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CIVIL LAW REVIEW 2 Notes

[ATTY. CRISOSTOMO A. URIBE] (1) Active Subject – This refers to the creditor or the
obligee.
 A creditor generally used in an obligation to
I. OBLIGATIONS give
 while obligee is used in an obligation to do
[June 18, 2008]
(2) Passive Subject – This refers to the debtor or the
obligor.
A. IN GENERAL:  debtor is used in an obligation to give
 while obligor is used in an obligation to do
1. DEFINITION: The first two elements must be determinate or
Article 1156. an obligation is a juridical determinable. The following are possible
necessity to give, to do or not combinations:
to do.
 Defines CIVIL Ø; “JURID. NECESSITY”  Both parties are determined at the time of
the execution of the obligation.
makes it enforceable by court action;  one party is determined at the constitution
of the obligation & the other to be
Balane: Book IV starts w/ an inaccuracy. It gives the determined subsequently in accordance w/
impression that obligations & contracts are of the same a criteria that is previously established.
status, w/c they are not. A contract is only one of the  the subject is determined in accordance w/
sources of obligations. Book IV should have been his relation to a thing & therefor it changes
where the thing passes fr. one person to
simply titled "Obligations." another. This is a property-linked
Etymology – two Latin words, ligare, meaning "to obligation.
bind"
& ob w/c is a proposition used to (3) Object of the obligation - the conduct or activity
intensify a verb. that must be observed by the debtor, this is always an
Literally obligare means "to bind activity or conduct, the prestation.
securely."
Requisites of an object:
Tolentino: the juridical tie between two or more  It must be licit.
persons, by virtue of which one of them, the creditor or  It must be possible.
oblige, has the right to demand of the other, the debtor  It must be determinate or determinable.
or obligor, a definite prestation.  It must have pecuniary value so that if not
performed it is converted into damages.
Manresa: legal relation established between one
(4) Vinculum juris - the legal tie, whereby upon
party and another whereby the latter is bound to the default or refusal of the debtor to perform, the creditor
fulfillment of a prestation which the former may can go to court.
demand of him.  When a person says "I promise to pay
you when I like to," there is no
Arias Ramos: [more complete definition, accdg to T, obligation here bec. there is no
vinculum juris.
whch gives the element of responsibility essential to an
 Juridical tie, the efficient cause
Ø]
established by the various sources of
Ø’s
An Ø is a juridical relation whereby a person
> by virtue of which the debtor is
(called the creditor) may demand from another
bound in favor of the creditor to
(called the debtor) the observance of a
perform the prestation.
determinate conduct, and in case of breach, may
Efficient cause / vinculum  may either be
obtain satisfaction from the assets of the latter.
relation established by:
 Where there is a right or power to demand, 1. Law (e.g. marital relation giving rise to
there is a correlative Ø or an imposition Ø for support;
upon a person of a definite conduct. 2. Bilateral acts (e.g. contracts give rise
to the Øs stipulated therein)
Balane: A better definition would be, 3. Unilateral acts (e.g. crimes and quasi-
delicts)
An obligation is a juridical relation (bec.
there are 2 parties) whereby a person ** All the above 3/4 elements are agreed upon by
should engage or refrain fr. engaging in a commentators as essential elements. The following two
certain activity for the satisfaction of the are being debated.
private interests of another, who in case of
non-fulfillment of such duty may obtain fr. (i) Causa debendi/ obligationes (Castan) –
the patrimony of the former through This is what makes the obligation demandable.
proper judicial proceedings the very This is the proximate why of an obligation.
prestation due or in default thereof, the
economic equivalent (damages) that it (ii) Form - This is controversial. This is
represents. (Diaz Piero.) acceptable only if form means some
manifestation of the intent of the parties.
Obligation (Ø) – is a juridical relation whereby a
person (called the creditor) may demand from another [TOLENTINO:
(debtor) the observance of determinate conduct, and in Ø “to give”  prestation consists in the delivery of a
case of breach, may obtain satisfaction from the assets movable or an immovable thing in order to create a
of the latter. real right, orfor the use of the recipient, or for
possession, or to return to its owner; e.g. Ø to deliver
Characteristics of an Obligation: the thing in a © of sale, deposit, lease, antichresis,
pledge and donation.
 It represents an exclusively private interest
 It creates ties that are by nature transitory Ø “to do”  incl. all kinds of work or services. E.g.
 It involves the power to make the juridical tie © of employment or professional services.
effective in case of non-fulfillment through an
economic equivalent obtained fr. the debtor's
patrimony. Ø “not to do”  consists in abstaining from some
act, e.g. duty not to create a nuisance;
Essential Elements of an Obligation:
1
Requisites of a prestation: & effect
1. it must be possible, physically and juridically cannot be
2. it must be determinate, or atleast can be enforced
compelled by
determinable; and by court action
court action but
Enforceability or the coercive
3. it must have a positive equivalent in money. power of public
depends upon
(susceptible of pecuniary appreciation) good conscience
authority
of the debtor
Positive Law – valid legal laws enacted by the
legislative department; Illicit Ø’s  Ø’s which are contrary to morals and
good customs do not constitute natural Ø’s, whatver is
Natural Ø – not sanctioned by any action but paid under such Ø’s can be recovered, (apply Art.
have a relative juridical effect; 1414, 1411, 1412.)
 do not grant the right of action to
enforce their performance but after (b) CIVIL OBLIGATIONS:
voluntary fulfillment by their obligor,
they authorize the retention of what Article 1157. Obligations arise from:
has been delivered or rendered by (1) Law; (Ø’s ex lege)
reason thereof (Art. 1423); (2) Contracts;
(3) Quasi-contracts;
2. KINDS OF OBLIGATIONS AS TO BASIS & (4) Acts or omissions punished by
ENFORCEABILITY law; and
(5) Quasi-delicts.
(a) NATURAL OBLIGATIONS
SOURCES OF Ø’s:
Article 1423. Obligations are civil or natural. 1. LAW:
Civil obligations give a right of action to Article 1158. Obligations derived from law
compel their performance. are not presumed. Only those expressly
Natural obligations, not being based on determined in this Code or in special laws
positive law but on equity and natural law, do are demandable, and shall be regulated
not grant a right of action to enforce their by the precepts of the law which
performance, but after voluntary fulfillment by establishes them; and as to what has not
the obligor, they authorize the retention of been foreseen, by the provisions of this
what has been delivered or rendered by reason Book.
thereof. Some natural obligations are set forth
in the following articles. (Arts. 1423 – 1430   an agreement is not necessary in
not exclusive enumeration; some others…) order that a party may demand
from another the fulfillment of an
Requisites of Natural Ø: Ø arising from the application of a law
1. there is a juridical tie between two persons in the circumstances;
2. the tie is not given effect by law
 an Ø w/o a sanction, susceptible of Balane: Law as a source of obligation – It is my
voluntary performance, but not thru opinion that there is an overlap in the enumeration
compulsion by legal means. bec. all obligations arise fr. law. Law is the only source
of obligation, in the ultimate sense. But, as a
Voluntary fulfillment – may be understood as proximate source, there are five sources of obligations.
spontaneous, free from fraud or coercion or it may Law is both the ultimate & a proximate source of
be understood as meaning without knowledge or obligations.
free from error;
- w/knowledge that he cannot be compelled to Sources of Obligations according to Sanchez
Roman.-- Law & Acts. The latter are further classified,
pay Ø; as follows:
RATIO: “reputation” (clan) (1) licit acts created by concurrence of wills (contracts);
(2) licit acts either voluntary or involuntary w/o
Natural Ø vs. Moral Ø: concurrence of wills (quasi-contract);
Natural Ø Moral Ø (3) illicit acts of civil character w/c are not punishable,
voluntary or involuntary (torts & all damages arising fr.
Juridical tie Exists none delay);
Performance legal act of pure (4) illicit acts w/c are voluntary & are punishable by law
by debtor fulfillment of liberality which (crimes)
an Ø springs from
blood, affection Baviera: When the source of the obligation is Law, there
or benevolence is no need for an act or omission for the obligation to
Basis of Within the entirely domain arise.
existence of domain of law of morals CASE:
Ø
Enforceability True Ø but for moral duty is SAGRADA ORDEN VS. NACOCO [91 P 503]
certain causes inexistent in
cannot be the juridical Plaintiff owned disputed property in Pandacan, Mla whc
enforced by point of view was acquired during the Japanese occupation by Taiwan
law Tekkosho with TCT. When RP was ceded to USA, the
Examples of natural Ø’s: same was entrusted to Alien Property Custodian, APC by
 Support of a natural child the US govt. APC took possession, control and custody
under the Trading with the Enemy Act. APC allowed
 Indemnification of a woman seduced
Copra Export Management Co. to occupy the property
 Support of relatives, by consanguinity or for a fee. RP later made representation with APC to use
affinity the same property with warehouse. The warehouse was
repaired by NACOCO and was leased to Dioscoro Sarile.
CIVIL Ø’s NATURAL Ø’s The latter failed to pay rentals on the property.
Source of From positive from equity and In an action to recover possession of the property, the
binding force law natural justice court nullified the sale to T.Tekkosho and cancelled its

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TCT and ordered reversion of title to plaintiff, and right binds himself, with respect to the other,
of recovery from NACOCO of rentals to the property. to give something or to render some
service.
ISSUE: WON NACOCO is liable to pay back
rentals? Negotiation of © is initiated by an OFFER;
HELD: If def.-appellant (NaCoCo) is liable at all, its Autonomy of Will  supposing the contract is valid
obligations must arise fr. any of the 4 sources of and enforceable, the terms of © not contrary to law,
obligations, namely, law, contract or quasi morals, GC, PP or PO, the stipulations therewith shd be
contract, crime, or negligence. (Art. 1089, OCC.) given effect. (one of fundamental principles of ©’s)

As to crimes: Def.-appellant is not guilty of any offense Balane: There are two parts in Art. 1159.
at all, bec. it entered into the premises & occupied it w/
the permission of the entity w/c had the legal control &  obligations derived fr. contract has the
admin. thereof, the Alien Prop. Admin. (APA) force of law bet. the contracting parties
(jus civili )
 there must be compliance in good faith
As to QD: Neither was there any negligence on its part. (jus gentium.)
CASE:
As to Contract: There was also no privity (of contract PEOPLE'S CAR VS. COMMANDO SECURITY [51
or obligation) bet. the APA & Taiwan Tekkosho, w/c had SCRA 40]
secured the possession of the prop. fr. the pltff-appellee
by the use of duress, such that the Alien Prop. Custodian Pltff. (People's Car) was in law liable to its customers for
or its permittee (def.-appellant) may be held responsible the damages caused the customer's car, w/c had been
for the supposed illegality of the occupation of the prop. entrusted into its custody. Pltff. therefore was in law
by said Tekkosho. justified in making good such damages & relying in turn
on def.(Commando Security) to honor its contract &
The APA had the control & admin. of the prop. not as indemnify it for such undisputed damages, w/c had been
successor to the interests of the enemy holder of the caused directly by the unlawful & wrongful acts of def.'s
title, the T. Tekkosho, but by express provision of law. security guard in breach of their contract.
WON commando security is liable to damages in
Neither is it a trustee of the former owner, the pltff- accordance w/ provisions of ©/ whc provision/
appellee herein, but a trustee of the US Govt., in its own
right, to the exclusion of, & against the claim or title of, 3. QUASI-CONTRACTS:
the enemy owner. From Aug. 1946, when def.-appellant
took possession, to the date of the judgment on 2/28/48, Article 1160. Obligations derived from
the APA had the absolute control of the prop. as trustee quasi-contracts shall be subject to the
of the US Govt., w/ power to dispose of it by sale or provisions of Chapter 1, Title XVII, of this
otherwise, as though it were the absolute owner. Book.

