasi-contract? NEVER, because claim under
quasi-contract are those (Art. 2142) VOLUNTARY, UNILATERAL or LAWFUL, if it is not based on any of the three
then it cannot be considered claim under quasi contract. The principle behind this is that no one shall be unjustly
enriched at the expense of anoother, thus a there will be obligation arising from this source.
 Kinds of Quasi Contract:
Solutio Indebiti- something received by a person which he has no right to demand and must be delivered to him
by MISTAKE,
Example:
X bought pack of cigarette to vendor which cost 225, he paid 500 pesos but the vendor
gave him the pack plus 375 change.
How is this situation denominated? Solutio Indebiti. Commented [a13]: Must have legal basis and brief explanation
Why? Because X received something which he doesn’t have the right to demand, which is the amount of 100
pesos only in excess, which was mistakenly delivered by the vendor. Commented [a14]: It is not Solutio Inbebiti if not delivered by
Negotiorum Gestio- the gestor or innoficous manager takes charge of business or property of another, that the mistake.
business or property is neglected or abandoned Commented [a15]: Not all change since X has the right to
Example: demand to 275 change.
A family went to Boracay for 1 day-vacation, while they were away the house burned and the neighbors
helped to put out the fire. Is the family liable under Negotiorum Gestio? NO because of the nature of the
obligation, because the managers did not take over the management of the house but only saves the house
from total destruction. Also the house was neither neglected nor abandoned, they family was only away from
house for vacation thus with intent to return. Lastly, it is covered by Art.2168 under other quasi-contract, thus
not a Negotiorum Gestio.
X in fear of lawless elements beseeching his Barangays, he abandoned his fishpond went to Manila and left
for Europe. Y seeing that fish is ready for harvest, who is in the business of managing fishponds took
possession of the property and fish. Y harvested the fish and sold it to Z. Thereafter Y barrowed money from
W which Y used to buy new supply of fish fry and to prepare the fishpond for the next crop.
How many are involved? 4
What is the relation of X and Y? Negotiorum Gestio, being X is the owner and Y as the gestor or inofficious
manager. who.
Upon the return of X to the brgy. what are the obligation of Y to Z as regards to obligation with Z? between
Y and Z it is a contract of sale, thus between X and Y the latter need to account everything in favor of X
What is the relation between Y and W? will X be bound to it? Contract of loan. X will be obliged to pay W
because it is binding upon him because it is necessary for management of business.
What is the obligation of X to Y? being a NG the rule on agency will apply, as if the gestor is the agent who
managed the property as if there was authority to do it and X asthe owner is the principal.
4. Acts or Omission punished by law
5. Quasi Delicts
 Of the 5 sources, if there’s an act or omission would there be the basis of the claim under various sources? Yes,
but only of 3 various sources [(delict, quasi-delict and contracts) limited by rule on no double recovery] since an
act cannot gives to an obligation based on contract and quasi-contract, since in old rule it is of the same source.
Commented [a16]: Demandable at once upon the constitution
Saludaga vs. FEU
of the obligation although the happening of condition extinguish
the obligation.
Example: I will let you use my car until you pass the bar exam.
Obligation as to Perfection and Extinguishment: Thus from the obligation already arises, due and demandable but
 When would an obligation become due and demandable? upon passing the obligation will be extinguished.
PURE- at once, upon the constitution of the obligation Commented [a17]: It is demandable at once upon the
RESOLUTORY CONDITION- at once, upon the constitution of the obligation constitution although the arrival of term extinguished the
SUSPENSIVE CONDITION- demandable upon happening of the event, since no condition to talk about if obligation.
condition is not yet happened. Example: I will let you use my car until Nov. 31, 2018.
Thus today my obligation is already due and demandable but upon
RESOLUTORY PERIOD- at once, upon the constitution of the obligation
arrival of such date is already extinguished.
SUSPENSIVE PERIOD- demandable at the arrival of the period.
 What are the obligations demandable at once? Pure obligations, Conditional if Resolutory and With a term if Commented [a18]: It is an EVENT which MAY or MAY NOT
happen. It is an uncertain event.
Resolutory. Thus is it obvious that the first thing one can understand as regards to this kind of obligation is WHAT
ARE THE KINDS OF CONDITION OR PERIOD INVOLVED. Commented [a19]: It is a SPACE OF TIME, it is certain to
 If the condition is Suspensive, before the happening of condition is there already an obligation? NO, the obligation happen, it will arrive, it will come.
will arise only upon the happening of the condition. But it is different when we talk about obligation with Commented [a20]: Goes into MATTER OF EXISTENCE
Suspensive Period because before the arrival of the period, obligation already exists but it is not demandable. Commented [a21]: Example:
Thus before the arrival of the period the creditor cannot demand for the performance of the obligation. I will give to you my car at the end of the year.
 As to acquisition and extinguishment of rights meaning suspensive or resolutory Is there obligation today? YES, but cannot be validly demand for the
car to be delivered today since the right will arise only at the end of
 What is a Potestative, Casual or Mixed Condition? the year.
Potestative- based solely on will of one party GOES INTO MATTER OF DEMANDABILITY
Casual- condition is based on luck/chance
Mixed- condition based on both will of party and upon luck/chance
 An obligation subject to Impossible condition, what is the effect? VOID, it will never arise. But in Succession if Commented [a22]: Condition “not to do” an impossible thing is
condition is impossible, it is not VOID BUT CONDITION IS DEEMED NOT WRITTEN. Where lay the difference? considered NOT HAVING BEEN AGREED UPON.
Obligation is ONEROUS whereas SUCCESSION is based on GRATUITY or LIBERALITY.
 When can an obligation become invalid?
PURE- when contrary to law, public order, and public policy
WITH A PERIOD- period pertaining to the past, because period pertains always to the future CONDITIONAL-
when contrary to law, public order, and public policy
Rule on Impossible Condition
Condition pertains to knowledge of the past Commented [a23]: It pertains to future also but the law allows
Art.1182, if fulfillment is based solely on the will of the DEBTOR for suspensive condition based on past not within the knowledge of both parties
 Is it a valid obligation when the condition consist “debtor will pay, when his means permits him”? YES, being
considered as Obligation with a Period, because the remedy of the creditor here is to go to court once the debtor
already has the means. But if debtor already has the means and the creditor goes to court the latter can fix the
period under the law.
When would it be demandable? UPON THE EXPIRATION OF THE PERIOD FIX BY THE COURT.
 Is it a valid obligation when the condition consist, If the debtor promises to pay when he likes? NO, if there’s no Commented [a24]: Synonymous “to give”
pre-existing debt, because more often than not the debtor will not like to pay. This rule will not apply if there is pre-
existing debt, even if the condition dependent solely on the debtor. Thus if it is void no need to answer the
demndability.
 Is it a valid obligation when the condition consist, when he becomes a lawyer? YES, it will due and demandable
when signs the roll of attorney.
 Is it a valid obligation when the conditions consist, when he son sick with cancer does not die within one year?
YES not dependent solely upon the will of the debtor.
 Question pertaining to Art.1182. Pedro wanted to give his grandson a car when he pass the bar exam. When his
grandson passed the bar exams, Pedro refused to give the car being the condition is purely based on sole will of
grandson.
Is Pedro correct or not? NO, passing the bar exam does not depend solely on the will of one of the parties. But it Commented [a25]: Clearly the question pertains if condition is
is a mixed condition because the bar exam depends a lot to the examiner, Supreme Court and other factor. potestative or not. Here the condition is passing the bar and the
Assuming this is a potestative condition, does it mean that Pedro cannot be compelled to deliver the car otherwise obligation is to deliver a car.
stated does the obligation void? NOT VOID under Art. 1182 to be void the fulfillment of the condition dependent
solely on the will of the DEBTOR. In the case at bar it is the Pedro who is the debtor, because condition made
solely on the will of the creditor will not render the obligation void.
 In a conditional obligation, and the condition was not fulfilled, may the creditor be validly demand that the creditor
performed his obligation? YES under Art. 1186 condition is deemed fulfilled, if the debtor voluntarily prevented Commented [a26]: On its face NO, because in a conditional
knowingly the happening the condition, it is bad faith on his part. obligation it will only arise if the obligation is fulfilled.
Example: Contract of Piece of Work, A promise to pay 50% upon signing and the rest of payment on the condition
completion of work of B. When the construction is halfway finished the owner prevented the worker (B) to enter
premises of construction. Thus the obligation to finish the construction will not be completed but because the
owner (A) voluntarily prevented the fulfillment of the obligation the rule provide that condition is deemed fulfilled,
thus obligation arises and debtor (A) may be compelled to pay.
This is subject to disqualification: but even if the debtor prevented the fulfillment of obligation based on exercise of
a right he cannot be compelled to perform the obligation.
Example: the reason why B was prevented to enter the premises because he doesn’t follow the plans and
specification of the work. Thus the debtor have the right to prevent credito
 In 1997 Manuel bond himself to sell Eva a house and lot which is being rented by another person if Eva passes
the 1998 bar exam, luckily for Eva she passes the said exam.
Scenario 1: suppose Manuel sell the house and lot to another before Eva pass the 1998 bar exam, is such sale Commented [a27]: Question on sales, this is about the validity
valid? Why? YES, because the element of contract is present. The contract not being a prohibited contract then it of contract.
is valid. Though the delivery of house and lot is subject to a condition, it can still be the object of sale to another
since the condition had not yet happened.
 Scenario 2: supposing Eva has the right to buy said house and lot, is she entitled to the rentals collected by
Manuel before she pass the bar exam? NO, because since the condition was fulfilled in 1998 then she will be
entitled only to the house and lot as well as the fruits only in 1998. NO, In Art.1187 the effect of the fulfillment of Commented [a28]: This is defective answer, consider Art.1187
the condition retroacts to the date of the constitution of the obligation. Thus the buyer has the right to the fruits, the answer pertains only to the owner of thing is the owner of
but despite the retroactive effect of the happening of the condition as to the fruits and interest in relation to fruits.
reciprocal prestations/obligations, this fruits and interest are deemed mutually compensated Commented [a29]: Upon happening of the condition the buyer
Scenario 3: In unilateral obligations arose who will be entitled to the fruits of the thing which is the subject matter simply pay the price and the seller deliver the thing. There’s no
of obligation before the happening of the condition? Art. 1187 the fruits pertain to the debtor in such case Manuel, more issue to fruits of each obligations.
unless the contrary intention was clear. Commented [a30]: This is so because in unilateral condition
 In condition to deliver a car if X pass the bar exam, probably a determinate car, before the happening of the this considered as donation.
condition the debtor thought that X cannot pass the bar exam so he repainted the car, change the seat cover and
had other improvements. But a few months after X passed the bar hence the condition was fulfilled. X demanded
the car to be delivered to him.
The debtor refused to deliver the car unless he will be paid the amount he spent to the repainting and etc. is it a
valid demand, is the debtor have the right of retention? NO, under the law, as to improvements made by debtor to
the thing before the happening of the condition, he will only have the right of usufructuary. Thus he will only have
the right to remove the improvement not use car, for as long as removal will not cause damage to the thing.