Therefore, even if def. were liable to the APA for rentals, QUASI-CONTRACT is a juridical relation which arises
these would not accrue to the benefit of the pltff., the from certain unlawful, voluntary and unilateral acts, to
old owner, but the US Govt. the end that no one may be unjustly enriched or
benefited at the expense of another.
Balane: Is the enumeration in Art. 1157
exclusive or merely illustrative?

Doctrine: The sense that the case of Sagrada The act must be:
Orden tells us is that the enumeration is
exclusive. (1) Lawful – thus different from delict which is
In resolving the issue of whether the def. should unlawful;
be liable to pay rentals, the SC used the process of (2) Voluntary – thus different from quasi-
exclusion. For there to be an obligation to pay rentals, delict which is based on fault or negligence
that obligation must arise fr. either of the five (5) or lack of foresight;
sources of obligations. If it does not, then there is no
obligation. The clear implication of this ruling is (3) Unilateral – thus different from contract,
that, these five (5) are the only sources of in which parties agree.
obligations. e.g. in negotiorum gestio:
 Benefits Conferred Voluntarily
The problem w/ Art. 1157 is that it might not cover all  For preservation of Property or Business
situations. For example: Carale uses Dove as his soap.
He then hears an advertisement fr. Proctor & Gamble
that it is offering a nice tumbler for those who can EXTRA-CONTRACTUAL OBLIGATIONS
collect 30 wrappers of Tide before Feb. 29, 1996. So,
Carale stopped using Dove & started using Tide. He was (Øs without an agreement / based in IMPLIED
able to consume all 30 wrappers on Feb. 29, 1996. He
then went to Proctor & Gamble (P & G) to exchange the CONSENT)
30 Tide wrappers for a tumbler. But P & G told Carale Q: HOW MANY?
that their tumblers run out of stock. Carale contracted a A: In NCC, 2 nominate and “some” innominate
skin allergy as a result of using Tide in taking a bath. QC’s
The question is: Does P & G have any obligation to
Carale. If we look at Art. 1157, this situation does not
fall in any of the five sources. So, we know have a a. Quasi-contracts
problem. The German Civil Code (BGB) covers this
situation. The BGB has a sixth source of obligation, the Article 2142. Certain lawful, voluntary and
Auslobung, w/c means a unilateral offer.
unilateral acts give rise to the juridical relation
2. CONTRACTS: © of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the
Article 1159. Obligations arising from expense of another.
contracts have the force of law between
the contracting parties and should be Article 2143. The provisions for quasi-
complied with in good faith. contracts in this Chapter do not exclude other
quasi-contracts which may come within the
Article 1305. A contract is a meeting of purview of the preceding article.
minds between two persons whereby one

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b. Negotiorum Gestio liability arising from negligence under the Penal
Code. But the plaintiff cannot recover damages
Article 2144. Whoever voluntarily takes twice for the same act or omission of the
charge of the agency or management of the defendant.
business or property of another, without any
power from the latter, is obliged to continue TITLE V - Civil Liability, RPC: CHAPTER
the same until the termination of the affair and ONE - Persons Civilly Liable for Felonies
its incidents, or to require the person
concerned to substitute him, if the owner is in Article 100. Civil liability of a person guilty of
a position to do so. felony. - Every person criminally liable for a
felony is also civilly liable.
This juridical relation does not arise in
either of these instances: ELEMENTS – [CHAPTER 2, RPC: What Civil Liability
(1) When the property or business is not Includes]
neglected or abandoned;
(2) If in fact the manager has been tacitly Article 104. What is included in civil
authorized by the owner. liability. – The civil liability established in
articles 100, 101, 102, and 103 of this Code
In the first case, the provisions of articles 1317, includes:
1403, No. 1, and 1404 regarding unauthorized 1. Restitution;
contracts shall govern. 2. Reparation of the damage
caused;
In the second case, the rules on agency in Title 3. Indemnification for
X of this Book shall be applicable. consequential damages.

 NEGOTIORUM GESTIO – juridical relation Baviera: Requisites of enforcing the subsidiary


which arises whenever a person voluntarily obligation of the employer under the RPC:
takes charge of an agency or management of
the business or property of another without criminal case was filed against the EE
any power or authority from the latter. the act or negligence arose during or in connection w/
the performance of the latter’s employment
c. Solutio indebiti the EE is found guilty of criminal negligence
a writ of execution has been returned unsatisfied, i.e. EE
Article 2154. If something is received has been found to be insolvent.
when there is no right to demand it, and
it was unduly delivered through mistake, There is no res judicata as regards the ER as there is a
the obligation to return it arises. difference in the COA. Quasi-delict (QD) differs fr. an
action based on delict on the following grounds:
 SOLUTIO INDEBITI – juridical relation which QUASI DELICT DELICT
arise whenever person unduly delivers a thing it is subsidiary (imputed) ER’s liability is primary in
through or by mistake of another who has no RPC
right to demand it. Diligence of good father of In RPC, such defense of
the family may be set up GFF is not available
4. ACTS OR OMISSIONS PUNISHED BY LAW by the ER as a defense
(DELICT or CRIMES  but not Felony whc is ltd.
To those punished under RPC ): A person while not criminally liable may still
be civilly liable  Failure of the plaintiff to reserve
Article 1167. If a person obliged to do in the criminal case his right to file a separate civil
something fails to do it, the same shall be action is not fatal to the civil action after the
executed at his cost. acquittal of the accused.

This same rule shall be observed if he  When the acquittal is based on ground that the
does it in contravention of the tenor of guilt of the accused has not been proved
the obligation. Furthermore, it may be beyond reasonable doubt, plaintiff has the right
decreed that what has been poorly done to institute a civil action for damages (culpa
be undone. aquiliana).

Balane: Crime as a source of obligation – There are Q: Is it possible that even if there is a contract
many crimes fr. w/c, civil liability arises in their bet. the parties, a quasi-delict can still be
commission, in addition to the criminal penalty attached
to them. This underlines the two aspects in a crime: committed by one against the other regarding the
one, as an offense against the state, & two as an area covered by the contract?
offense against the victim. It is in the latter case
that civil liability is recoverable. A: Yes, according to the case of Araneta v. de Joya,
57 SCRA 59. The same act can give rise to obligations
 As far as crime is concerned, civil law is
not concerned w/ the penal liability but arising fr. different sources.
only w/ the civil liability.
For example, Alinea is the owner of a bus co., the Alinea
Performance at debtor’s cost  non-compliance Bus Co., Molina is a driver of one of the buses of Alinea
Bus Co. Lagdameo rode the bus being driven by Molina.
with Ø to do, creditor may do it himself or get a 3 rd As a result of the reckless driving of Molina, Lagdameo
person at the expense of the debtor; suffered injuries. In this case, Lagdameo has a choice--
he can sue on either contract, quasi-delict or on crime.
 when Ø to do can only be performed by debtor If he decided to sue on the breach of the contract of
carriage, all he has to prove is the (existence of the
he cannot compelled to do so by force, the only contract) & that it was not performed. In this case, he
remedy is damages; can sue the common carrier but not the driver bec. he
has no contract w/ the driver. If he sues on quasi-delict,
he can sue both the common carrier & the driver. The
Article 2177. Responsibility for fault or defense of the driver would be diligence in driving (or
negligence under the preceding article is fortuitous event.) The defense of the common carrier
entirely separate and distinct from the civil would be diligence in the selection & supervision of

4
employees. If he sues under crime, he has to sue the (1) Culpa aquiliana, also known as culpa
driver. In case the driver is convicted & has been extra-contractual, or negligence as a
sentenced to pay civil liability, the employer (Alinea Bus source of Ø, QUASI-DELICT;
Co.) is subsidiarily liable. If Molina is insolvent, Alinea
Bus Co. will pay.  Governed by Arts. 2176-2194
 NO contractual relation at all
 Notice that the choice of cause of action will
determine three things: the theory of the (2) Culpa contractual, or negligence in
plaintiff, the defense of the def. & the question the performance of a contractual Ø.
of whom to sue.
 Governed by Art. 1179 (common
 Again, remember that in this case, the victim carrier), & all on contracts
has a choice. Provided that he is consistent w/
his theory & provided, further, that he cannot  PERSONS LIABLE: (IMPUTED/vicarious
recover damages twice for the same LIABILITY, 2180)
injury.
1. father / mother
2. guardians
Baviera: The terms of the contract cannot be against 3. owners/managers
mandatory & prohibitive laws. And if the contract is 4. employers
valid, it shall have the force of law between the 5. the State
contracting parties. 6. teachers

 The responsibility shall cease if they can prove


5. QUASI-DELICTS: (culpa aquiliana / that they have observed diligence of good
negligence / torts*) father of the family to prevent damage;
[NCC, CHAPTER 2 - Quasi-delicts]
REQUISITES OF LIABILITY (IMPUTED):
Article 2176. Whoever by act or omission 1. the fault of negligence of the defendant
causes damage to another, there being 2. the damage suffered or incurred by the
fault or negligence, is obliged to pay for plaintiff
the damage done. Such fault or 3. the relation of the fault or negligence and
negligence, if there is no pre-existing damage incurred by the plaintiff
contractual relation between the parties,
is called a quasi-delict and is governed by Balane:
the provisions of this Chapter. The Code Commission did not choose to use
(memorize!) tort. This is bec. tort does not exactly have the same
meaning as quasi-delict. Tort [BROADER] covers
Article 1162. Obligations derived from intentional torts w/c in quasi-delict is considered as
civil liability arising fr. acts or omissions punishable by
quasi-delicts shall be governed by the law. There are some QD w/c are not covered by tort.
provisions of Chapter 2, Title XVII of this Dean Bocobo suggested the ancient term culpa
Book, and by special laws. aquiliana. But this did not merit the approval of the
Code Commission.
* Torts is seldom used by SC in juris., it is A TORT is a civil wrong (an actionable
broader term for actionable wrong whc may not wrong) consisting of a violation of a right or a
be negligence, may be malicious tortuous act breach of duty for which the law grants a
whc is not anymore QD. remedy in damages or other relief. The right is
created by law in favor of a person called a
 QUASI-DELICTS – the fault or negligence of a creditor to compel another called a debtor to
person who, by his act or omission connected observe duty or a prestation either to render
or not with, but independent from any what is due him or to refrain from causing him
contractual relation, causes damage to another injury.
person;
Classes of Torts According to Manner of
 The omission to do something which ordinarily Commission
reasonable men guided by those considerations 1. Intentional Torts
whch ordinarily regulate the conduct of human a. tortfeasor desires to cause the
affairs, would do; or doing something which consequences of his act, or
prudent and reasonable men would not do. b. tortfeasor believes that the
 Liability on QD is based on Equity, man is consequences are substantially
responsible not only for acts conscious and certain to result from it
intentional acts but also for his lack of foresight, c. ex. Art. 26, 32 & 33 (CC)
care and diligence which may cause harm to 2. Negligent Torts:
another. d. tortfeasor’s conduct merely creates
 ELEMENTS: a forseeable risk of harm which
(1) A duty on the part of the defendant may or may not occur
to protect the plaintiff from the e. Art. 2176 (CC)
injury of which the latter 3. Strict Liability Torts:
complains; f. ex. Art. 2183 & 2187 (CC)
(2) A failure to perform that duty, and
(3) An injury to the plaintiff through Q: If there is a contract bet. the parties, can
such failure. there be a quasi-delict committed by one against
the other regarding the area covered by the
contract?
 TEST OF NEGLIGENCE: Would a prudent man,
in the position of the person on who negligence A: If you look at Art. 2176, you get the impression that
is attributed, foresee harm to the person injured if there is a contract bet. the parties, they cannot be
as a reasonable consequence of the course liable for quasi-delict on an area covered by the
about to be pursued? contract. The case of Cangco has not really resolve this
controversy.
Case:
 KINDS OF NEGLIGENCE:

5
CANGCO VS. MANILA RAILROAD CO. [38 P 768] - The contract of defendant to transport plaintiff
carried with it, by implication, the duty to carry
Balane: There are two important principles that we him in safety and to provide safe means of
learn fr. this case: entering and leaving its trains (contract of
carriage). That duty, being contractual, was direct and
The difference in concept bet. contract & quasi-delict immediate, and its non-performance could not be
is that in a contract, there is a pre-existing
juridical tie bet. the parties. Violation of the excused by proof that the fault was morally imputable
contract gives rise to liability but not to the to defendant's servants.
juridical tie. Juridical tie is not borne by a
violation. In quasi-delict, it is precisely the
wrongful act w/c gives rise to the juridical The railroad company's defense involves the
tie. Liability & juridical tie are simultaneous. assumption that even granting that the negligent
conduct of its servants in placing an obstruction upon
Contracts & quasi-delicts create two concentric circles the platform was a breach of its contractual obligation
w/ quasi-delict as the bigger circle.
to maintain safe means of approaching and leaving its
[Note: There is a little mistake in Cangco. The SC said trains, the direct and proximate cause of the
that the driver can be sued under culpa contractual. injury suffered by plaintiff was his own
This is wrong. The driver cannot be sued as he has no contributory negligence in failing to wait until the
privity of contract w/ the passenger.] train had come to a complete stop before alighting
(Doctrine of comparative negligence, Rakes
FACTS: Cangco was an EE of MRR Co. He takes the doctrine). If the accident was caused by plaintiff's own
train going home from work. That day he alighted from
the train while it was still slightly in motion. He landed negligence, no liability is imposed upon defendant's
on the elevated platform on top of some sacks of negligence and plaintiff's negligence merely
watermelon which made him fall violently, rolled away contributed to his injury, the damages should be
from the platform under the moving train where he apportioned. It is, therefore, important to ascertain if
badly crashed and lacerated his right arm. It happened
at night bet 7-8pm and d station was poorly lit. defendant was in fact guilty of negligence.
Cangco’s arm was amputated twice. The seriousness of
his injury made him file a case for damages vs MRR Co. The test by which to determine
HELD: whether the passenger has been guilty of
negligence in attempting to alight from a
moving railway train, is that of ordinary
It can not be doubted that the employees of the or reasonable care. It is to be considered
railroad company were guilty of negligence in piling whether an ordinarily prudent person, of
these sacks on the platform in the manner above the age, sex and condition of the
stated; that their presence caused the plaintiff to fall as passenger, would have acted as the
he alighted from the train; and that they therefore passenger acted under the circumstances
constituted an effective legal cause of the injuries disclosed by the evidence. This care has
sustained by the plaintiff. It necessarily follows that the been defined to be, not the care which may or
defendant company is liable for the damage thereby should be used by the prudent man generally,
occasioned unless recovery is barred by the but the care which a man of ordinary prudence
plaintiff's own contributory negligence. would use under similar circumstances, to
avoid injury." (Thompson, Commentaries on
It is important to note that the foundation of the Negligence, vol. 3, sec. 3010.)
legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the RULING: …that the train was barely moving when
damage which plaintiff has suffered arises, if at all, plaintiff alighted is shown conclusively by the fact that
from the breach of that contract by reason of the it came to stop within six meters from the place where
failure of defendant to exercise due care in its he stepped from it. Thousands of person alight from
performance. That is to say, its liability is direct and trains under these conditions every day of the year,
immediate, differing essentially, in legal viewpoint and sustain no injury where the company has kept its
from that presumptive responsibility for the negligence platform free from dangerous obstructions. There is no
of its servants, [RESPONDEAT SUPERIOR], which can reason to believe that plaintiff would have suffered any
be rebutted by proof of the exercise of due care in their injury whatever in alighting as he did had it not been
selection and supervision. (presumption juris tantum, for defendant's negligent failure to perform its duty to
rebuttable). Imputed liability in NCC is not applicable provide a safe alighting place.
to obligations arising ex contractu, but only to
extra-contractual obligations, or to use the technical
form of expression, that article relates only to culpa CASE: Where there could still be QD even when
aquiliana and not to culpa contractual. there is contract of carriage –
GUTIERREZ VS. GUTIERREZ [56 P 177]
FACTS:
Every legal obligation must of necessity be A truck and a car collided on a narrow bridge. A
extra-contractual or contractual. Extra-contractual passenger of the truck was injured and filed a case. The
obligation has its source in the breach or owner of the truck was made defendant although his
omission of those mutual duties which civilized driver was driving the truck at that time and he was not
society imposes upon it members, or which arise a passenger of the truck. The owner of the car was also
made defendant although the driver of the car at the
from these relations, other than contractual, of certain time of the collision was his son, 18 yrs. of age, w/ other
members of society to others, generally embraced in members of the family accommodated therein, but not
the concept of status. the car owner.
HELD: The court found both drivers negligent. The
owner of the truck was made liable for culpa
The fundamental distinction between obligations of this contractual, under the contract of carriage. The owner
character and those which arise from contract, rests of the car was made liable under Art. 2180, imputed
upon the fact that in cases of non-contractual liability for culpa aquiliana.
obligation it is the wrongful or negligent act or
FRAUD NEGLIGENCE
omission itself which creates the vinculum juris,
dolo Culpa
whereas in contractual relations the vinculum exists
Nature of Act involves mere want of
independently of the breach of the voluntary duty
willfulness or care or
assumed by the parties when entering into the
deliberate diligence, not
contractual relation.
intent to cause voluntary act
6
damage or or omission moment of his act or default that an injury to
injury to some person might probably result therefrom."
another
Gives rise to Ø the act itself the want or
care or C. COMPLIANCE WITH OBLIGATIONS:
diligence
 A single act may be a crime and a Article 19. Every person must, in the
QD at the same time; (Art. 100, exercise of his rights and in the performance
RPC) of his duties, act with justice, give
 Injured party cannot recover everyone his due, and observe honesty
damages twice for the same act or and good faith.
omission of defendant; (must
choose 1 Rem.) Article 1163. Every person obliged to give
something is also obliged to take care of it
QUASI-DELICT CRIME with the proper diligence of a good father
As to private right public right of a family, unless the law or the stipulation
nature of the parties requires another standard of
of care.
Right
violat Article 1164. The creditor has a right to
ed the fruits of the thing from the time the
Is a the individual the State obligation to deliver it arises. However, he
Wrong shall acquire no real right over it until the
agains same has been delivered to him.
t
Crimin not needed Necessary Article 1165. When what is to be delivered
al is a determinate thing, the creditor, in
Intent addition to the right granted him by article
Legal Broad penal law 1170, may compel the debtor to make the
Basis necessary delivery.
for
liabilit If the thing is indeterminate or generic, he
y may ask that the obligation be complied with
Liabili every QD gives rise to there are crimes at the expense of the debtor.
ty for liability for damages without civil
Dama liability If the obligor delays, or has promised to
ges deliver the same thing to two or more
Form reparation for injury punishment/fine/i persons who do not have the same interest,
of suffered/indemnificatio mprisonment he shall be responsible for any fortuitous
Redre n/compensation event until he has effected the delivery.
ss
Quant preponderance beyond reasonable Article 1166. The obligation to give a
um of doubt determinate thing includes that of delivering
Eviden all its accessions and accessories, even
ce though they may not have been mentioned.
Compr can be compromised criminal liability
omise can never be
Balane:
compromised
Three types of obligations.-- (1) obligation to give;
(2) obligation to do; & (3) obligation not to do.
REQUISITES FOR LIABILITY: (onus)
(1) Wrongful act or omission imputable to the I. Obligation to give
defendant by reason of his fault or A. Specific thing
negligence; B. Generic thing
(2) Damage or injury proven by the person II. To do
claiming recovery;
III. Not to do (this includes all negative
(3) A direct causal connection between the obligations like obligation not to give.)
negligent act and the injury.
Kinds of performance.--
1. specific performance - performance
DOCTRINE OF PROXIMATE CAUSE  is that which, by the debtor himself ( applies only to Ø
in natural and continuous sequence, unbroken by any to give )
efficient intervening cause, produces injury and without
which the result would not have occurred. 2. substitute performance -
performance at the expense of the
The exemplification by the Court in one case is debtor
simple and explicit; viz: "(T)he proximate
legal cause is that acting first and producing 3. equivalent performance - grant of
the injury, either immediately or by setting damages
other events in motion, all constituting a
Articles 1163 - 1166 cover obligation to give.
natural and continuous chain of events, each
having a close causal connection with its Three Accessory Obligations:
immediate predecessor, the final event in the 1. Art. 1163.-- To take care of the thing w/
chain immediately affecting the injury as a the diligence of a good father of a family
natural and probable result of the cause which until actual delivery.
first acted under such circumstances that the
2. Art. 1164.-- To deliver the fruits to the
person responsible for the first event should, as creditor (fruits produced after obligation
an ordinarily prudent and intelligent person, to deliver arises.)
have reasonable ground to expect at the

7
3. Art. 1166.-- To deliver accessions & into, the thing is capable of being made
accessories. determinate without the necessity of a new or
further agreement between the parties
Balane:
Article 442. Natural fruits are the
 From the time the obligation arises, the spontaneous products of the soil, and the young
creditor has a personal right against the
debtor as to the fruits. But he has no real and other products of animals.
right over them until actual delivery.
Industrial fruits are those produced by lands of
 Real right is a right w/c is any kind through cultivation or labor.
enforceable against the whole world.
He has only the personal right against the Civil fruits are the rents of buildings, the price
debtor w/ regard to the undelivered fruits. of leases of lands and other property and the
 This is bec. of the principle Non nudis amount of perpetual or life annuities or other
pactis, sed traditione, dominia rerum similar income
transferentur (It is not by mere
agreement, but by delivery, is ownership
transferred.) NATURE AND EFFECTS OF Ø’s
OBJECT OF THE Ø:
 Personal right arises fr. the time the 1. to give  real Ø  determinate (specific)
obligation to deliver arises whereas the real
right does not arise until actual delivery. or indeterminate (generic)
2. to do 
Articles 1165 - 1167.-- Remedies Available to the 3. not to do  personal Ø  positive (to do)
Creditor (specific performance, substitute performance,
equivalent performance.) or negative (not to
do)
A. In obligations to give REAL Ø:
a. DETERMINATE Ø – particularly designated from a
1. A determinate thing particular class;
a. Specific performance PRINCIPAL Ø – to give (to deliver) a
b. Equivalent performance
determinate thing;
2. A generic thing, all remedies are available ACCESSORY Ø – exists even when not
expressly stipulated;
(1) Art. 1163 – to take care of the
thing with proper diligence of a good
father of the family;
B. In an obligation to do, make a distinction:
In obligation to do, w/c is purely personal  only (2) Art. 1164 – to deliver the fruits;
equivalent performance is available (441)  natural / industrial /
civil
In an obligation to do w/c is not personal:  the Ø to deliver arises only if
a. substitute performance the creditor is entitled;
b. equivalent performance
(3) Art. 1166 – delivery of the
Note: In obligations to do, specific performance is accessions and of the accessories (Art
not available.  The reason for this is that specific
performance will give rise to involuntary servitude. 440);
b. GENERIC THING  is one that is indicated only by
C. Obligation not to do its kinds, without being distinguished from others of
1. substitute performance the same kind. (indeterminate)
2. equivalent performance.  In an Ø to deliver a generic thing, the object is
determinable; when delivered it becomes
 In all these cases, the creditor has the option of determinate.
resolution or rescission under Art. 1191. In
addition, he can also claim damages.
DELIMITED GENERIC  not totally generic nor
Article 1244. The debtor of a thing cannot specific; oblig. To deliver one of SEVERAL things; does
compel the creditor to receive a different one, not have designation nor physical segregation; Rule re
although the latter may be of the same value as, Fortuitous Events still apply.
or more valuable than that which is due.
In obligations to do or not to do, an act or DETERMINATION OF DILIGENCE REQUIRED:
forbearance cannot be substituted by another (1) LAW  e.g. extra ordinary diligence required in
act or forbearance against the obligee's will. Common carriers
(2) Stipulation of Parties
Article 1245. Dation in payment, whereby (3) Presumed: diligence of a Good father of the
property is alienated to the creditor in Family if none is specified/expressed by law or
satisfaction of a debt in money, shall be agreement.
governed by the law of sales.
Article 1246. When the obligation consists in REAL RIGHT  is the power by a person over a
the delivery of an indeterminate or generic specific thing, susceptible of being exercised against
thing, whose quality and circumstances have not the whole world.
been stated, the creditor cannot demand a thing
of superior quality. Neither can the debtor deliver PERSONAL RIGHT  belongs to a person who may
a thing of inferior quality. The purpose of the demand from another, as a definite passive subject,
obligation and other circumstances shall be the fulfillment of a prestation.
taken into consideration.
 From the moment the Ø to deliver a
Article 1460. A thing is determinate when it is determinate thing arises, the creditors earns a
particularly designated or physical segregated personal right over the thing and its fruits, but
from all others of the same class. only delivery or tradition transfers
The requisite that a thing be determinate is ownership that is a real right over the thing
satisfied if at the time the contract is entered against the whole world.