 Improvements made by nature, such in an obligation to deliver a parcel of land, if there’s increase in area because
of avulsion or accretion. Do you think debtor can ask to pay creditor a sum of money as a result of increase of
area or value by nature of the lot? NO, it shall pertain to the creditor without the right of debtor being reimbursed.
 OBLIGATION WITH A TERM—
Different kinds of Period (arrival) / term (expiration):
Suspensive, the obligation will become due and demandable
Resolutory, the obligation extinguished
Definite, specific date (ie Dec.25, at the end of this year, within 6 months)
Indefinite, the period may arrive upon the happening of certain event but which event is certain to
happen (ie death)
Legal, those as provided by law (ie payment of tax, obligation giving of support)
Judicial, the court has the power to fix the period ie in Art. 1191, in recission and fulfillment, whereby
fulfillment is a remedy the court shall fix a period wherein the debtor shall fulfill.
In situation where debtor fixed the date of payment then the creditor has the remedy to go to court to fix a
different period.
Voluntary, parties agreed the date
 In Art.1197, there was no period designated by the parties but from circumstances it can be inferred that a period
is intended by the parties. Thus the remedy of the creditor is to go to court for the court to fix the period.
For it to apply, there are certain rules that need to observe by the judges: Commented [a31]: Since if there was Art.1197 is not
(a) If the obligation is one arising from a contract, the SC ruled that Art. 1197 will only be applicable if the applicable. Lim vs. People
contract was perfected.
Commented [a32]: This is usually with action for specific
(b) If an action is filed under Art.1197, what should the court must observed? 1st that there’s an obligation where performance except when the period intended by parties is not yet
no period is designated, 2nd is there an intention that a period shall be fix or there was an intention to fix a expired.
period, otherwise this may be a Pure Obligation. 3rd if there was really an intention, the court shall determine Exception to the exception if it involves obligation TO DO for it
what was the period intended by the parties. violate the mandate on involuntary servitude.
 Before the arrival of the period, can the debtor be compelled to perform? Or can the creditor be compelled to Commented [a33]: Better phraseology is CREDITOR BE BOUND
accept? TO ACCEPT. Nonetheless it is considered synonymous.
This questions can be answered by determining FOR WHOSE BENEFIT THE PERIOD FIX? Was it fixed for the Commented [a34]: It is presumed but disputable based on the
benefit of creditor or debtor or both parties? wordings/phraseology of the contract, rights of the parties,
Solely for the benefit of DEBTOR- the creditor cannot validly demand before the arrival of the period but the circumstances or the facts.
debtor can compel the creditor to accept before the arrival.
Commented [a35]: Determinant: On or before
Example: January 1, 1983 B barrowed money from A amounting to Php10,000 payable until December 30,
1983. A security therefore B pledges a car to A with an agreement that A could use it. On June 30, 1983 B Commented [a36]: The 2nd question pertains to accessory
offered to pay the loan in full and asked for the return of his car. Can B compel A to accept the payment and contract which is the contract of pledge. Thus if the creditor be
compelled to accept the payment or creditor accepted it then
to return the car? Why? NO, because the date fixed was for the benefit of both, thus creditor cannot be there will be extinguishment of whole obligation so as the pledge
compelled to accept nor be ask to return the car. because it is only an accessory contract which follows the principal.
Thus pledgee be compelled to return the car.
 In a scenario even if the period was fixed solely for the benefit of the debtor, before the arrival of the period, may
there be a valid demand for the performance of the obligation? YES it can happen when the debtor lost his right to
make use of the period, as enumerated in Art. 1198. Commented [a37]: This is made applicable in sales,
(a) When the debtor becomes insolvent, UNLESS if he can provide for SECURITY OR GUARANTY Commented [a38]: A person considered insolvent when a
acceptable to the creditor for the debt; person has no liquidated asset such as cash to pay his debt when it
(b) If security is lost or disappear due to a fortuitous event; or by debtor’s own act s he has impaired the become due. Thus a person who is insolvent can still have
guaranties or securities UNLESS immediately gives new ones equally satisfactory; properties.
Example: A obtain a loan from B payable within a year, as security for his payment A mortgaged his Commented [a39]: Why debtor lose the right to make use of
uninsured house, 3 months after the loan was given A’s house gutted an accidental fire. Thereupon B period when the lost was not due to his fault? The lender would not
demanded an immediate payment from A who refused contending that the loan was for one year period. have approved the loan if without the security also the lost was not
Is A’s contention valid? NO, his right to make use of period was lost. Thus A should bear the loss since due to the fault of the lender.
it is also a mortgage the owner of the thing bears the loss.
Example: On June 1, 1999 A signs a promissory note and binds himself to pay X 100k plus 15% per Commented [a40]: Problem pertains to FOR WHOSE BENEFIT
annum interest on June 30, 1999. Which is correct? THE PERIOD WAS FIXED
a. before June 30, 1999 X can demand payment, Commented [a41]: Fixed for benefit solely of the creditor
b. X is bound to accept payment and debtor is compelled to pay
Commented [a42]: For benefit of both Since the debt is already
c. A can compel X to accept payment at any date before June 30, 1999
due and demandable. “ON” means that debtor cannot be
d. A can tender payment before June 30, 1999 and X accept it. compelled to pay before June 30
Commented [a43]: For the benefit solely of debtor
Obligation involving Multiple Parties: Commented [a44]: For the benefit of both
 Involves two or more creditors or two or more creditors
 It involves Passive Joint/Solidary (debtor) and Active Joint/Solidary (creditor)
 Usual Question: Can one of the debtors be compelled to pay the entire obligation? Can one of the creditors validly
demand for the payment of entire obligation? It depends if it is joint or solidary.
Example: Four foreign medical students rented the apartment owned by Thelma for a period of one year,
after one semester 3 of them returned to their home country and A is the 1 remained in Phil. and transferred
to a boarding house. Thelma discovered that they left an unpaid telephone bill in the total amount of 80k.
Their lease contract provides that they shall pay telephone services of leased premises. Thelma demanded
that A pay the telephone bill but the A is only willing to pay ¼ of it. Who is correct? Why? THELMA is correct
only if it is a solidary obligation because here ANY OF THE DEBTORS may be compelled to pay the whole Commented [a45]: Because in joint it is EACH debtors FOR HIS
amount of the debt. Clearly the student would be correct if the obligation is joint, A will be liable for ¼ of the PART.
amount as her share. Commented [a46]: Why ¼? Because under Art.1208 , the
 If an obligation involving multiple parties does not expressly so state that it is solidary, does it mean that it is joint? division of liability is presumed divided in EQUAL share.
NO, under Art. 1207 though the parties does not expressly so state or is there STIPULATION that it is a solidary
obligation but the LAW or NATURE of the obligation requires solidarity then it is a solidary obligation. Commented [a47]: STIPULATION, LAW AND NATURE OF THE
In the problem is there stipulation that obligation is solidary? NO OBLIGATION MUST BE CONSIDERED TO DETERMINE WHETHER AN
In the case above, does the law on lease provides solidarity in paying telephone bill? NO OBLIGATION REQUIRES SOLIDARY. OTHERWISE IT IS JOINT.
Does the nature of obligation requires solidarity? NO
THUS TO ANSWER THE ABOVE EXAMPLE… THE OBLIGATION IS A JOINT OBLIGATION. “A” IS CORRECT,
AS AN EFFECT THELMA CANNOT COMPEL “A” TO PAY THE WHOLE OBLIGATION BUT ONLY TO “A”’s
SHARE TO THE OBLIGATION. SINCE THERE ARE FOUR OF THEM AND NO DESIGNATION AS TO THE
DIVISION THE IT IS PRESUMED THAT IT IS EQUALLY DIVIDED THUS ONLY ¼ .
 When would an obligation is Solidary because it so STIPULATED? The following phrases connotes Solidarity:
Ronquillo vs. CA
“individually and collectively”
“In Solidum”
“Man Communada Solidaria”
“individually and jointly”
“distinctively”
“collectively”
“separately”
“joint and several” or “jointly and severally”
In PN which states “I promise to pay” but followed by signature of two or more persons
 When would an obligation is Solidary because it is provided by LAW?
(a) Art. 2194 when two or more persons held liable because of quasi-delict, they are joint tortfeasor.
(b) In succession, if there’s a legacy involving a determinate property and two or more heirs not the legatee took
possession of the property after the death of testator, if the thing was lost due to the fault of such heris. They
will be held solidarily liable to the legatee.
(c) In Solution Indebiti, whereby two or more persons received something which they don’t have the right to
demand and it was delivered to them by mistake. They will be held solidarily liable.
(d) In agency, when two or more principals in relation to particular transaction.
(e) Under Art. 1911 where the agent acted in excess of authority, the principal who contributed in deceiving the
3rd person in believing that the agent had full power. Thus under the principle of ESTOPPEL the agent and
the principal deem held solidarily liable.
(f) Art. 1822-24 in Partnership, one of the scenarios where partners are held solidarily liable among themselves
and with the partnership, while a partner while in the performance of his obligations misappropriate a sum of
money which delivered to him by the client of the partnership.
(g) In Family relations, where the community/conjugal property of husband and wife is sufficient to pay their
obligation. They will be solidarily liable with their own separate property.
(h) Liability of school, teachers, administrator and individual entity or institution engaged in child care over the
minor child or damage caused by the acts or omissions of an unemancipated minor, while under the
SUPERVISION or CUSTODY shall be Principal and Solidary. Commented [a48]: No person can be SUBSIDIARY (presumes
 When would an obligation is Solidary because it is provided by NATURE? In Liwanag vs. Workmen’s that the first party has no capacity to pay) AND SOLIDARILY LIABLE
Compensation Commission, if an employee has two or more employers, if the latter is liable under WCC Act, they AT SAME TIME!!!
will be held solidarily liable not because the law so provides but because of nature of obligations.
Gutierrez vs. Gutierrez (vehicular mishap) where both drivers are both negligent, the SC held liable the father of Commented [a49]: In such a case, one may say that the basis
minor driver under quasi-delict regarding vicarious liability of parent. Whereas the driver of the vehicle where the of solidarity if the nature of the obligations.
plaintiff was the passenger together with the owner of the vehicle, they were held liable under contract. Though Commented [a50]: Uribe does not agree with this because the
separate and distinct the source of obligation, the SC held both the driver and operator solidarily liable without driver cannot he held liable under a contract because it is the
providing any explanation why there’s solidarity. operator who has contractual relation with the passenger under the
But in Malayan vs. CA where the liabilities of parties came from different sources of obligation, SC held that they contract of carriage.
cannot be held solidarily liable.
 A and B sold 1000 sacks of rice to X and Y on the X’s request that is shall be delivered to him all 1000 sacks of
rice. X resold the rice without turning over any part of it or its price to Y. May Y compel A and B to deliver what he
bought? If so, to what extent? Y can compel A and B to deliver what he bought, only if the obligation of A and B
has not been totally extinguished, otherwise there’s nothing to perform.
But, because A and B delivered to X the entire sacks, was the obligation extinguished? It depends whether the
obligation is joint or solidary. If it is solidary, by the delivery all sacks of rice to one of the creditor the obligation
extinguished because any of the creditor can compel performance from any of the debtors.