8
 For failure to deliver, the creditor’s remedy is PURE Ø  demandable at once  running of
not reivindicacion but specific performance. Rx.pd. starts immediately upon creation of the
Ø;
Article 1179. Every obligation whose
[CHAPTER 2: Right of Accession –
performance does not depend upon a future or
GENERAL PROVISIONS]
uncertain event, or upon a past event unknown
to the parties, is demandable at once.
Article 440. The ownership of property gives
the right by accession to everything which is Q: Does the happening of a condition give rise to
produced thereby, or which is incorporated or the Ø?
attached thereto, either naturally or artificially. A: Not necessarily, only if suspensive condi.; if
resolutory condi, the happening exctinguishes the Ø;
Kinds of Fruits;
1) CIVIL – derived by virtue of juridical relation Q: In an Ø with a TERM will the answer above be the
same?
2) Natural – spontaneous products of the soil and the
A:
young and other products of animals;
3) Industrial – produced by lands of any kind through
cultivation or labor or by reason of human labor. b. CONDITIONAL

D. KINDS OF CIVIL OBLIGATIONS: Article 1181. In conditional obligations, the


acquisition of rights, as well as the
1. AS TO PERFECTION & EXTINGUISHMENT: extinguishment or loss of those already
acquired, shall depend upon the happening of
a. PURE – the event which constitutes the condition.
(CHAPTER 3) Different Kinds of
Obligations Article 1182. When the fulfillment of the
SECTION 1 - Pure and Conditional condition depends upon the sole will of the
Obligations debtor, the conditional obligation shall be void.
Article 1179. Every obligation whose If it depends upon chance or upon the will of a
performance does not depend upon a future or third person, the obligation shall take effect in
uncertain event, or upon a past event unknown conformity with the provisions of this Code.
to the parties, is demandable at once.
Balane:  We are talking here of a suspensive
Every obligation which contains a resolutory condition.
condition shall also be demandable, without
prejudice to the effects of the happening of the First sentence of Art. 1182.--
event.  The condition must be suspensive,
potestative & depends on the sole will of
the debtor.
Article 1197. If the obligation does not fix a
period, but from its nature and the EXAMPLE: "I promise to sell you my car for P1.00
circumstances it can be inferred that a period whenever I like."
was intended, the courts may fix the duration
thereof. Q: Why does it make the obligation void?
The courts shall also fix the duration of A: Bec. such an obligation lacks one of the essential
the period when it depends upon the will of the elements of an obligation, the vinculum juris, the
binding force-- the means by w/c it is enforceable in
debtor. court. In this case, there is no binding force. There is no
In every case, the courts shall determine such obligation. It is a joke.
period as may under the circumstances have
been probably contemplated by the parties. Potestative Condition  is one w/c depends solely on
Once fixed by the courts, the period cannot be the will of either one party.
changed by them. EXAMPLE: " I will give you my plantation in
Davao provided you reside in Davao
permanently."
 A pure obligation is one w/c is not subject
to a condition or a term. Casual Condition  is one where the condition is
made to depend upon a third person or upon chance.
EXAMPLE: "I will give you my land in
Floridablanca if Mt. Pinatubo erupts this year."

CASE: re Art. 1179, par. 2 Mixed Condition  is one w/c depends partly upon the
PAY V. PALANCA [57 SCRA 618] will of one of the parties & partly on either chance or the
will of a third person.
From the manner in w/c the P/N was executed, it would Q: What if the condition is suspensive,
appear that petitioner was hopeful that the satisfaction potestative & depends solely on the will of the
of his credit could be realized either through the debtor creditor, is the conditional obligation valid?
sued receiving cash payment fr. the estate of the late
Carlos Palanca presumptively as one of the heirs, or, as
expressed therein, "upon demand." (ALTERNATIVE A: Yes. In fact, the obligation is not even a condition
Ø) obligation. It is a pure obligation, binding at once.

There is nothing in the record that would indicate CASE: the term whc parties attempted to fix were so
whether or not the first alternative was fulfilled. What is uncertain it must be regarded as condition
undeniable is that on 8/26/67, more than 15 yrs. after
the execution of the P/N on 1/30/52, this petition was
filed. The defense interposed was prescription. Its SMITH BELL V. SOTELO MATTI [44 P 874]
merit is rather obvious. Art. 1179, par. 1 says so.
xxx  Where the fulfillment of the condition does
not depend on the will of the obligor, but
The obligation being due & demandable on that of a 3rd person who can, in no way
(bec. Of the phrase “upon demand”), it would be compelled to carry it out, the obligor's
appear that the filing of the suit after 15 part of the contract is complied w/, if he
yrs. was much too late. does all that is in his power, & it then
becomes incumbent upon the other
contracting party to comply w/ the terms
of the contract.

9
FACTS: Øs in ©s entered bet. Plaintiff Corp. as seller Tolentino:
and defendant as buyer:  In contracts, an impossible condition
annuls the contract.
© constituted on August 1918:  In gratuitous dispositions, the impossible
2 steel tanks 21K to be shipped fr NY delivered to condition is simply disregarded.
Mla
“w/in 3 or 4 mos.” Balane: The first statement is inaccurate bec. donation
(Delivered; April 27, 1919) is a contract & in a donation, the impossible condition
does not annul the contract. It is simply disregarded.
Two expellers 25Kea to be shipped fr SF in Sept.1918 The proper way to say it is that:
or ASAP (Delivered:Oct.  In an onerous transaction, an impossible
26. 1918) condition annuls the condition obligation.
 In a gratuitous disposition, as in a
2 electric motors 2K ea “Approx.delivery w/in donation or testamentary disposition, an
90days – This is not impossible condition attached to the
guaranteed.” (Feb. 27, 1919) disposition is simply considered as not
imposed.
 defendant refused to accept and pay deliveries b/c of
delay Q: Why is there a difference?
A: Bec. in a donation as well as in a testamentary
HELD: At the constitution of the ©, the 1 W.War was
st
disposition, the causa or consideration is the liberality of
still ongoing and the US govt was rigid on exportation of the donor or testator, as the case may be. Even if you
take away the impossible condition, there is still a
machinery such as the subjects of this ©; the term reason for the disposition to exist-- liberality. They
whc parties attempted to fix were so uncertain it (donation & testamentary disposition) have both their
must be regarded as condition, their fulfillment underpinnings, liberality.
depended not only upon the effort of plaintiff Co.
but upon that of the US govt, or 3rd person who But in an onerous transaction, since an onerous
could in no way be compelled to issue certificate prestation w/c is reciprocal requires concomitant
performances, that impossible condition becomes part
of priority and permission. Thus the obligor will be of the causa. Therefore, if the condition is impossible,
deemed to have sufficiently fulfilled his part of the Ø if there is failure of causa. In no causa, there is also no
he has done all that is in his power even if condi.,in contract.
reality was not fulfilled. And when time of delivery is not
fixed, stated in general terms or is indefinite, time is not Paras:
of the essence- delivery must be made w/in a  Positive suspensive condition to do an
reasonable time. impossible/ illegal thing  The obligation is
void (Art. 1183, par. 1.)
Record shows that plaintiff did all w/in its power to have  A negative condition (not to do an
machinery arrive in Mla. ASAP, and notified defendant of impossible thing)  Just disregard the
such arrival STAT, court considered such as reasonable condition (Art. 1183, par. 2.)
time. Plaintiff was ordered to pay.
 A condition not to do an illegal thing
(negative)  This is not expressly provided for
Article 1183. Impossible conditions, those in the provision but is implied. The obligation is
contrary to good customs or public policy and valid.
those prohibited by law shall annul the
obligation which depends upon them. If the EXAMPLE: "I will sell you a piece of land
provided you do not plant marijuana on it."
obligation is divisible, that part thereof which is
not affected by the impossible or unlawful
condition shall be valid. Article 1184. The condition that some
event happen at a determinate time shall
The condition not to do an impossible thing extinguish the obligation as soon as the
shall be considered as not having been time expires or if it has become indubitable
agreed upon. that the event will not take place.

Balane: Balane: This article refers to suspensive conditions. If


This refers to a suspensive condition. the condition is resolutory, the effect is the opposite.

There are 2 classes of impossible conditions: Article 1185. The condition that some event
will not happen at a determinate time shall
1. Impossible in fact render the obligation effective from the moment
EXAMPLE: "I promise to sell my car to Mr. M for the time indicated has elapsed, or if it has
P2 if he can swim across the Pacific Ocean for 2 become evident that the event cannot occur.
hours." If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have
2. Impossible in law  or one w/c attaches an probably been contemplated, bearing in mind
illegal condition
EXAMPLE: "I promise to sell my car to Mr. M for the nature of the obligation.
P2 on condition that he burns the College of
Law." Balane: This article refers to a suspensive condition.
Effect of Impossible Condition  It annuls the Article 1186. The condition shall be
obligation w/c depends upon them. deemed fulfilled when the obligor
 The entire juridical tie is tainted by the voluntarily prevents its fulfillment.
impossible condition. Correlate this w/ Articles
727 & 873.
Balane: This article refers to a suspensive condition.
Art. 727. Illegal or impossible conditions in
simple & remuneratory donations shall be
considered as not imposed.
Art. 873. Impossible conditions & those contrary
to law or good customs shall be considered as not Doctrine of Constructive Compliance  There are
imposed & shall in no manner prejudice the heir, three requisites in order that this article may apply:
even if the testator should otherwise provide. 1. Intent on the part of the obligor to prevent
fulfillment of the condition. The intent
does not have to be malicious.

10
2. Actual prevention of compliance (by the improvement, loss or deterioration of the thing
obligor) during the pendency of the condition:
3. Constructive compliance can have (1) If the thing is lost without the fault of
application only if the condition is
potestative. It can also apply to Mixed the debtor, the obligation shall be
condition as to that part w/c the obligor extinguished;
should perform. (2) If the thing is lost through the fault of
the debtor, he shall be obliged to pay
Kinds of Conditional Obligations: damages; it is understood that the thing
is lost when it perishes, or goes out of
a. Suspensive Condition (Condition commerce, or disappears in such a way
precedent) that its existence is unknown or it cannot
be recovered;
Article 1187. The effects of a conditional (3) When the thing deteriorates without
obligation to give, once the condition has been the fault of the debtor, the impairment is
fulfilled, shall retroact to the day of the to be borne by the creditor;
constitution of the obligation. Nevertheless, (4) If it deteriorates through the fault of
when the obligation imposes reciprocal the debtor, the creditor may choose
prestations upon the parties, the fruits and between the rescission of the obligation
interests during the pendency of the condition and its fulfillment, with indemnity for
shall be deemed to have been mutually damages in either case;
compensated. If the obligation is unilateral, (5) If the thing is improved by its nature,
the debtor shall appropriate the fruits and or by time, the improvement shall inure
interests received, unless from the nature and to the benefit of the creditor;
circumstances of the obligation it should be (6) If it is improved at the expense of the
inferred that the intention of the person debtor, he shall have no other right than
constituting the same was different. that granted to the usufructuary. (1122)

 In obligations to do and not to do, the (b) Resolutory Condition (Condition subsequent)
courts shall determine, in each case, the
retroactive effect of the condition that Balane: Art. 1190 refers to resolutory conditions. This
has been complied with. is just the opposite of Art. 1189.

Balane: Article 1190. When the conditions have for


This article refers to suspensive condition. their purpose the extinguishment of an
This article sets forth the rule of retroactivity in an obligation to give, the parties, upon the
obligation to give. This rule is logical but impractical. fulfillment of said conditions, shall return
Many modern Civil Codes have discarded it. to each other what they have received.

No Retroactivity as to the Fruits  Notice In case of the loss, deterioration or


that there is no retroactivity w/ respect to the fruits. The improvement of the thing, the provisions
fruits are deemed to cancel out each other. If only one
of the thing produces fruits, there is no obligation to which, with respect to the debtor, are laid
deliver the fruits. down in the preceding article shall be
applied to the party who is bound to
Article 1188. The creditor may, before the fulfillment return.
of the condition, bring the appropriate actions for the
preservation of his right. As for the obligations to do and not to do,
the provisions of the second paragraph of
The debtor may recover what during the same time he article 1187 shall be observed as regards
has paid by mistake in case of a suspensive the effect of the extinguishment of the
condition. obligation.

Balane: This article refers to suspensive conditions. Balane: A condition is a future & uncertain event
upon w/c an obligation or provision is made to depend.
Bring the appropriate actions  According
to JBL Reyes, the phrase "may xxx bring the Tolentino: xxx Futurity & uncertainty must
appropriate actions" is inaccurate. To bring action is concur as characteristics of the event.
to file a suit. But the creditor is not restricted to
filing a suit.
The proper verb is not "bring" but "take." For  A past thing can never be a condition. A
example, in a sale of land subject to suspensive condition is always future & uncertain.
condition, the creditor should have the suspensive
condition annotated on the title of the land. This is not Past event unknown to the parties  It is really the
bringing an appropriate action but taking an appropriate knowledge of the event w/c constitutes the future. It is
action. the knowledge w/c is future & uncertain.

The principle in this article is: Vigilantibus et EXAMPLE: " I will treat you for lunch if you get
non dormientibus jura subveniunt  w/c means the highest score in the Civil Law Final Exams
that the laws aid those who are vigilant, not those (on the assumption that Prof. Balane has already
who sleep upon their rights. finished checking the papers.)" Here, the event
(getting the highest score) is already a past
Q: Why does Art. 1188 give the creditor a event, yet the knowledge is future & uncertain.
recourse although technically the creditor still
have no right? Condition compared to a term 

A: Bec. as a matter of fact, although technically the Condition Term


creditor still have no right, he is already expecting a As to element of Same, may be Same, always
right. You cannot let the creditor sit & fold his arms & futurity past event future
wait for his right of expectancy to be rendered illusory. unknown to
parties
Article 1189. When the conditions have been in the aspect of uncertain certain
imposed with the intention of suspending the certainty
efficacy of an obligation to give, the following
rules shall be observed in case of the Conditions can either be:

11
1. Suspensive condition (condition
precedent) wherein the happening of the
event gives birth to an obligation

2. Resolutory condition (condition


subsequent) wherein the happening of the
event will extinguish the obligation.

12
c. WITH A TERM OR PERIOD: obligation obligation or existence of
extinguishes one obligations, but
Article 1180. When the debtor binds already existing only their
demandability or
himself to pay when his means permit performance
him to do so, the obligation shall be Effect May have NO retroactive
deemed to be one with a period, retroactive effect effect, except
subject to the provisions of article when there is a
1197. special
agreement
As to time may refer to a always refer to
Balane: A term is a future and certain event upon past event the future
w/c the demandability (or extinguishment) of an unknown to the
obligation depends. parties
As to will of a condition w/c a period left to
Tolentino: Period must be (1) future (2) certain and debtor depends the debtor's will
(3) possible. exclusively on merely
the will of the empowers the
A term can either be: debtor annuls court to fix such
1. suspensive term (ex die -- fr. the day) or the obligation period
one the arrival of w/c will make the obligation
demandable; Balane: In a (suspensive) term, the obligation has
already arisen except that it is not yet demandable.
2. resolutory term (in die -- into the day) or
one the arrival of w/c will extinguish the Article 1194. In case of loss, deterioration or
obligation. The period after which the
performance must terminate. improvement of the thing before the arrival of
the day certain, the rules in article 1189 shall be
Terms classified accdg to source; observed.
1. Legal, period fixed by law
2. voluntary, stipulated by parties Balane: There are three requisites in order for
3. judicial, fixed/allowed by courts Art. 1189 to apply--
1. There is loss, deterioration or delay
May also be, (a) express, specified
(b) tacit, e.g. stipulated to do some 2. There is an obligation to deliver a
work whc may only be done at a determinate thing (on the part of the
debtor)
particular season.
Or, 1. original period 3. There is loss, deterioration or
2. grace period, extension fixed by parties improvement before the happening of the
condition.
Or a. definite, fixed known date or time, 4. The condition happens.
b. indefinite, event will happen but not
Article 1195. Anything paid or delivered before
known when
the arrival of the period, the obligor being
unaware of the period or believing that the
Effect of Period: Ø with term are demandable only
obligation has become due and demandable,
when day fixed for performance arrive; Rt. Of Axn
may be recovered, with the fruits and interests.
arises only when date fixed arrives;

Article 1193. Obligations for whose  1195 applies only in Ø to give;


fulfillment a day certain has been
fixed, shall be demandable only Balane:
when that day comes. Mistaken Premature Delivery  This article assumes
2 things:
(1) the delivery was by mistake;
Obligations with a resolutory (2) the mistake was discovered bef. the term
period take effect at once, but arrives.
terminate upon arrival of the day
certain.  Both the things & the fruits can be
recovered.
A day certain is understood to be
that which must necessarily come, If the term has already arrived, the question is moot &
academic. But can he recover the fruits produced
although it may not be known during the meantime? It depends on what school of
when. thought you follow:

If the uncertainty consists in Tolentino : According to one school of thought, the


whether the day will come or not, debtor is entitled to the fruits produced in the
meantime.
the obligation is conditional, and it
shall be regulated by the rules of Caguioa : According to another school of thought, all
the preceding Section. the fruits received during the pendency of the term
belong to the creditor.
MANRESA: A term or period is an interval of time, w/c,
exerting an influence on an obligation as a consequence When fruits & interests cannot be recovered
of a juridical act, either suspends its demandability notw/standing premature delivery:
or produces its extinguishment.
1. When the obligation is reciprocal & there
Distinguished fr. Condition: has been premature performance (by both
CONDITION TERM / PERIOD parties);
As to uncertain event an event that 2. When the obligation is a loan in w/c the
fulfillment must necessarily debtor is bound to pay interest;
come, whether 3. When the period is for the creditor's
on a date known exclusive benefit;
before hand or at 4. When the debtor is aware of the period &
a time w/c pays anyway. (Knowledge, tacit waiver of
cannot be benefit of term)
predetermined
As to influence a condition has no effect 2. Presumed for whose benefit: BOTH
on the gives rise to an upon the
13
Art. 1606 in pacto de retro sale where the period
Article 1196. Whenever in an obligation a period is not specified by the parties
is designated, it is presumed to have been
established for the benefit of both the creditor Art. 1606. The right referred to in article 1601
and the debtor, unless from the tenor of the (the right of conventional redemption on the part
same or other circumstances it should appear of the vendor a retro), in the absence of an
that the period has been established in favor of express agreement, shall last four years fr. the
one or of the other. date of the contract. XXX

Balane:
 contract of services for an indefinite term
General rule: If a period is attached in an obligation,
the presumption is that it is for the benefit of both (bec. fixing of a period by the courts may
parties. amount to involuntary servitude)

 The consequence is that the creditor cannot Art. 1197. Xxx The courts shall also fix the
compel the performance before the arrival of duration of the period when it depends upon the
the term; the debtor cannot compel acceptance
bef. the arrival of the term. will of the debtor.

If the term is for the benefit of the creditor  The


creditor can demand performance anytime; but the Art. 1191. Xxx the court shall decree the
debtor cannot insist on payment bef. the period. rescission claimed, unless there be just cause
authorizing the fixing of a period.
If the term is for the benefit of the debtor  The Art. 1687. xxx However, even though a monthly
creditor cannot demand performance anytime; but the
debtor can insist on performance anytime. rent is paid, & no period for the lease has been
set, the courts may fix a longer term for the lease
EXAMPLE: "I promise to pay w/in 60 days." This after the lessee has occupied the premises for
is a term for the benefit of the debtor. over one year. If the rent is weekly, the courts
may likewise determine a longer period after the
"I promise to pay Clara the sum of P100,000 on lessee has been in possession for over six
or before Oct. 31, 1996." This is a term for the months. In case of daily rent, the courts may also
benefit of the debtor.
In © of Loan, without interest, term is usually for benefit fix a longer period after the lessee has stayed in
of debtor, thus he may pay in advance; the place for over one month.
If there is stipulation as to interest, period is generally
for both parties, debtor cannot pay in advance vs. will of Art. 1180. When the debtor binds himself to pay
creditor; unless he also pays interest in full. when his means permit him to do so, the
obligation shall be deemed to be one w/ a period,
3. When NO period is fixed subject to the provisions of article 1197.