THUS NO, SINCE THE OBLIGATION IS A JOINT ONE BECAUSE THERE’S NO STIPULATION NOR THE LAW
OR NATURE PROVIDES SOLIDARITY. THE PERFORMANCE OF “A” AND “B” OF THE WHOLE OBLIGATION
TO “X” DOES NOT EXTINGUSHED THE OBLIGATION AND “Y” CAN ONLY COMPEL “A” and “B” TO DELIVER Commented [a51]: Practically there are 4 debts,
250 SACKS EACH. No. of debtor X No. of creditor = number of debts.
 A, B, and C bound themselves solidarily to pay to D the amount of 5k, suppose B paid the obligations what is his So when A and B deliver the entire sacks of rice to X, they only
extinguished their obligation to the latter or the half of their
right against his co-debtor? B may ask reimbursement from A and C. obligations..but not to Y.
 A, B and C bound themselves solidarily to pay D the amount of 10k, when the obligation became due and
demandable, D sued B for the payment of the debt of 10k. B moved to dismiss the case on the ground that there Commented [a52]: Payment of A and C the solidarity
extinguished and they are only liable to B for each share.
was failure to implead A and C who are indispensable parties. Will the motion to dismiss prosper? NO, because in
this kind of obligation, the creditor can hold even only one, some or all of them liable. Thus D can file a case only Commented [a53]: In solidary obligation other creditor and
to one of the debtors. And any one of them can be compelled the entire amount. debtors need not be impleaded for they are not indispensable
party. Ony one of them is enough to be held liable for the whole
 A, B and C are solidary debtors of D, 12 yrs after the obligation became due and demandable B paid D and later obligations.
on ask for reimbursement of A and C shares. Is B correct? NO, because the obligation has already prescribed.
 EFFECT OF INSOLVENCY OF ONE OF THE DEBTORS
Bar Question: If the obligation is a joint obligation and one of the debtors become insolvent, would that increase
the liability? NO, because these debts are separate and distinct from one another. Thus other debtors will not be
affected by the insolvency of the other.
Bar Question: In solidary obligation- A, B and C solidary promise to pay D the amount of 3k, unfortunately C
became insolvent. What recourse against D have against A and B? and what are the rights of A and B against
each other?
D can hold either A and/or B liable for the entire amount, because in solidary obligations, the share of the
insolvent debtor will be SHOULDERED BY ALL OTHER DEBTORS IN PROPORTION TO THEIR SHARE WHO
ARE NOT INSOLVENT. Here there’s no designation of their respective share Art. 1208 of NCC is applicable
hence it is equally divided. If A paid the whole obligation, he can seek reimbursement from B as to the amount of
1500 pesos because of insolvency of C.
 EFFECT OF CONDOTION OF DEBT OF ONE OF THE DEBTORS
Bar Question: If the obligation is a joint obligation and one of the debts of the debtors was condoned by the
creditor, would that decrease the liability? NO, because these debts are separate and distinct from one another,
thus this will not benefit other debtors.
Bar Question: Joey, Jovy and Jojo are solidary debtor under a loan of 300,000 which has fallen due, the creditor
condoned Jojo’s entire share in the debt, since Jovy become insolvent the creditor made demand on Joey to pay Commented [a54]: There’s no extinguishment of the entire
the debt. How much if any Joey be compelled to pay and to what extent can Jojo be compelled by Joey to amount, rather there’s only partial condonation since it was only
contribute such payment? Joey may be compelled to pay 200,000 because Jojo’s share in the debt was condoned Jojo’s share was condoned and not the entire obligation. The effect
of which is it will decrease the amount of debt to 200,000.
thus in effect it will reduced the amount of debt by 100,000, but insolvency of Jovy will not further reduce the said
amount. Jojo can be compelled to contribute an amount of 50,000 because one of the debtor is insolvent, thus
SHARE OF INSOLVENT DEBTOR WILL BE SHARED BY ALL SOLVENT DEBTORS INCLUDING THE SHARE
OF THE DEBTOR WHOSE DEBT WAS CONDONED. It will not exempt him from his obligation as to his co-
debtors.
Bar Question: A, B, C and D are solidary debtors of X for 40,000. X released D from payment of his share 10,000
when the obligation became due and demandable C turned out to be insolvent, should the share of insolvent C
divided only between the two, A and B? NO, the share of the insolvent debtor shall be shouldered by debtors who
are not insolvent including the debtor whose share was condoned. Thus D shall contribute still to the share of
insolvent debtor. Thus A and B is liable for 13,333.33 and D is liable to 3,333.33.
Bar Question: Rudolf barrowed 1million from Rodrigo and Fernando who acted as solidary creditors. When the
loan matured, Rodrigo wrote a letter to Rudolf demanding the payment of the loan directly to him. But before
Rudolf could comply, Fernando went to see him personally to collect and Rudolf paid him. Did Rudolf made a
valid payment into one of the solidary creditors? NO, by express provision of the law “IN SOLIDARY
OBLIGATION WHERE THERE ARE TWO OR MORE CREDITORS THA DEBTOR SHOULD PAY THE
CREDITOR WHO FIRST MADE THE DEMAND” since Rodrigo made prior demand to Rudolf.
 EFFECT OF MINORITY OF ONE OF THE PARTIES
Bar Question: What is the effect when one of the debtors is 16yrs. old? It depends whether the minority if TOTAL
or PARTIAL defense and WHO IS INVOKING THE DEFENSE AND WHETHER THE OBLIGATION IS JOINT
AND SOLIDARY.
If the minor himself is the one invoking that minority then it is a total defense but if he received something from the
creditor, the minor should return what he received in order that obligation will be annulled/rescinded.
If the defense is invoked by the debtor who is not the minor, in joint obligation it is not a defense at all because
debts are separate and distinct from each other. But in solidary obligation, other debtor may invoked the defense
of minority only as partial defense thus only as to the share of minor debtor. Thus the amount of debt will be
reduced as the effect of minority of one of the debtor.
Bar Question: A, B, C D and E was solidary debtor of X. E was given by X an extension of 6 months without the
consent of other 4 debtors, what is the effect to the obligation of other debtors? In solidary obligation all debtors
can invoked the extension given by X to E. Anyone of them cannot be held liable within 6 months.
 TOTAL DEFENSE REGARDLESS THE OBLIGATION IS JOINT OR SOLIDARY
Example: obligation arising from contract and it is void, then it is a total defense which can invoked by any of the
debtors.
 DIVISIBILITY AND INDIVISIBILITY OF OBLIGATIONS
The question here pertains whether the obligation can be partially performed? In other words the creditor can
validly demand that obligation be performed partially. On the other hand the debtor can bound the creditor to
accept partial performance.
GR: partial performance is non performance, as a rule creditor cannot be bound to accept partial performance.
EX: there’s stipulation
the obligation is partially liquidated and partially unliquidated
divisible by provision of law
 Are there obligation indivisible by their nature and therefore the parties cannot stipulate for their divisibility? YES,
obligation to deliver a definite things, ie the obligation to deliver a live horse.
 What is the relevance of divisibility and indivisibility? The performance of obligation whether it performed the
obligation partially or not.
Bar Question: A, B and C obliged themselves to deliver a specific horse which amounts to 600,000 to X. Before Commented [a55]: In this question, it must be qualified WON
the due date arrived the horse died due to the fault of A, thereafter X files an action against C. If you’re the judge action will prosper if not all the parties are impleaded? YES,
how will you decide the case? In a joint indivisible obligation there’s no need to implead all the parties for in this because in joint indivisible obligations if not all the parties are
impleaded it may still prosper if the action is not specific
case it does not involve specific performance, thus impleading C alone the case will prosper. Also, the effect of
performance. In the problem it cannot be specific performance
lost of the thing in joint or solidary obligation converts it to a monetary obligation. Each of them is liable to their because the horse is already dead.
respective share, there being no designation it is equally divided among the debtors, but the one who cause the
loss will be liable also for damages. Hence, C can be held liable in the amount of 200,000 but not liable to the Since the horse died due to fault of one of the debtor the effect lost
damages for it is A who cause the death of the horse. of the thing in joint or solidary obligation will convert the obligation
into a monetary obligation. If it is converted each one of them is
liable into their respective share but the one who cause the loss will
be liable for damages.
Obligation with a Penal Clause:
 As to the nature of the Clause: in Robles-Francisco vs. CFI it is a contract of sale involving parcel of land, Have it been a solidary obligation, C can be held liable not only of
whereby the parties stipulated that once the Sps.Francisco (buyer) already paid the entire amount since it is the 200,000 but also the damages. But he can seek reimburse to B
payable by installment, the developer-seller now be obliged to deliver to the buyer the TCT over the parcel of land. which is 200,000 as his share and from A the amount of 200,000
plus the damages.
If the developer would not deliver the TCT then the developer should return all the amounts paid plus 4% interest.
Despite full payment the developer failed to deliver the TCT, and it turned out that the whole property was under
mortgaged agreement with GSIS. Thus as stipulated Sps.Francisco demanded that the developer should perform
its obligation, and when the latter refuses, Sps.Francisco filed an action. They prayed that the developer should
return the amounts paid but also the 4% interest plus the nominal damages.
The developer contended that in an obligation with a penal clause the penalty shall substitute the payment for
damages, indemnity and payment interest. That the stipulation in the contract of payment of 4% interest constitute
as penal clause. Thus following the rule, the developer should not be held to pay the nominal damages awarded
by the trial court.
WON that the developer is correct that such is a penal clause? SC held that it cannot be a penal clause, because
AS ITS NATURE IT PROVIDE FOR A GREATER LIABILITY IN CASE OF NON-COMPLIANCE, but even without
that clause the debtor can be held liable at a legal rate of 6% per annum. Thus a 4% interest as stipulation a penal
clause when the subsisting legal rate is much higher.
 The rule that in penal clause the penalty shall substitute the payment for damages, indemnity and payment
interest is only the general rule.
The exceptions are: if fraud was committed
If it was so stipulated by the parties (ie credit card agreement)
When the one who is liable refuses to pay the penalty
 In the case of Bachrach vs. Espiritu, the issue was that there was a penalty of 25% and interest of 12%, it is this
allowed? YES, though there’s a penal clause the parties so stipulated that a 12% interest can be collected, but the
SC did not allow the collection to 25% penalty and reduce such because there was partial payment. Commented [a56]: Reason for reduction of penalty are:
 Bettis Furniture Co. under took to deliver to Mr. Bagongkasal specified pieces of living room and bed room 1.There’s partial fulfillment though irregular or at least an
furniture all made of Narra for a price stipulated in contract. The agreement had a penal clause that any violation attempt to fulfill
2. The penalty is unconscionable. It is only unconscionable
of the contract will entitled the aggrieved party to damages of 100,000. The furniture delivered by Bettis was made depends on principal amount involved.
not of Narra but of inferior wood. In a suit to recover damages, Mr. Bagongkasal was able to prove that the actual
damages sustained amounted to 200,000 he demanded that amount plus 100,000 penalty for a total of 300,000. Commented [a57]: Mr. Bagongkasal may be entitled more than
Bettis however countered that if it were liable for damages the maximum amount should not exceed 100,000 as the amount agreed upon if there was fraud committed. The fact
stated in the penal clause. Whose clais would you sustain? Why? Neither in the claim of Mr. Bagongkasal, he will that the Bettis company delivered a furniture made of inferior
wood doesn’t mean that there was fraud.
only be entitled if there was fraud in Bettis performace of its obligation, because fraud is not presumed thus Mr.
Bagongkasal has the burden of proving, He should prove that it was the intention of Bettis defraud him by Commented [a58]: The claim of Bettis Furniture would be
delivering pieces of a furniture not made of inferior wood. However, assuming that there was fraud Mr. tenable if not one of the exceptions is applicable thus is should be
Bagongkasal is not correct because if there was fraud he cannot recover both the actual damage plus the penalty. the general rule will govern.
He will only be entitled to recover the excess of actual damage beyond the penalty (Pamintuan vs. CA). Otherwise
the amount will be considered to Mr. Bagongkasal is only 200,000.
 If there is non-compliance and there’s a penal clause, can the creditor demand both the fulfillment of the obligation
and payment of penalties agreed upon? NO, creditor may either demand performance or claim penalty. It is only
possible if the Civil code provides if such right if clearly granted to him. Commented [a59]: It doesn’t mean that it is stipulated but it is
 But the debtor cannot choose to just pay the penalty and be exempt in the performance of his obligation. The only clear in the agreement.
creditor could have still demand the performance of the obligation except IF THAT RIGHT IS EXPRESSLY
RESERVED TO THE DEBTOR.
Compliance which involves all Obligations:
 How these obligations are complied with? Start with Art.19 of NCC though this provision is broad and vague. Commented [a60]: If the claim is about DAMAGES and no
Then consider the source of obligation (ie in contract, the manner of compliance is stipulated by the parties). other basis just state the cardinal rule, this rule not only compliance
Finally, regardless of the source of obligation if it does not provide the manner of compliance, it shall be complied of obligation but also exercise of rights. IT IS THE BASIS OF ABUSE
OF RIGHT PRINCIPLE.
with the provision of Civil code depending on the kind of obligation as to prestation.
 In other words there are provision in the NCC depending in the prestation which governs its compliance:
TO GIVE- determine if the thing is determinate or generic. Also consider Art. 1166
To Give a Generic Thing: it shall be complied when the feature of thing is not determined, the debtor cannot
compel the creditor to accept a thing inferior quality, but he creditor cannot also compel the debtor to deliver
a thing of superior quality. THE RULE PROVIDE IN DETERMINING THAT THE THING TO DELIVER IS
NEITHER INFERIOR NOR SUPERIOR, CONSIDER THE INTENTION OF PARTIES IN THE
CONSTITUTION OF THE OBLIGATION ALSO SUCH OTHER CIRCUMSTANCES.
To Give a Specific Thing: it shall be complies by delivering the thing WHICH WAS PROMISED. The debtor
cannot compel the creditor to deliver another thing even such thing is valuable from what was promised. But
may creditor may accept if he wants to.
TO DO- Art. 1167 and Art. 1168.
Factors affecting Obligations in General:
 This factors would result liability for damages under Art. 1170
 Reasons why party be held liable for damages:
There’s Fraud was commited
He was in Delay
There’s Negligence (Cangco vs. MRR)
If there’s contravention of the tenor (ie complete non-performance or different from what was stipulated)
 Parties are not liable for damages if:
Both parties faithfully complied with their respective obligations
Even there’s no performance or faithful performance if there’s an EXCUSE then debtor cannot be held liable (ie
creditor’s fault of non-performance and Fortuitous event)
 What is fortuitous event? Art. 1174 Those event which could not be foreseen or which though foreseen were
inevitable. The General Rule is no person shall be responsible.
 Exemption of fortuitous event:
When so stipulated
When the law so provides- Art. 1165, Art. 1942
When the nature of the obligation requires assumption of risk- Insurance contract
 To be able to validly invoke Art. 1174, there must be no concurring negligence on the party invoking this defense.
 In FRAUD, has 2 Kinds:
1. Fraud in performance/ malice or bad faith, may arise from any source. WAIVER TO FUTURE FRAUD IS Commented [a61]: Know when the fraudulent act committed
VOID. (when A promised to deliver 12 bottles but only delivered 3 bottles) and the waiver executed.
2. Fraud in obtaining consent/ dolo causante/ causal fraud, it can happen in relation to contracts (When A
obliged himself to sell a bottle with liquid in it and misrepresented it as genuine wine when in fact not)
 In DELAY, Art. 1169 only if after DEMAND judicially or extra-judicially is made but the debtor failed to comply with Commented [a62]: Demand is valid when the obligation is DUE
the obligation.
Example: A agreed to perform the obligation at a particular date, despite the arrival of such period he failed to
comply. Does that mean that the debtor is in delay, for which he may be held liable for damages? Not necessarily,
because as a rule DEMAND IS NECESSARY FOR DELAY TO SET IN.
 There are however, exemptions to the rule:
when it is so stipulated by the parties
when the law so provides
when demand would be useless
 Delay in relation to reciprocal obligations, when one of the parties comply and the other party had not comply.
Then the party who had not complied will be considered in delay even if there was no demand. Example: in
contract of sale, if the seller delivered the thing and ownership already pass to the buyer, but 5 months after the
delivery the buyer had not yet paid. Does mean the buyer be considered in delay and be held liable for damages?
YES if based in Art.1169. NO, if under the stipulation of parties, the debtor may not be considered in delay if the
stipulation the buyer will pay only after one year.
 Kinds of Delay:
Mora Accipiendi- delay on the part of creditor
Mora Solvendi- delay on part of debtor
Compensatio Morae- delay on part of both parties.
Agcaoili vs. GSIS- if both parties are in delay, in contemplation of the law NO ONE IS IN DELAY.
and therefore no one can cancel the contract.
 Effects of Delay:
Payment of damages
Even there’s fortuitous event, the debtor can still be held responsible for the loss of such thing.
Example: Cristina brought her diamond ring to a jewelry shop for cleaning, the latter under took the
ring by Feb. 1, 1999, when such date arrived the jewelry shop told Cristina that the job was not yet
finished and ask her to return 5 days after. On Feb. 6, 1999, Cristina went to the shop to claim the
ring but she was informed that it was stolen by thief who entered the night before. Cristina filed a
case for damages against the jewelry shop which put up a defense of force majeure. Will the action
prosper or not? NO, even if the incident robbery as fortuitous event, the action may still prosper
because at the time of the loss even due to fortuitous event the debtor is already in delay which
involves an obligation of delivery of specific thing.
Example: Mr. Mekaniko leased some automobile repair equipment to Mr. Masipag who is opening
his auto repair shop, the lease agreement was executed in Feb.15, 1985 stipulated that obligation
is one month only and that Mr. Masipag should return the equipment of Mr. Mekaniko. The
equipment was delivered in Feb. 15, 1985; one month after Mr. Mekaniko on a telephone call
asked Mr. Masipag to return his property that same day. But because his truck broke down Mr.
Masipag failed to comply. Early the next morning the equipment was burned in an accidental fire
that started in nearby restaurant and gutted Mr. Masipag’s auto repair shop. Mr. Mekaniko would
like to hold Mr. Masipag liable for payment of value of equipment plus damages because it did not
comply with date agreed upon. Is Mr. Mekaniko’s allegation tenable? NO, In the case-at- bar the
demand of Mr. Mekaniko is not valid, under Art. 13 of NCC the first day is excluded while the last
day is included thus the obligation is not yet due when he made his demand. Thus, GR in case
there’s fortuitous event is that no person shall be held liable is applicable.
 In NEGLIGENCE, it is not the same with fault because it may be intentional. It is by omission of diligence required
by the nature of the obligation. Art. 1173 provide for the parameter whether the act is negligent or not, considering
the NATURE OF OBLIGATION (helps to determine the standard of care) which corresponds to CIRCUMSTANCE
OF PERSON, TIME and PLACE.
 The following requires highest degree of diligence: common carrier, realty firms, banks and public utility.
 Negligence can also be classified into: negligence in the performance Art. 1173, negligence as to independent
source of obligation (culpa aquillana or quasi delict) and negligence as to gravity (gross or simple) Telefast vs. . Commented [a63]: The gravity is relevant in Gross negligence
act amount to BAD FAITH thus a party is entitled to damages.

Breach of Obligation and Remedies:


 Usual question in remedies: Will the action prosper? Is it a appropriate remedy?
 Remedies is only available to the INJURED PARTY.
 Art.1191 provides for 2 remedies: fulfillment and recission.
Commented [a64]:
If the creditor or the injured already invoked fulfillment as a remedy may he thereafter invoke recission as a
Types of rescission: based on cause of action.
remedy? YES, but with a condition, if the fulfillment became impossible due to the fault of the debtor. Then 1. Art.1191- the rescission here is just a mistake in the
rescission can be a remedy. translations. Which should mean actually as RESOLUTION.
If the creditor or the injured already invoked recission as a remedy may he thereafter invoke fulfillment as a There’s BREACH which must be substantial or fundamental.
remedy? NO, it cannot happen because in Magdalena Estate vs. Meritt recission is one of the modes of This is a principal remedy, thus the injured need not exhaust any
extinguishment enumerated in Art. 1231. Thus the obligation is already extinguished there’s nothing more to be other remedy.
Remedy: damages
performed.
Bar Question: an action for rescission was filed, the defendant filed a motion to dismiss on the ground that the 2. Art. 1381 &1383- TRUE KIND OF RESCISSION because it
action was filed more than 4 yrs. from the date of the contract; therefore the action had already prescribed. provides rescission for rescissible contracts. There’s LESION or
Whether the MTD should be granted? The granting of MTD depends on the what type of rescission. ECONOMIC INJURY OR PREJUDICE.
 Is Art. 1191 or Art.1381 a judicial remedy? The rescission can be invoked extra-judicially even not so stipulated. In Even without breach if there’s economic prejudice suffered by
injured party it can be rescinded. It is also a subsidiary contract,
UP vs. Delos Angeles it provides that rescission (Art.1191) is implied in reciprocal obligations. Because if there’s thus when the injured has no other remedy then he can invoke
breach of obligation, rescission is proper to recover what have been delivered, since its effect is mutual restitution rescission in rescissible contracts. (UFC vs. Magdalo-
(solian). Francisco)
Remedy: rescission
But as per SC if the rescission is an extra-judicial rescission it will only take effect upon notice to other party of the
intention of injured party to rescind. It is however without prejudice on the part of the other party to go to court and
question the act. If the court sustains the validity of the rescissory act, the effect will not start when the court
declare the validity of rescissory act rather from the time notice was made to other party.
 Rescission cannot be a ready if the reason why a party failed to perform a work as agreed upon in the contract
was due to his own fault. It cannot be invoked by a party who is not injured.
 In case of FULFILLMENT AS A REMEDY,
Bar Question: in the contract of sale if there’s condition in the performance of the obligation and the condition is
not fulfilled due to the fault of one of the parties, what is the remedy of the other party? He has 3 option under Art.
1545. To treat the non happening of the condition as breach of warranty, thus the other party liable for damages.
 which in the following is a subsidiary remedy?
a. Action for damages
b. Restitution
c. Specific Performance
d. Accion Pauliana
 What is Accion Pauliana? An action to impugn a contract as it is fraud to the creditors, this is not only mentioned
in Art. 1177 is also present in Art. 1383 in relation to Art. 1381. Thus one of the contracts considered to be
rescissible are contracts in fraud of the creditors.