Balane:
CASE: Where obligation does not fix a period;
Cases where the Courts may fix a period  When fixing a period is mere formality —
1. Art. 1197, par. 1 CHAVEZ V. GONZALES [32 SCRA 547] -
Def. virtually admitted non-performance by returning the
Article 1197. If the obligation does not fix typewriter he was obliged to repair in a non-working
a period, but from its nature and the condition, w/ essential parts, missing. Plaintiff had the
thing fixed by another and later demanded fr. Def.
circumstances it can be inferred that a payment of actual, compensatory, temperate and moral
period was intended, the courts may fix damages.
the duration thereof.
ISSUE: WON Def. may not be held liable b/c © did not
The courts shall also fix the duration of contain a period.
the period when it depends upon the will HELD:
He cannot invoke Art. 1197 of the NCC. The time for
of the debtor. compliance having evidently expired, & there being a
breach of contract by non-performance, it was academic
In every case, the courts shall determine for the pltff. to have first petitioned the court to fix a
such period as may under the period for the performance of the contract before filing
circumstances have been probably his complaint in this case. The fixing of a period
would thus be a mere formality & would serve no
contemplated by the parties. Once fixed purpose than to delay.
by the courts, the period cannot be
changed by them. ENCARNACION V. BALDOMAR [77 P 470] -
Plaintiff was owner of a house in Legarda, Manila leased
Exceptions: (a) Art. 1682 to defendant on month-to-month basis with rental of
P35. After the was plainitiff demanded def. to vacate b/c
he needed it d/t destruction of his office.
Article 1682. The lease of a piece of rural land, WON:def may continue to occupy indefinitely as long as
when its duration has not been fixed, is he pays rentals
understood to have been made for all the time HELD:
necessary for the gathering of the fruits w/c the The continuance & fulfillment of the contract of
whole estate leased may yield in one year, or w/c lease cannot be made to depend solely &
it may yield once, although two or more years exclusively upon the free & uncontrolled choice of
the lessees bet. continuing paying the rentals or
may have to elapse for the purpose. not, completely depriving the owner of all say in
the matter.
For if this were allowed, so long as defs. elected to
Article 1687. If the period for the lease has not continue the lease by continuing the payment of the
been fixed, it is understood to be fr. year to year, rentals the owner would never be able to discontinue it;
if the rent agreed upon is annual; fr. month to conversely, although the owner should desire the lease
month, if it is monthly; fr. week to week, if the to continue, the lessees could effectively thwart his
purpose if they should prefer to terminate the contract
rent is weekly; & fr. day to day, if the rent is to be by the simple expedient of stopping payment of the
paid daily. xxx rentals. This, of course, is prohibited by Art. 1256,
NCC.

ELEIZEUI V. LAWN TENNIS CLUB [2 P309] -


14
rental in court; plaintiff filed M2D for lack of ju’s &no
DOCTRINE: The term of a lease whose termination COA; M2D denied;
is expressly left to the will of the lessee must be ISSUE: WON spouses Co have valid COA in claiming
fixed by the courts according to the character & renewal of lease ©
conditions of the mutual undertakings, in an HELD: YES. There was implied renewal of lease © but
action brought for that purpose xxx. only on a month-2-mo. Basis, not for another 5yrs; Par.
1 of Art. 1197 is clearly inapplicable, since the Contract
The herein Contract of Lease was made to endure at the of Lease did in fact fix an original period of 5 yrs., w/c
will of the lessee who is expressedly authorized to make had expired. It is also clear fr. par. 13 of the contract
improvements upon the subject land by erecting that the parties reserved to themselves the faculty of
buildings therein, perm or temp, making fills, lay pipes, agreeing upon the period of the renewal contract. The
make such other improvements at his own convenience. 2nd par. of Art. 1197 is equally inapplicable since the
No period was fixed for the existence of the ©. duration of the renewal period was not left to the will of
the lessee alone, but rather to the will of both the lessor
HELD: It is evident that the lessors did not intend to & the lessee. Most importantly, Art. 1197 applies only
reserve to themselves the right to rescind that which where a contract of lease clearly exists. Here, the
they have expressly conferred to lessee whc is contract was not renewed at all, there was in fact no
exclusively in favor of the latter. contract at all the period of w/c could have been fixed.
SC granted TRO and injunction.

PHILBANKING V. LUI SHE [21 SCRA 53] -


DOCTRINE: A lease to an alien for a reasonable
period is valid.

on November 15, 1957, the parties entered


into the lease contract for 50 years: that Art. 1180. When the debtor binds himself to pay
ten days after, that is on November 25, they when his means permit him to do so, the
amended the contract so as to make it cover obligation shall be deemed to be one w/ a period,
the entire property of Justina Santos; that on subject to the provisions of article 1197.
December 21, less than a month after, they
entered into another contract giving Wong
Heng the option to buy the leased 4. When debtor loses the benefit of period
premises should his pending petition for
naturalization be granted; that on Article 1198. The debtor shall lose every right to
November 18, 1958, after failing to secure make use of the period:
naturalization and after finding that adoption (1) When after the obligation has been
does not confer the citizenship of the adopting contracted, he becomes insolvent,
parent on the adopted, the parties entered into unless he gives a guaranty or security
two other contracts extending the lease to for the debt;
99 years and fixing the period of the (2) When he does not furnish to the
option to buy at 50 years. creditor the guaranties or securities
which he has promised;
which indubitably demonstrate that each of the (3) When by his own acts he has impaired
contracts in question was designed to carry out Justina said guaranties or securities after
Santos' expressed wish to give the land to Wong and their establishment, and when
thereby in effect place its ownership in alien hands, 1 through a fortuitous event they
about which we shall have something more to say disappear, unless he immediately
toward the end of this resolution. We concluded that gives new ones equally satisfactory;
"as the lease contract was part of a scheme to (4) When the debtor violates any
violate the Constitution it suffers from the same undertaking, in consideration of which
infirmity that renders the other contracts void the creditor agreed to the period;
and can no more be saved from illegality than (5) When the debtor attempts to abscond.
the rest of the contracts."
(6) Art. 2109 - If the creditor is deceived on the
LIM V. PEOPLE [133 SCRA 333] - It is clear in the substance or quality of the thing pledged, he may
agreement that the proceeds of the sale of the tobacco either claim another thing in its stead, or demand
should be turned over to the complainant as soon as the immediate payment of the principal obligation.
same was sold, or, that the obligation was immediately (The sixth ground was added by Prof. Balane.)
demandable as soon as the tobacco was disposed of.
Hence, Art. 1197 of the NCC, w/c provides that the
courts may fix the duration of the obligation if it does Effects of Loss of Term (1198):
not fix a period, does not apply.  Ø becomes immediately due & demandb
even if period has not yet expired.
LIM proposed to sell Ayroso’s tobacco for her at a price,  Ø is converted to a pure Ø
in consideration that the markup would be hers. They
agreed that proceeds of the tobacco sale shd be turned  Insolvency of DEBTOR – need not be judicially
over as soon as sold, or demandable immediately after declared; state of financial difficulty is enough.
all the tobacco was disposed of. For failure to remit all
the sales, lower court convicted Lim of estafa. Balane: In number one, factual insolvency is enough.
ISSUE: WON court may fix period of Ø under Art. 1197 A judicial declaration of insolvency is not required.
HELD: 1197 does not apply in this case.
The agreement bet. Them was one of agency with the Ø [THUS, AGAIN! ]
to return the unsold tobacco and the proceeds of the DIFFERENT KINDS OF Øs:
sale demandable stat. PURE AND CONDITIONAL Øs – when the Ø contains
no terms or conditions;
MILLARE V. HERNANDO [151 SCRA 484] -
FACTS: Pacifica Millare, lessor and spouses Co lessee in
a 5-yr © of lease of People’s Resto; at d last wk of d 5-yr CONDITIONAL Øs – one which is subject to condition;
period, lessor offered to extend d lease if spouses Co will CONDITION – every future and uncertain
agree to increase rental from P350 to P1200 a mo.; event upon which an Ø or provision is made to
spouses counter-offered p700; d discussion was set depend;
aside; later a demand letter was issued by lessor to
vacate premises w/o renewal of expired ©; lessor
disagreed and filed an ejectment case; spouses Co filed FUTURE & UNCERTAIN EVENT – the acquisition or
a separate case for the court to order renewal of © and resolution of the rights is made to depend by those
fix rental at p700 a mo. Spouses deposited monthly who execute the juridical act;

15
 Potestative suspensive is VOID.
CLASSIFICATION OF CONDITIONS: Ex. A will give 5% commission to B, but it depends
1. SUSPENSIVE – the happening of the former on the will of A, void;
gives rise to an Ø;  All other potestative conditions, valid.
2. RESOLUTORY – the happening of the latter
extinguishes rights already existing. Art. 1183 – impossible condition
PAST BUT UNKNOWN – a condition may refer to past 1. physical impossibility
event unknown to the parties; 2. legal impossibility
IMPOSSIBLE CONDITION: Art. 873 – impossible testamentary conditions
1. PHYSICALLY IMPOSSIBLE – when it is contrary to  disregard
law of nature; Ex. Art. 727 – donation
2. JUDICIALLY IMPOSSIBLE – when contrary to
law, morals, good customs and public safety CONDITION PERIOD / TERM
1. future&uncertain event 1. future&certain
PURE Øs  when it is not subject to a term, period 2. suspensive condition 2.suspensive
and no condition; period/“demandability”
- demandable at once 3. resolutory condition 3. resolutory period
- its immediate demandability, give time for debtor to
comply SUSPENSIVE PERIOD – prior to the period, there is
already an Ø, but it is suspensive by the period;
PERIOD = is an event that is future but certain (just a
matter of time); e.g. passing this class (oblicon) Art. 1164 - the Ø to deliver arises upon the perfection of
the contract if subject to suspensive period & not
PAST EVENT – cannot be future event, cannot be suspensive condi.
considered uncertain;
RESOLUTORY PERIOD – “terminated” but the effects that
SUSPENSIVE CONDITION: accrued in the past will remain;
* rights are acquired, upon the happening of a condi.
RESOLUTORY CONDITION – “extinguishes” as if nothing
Art. 1181 – Ø created upon the happening of a happens; retroactive effect of Ø;
condition
EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM:
RESOLUTORY - extinguished, or loss of existing rts, - the contract shall be deemed suspended but the F.E. shall
upon the happening of a condi. not stop the running of the term or period agreed upon;
* Thus a contract may be perfected but its Art. 1195 – advanced payment
demandability suspended. Art. 1196 –
Art. 1186 – deemed constructively fulfilled; applied Presumption – if the period is designated, the benefit is
only to suspensive not to resolutory condi. for both the creditor & debtor
Art. 1187 – effects of conditional Ø to give; Exception: the tenor of the same or other circumstances, it
Ex. A sold a house&lot to B, 1M should appear that the period has been established in
Condition: if B will pass the bar exam favor of one or the other;
Term: effect retroacts after the passing is announced
on April; Art. 1197 – 3 reasons why the court will fix the
period:
Jan.2004 Sept. 2004 Oct.04 Apr.05 1. if the Ø does not fix a period, but from its
perfection (w/o condi./ condi. nature & circumstances it can be inferred that
Pure) a period was intended by the parties;
2. in the duration of the time depends upon the
will of the debtor
[1544] Retroactive effect 3. if the debtor binds himself to pay when his
Art. 1188 – preserve his interest means permit him to do so
PROTECT HIS EXPECTANCY Art. 1198 – memorize!
1. Register with the Registry of Property
2. witness Article 1198. The debtor shall lose every right
3. possession in good faith to make use of the period WHEN:
4. Injunction  if the sell was not consummated (1) after the obligation has been
or not for sale contracted, he becomes insolvent,
unless he gives a guaranty or security
RESOLUTORY CONDITION for the debt;
Art. 1190 – no exception, walang matitira (2) he does not furnish to the creditor the
guaranties or securities which he has
SUSPENSIVE CONDI – upon the happening of the promised;
condi., the Ø exists (“existence of Ø is affected) (3) by his own acts he has impaired said
guaranties or securities after their
CLASSIFICATION OF CONDITION: establishment, and when through a
1. POTESTATIVE – when the fulfillment of the fortuitous event they disappear, unless
condi. depends upon the will of the party to the he immediately gives new ones equally
Ø; satisfactory;
2. CAUSAL – depends upon chance 2 nd or 3rd (4) the debtor violates any undertaking, in
person consideration of which the creditor
3. MIXED – depends partly upon the will of the agreed to the period;
party & partly upon chance or a 3rd person (5) the debtor attempts to abscond.

Art. 1182: Potestative – sole will of the debtor Q: How cud there be guaranty when debtor is insolvent?