 Bar Question: A bound himself to deliver to B an 21” 1981 model TV set and the 13 cubic feet white refrigerator
with motor no. WERT-385 which B saw in A’s store and to repair B’s paino. A did not deliver or performed any of
the obligations. Can B compel A to deliver the TV set and the refrigerator and repair the piano? Why? In not what
relief can grant to B? it depends on what type of obligation is required: thus YES, the court can compel A to
deliver since this involve obligations to give. But in relation to remedies it differs depending the thing to be
delivered is generic or determinate thing. Since the obligation to deliver a TV set is an obligation to deliver a Commented [a65]: To determine whether the thing is
generic thing then the remedy of B is to ask other person to deliver the generic thing at the cost of the debtor plus determinate or specific is provided in Art. 1460 on law on sales.
damages.
A thing is considered determinate ONLY when it is PARTICULARLY
While in relation to obligation to deliver a determinate thing such as the obligation to deliver the refrigerator
DESIGNATED (ie plate number, serial number) or PHYSICALLY
because it is specifically designated by motor number and physically segregated from other thing since it can be SEGREGATED FROM OTHER OR SAME CLASS. Thus remedy is
found in store Thus, the remedy of B is specific performance to compel to deliver the refrigerator. SPECIFIC PERFORMANCE.
But NO, as obligation to do which is to repair a piano, because the court has no power to compel anyone to do
anything. The Constitution provides that nobody can be compel to do anything against his will as this would violate While in obligation to deliver a generic thing, the remedy is
his right against involuntary servitude. Since the court cannot compel, the relief that may be granted in relation to SUBSTITUTE PERFORMANCE.
this kind of obligation is that creditor should have ask another person to perform the obligation at the cost of the Commented [a66]: Applicable only if there POSSIBILITY TO
debtor plus damages. PERFORM THE OBLIGATION. Which is physical and legal possible,
because if at the time of performance the thing was already lost
then it cannot be a remedy.
Modes of Extinguishment: (Art.1919)
The most important concept in modes of extinguishment is that there must be a valid and subsisting obligation otherwise there
nothing to extinguish.
1. Payment or Performance
 Payment is synonymous to performance or fulfillment, in other words this mode of extinguishment is applicable
not only to obligation to give but also obligation to do even not to do. As long as the debtor is performing its
obligation there is payment.
 REQUIRMENT OF PAYMENT OR PERFORMANCE:
Person who pays: he is called the payor, it is not necessarily the debtor (3 rd party payor)
o If the payor was 17yrs. old at the time of payment, is that a valid payment? Would that result to
extinguishment of obligation? NO, because one of the requisite for payment to be valid payment or to
extinguish the obligation IS THAT PAYOR MUST HAVE THE CAPACITY TO DISPOSE THE THING
WHICH HE USED IN PAYMENT. Thus a payor who is a minor has no capacity to dispose.
o If the payor is suffering civil interdiction at the time of payment, would that be a valid payment? NO,
another requirement of valid payment is that payor must have FREE DISPOSAL of the thing.
o In such a case in case of minority or civil interdiction the remedy of creditor is to held liable the guardian
if non then ask the court to appoint one.
o Bar Question: A is the debtor, B is the creditor what if X offered to pay the debt of A to B. Will A’s
obligation extinguish? YES, but only if B accepts.
Can a creditor be compelled to accept performance or payment from a 3 rd person or is he bound to
accept performance or payment from the 3 rd person? NO, but there two scenario where B would be
bound to accept performance from 3 rd person if (a) so stipulated by the parties and (b) if X has interest
in the fulfillment of the obligations (Art. 1236 and 1237- a 3rd person who has an interest). But not in Art.
1302, a person interested in fulfillment of obligation, because with this phraseology anyone may
interested in the debt.
o Who are these 3rd persons who may have an interest in the fulfillment of this obligation?
(a) Anyone who is subsidiary obliged in fulfillment such obligation (ie guarantor or surety, or
mortgagor, antichretic creditor or person subsidiarily liable because of quasi-delict).
(b) The co-debtor in joint obligation though has separate and distinct debt may be allow to pay the
entire obligation, because each one of them has interest in the fulfillment of the obligation although
they cannot be compelled to pay the whole.
o If X is a 3rd person who has no interest in the fulfillment of A’s obligation, if X paid B the creditor and the
latter accept it. Is the obligation of A extinguished? YES, the fact there’s payment the obligation is
extinguish regardless of the fact that A did not give his consent or against his will. Commented [a67]: What is the effect if consent of principal
If X paid 100,000 to B, can X validly demand reimbursement of 100,000 A? what if this obligation is debtor was not obtained?
secured by a guaranty executed by G. if X demanded reimbursement from A and the A refused to
reimburse X, can X validly run after the guarantor? It depends whether A has knowledge/ consented or
against the will the payment of X.
A1: Not necessarily, because under Art.1236 and 1237 X has only right of reimbursement from A to the
extent that the payment REDOUNDED TO THE BENEFIT of the debtor.
A2: NO, because B was NOT SUBROGATED in the rights of the creditor because X paid without the
consent of A, if X was subrogated with the rights of the creditor he can exercise all the rights which a
creditor could have exercised not only against the debtor but also those subsidiarily obliged. Also he is
NOT PRIVY to the contract of guaranty which is executed in favor of B.
o Bar Question: X barrowed money from a bank secured by a mortgage on the land of Y his close friend.
When the loan matured Y offered to pay the bank, but the latter refused since Y is not the barrower. Is
the banks action correct? NO, because Y has interest in the fulfillment of the obligation as a mortgagor
and therefore the bank cannot validly refused to accept an offer to pay.
o Bar Question: Asiong barrowed 1M from the bank, secured by a mortgage on his land without his
consent, his friend Boyong paid the whole amount. Since Asiong benefitted with the payment, Can
Boyong compel the bank to subrogate him from his right as mortgagee as Asiong’s land because
Asiong has no interest in the fulfillment of the obligation thus when Boyong paid he has no right to be
subrogated to the rights of the creditor? NO, as per Art. 1236 and Art.1237 it is predicated upon the
debtor’s consent if a 3rd person be subrogated to the rights of the creditor.
Person whom payment is made: he is called the PAYEE, it is not necessarily the creditor
o To whom payment should be made in order for an obligation to be extinguished?
GENERAL RULE, Art. 1240 the law requires that payment should be made to any of the following:
To the person in whose favor the obligation was constituted; Commented [a68]: It is not a party to the constitution of the
His successors in interest; obligation.
To anyone/ any person who is authorized to receive payment; Commented [a69]: It could be heirs or assignee
o What if payment was made to a person who is not one of those mentioned in Art. 1240? it is called
PAYMENT TO A WRONG PARTY. Thus as a rule, the effect is void payment and will not extinguish the Commented [a70]: It does not need that it is a person
designated by the creditor. It does not mean that only the creditor
obligation and the debtor can still be compelled to PAY AGAIN. vested the authority to such person who is authorized to receive
The remedy of debtor is to recover what he has paid to the wrong person since the latter has no right to payment.
receive it.
o As a rule payment to a wrong party will not extinguished obligation EXCEPT: It is a LEGAL REPRESENTATION in which the law itself gave that
a. Payment actually redounded to the benefit of the creditor; person authority to receive payment ie agents, executor,
administrator, receiver, liquidator, or conservator.
it is a CONCLUSIVE PRESUMPTION when the creditor:
Ratify the payment;
The debtor was lead to believe with the action of the creditor that the payee has authority to
receive payment (by principle of estoppel);
When the payee, after the payment acquired the rights of the creditor.
b. Payment was made in good faith to a person in possession of credit;
In order to extinguish the obligation, payment must be made in GOOD FAITH (payor don’t
have knowledge of any defect of title of payee) and though to a wrong person is a person in
POSSESSION OF CREDIT (must appear that a wrong person has in possession of a
right though without title over it.
Example: A is indebted with B, A executed a promissory note which delivered to B, months
after the promissory note is in possession of C, so when C demanded payment from A and if A
paid C then it will extinguished the obligation? It depends whether the instrument made it
appear the C has title over it. Thus it depends to the instrument whether bearer or order).
c. Payment was made to the creditor after the assignment of the credit but without knowledge of the
assignment. Commented [a71]: If there’s assignment of credit the real
The determinative factor is whether payor has knowledge of the assignment, because if payor creditor now is the assignee. Thus the remedy of assignee is to
knew then payment cannot extinguish the obligation. recover the payment from the creditor.
o Who has the burden of proving of validity of payment in the 3 exceptions? The PAYOR (if the payor is
the debtor then the debtor). however, the law arises a presumption that though it is a payment to a
wrong person but it redounded to the benefit of the creditor and
o A owes B 20,000 which become due and payable last October 1, 1983. On that date A offers 10,000 the
only money he then had, but B refused to accept it. A thereafter met C (B’s 22yr.old son) with a request
to turn over the money to B. The money was stolen while in C’s possession, was B justified in refusing
to accept the payment of A? May he still recover the full amount of his credit of 20,000?
A1: YES, because a creditor cannot be compelled to receive a partial payment, because partial payment
is none payment. Also there’s no stipulation between the parties that payment of debt may be made
partially.
A2: YES, when B refused it is a valid refusal also when the A paid the 10,000 to B thru C it is not a valid
payment because B is not C thus payment to a wrong party.
The things to be delivered must be Complete and Regular
o Creditor cannot be compelled to receive partial payment nor debtor make partial payment unless there’s
a express stipulation to that effect.
o Partial payment is not payment
The Identity of Prestation must be Preserved
o THINGS-
(Specific) creditor cannot be compelled to receive different one although same value or more valuable.
(Generic) creditor cannot demand a thing superior or inferior in quality. The purpose, intention and other
circumstance must be considered.
o MONEY- it must be in the currency stipulated, otherwise the legal tender of Phil.
- A legal are all notes and coins issued by BSP and guaranteed by Republic of the Phil.
- Checks are not legal tender and an offer of check as payment is not valid tender of payment.
It may be refuse to accept by the creditor. If accepted, the obligation is not extinguished and
remain suspended until encashment is actually realized or impaired thru fault of the creditor.
- Deflation/ Inflation the currency stipulated should supervene and the VALUE OF THE
CURRENCY AT THE TIME OF ESTABLISHMENT OF THE OBLIGATION SHALL BE THE
BASIS EXCEPT PROVIDED OTHERWISE.
Date, Place, Time and Manner of Payment.
Payment of Monetary Obligation
o Under BSP circular 2006, payment of obligation by 5 &10 peso coins has only legal tender power up to Commented [a72]: it is important to determine if WON
1,000. While 1 peso coin is up to 100. creditor is bound to accept payment.
o Bar Question about check as payment of debt: Mr. Magaling obtained a judgement against Mr.
Mayaman amounting to 500K, a writ of execution was issued pursuant to which, various properties of
Mr. Mayaman was levied by Sheriff and an auction sale was scheduled. Before the auction day Mr.