16
A: 3rd person (surety) Q: What is the technical term of the act of
making a choice in alternative obligations?
Q: when is Ø due&demandb even if period has expired? A: Concentration.
A: if debtor has lost rt. to make use of such period
(1198)  The right to choose is indivisible  debtor cant
choose part of one prestation and part of another;
 Here, plaintiff’s action must be in alternative form;
D.
Art. 1201. The choice shall produce no effect
(2) Obligations according to plurality of objects: except fr. the time it has been communicated.
A. Simple
Balane:
B. Multiple Requirement of Communication of choice  If the
choice belongs to the creditor, of course, he has to
C. Conjunctive  where the debtor must communicate his choice to the debtor. The debtor is not
perform more than one prestation a prophet.

No required form  may be ORAL, IN WRITING, TACITLY,


Q: A promised to deliver to B his carabao, dog &
goat. What kind of Ø is this? A: conjunctive OR OTHER UNEQUIVOCAL MEANS.

D. Alternative Obligations  where the debtor must Q: If the choice belongs to the debtor, why
require communication before performance if the
perform any of several choice belongs to him anyway?
prestations
A: To give the creditor an opportunity to consent to the
choice or impugn it. (Ong v. Sempio-Dy, 46 P 592.)
when several objects due, the fulfillment of one
is sufficient, generally the debtor chooses
which one. BUT how can the creditor impugn it if the choice belongs
to the debtor. The better reason would be to give the
creditor a chance to prepare for the performance.
E. Facultative  where only one thing is due but the
debtor has reserved the right to substitute it w/ Not CONSENT: only declaration of choice made,
another (Art. 1206) communicated to the other party, unilateral decal.of
will;
 election here is never granted to creditor
Articles 1202 to 1205 talk of the loss of some of the
Q: In conjunctive, right to choose is always with debtor? prestations before performance.
A: NO. No right to choose b/c all must be performed.

Q: in Alternative, rt. To choose can be given to 3rd


person?
A: YES. (Art. 1000) as long as it is not contrary to law,
morals, PO, PP, etc.
1. If the choice is debtor's
Q: In an agreement where there is no stipulation as to
who has rt. to choose?
A: It depends. If Alternative, generally debtor chooses; if a. When only one prestation is left (whether or not
facultative, only with debtor the rest of the prestations have been lost through
fortuitous event or through the fault of the debtor), the
debtor may perform the one that is left.-- Art. 1202.
Q: What if debtor has rt. to choose and he delays?
A: rt. is not lost by mere delay; (before creditor files his Art. 1202. The debtor shall lose the right of
action)
choice when among the prestations whereby he is
alternatively bound, only one is practicable.
(b) Alternative Obligations
b. If the choice is limited through the creditor's
Art. 1199. A person alternatively bound by own acts, the debtor can ask for resolution plus
different prestations shall completely perform damages.--
one of them.
Art. 1203. If through the creditor's acts the
debtor cannot make a choice according to the
The creditor cannot be compelled to receive part terms of the obligation, the latter may rescind the
of one & part of the other undertaking. contract w/ damages.

Tolentino: The characteristic of alternative obligations c. If everything is lost through the debtor's fault,
is that, several objects being due, the fulfillment of one the latter is liable to indemnify the creditor for
is sufficient xxx. damages.--

Art. 1200. The right of choice belongs to the Art. 1204. The creditor shall have a right to
debtor, unless it has been expressly granted to indemnity for damages when, through the fault of
the creditor. the debtor, all the things w/c are alternatively the
object of the obligation have been lost, or the
compliance of the obligation has become
The debtor shall have no right to choose those
impossible.
prestations w/c are impossible, unlawful or w/c
could not have been the object of the obligation. The indemnity shall be fixed taking as a basis the
value of the last thing w/c disappeared, or that of
the service w/c last became impossible.
Balane:
Q: To whom does the right of choice belong? Damages other than the value of the last thing or
A: General rule: To the debtor (Art. 1200.) service may also be awarded.
Exception: When expressly granted to the
creditor (cannot be implied)
d. If some things are lost through the debtor's fault, the
debtor can still choose fr. those remaining.
* There is a third possibility where the choice
may be made by a third person upon agreement
of the parties. (expressed) e. If all are lost through fortuitous event, the obligation
is extinguished.

17
f. If all prestations but one are lost through fortuitous parts of the constitutes the
event, & the remaining prestation was lost through the obligation obligation, the
debtor's fault, the latter is liable to indemnify the accessory being
creditor for damages. only a means to
facilitate
g. If all but one are lost through the fault of the debtor payment.
& the last one was lost through fortuitous event, the As to nullity the nullity of one the nullity of the
obligation is extinguished. prestation does principal
not invalidate prestation
2. Choice is the creditor's the obligation, invalidates the
w/c is still in obligation & the
force w/ respect creditor cannot
Art. 1205. When the choice has been expressly to those w/c demand the
given to the creditor, the obligation shall cease to have no vice substitute even
be alternative fr. the day when the selection has when this is valid
been communicated to the debtor. As to choice the right to only the debtor
choose may be can choose the
Until then the responsibility of the debtor shall be given to the substitute
governed by the following rules: creditor prestation.
As to effect of only the the impossibility
loss impossibility of of the principal
(1) If one of the things is lost through a fortuitous all the prestation is
event, he shall perform the obligation by deliver- prestations due sufficient to
w/o fault of the extinguish the
ing that w/c the creditor should choose fr. among debtor obligation, even
the remainder, or that w/c remains if only one extinguishes the if the substitute
subsists; obligation is possible
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim any Balane:
of those subsisting, or the price of that w/c,
 Facultative obligations always involve
through the fault of the former, has disappeared,
choice by the debtor.
w/ a right to damages;
 In theory, it is easy to distinguish a
(3) If all the things are lost through the fault of facultative obligation fr. an alternative
one. But in practice, it is difficult to
the debtor, the choice by the creditor shall fall distinguish the two. You just have to
upon the price of any one of them, also w/ find out what the parties really
indemnity for damages. intended.
 Only One prestation is DUE and
enforceable by the creditor at the time
The same rules shall be applied to obligations to of choice; if the substitute becomes
do or not to do in case one, some or all of the impossible d/t fault of debtor the Ø is
prestations should become impossible. not affected, thus no damages;
 If after choosing the substitute and
a. If one or some are lost through fortuitous choice is communicated to creditor, the
event, the creditor may choose fr. those principal prestation becomes
remaining.-- Art. 1205 (1)
impossible, Ø is not extinguished but
b. If one or some are lost through the debtor's has become a simple Ø that must be
fault, the creditor has choice fr. the remainder or the performed; and he will be liable for
value of the things lost plus damages.-- Art. 1205 (2), damages in delay, neglect or bad faith.
supra.  If principal Ø becomes impossible by
fault or negligence of creditor, debtor
c. If all are lost through the debtor's fault, the choice of
the creditor shall fall upon the price of any of them, w/ cannot be compelled to perform the
indemnity for damages.-- Art. 1205 (3), supra. substitute (no more substitute, becomes
simple) – extinguished.
d. If some are lost through the creditor's fault, the
creditor may choose fr. the remainder.

e. If all are lost through fortuitous event, the


obligation is extinguished.

f. If all are lost through the creditor's fault, the


obligation is extinguished.

Distinguished fr. Facultative obligations:

Art. 1206. When only one prestation has been


agreed upon, but the obligor may render another
in substitution, the obligation is called
facultative.

The loss or deterioration of the thing intended as


a substitute, through the negligence of the
obligor, does not render him liable. But once the
substitution has been made, the obligor is liable
for the loss of the substitute on account of his
delay, negligence or fraud.

Tolentino: Facultative vs. Alternative -

Alternative Ø Facultative Ø
As to contents there are various only ONE
of the prestations all of principal
obligation w/c constitute prestation

18
[JULY 3, 2008 CLASS] generally be given the choice to whom shall he give
payment.
3. AS TO RIGHTS & Ø’s OF MULTIPLE PARTIES:
[Joint & Solidary Obligations, Arts. 1207-1222] Example: A binds himself to pay P100 either to
X or Y  A or B will pay 100 to X.
a. Joint Obligations
b. Indivisible Obligations
Balane: A joint obligation is one in w/c each of the
debtors is liable only for a proportionate part of the debt Art. 1209. If the division is impossible, the right
or each creditor is entitled only to a proportionate part
of the credit. of the creditors may be prejudiced only by their
collective acts, & the debt can be enforced only
In joint obligations, there are as many by proceeding against all the debtors. If one of
obligations as there are debtors multiplied by the the latter should be insolvent, the other shall not
number of creditors. be liable for his share.
There are three kinds of joint obligations:
1) Active joint  where the obligation is Art. 1210. The indivisibility of an obligation does
joint on the creditor's side; not necessarily give rise to solidarity. Nor does
2) Passive joint  where the obligation is solidarity of itself imply indivisibility.
joint on the debtor's side; &
3) Multiple Joint  where there are
multiple parties on each side of a joint  the Ø here is joint even if the performance is
obligation.
indivisible;
Tolentino:
The joint obligation has been variously termed Joint Indivisible Ø: there are several debtors or
mancomunada or mancomunada simple or pro creditors but the prestation is indivisible  Ex. Delivery
rata;
of a house or a determinate thing;
In P/N the phrase "We promise to pay," used by  fulfillment requires the concurrence of ALL debtors,
2 or more signers, creates a pro rata liability (JOINT); although they are each for his part; and on side of
creditors, collective action required for acts whc may be
While “I promise to pay” followed by signatures prejudicial;
of 2 or more persons – solidary; individually and
collectively; individually and jointly.  Consent required, must still communicate choice after
consensus
JOINT character is PRESUMED: WHEN no stipulation
as to liability of several debtors, presumption is joint, INDIVISIBILITY SOLIDARITY
and each is liable only for his proportionate part of the
Ø; Refers to the Refers to the
prestation, legal tie or
J/FO of court as to several defendants when solidarity whc is not vinculum
has not been specified, the liability of the defendants in capable of defining the
joint; court cannot amend.
partial extent of
Effects of Joint Liability: performance liability
1. The demand by one creditor upon one debtor, Each cannot Each may
produces the effects of default only w/ respect Effects to Joint
demand more demand the
to the creditor who demanded & the debtor on creditors
whom the demand was made, but not w/ than his share full prestation
respect to the others; Each has the
2. The interruption of prescription by the judicial Each is not
Effects to joint duty to comply
demand of one creditor upon a debtor, does not liable for more
benefit the other creditors nor interrupt the debtors with entire
than his share
prescription as to other debtors. On the same prestation
principle, a partial payment or
acknowledgement made by one of several joint
debtors does not stop the running of the statute Art. 1224. A joint indivisible obligation gives rise
of limitations as to the others; to indemnity for damages fr. the time anyone of
3. The vices of each obligation arising fr. the the debtors does not comply w/ his undertaking.
personal defect of a particular debtor or creditor
does not affect the obligation or rights of the The debtors who may have been ready to fulfill
others; their promises shall not contribute to the
4. The insolvency of a debtor does not increase the indemnity beyond the corresponding portion of
responsibility of his co-debtors, nor does it the price of the thing or of the value of the
authorize a creditor to demand anything fr. his service in w/c the obligation consists.
co-creditors;
5. In the joint divisible obligation, the defense of
res judicata is not extended fr. one debtor to If there is plurality of creditors to only one debtor,
another. (Manresa) (GR) the Ø can be performed by delivery of the object to
all the creditors jointly;
Art. 1208. If fr. the law, or the nature or the  Delivery to only one creditor makes the debtor
wording of the obligations to w/c the preceding liable for damages to the other debtors for non-
article refers the contrary does not appear, the performance, unless they have authorized this
credit or debt shall be presumed to be divided one creditor to collect in their behalf;
into as many equal shares as there are creditors  If only one or some, not all creditors demand
or debtors, the credits or debts being considered fulfillment the debtor may refuse to deliver and
distinct fr. one another, subject to the Rules of insist that all the creditors together receive the
Court governing the multiplicity of suits. thing, if not consignation to the court may be
had;
Disjunctive Ø: not covered by NCC; there are 2 or  In non-performance, debtor is liable for
more creditors and 2 or more debtors but they are damages  here w/respect to damages, the
named disjunctively as debtors and creditors in the prestation becomes divisible, each creditor may
alternative. recover proportionately.
* rules on solidary Øs must apply  b/c if rules on
alternative Øs will be applied then the debtor will Q: Is an Ø-not do divisible or not? No (Tolentino)