Mayaman went to the Sheriff a cashier’s check of Far East Bank with the amount of 200K and enough
cash to cover the remainder of the total amount due. Mr. Magaling refused the check and asks the
Sheriff to proceed with the auction sale. Did Mr. Magaling had the right to refuse the payment of
obligation? YES, he would have right to refuse because check no matter what kind to don’t have legal
tender power, thus creditor cannot be compelled to accept checks. While as to remaining cash creditor
is also justified not accept for this will be considered as partial payment.
o Ann owed Bessy 1M due to Oct. 1 2011, but failed to pay on such date. Bessy send a demand letter to
Ann giving her 5 days from receipt within which she can pay. 2 days after receipt, Ann personally
offered to pay Bessy in Manager’s check but the later refused to accept it. The 5 days lapsed, may Ann
obligation be considered extinguish? NO, the fact the creditor refused to accept the check mean that
there was no payment. But even the creditor accepts the same, upon acceptance there’s still no
payment only until encashed.
o Dina brought a car from Jai and delivered a check. Is Dina extinguish the obligation? NO, not yet
because delivery of mercantile document has of the effect of payment only upon encashment or thru the
fault of creditor it was impaired.
o Is the check is not yet encash after 6 months, is the obligation extinguished? It depends if the check
become stale because of creditors’ fault.
 The SPECIAL FORMS OF PAYMENT:
a. Dation en Pago;
b. Consignation (because tender of payment per se se, cannot extinguish an obligation)
c. Payment by Cession;
d. Application of Payment (consist of two or more debt, it is a question where payment should apply)
 Whose obligation is required for the obligation to extinguish by special forms of payment? The CREDITOR.
In Dation en Pago, consent is ne=essary because there could be no Dation without the consent of creditor since
the latter need to accept the thing which is being offered by the debtor in LIEU of what he promised. In this type of
payment A THING WILL BE DELIVERED AND OWNERSHIP WILL BE TRANSFERRED TO CREDITOR IN
SATISFACTION OF THE DEBT OF DEBTOR.
In Application of Payment, the consent is also necessary because the CREDITOR HAS TO ACCEPT THE
AMOUNT TO WHICH DEBT THE PAYMENT BE APPLIED.
In Payment by Cession, consent is required because the creditor would ACCEPT THE PROPERTY OF DEBTOR
FOR THEM TO SELL AND THE NET PROCEEDS WILL BE APPLIED TO THE CREDIT.
In Consignation, CONSENT IS NOT ALWAYS REQUIRED, because there are two ways to extinguish the
obligation by consignation: there’s consent when the creditor accepted the consignation but if the creditor refused
the court can determine that consignation is proper, then extinguishing the obligation. Thus only when creditor
accepted consent is present but as to the other way it is not present.
 What is the effect of delivery of a thing or property of debtor to creditor or to the court; would there be transfer of
ownership?
In Dation en Pago, there has to be. In Filinvest vs. Phil. Acetylene, the intention of debtor is to extinguish the
obligation thru dation, so the debtor wrote a letter to creditor that he will deliver a car in lieu of payment of his
credit. The SC ruled that there was no dation because after such letter the debtor executed an SPA authorizing
the creditor to sell the property, thus if without transfer of ownership upon delivery then there’s no dation en pago.
In Application in Payment, there will be transfer of ownership.
In Cession, there’s no transfer of ownership since the creditor is merely an agent for to sell the properties of the
debtor, and the net proceeds will be applied to their claims.
In Consignation, it depends whether there’s a transfer of ownership upon delivery of thing to the court, it depends
whether the court declare the consignation to be valid or the creditor accepts the consignation. Then transfer of
ownership will pass not on the time of declaration of validity delivery of property to court nor at the time of
acceptance, but from the time of delivery of property to the court. The effect of acceptance retroacts to the date of
delivery to court as if ownership has already passed, hence from this time there have been total extinguishment,
and debtor can no longer be held liable to interest regardless of date of acceptance and declaration of validity.
Thus, If the consignation be held void then there’s no transfer of ownership.
 What is the effect as to extinguishment is special forms of payment? Whether total or partial.
In Dation en Pago, TOTAL extinguishment unless the intention of the party to the contrary is clear.
In Application of Paymnet, there will never total extinguishment. It will not necessarily extinguish all the debt that
why a question raise to which debt the payment should be applied.
In Cession, as a rule the extinguishment only up to extent of the net proceeds unless the parties agreed the total
extinguishment regardless of the net proceeds.
In Consignation, if there’s acceptance by the creditor of the thing delivered to the court but MADE A
RESERVATION THAT ACCEPTANCE ONLY AMOUNTS TO PARTIAL PAYMENT. Otherwise if the consignation
is only partial payment the court can declare it void and the creditor cannot be compelled to accept it.
 DATION IN PAYMENT- the subject matter is delivery of the THINGS OR RIGHTS (ie assignment of hereditary
rights or credit to a third person).
-the nature of Dation in Payment, there must be delivery already of the thing and it must be accepted to
constitute payment, otherwise if it is only a promise then there’s no dation but rather novation.
-what law will govern in Dation? The law of sales only if the pre-existing debt is in money (Art.1245) because
it is akin to a sale. Thus it is not applicable when debt is not in money.
 APPLICATION OF PAYMENT- there should be two or more debts in money or consumable (there must be the
same in quality) which is both due and demandable. The law does not require debtor must have only one creditor,
the debtor may have a thousand creditors but it he has one debt in each one then the rule is not applicable. What
is relevant is that a debtor has one or more debts with one creditor.
-the primodial question here is, to which debt the payment should be applied?
Example: X has 3 debts: 100K, 30K, and 50K to Y, then X paid 30K. To which debt the payment should be
applied?
1st rule: it is applied to the debt designated by the debtor; it is the debtor who has the right to designate. But
there’s limitation as a rule to the right when he choose to apply it to 50K because it is interest bearing, it
cannot be done since it amounts to partial payment except there’s stipulation to allow it.
2nd rule: the debt where should payment apply must be DUE. If the period is for the benefit of the creditor,
then as a rule debtor may be compelled to pay even debt not due but creditor cannot be compelled to accept
if not due. If period is for the benefit of the debtor then it cannot be compelled to pay if not yet due but may
compel the creditor to accept payment even not yet due. If for the benefit of both the nobody can be
compelled to neither pay nor accept payment. Except, there’s an agreement where should be paid first.
3rd rule: application of payment if there’s no designation by debtor, then it shall apply to the debt designated
by the creditor. It is binding upon the debtor if he accepts the receipt without protest, meaning if there’s
protest the designation by creditor is still subject to approval of debtor.
4th rule: if debt has interest then payment shall apply first to the interest before the principal.
5th rule: if the debtor and creditor did not designate where the payment should apply, the NCC provides that it
should apply proportionately to the debts if of same nature and burden (most onerous are: interest bearing,
secured debt, the debt in which he is the principal debtor and subject to penal clause). There’s no hard and
fast rule to determine which debt is most onerous, thus consider each feature of the debt.
 PAYMENTBY CESSION- debtor delivers his universal property to the creditor and authorize the latter to sell, and Commented [a73]: Not ALL property particularly those pure
the net proceeds is applied to the debt. personal property, and those which by law cannot be delivered
-debtor must be insolvent rather in financial difficult position. Since it is subject to agreement of parties it because it will prejudiced rights of other person such as Family
Home, Co-owned properties and those subject to certain
does not need that a debtor is insolvent to pay by cession. encumbrances.
-if the debtor doesn’t want to pay and not want to assign his property, the remedy of creditor is to file an
petition for declaration of insolvency.
 CONSIGNATION- Bar Question: Illuminada vs. Navarro Case: A sold to B a parcel of land with right to repurchase
the same within 3yrs. A tender the price to be within the prescribed period but B refused to accept it. A then
brought action for specific performance. B contends that since A did not deposit the money in court within the
stipulated period for repurchase and the period has now lapsed A can no longer repurchase the property. Is this
contention correct? NO, because A who has the right of repurchase does not have an obligation to be
extinguished. Consignation is a mode of extinguishment, it is a special form of payment, it is only required if
there’s an obligation to be extinguished. A has no obligation but only a right which he wants to exercise thus he is
not required by law to deliver the money to the court by way of consignation.
REQUIREMENTS OF VALID CONSIGNATION:
a. There’s a debt due
b. Consignation was made because of any of the causes stated by law
c. That the thing or amount due was placed in the disposal of judicial authority
d. Tender of payment is only necessary when creditor refused to accept payment without just cause.
Otherwise the following need not require tender of payment: when the creditor refused to issue receipt,
when the creditor was not present in the place of payment, creditor is absent, creditor is unknown,
creditor has no capacity to receive payment, two or more person claim the same right to collect and
creditor’s title of obligation has been lost.
 Allan bought Billy’s property thru Carlos—an agent empowered with SPA to sell the same. When Allan is ready to
pay as scheduled Billy called and directing Allan to pay directly to him. On learning of this Carlos told Allan to pay
thru him since he is vested with SPA and to protect his commission. Faced with 2 claimants, Allan consigned the
payment in the court; Billy protested contending that the consignation is ineffective since no tender of payment
was made to him. Is he correct? NO, because the law in this scenario does not require tender of payment, in fact Commented [a74]: If the withdrawal happened after the
it is one of the causes enumerated under Art. 1256 where the law provides that consignation may be proper even acceptance of the creditor OR after the court declare the validity of
without render of payment because there are two or more persons claiming the thing. consignation, as an effect THE CONSIGNATION CAN REVIVED THE
OBLIGATION because it was already extinguished. Thus the
 A delivered to the court 100K before B could accept AND before the court declare the consignation to be valid A
obligation is extinguish and the guaranty as accessory contract was
was able to withdraw the amount but A thereafter failed to pay B. Is the obligation revived? If this obligation of A to likewise extinguished. The creditor cannot run after the guarantor,
B is secured by a guaranty. Can the creditor run after the guarantor? if the withdrawal was without the consent of the guarantor.
A1: NO, the withdrawal was a matter of right since it was done before there’s an acceptance or declaration by the
court. Thus the obligation is not revived but still existing.
A2: YES, because the guaranty has not been extinguished also.
 Bar Question: Liability for Interest: A debt to B was due in 2007, the payment was tender in 2008 but the
consignation was made only in 2012. The court decided the case as to validity of consignation in 2014. Is the A
liable to interest in 2007-2014?
YES, if there’s demand and the court declare consignation to be void thus obligation is still subsisting and
accruing interest.
NO only up to date of consignation and promulgation of court, if the court declare the consignation valid it
retroacts to the date of delivery to the court or acceptance of creditor (tender). Thus the A is still liable to pay
interest between due date or demand up to date of consignation.
2. Loss of the thing Due (obligations to give determinate and generic thing) / Impossibility of Performance (obligation to
do)
 When does a thing considered loss?
When the thing perishes;
It goes out of commerce of men;
It disappears in such a way that existence is unknown or cannot be recovered.
 OBLIGATION TO DO- how extinguished? When it becomes impossible to perform the obligations because of the
loss of the thing thus a physical impossibility ie Renovation of Building but before the debtor could perform the
building was raged by fire, it is now physically possible thus is it impossible to extinguished. During the existence
of obligation a law took effect prohibiting the performance of this obligation, this time it is legally impossible to
perform the obligation therefore it is extinguished.
 Besigan vs. Angeles, it involves the delivery of carabaos from Camarines to Batangas. The cattle were
confiscated because allegedly there was an EO during the martial law time which prohibits transfer of carabao
from one place of another. Thus in this case the obligation to deliver was extinguish because of impossibility of
performance because of prohibition of the law. The law must TOOK EFFECT DURING THE EXISTENCE OF
OBLIGATION, if the law took effect before the constitution then there’s no obligation it will amount to VOID
obligation being contrary to law.
 OBLIGATION TO DELIVER GENERIC THINGS- how extinguished? It will not extinguish if it is physical
impossibility because of principle of genus nunquam perit means the genus doesn’t perish. But there’s such a
concept as limited generic, on obligation to deliver a limited generic thing will actually extinguished by the loss of
all the things covered by a certain class.
 OBLIGATION TO DELIVER DETERMINATE THING- how extinguished?
-in relation to Art. 1262 if the thing to be delivered is a determinate thing was lost due to the fault of the
debtor, is the obligation extinguished? YES, because if the thing is lost then the obligation will extinguished
since there nothing to deliver thus impossible to perform. But the debtor can be held liable of the thing lost
due to his fault, therefore it is converted into a monetary obligation.
-who has burden of proving to whose fault the thing is lost? The one claiming that there was lost due to fault
of other party. However the law a presumes though disputable which held the debtor liable in cases where
AT THE TIME OF THE LOST THE THING WAS IN POSSESSION OF TH DEBTOR, thus the burden of
proving is shifted to debtor to show that it was not his fault.
-however such presumption will not arise even if the thing lost was in possession of debtor, ON THE
OCCASION OF OR DURING A CALAMITY ie flood, earth quake, or typhhon. Commented [a75]: Not the same “due to a calamity” in tagalog
 When is there PARTIAL LOSS? A promise to deliver a phone with casing to B. Before A can deliver it the phone nawala ang bagay DAHIL SA KALAMIDAD. But what the phrase
was lost leaving the casing only. Is the obligation to deliver extinguished? It depends on the INTENTION OF THE mean “on the occasion of” in tagalog HABANG MAY KALAMIDAD
PARTIES, if they would not have considered to enter into the contract without the thing which was lost thus it is
total extinguishment, but if the thing was lost was not the reason why the party entered a contract then obligation
is partially extinguished and the debtor may be compelled to comply what remains.
 EFFECT OF DIFFICULTY OF THE PERFORMANCE OF THE OBLIGATION- when the performance becomes so
difficult will it extinguish the obligation? NOT PER SE just because the performance becomes difficult it will not
extinguish the obligation BUT MAY RESULT TO EXTINGUISHMENT under Art. 1267 when the performance of
such obligation became so difficult due an event which could not have been foreseen by the parties, the creditor
may go to court, for the court to release him in whole or in part from such obligation. Only then the obligation
will extinguished if the court will agree with him that he should be released.
Example: A and B (contractor) agreed that A’s contribution is parcel of land which will be subdivided into lots.
Each of the lots the contractor would construct a house and the house and lot will be sold by the contractor. The
gross proceeds will be divided between A and contractor, but the latter filed an action praying that the sharing
arrangement be change by the court because it became so difficult to him to perform his obligation because of
continuous increase in the princes of the material for the construction of the houses under Art. 1267. Is the
contention correct? NO, first it is clear under Art. 1267 for it to apply the reason why the performance became so
difficult must be due to a fortuitous event and the fact that prices of materials continue to increase is not an event
which could not be foreseen by the parties.
Assuming, Art. 1267 is applicable still the court has not power to change the agreement because its power is
limited only to release the creditor’s obligation in whole or in part.
 Bar Question: for value received Pedro promised to deliver to Juan on or before August 15, 1984 a Mercedes
Benz with plate number 123 which he has just brought home from Germany as well as 1984 18” Sony Television
set. Unfortunately before the scheduled delivery date the things to be delivered were destroyed by accidental fire.
Is the obligation extinguished? ONLY IN RELATION TO Mercedes Benz because this obligation is an obligation to
deliver a determinate thing and therefore the lost of the thing due to fortuitous event the obligation is extinguished
without the fault of the debtor under Art. 1262. But in relation to TV set which is clearly a generic thing, the
obligation will not extinguished.
 In order that fortuitous event be invoked there shouldn’t be a concurring negligence on the part of the party
invoking such event as a defense.
3. Condonation or Remission of Debt
 It is Condonation or Remission of the DEBT not the person is being condoned.
 But condonation is a type of donation, as a donation this is a donation of CREDIT not debt. If the donation is an
express donation it has to comply with formalities prescribed by law as far as donation is concerned
 Bar Question: Arturo barrowed 500K from his father, after he paid 300K his father died. When the administrator of
his father estate requested payment of the balance of 200K, Arturo replied that the same has been abandoned by
his father as evidence by the notation at the back of his check for the payment of 300K reading “in full payment of
the loan”. Will this be a valid defense for an action for collection? NO, In the case at bar, though it is an express Commented [a76]: It depends on who wrote the notation at the
condonation the law requires that if donation exceeds to 5K and in order the condonation to be valid it must be in back. If it was Arturo then it is not extinguished. If it was the father, then
writing and acceptance must likewise in writing. In the case, though the donation is in writing the acceptance is determine whether it is an express of implied condonation.
not. If it is express determine whether it is an obligation to donate a movable or
4. Confusion or Merger of rights of Creditor / Merger of the characters of debtor and creditor in one person immovable property. If it is a immovable property the donation must be in a
 When would there be confusion? It can happened in two ways: public instrument, while if it is a movable property which exceeds 5K the
donation must be in writing so as the acceptance.
a. By Agreement
ie Merger Agreement between two parties, the creditor must survive Commented [a77]: Reason of Merger: One party is indebted to
b. By Operation of Law the other and the latter cannot pay. Merger is entered to save
ie the Creditor died, if he’d only have an heir who is the debtor, the right over credit will be inherited some assets of company.
thus there’s a merger of character of debtor and creditor.
On reverse if the debtor died and the creditor is his sole heir, will the obligation be extinguished?
NO, because the creditor will not accept although obligation may be inherited but there must be
acceptance. Otherwise if not accepted, the estate shall pay.
 Can there be partial extinguishment of obligation by confusion? YES, when there’s a joint obligation and there’s a
merger of characters of the creditor and that of one of the debtors. Thus the extinguishment willonly pertain to the
share of the debtor merged to the creditor. But if it is solidary obligation and one of the solidary debtors merged
character with creditor then there’s a total extinguishment.
 Can there be partial confusion? NEVER, because there’s no such thing as partial merger. THUS, CONFUSION
OR MERGER IS ALWAYS TOTAL.
 Bar Question: the debt of A became due in 1999, covered by a Promissory Note with an amount of 5M. Sometime
in 2001 A and B merge by an agreement but B later cause the rescission of such agreement which took place in
2009. In 2014 B filed an action for specific performance, A move a defense that the action to file prescribed since
from 1999-2014 it was 15 yrs ago from due date. Is the defense correct? NO, in Chittik vs. CA, the SC ruled that
from the time of merger to rescission of merger the period should not be included in the computation of
prescriptive period, because during that period there’s only one entity and during that period no one can be
compelled to pay.
5. Compensation
 It is unique because there to be two debts in order for this mode to apply.
 TWO CLASSIFICATION OF COMPESATION:
a. As to extent of extinguishment (important for liability in interest); and
b. As to the cause of extinguishment
 EXTENT- the law is clear compensation may be total or partial.
a. In partial, there can be a thousand debt extinguish but not all the debt are extinguished. In
compensation where even it is only 1.00 if not extinguish it is considered as partial.
ie A has 100.00 debt to B while B has 95.00 debt to A. Thus A’s obligation to B with regard to 5.00 is not
extinguished.
b. In Total, no debt is left to each of the debtors
ie A has 100 debt to B while B has 100 debt to A. Thus each debt is totally extinguished.
What is the effect of compensation? As to the interest, after compensation a debtor may be held liable for interest
if it is a partial compensation, it would depend who has bigger debt which was not totally extinguished. Also if it is Commented [a78]: Some includes FACULTATIVE, but may be
secured by a mortgage and only there’s only partial compensation then it will continue to exist being an indivisible classified under conventional but with a twist.
contract.
Because in conventional compensation the consent of BOTH parties
On the other hand, if it is a total compensation then no interest will be accrued since obligation is already
is required. But in facultative requires consent of only one of them
extinguished. since one has the right.
 CAUSE- 3 classification: LEGAL (true kind of compensation), CONVENTIONAL (by agreement of parties / “quits”)
Commented [a79]: It is not a contract of deposit when one
and JUDICIAL (set-off / counter claim) compensation
opens an account with a bank. Under the provision of law savings
 Art. 1287 & 1288, there are 4 debts: 1st an obligation which arise to a contract of depositum while the 2 nd pertains deposit, current deposit and time deposit is governed by rule on
to obligation of the bailee in commodatum, 3rd pertains to obligation to give support and 4th where one of the debts simple loan.
pertains to civil liability arising from a crime. In these 4 scenarios, the law provides that compensation shall not be
Commented [a80]: If A is indebted to B secured by a guaranty
proper. What is meant by the law that it is not proper pertains to LEGAL compensation. by G. While B is indebted to G, are B and G principal debtors of each
Who can invoke compensation: other? NO.
Deposit- Depositor G is the principal debtor of B but B’s principal debtor is A.
Commodatum- Bailor Ordinarily B cannot invoke compensation between him and G.
Legal Support- person entitled to support Except when the debt is due and A already exhausted all his
property and cannot pay the debt from this point G’s obligation
Civil Liability arising from a crime- person injured / claimant
arise as guarantor to pay B. Hence in this case compensation is
 Bar Question: Define Compensation? proper since they are already principal debtor of each other.
 Bar Question: X who has a savings deposit with Y bank in the sum of 1M. X incurs a loan obligation with said
Commented [a81]: Sycip vs. CA
bank in the amount of 800K which was become due. When X withdraws his deposit Y bank only allows 200K to be Facts: the owner of the share of stock authorized Lapuz to sell the
withdrawn less service charges claiming that the compensation extinguish the obligation thru his own account to share, but the latter authorize also Sycip to sell the same share. And
the concurrent amount of X’s debt. He contends that compensation in improper as here arises to a contract of it was Sycip who able to sell the share, the net proceeds amounts
deposit, assuming that the PN signed by X to evidence the loan but does not provide compensation to said loan. to 5K. Upon demand to Sycip to remit the sale he failed to do so.
Who is correct? The bank since the deposit which X’s claim is based in a saving deposits which by law governed Thus an action for estafa was filed by Lapuz against Sycip and the
by the rules on simple loan. Thus compensation is proper. latter was convicted.
In the SC Sycip moved for a defense of legal compensation because
Assuming, X delivered the 1M to the bank for safe-keeping kept in a safety deposit box, and then X acquire a loan Lapuz is also indebted to him.
to the bank amounting to 800K. With same facts as above can the bank invoke compensation? NO, because one
of the obligation is governed by contract of depositum, thus Art. 1287 is applicable which provides compensation WON obligation extinguished because of valid legal compensation?
is not proper when one the debts arise from depositum. However on reverse, if X allows the bank to credit the
amount loan to his deposit the law provides under the same provision it is only prohibited in legal compensation Held: NO, because Sycip though creditor in his own right , Lapuz is
not. Lapuz was only authorized to sell the share thus an agent. But
(operation of law), but when the depositor consented to the compensation it is valid as it will amount to
as an agent though a creditor he is not a creditor on his own right.
conventional compensation.
 LEGAL COMPENSATION REQUISITE: Commented [a82]: Can there be an obligation involving
reciprocal obligations? NEVER, because if the obligation is an
a. The parties must be mutual debtors and creditors; (Vda. De Ong Acero vs. PNB) (Francia vs. IAC)
reciprocal obligation then it must have arisen in the SAME CAUSE
b. Both must be principal debtors because if this is the rule no one can compel to perform a reciprocal
c. They must be creditors in his own right (Sycip vs. CA) NO PRINCIPAL CREDITOR BECAUSE obligations because the moment they have arise it is already
THERE’S NO SUBSIDIARY CREDITOR. considered extinguished. And therefore if for the same cause then
d. Both debts must already be due and demandable. Debts must be due and demandable at the same it cannot never invoke both sums of money.
time. Commented [a83]: If the claim is under a PENDING CASE then
e. Both debts must be of the same kind. It could be both consumable provided it is of the same kind or it cannot be the subject of legal compensation.
same quality. EXAMPLE: the Stockton desired to sell his shares to XYZ company in
f. From foreign authors: Monetary obligation must arise from contract. This is not true as per SC ie view of the court suit filed against him for damages of 10M based
on the article published by him which is defamatory. In the AOI it
Attorney’s fee (Mindanao Portland vs. CA)
provides that the corp. has the right of first refusal, then Stockton
g. The claim must be clearly demandable. offered to share his share to corp. but the corp. also invoked the
There are monetary obligations which cannot be the subject of legal compensation: local taxes, tariff, and customs damages but Stockton refused to pay. Who is correct? Stockton
duties. because amount for damages is still pending.
 A barrowed from B 1,000 payable in one year. When B was in the province, B1 his 17 yr. old son barrowed 500
from A for his school tuition. B1 instead of using the money for school tuition he instead used it for nightclubbing.
When the debt to B fell due, A only tender 500 claiming compensation on the 500 barrowed by B1. Is there legal
compensation? NO, A is the debtor of B but B1 id the debtor of A. Thus between And B there is no mutuality they
are not debtor-creditors of each other although B is the father of B1 the money barrowed by the latter did not
redound to his benefit since it was only used for nightclubbing.
 A is indebted to B amounting to 100M; B however has 3 debts to A: 50M (June 15, 2018), 25M (August 15, 2015)
and 10M (December 15, 2018). However B assigned his credit to X on July 17, 2018, thereafter same date of
assignment X demanded payment from A. is there a valid demand? And how much can A be compelled to pay X?
It depends on the due dates of the debts and A’s knowledge or non in the assignment and A’s consent and A’s
reservation to compensation.
A1: YES
A2: If the assignment was consented by A and A made a reservation as to compensation, then A can only invoke
compensation to debt which are already due. Thus, A may be compelled to pay 50M
If A had consented the assignment but did not reserve his right to compensation, A may be compelled to pay
100M. The effect of failure to reserve the right is waiver to all compensation even as to debt already due.
If A has no consent to the assignment it amounts to reservation of his right to compensation to all debts including
the debts already due at the time of assignment and demand to pay. Thus A may be compelled to pay 15M.
 CONVENTIONAL COMPENSATION REQUISITE:
a. Consent of both parties;
b. Parties consenting must have free disposal of the thing or his property
6. Novation
 It has a dual function, it extinguish an obligation but also creates an obligation.
 Usual question in this mode of extinguishment: Whether there novation or not? (Fua vs. Yap) Commented [a84]: What is the relevance? If in the original
 CLASSIFICATION OF NOVATION: obligation there’s vitiation of consent but if there’s novation in the
a. As to classes of extinguishment: express or implied new obligation the vitiation of consent is removed. Thus the defect
in the 1st obligation cannot be invoke since there’s already a new
b. As to cause of novation (Go Ching Yan vs. RRB Surety): personal (subjective), real (objective) and obligation.
mixed novation
 PERSONAL (subjective)- in relation to parties: active subjective novation and passive subjective novation In case of prescription if there’s no novation then it continuous to
ACTIVE- When a 3rd person is subrogated to the rights of the creditor run. But there’s already a new obligation the prescriptive period
- When there’s an active subjective novation? By agreement of the parties (fall under express restart.
novation).
- When would there be a subrogation which is implied or legal subrogation (because of payment)? Art.
1302 enumerated 3 scenarios, when an 3 rd person who has no interest in the fulfillment of the
obligation pays with the consent of the debtor, a 3 rd person who has interest in the fulfillment of the
obligation pays with or without consent of the debtor ie guarantor, and when a creditor pays another
creditor of the same debtor who is preferred by creditor
PASSIVE- When there a substitution of the person of debtor
- It must be clear to both parties that the 3rd person paying for the debtor must be in lieu of the debtor.
Thus he is paying as a substitute.
- When A barrowed money from X a year ago amounting to 100K, today B paid 100K to X as a
substitute as a new debtor. How much B can validly demand from A? Assuming this debt is secured
by a mortgage and A refuses to reimburse can B he foreclose the mortgage? X demanded payment
from B but he was insolvent. Can the X run after the original debtor?
It depends on what kind of passive subjective. There are 2 kinds of passive subjective novation: EX
PROMICION and DELEGACION:
In the first, the substitution is without knowledge or against the will thus without the consent. In
the second there is consent from debtor whether initiated by debtor or creditor.
A1: applying Art. 1236 & 1237, B can only ask reimbursement from A to the amount benefitted by A.
A2: NO, in EX PROMICION because despite payment he was not subrogated to the rights of the
creditor, because the substitution is without knowledge or against the will of the original debtor. But
YES in case of DELEGACION because A consented to the substitution.
A3: No, because with novation the original debt is already extinguished, but X is granted by law the
right to recover if the substitution is initiated by A and at the time of the substitution B was already
insolvent. Thus there’s BAD FAITH because A has knowledge of the fact of insolvency of B. Then X
will have the right to recover from A.
 Bar Question: Baldomero leased his house to Jose, the lease contract provides: that Jose should pay all
electricity, water and telephone bill in the leased premises during the period of the lease. 6 months later Jose
vacated the premises and left behind telephone bills with overseas calls amounting to 20,000. Baldomero refused
to pay the bills on the ground that Jose had already substituted him as the customer of the telephone company.
The telephone company maintained that Baldomero remained as his customer as far as their service contract is
concern notwithstanding the lease contract between Baldomero and Jose. Who is correct, Baldomero or
Telephone Co.? The Telephone Co. because the substitution of the debtor is absolutely untenable because there
cannot be a substitution of the debtor without the consent of the creditor.
 Bar Question: JC Construction bought steel bars from Matibay Steel Industries which is owned by Buddy
Batungbakal. JC failed to pay the purchased materials worth 500K on due date. JC pleaded his client Amoroso to
whom JC had receivables to pay the obligation to MSI. Amorosa agreed and paid MSI the amount of 500K, after 2
payments Amoroso stopped payments. Buddy filed a complaint for collection of the balance of obligation against
JC, but the latter denied the liability claiming that obligation was extinguished by reason of novation, which took
place when MSI accepted payments from Amoroso. Is there novation? NON, because for novation thru
substitution to take place it must be CLEARLY intended by the parties that the 3rd person will now be the new and
only debtor. In the case at bar, there’s no clear stipulation that Amoroso is paying as the new debtor of MSI, but
Amoroso simply paid and they simply receive the payment.
 Bar Question: upon the proposal of a 3rd person a new debtor substituted the original debtor without the latter’s
consent. The creditor accepted the substitution, later however the new debtor became insolvent and defaulted in
his obligation. What is the effect of new debtor default upon the original debtor? NO, 1st the original debtor did not
initiated the substitution, 2nd the substitution is without the original debtor’s consent and 3 rd the insolvency was not
existing at the time of the time of substitution.
 REAL (objective)
- When there’s real novation? 1st When there’s a change in the object of the obligation and 2 nd there’s
changes in the real principal condition/s of the obligation.
- The 2nd scenario is difficult to determine whether there’s a implied novation in changing the condition
of the obligation. The SC provides a test in determining whether there’s novation or non: Whether the
two obligation can stand together or not. If it can stand together there’s no novation but if it cannot
stand together there’s novation because it is incompatible (whether partial or substantial) with each
other.
- In Fua vs. Yap, the SC ruled that there was novation as a result by the agreement of the parties.
While in Millar vs. CA it is similar in Fua case but despite the changes the SC ruled there was no
novation because:
The reduced amount of debt in new obligation was not change by novation but rather there was
partial payment;
If before the debt is payable in one instance, the installment agreed upon by the parties does not
change the obligatin but only the manner of its payment;
And if before the obligation is not secured but in the new agreement it was secure by mortgage it
does not mean that the obligation was change by novation but only enforces the fulfillment of
obligation
While the new agreement of payment of Attorney’s fee does not provide that there was novation but
only it presupposes breach or there was violation of fulfillment of obligation.
- Suppose there was final judgment, the liability of judgment-debtor to pay the amount the 6K. But both
the judgment-debtor and judgment-creditor subsequently enters a contract reducing the liability of
debtor to only 4K. is there an implied novation in which in effect extinguishing the original obligation
and creating a modified obligatory relations? NO, effectively this is just a matter of liberality on the
part of the creditor.
- JAL vs. Simangan, he bought a ticket from JAL to go to US for undergo additional work-up
examination to determine the compatibility in order for him to donate one of his kidneys to his cousin.
Simangan was already inside the plane when the crew ask him to leave the plane with other Filipinos
on the ground that he has an incomplete documents thus he was ask to go back to US Embassy.
Simangan sued JAL for this. When sued JAL invoke novation because they rebook the flight next
day after the incident, thus there’s new obligation extinguishing its original obligation.
The SC ruled that there was no novation since the change in object of the obligation is without the
consent of the creditor. The obligation of JAL is to safely fly on said date and no other any date. JAL
was held liable for damages because there was bad faith.
 If there’s original void obligation, and the parties agreed to enter a new obligation in relation to this void obligation,
the SC rule that there’s no novation because if the original obligation is void then there’s nothing to be
extinguished. But can the new obligation enforced? NO, because it is likewise void since it is based on a void
obligation and the cause will be the same and therefore it will also be a void obligation. On reverse it is still no
novation because in novation the original is extinguished and a new obligation is created, thus if the new
obligation is void then there’s no new agreement at all.
7. Rescission
 In relation to Art. 1191
8. Happening of Resolutory Condition
 On arrival of the condition extinguishes the obligation.
9. Prescription
 When the obligation is prescribed it converts it to natural obligation.
10. Annulment
 It is the remedy when the contract is VOIDABLE (means there’s defect in the consent of the parties)
11. Happening of Resolutory Period
12. Death of Party in Purely Personal Obligation
13. Mutual Restitution