19
A: Ø-not do when there are several debtors, is a joint  a moral wrong cannot be divided into
indivisible Ø. parts, thus must be solidary; akin to
QD/QC (2183 & 2187)
c. Solidary obligations
 Liability may arise fr. the provisions
of articles 19 to 22 of the NCC. If 2
Balane: or more persons acting jointly
A solidary obligation is one in w/c the debtor become liable under these
is liable for the entire obligation or each creditor is provisions, their liability should be
entitled to demand the whole obligation. If there is only solidary bec. of the nature of the
one obligation, it is a solidary obligation. obligation. xxx The acts giving rise
to liability under these articles have
There are three kinds of solidarity: a common element-- they are
(1) Active solidarity where there are morally wrong.
several creditors w/ one debtor in a
solidary obligation;  Art. 10, RPC; Art. 2194, & Art.
(2) Passive solidarity where there is one 2157, NCC
creditor w/ several debtors solidary
bound; (5) imposed by final judgment upon
(3) Mixed Solidarity where there are several defendants – must be
several creditors & several debtors in a expressed in the JFO, cannot be
solidary obligation. amended after finality.
Tolentino:
 Solidary obligations may also be referred to Characteristics of Active Solidarity (solidary
as mancomunada solidaria or joint & creditors): (Tolentino)
several or in solidum.
 It has also been held that the terms "juntos ESSENCE  mutual agency, or mutual representation,
o separadamente" in a promissory note whc consists in the authority of ea creditor to claim &
creates a solidary responsibility; enforce the rts. Of all, w/d resulting Ø to pay ea one
 Where there are no words used to indicate what belongs to him.
the character of a liability, the phrase "I
promise to pay," followed by the signatures 1. Since it is a reciprocal agency, the death of a
of 2 or more persons, gives rise to an solidary creditor does not transmit the solidarity
individual or solidary responsibility. to each of his heirs but to all of them taken
 The words "individually & collectively" together;
also create a solidary liability. So does an  (Similar to Art. 1005 where bros.&sisters
agreement to be "individually liable" or of decedent inherit in their own rt. per
"individually & jointly liable." capita while nephews & nieces, per
stirpes by rt. of representation.)
c.1. Active Solidarity
2. Each creditor represents others in the act of
requiring payment, & in all other acts w/c tend
Art. 1211. Solidarity may exist although the to secure the credit or make it more
creditors & the debtors may not be bound in the advantageous. Hence, if he receives only a
same manner & by the same periods & partial payment, he must divide it among the
conditions. other creditors. He can interrupt the period of
prescription or render the debtor in default, for
the benefit of all other creditors;
Art. 1207. The concurrence of two or more 3. A credit once paid is shared equally among the
creditors unless a different intention appears;
creditors or of two or more debtors in one & the
same obligation does not imply that each one of 4. Debtor may pay any of the creditors but if any
the former has a right to demand, or that each demand, judicial or extrajudicial is made on him,
one of the latter is bound to render, entire he must pay only to the one demanding
compliance w/ the prestation. There is solidary payment (Art. 1214);
liability only when the obligation expressly so
5. One creditor does not represent the others in
states, or when the law or the nature of the such acts as novation, compensation &
obligation requires solidarity. remission (even if the credit becomes more
advantageous). In these cases, even if the
debtor is released, the other creditors can still
Balane: enforce their rights against the creditor who
Q: When is an obligation w/ several parties on either made the novation, compensation or remission;
side Joint or
Solidary? 6. Each creditor may renounce his right even
A: The presumption is that an obligation is joint bec. a against the will of the debtor, & the latter need
joint not thereafter pay the obligation to the former.
obligation is less onerous that a solidary one.
Characteristics of Passive Solidarity (solidary
There is solidary obligation in the ff.: debtors):
(1) when the obligation expressly so
states – stipulation by parties; ESSENCE  ea debtor can be made to answer for the
others, w/resulting right to the debtor-payor to recover fr
(2) when a will expressly makes charging others their respective shares, akin to mutual
or a condition in solidum; guaranty (Manresa):

(3) when the law requires  crimes, 1. Each debtor may be required to pay the entire
conspiracy, act or 1 is act of all; in torts obligation but after payment, he can recover fr.
– joint tortfeasors the co-debtors their respective shares (this is
 The liability of joint something similar to subrogation);
tortfeasors, w/c include all
persons who command, 2. Interruption of prescription as to one debtor
instigate, promote, affects all the others; but the renunciation by
encourage, advise, one debtor of prescription already had does not
countenance, cooperate in, prejudice the others, bec. the extinguishment
aid or abet the commission of of the obligation by prescription
a tort, or who approve of it, extinguishes also the mutual
after it is done, if done for representation among the solidary
their benefit. (Tolentino) debtors.

(4) nature of the obligation requires 3. The debtor who is required to pay may set up
solidarity – Art. 19-22, NCC; by way of compensation his own claim against

20
the creditor, in this case, the effect is the same individually liable for the debts incurred, they are each
as that of payment; liable only for 1/2 of said amount.
4. The total remission of the debt in favor of a The obligation in the case at bar being described
debtor releases all the debtors; but when this as "individually & jointly," the same is therefore
remission affects only the share of one debtor, enforceable against one of the numerous
the other debtors are still liable for the balance obligors.
of the obligation.

5. All the debtors are liable for the loss of the thing CASE DOCTRINE: The direct liability of the insurer
due, even if such loss is caused by the fault of under indemnity contracts against TPL does not
only one of them, or by fortuitous event after mean that the insurer can be held solidarily liable
one of the debtors has incurred in delay; w/ the insured &/ or the other parties found at
fault.
6. The interests due by reason of the delay of one
of the debtors are borne by all of them. MALAYAN INSURANCE V. CA [165 S 536] -
FACTS:
Legal Bonds in solidarity may be uniform or varied: Collision of a Jeep and a Pantranco Passenger BUS
JEEP: driver – Campollo is an EE of San Leon Rice Mill,
Inc.
Uniform  when debtors are bound by same Owner of jeep is Sio Choy
conditions and clauses;
Insurer of jeep (TPL) is Malayan
BUS: passenger VALLEJOS was injured and sues for
Varied  where obligors, although liable for the damages
same prestation, are nevertheless not subject to
same terms and conditions; before fulfillment of
such condition or arrival of such term, an action HELD: While it is true that where the insurance contract
may be brought vs.such debtor or any other provide for indemnity against liability to 3rd persons,
solidary debtor for recovery of the entire Ø, such 3rd persons can directly sue the insurer, however,
minus the portion corresponding to the debtor the direct liability of the insurer under the
affected by the varied condition or term; upon indemnity contracts against TPL does not mean
happening however, this portion may be that the insurer can be held solidarily liable w/
claimed by creditor from any of the debtors. the insured &/ or the other parties found at fault. The
liability of the insurer is based on contract; that of the
insured is based on tort.
 when one of solidary debtors is bound by varied
terms and conditions, for instance a suspensive
condition or a suspensive period, creditors may Liability of Malayan – culpa contractual (liability is direct
still demand for fulfillment of the whole but not solidary)
prestation prior to the happening of the
condition or arrival of the term, minus the share Liability of Jeep Driver  QD; and his ER,
of this debtor bound by varied condition/term. vicarious
This latter portion may be demanded from (2 principal tortfeasors)
anyone of the debtors soon as the term
arrives or condition happens. For if petitioner-insurer were solidarily liable w/ said 2
 EX. Is sureties who are solidarily liable w/other respondents by reason of the indemnity contract,
debtors but binds themselves to varied against 3rd party liability-- under w/c an insurer can be
conditions distinct fr the principal debtors; BUT, directly sued by a 3rd party-- this will result in a violation
the Ø of surety may not be greater than that of of the principles underlying solidary obligations &
ea principal debtor, nor more burdensome. insurance contracts.

 An Ø to pay sum of money is not novated in a Art. 1212. Each one of the solidary creditors may
new instrument wherein the old is ratified, by do whatever may be useful to the others, but not
changing only the terms of payment and adding anything w/c may be prejudicial to the latter.
other Øs not incompatible w/the old one.
[Inchausti & Co. v. Yulo, 34 Phil 978, 1908]
Acts beneficial: each solidary debtor may,
interrupt prescription,
CASE: An agreement to be “individually liable” or constitute a debtor in default,
“individually and jointly” liable denotes a solidary bring suit so that Ø may produce interest
obligation, not a joint liability.
RONQUILLO V. CA [132 S 274, Sept. 28, 1983] Acts prejudicial: solidary creditor cannot do anything
FACTS: prejudicial to the others, like remission, novation,
1 creditor (Antonio So) and 4 debtors (Ronquillo, et.al.)
Collection for sum of money compensation, merger or confusion  but such
provision in 1212 conflicts w/ 1215;
In an compromise agreement approved by the court, Tolentino: Harmonize 1212 & 1215 by  such acts of
the defendants obligated themselves to pay extinguishment, whc is prejudicial to co-creditors, will be
"individually & jointly." valid so as to extinguish the claim vs. debtors, but not
w/respect to the rts.of co-creditors whc subsists and
Ronquillo and Tan were already trying to pay their share
of the Ø, in accord w/d compromise agreement, but the may be enforced vs such creditor who performed the act
creditor refused, asking for full payment; alone.

HELD: Clearly then, by the express term of the


compromise agreement & the decision based upon it, Balane:
the defs. obligated themselves to pay their obligation
"individually & jointly." There is an apparent conflict bet. Art. 1212 &
1215. Art. 1212 states that the agency extends
only to things w/c will benefit all co-creditors.
The term "individually" has the same meaning as But not anything w/c is prejudicial to the latter.
"collectively," "separately," "distinctively," In Art. 1215, he can do an acts prejudicial to the
"respectively" or "severally." other creditors, like remission for instance.
An agreement to be "individually liable" undoubtedly
creates a several obligation, & a "several obligation" is Art. 1213. A solidary creditor cannot assign his
one by w/c one individual binds himself to perform the rights w/o the consent of the others.
whole obligation.

xxx [T]he phrase juntos or separadamente used Art. 1214. The debtor may pay any one of the
in the P/N is an express statement making each of solidary creditors; but if any demand, judicial or
the persons who signed it individually liable for extrajudicial, has been made by one of them,
the payment of the full amount of the obligation
contained therein. xxx In the absence of a finding payment should be made to him.
of facts that the defendants made themselves
21
Tolentino: Mutual agency whc is the essence of debtors, shall extinguish the obligation, w/o
active solidarity, implies mutual confidence, thus one prejudice to the provisions of article 1219.
creditor cannot assign/transfer his rts to another w/o
consent of the others.
The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be
Effects of Unauthorized Transfer: no effect, no rts.
liable to the others for the share in the obligation
transferred; assignee does not become solidary creditor,
corresponding to them.
co-creditors and debtor/s not bound by such transfer;
 payment made by this assignee will not
extinguish Ø; suit filed by him may not interrupt Art. 1219. The remission made by the creditor of
Rx. the share w/c affects one of the solidary debtors
 EXCEPT, if the assignee is also one of the co- does not release the latter fr. his responsibility
creditors, b/c mutual confidence is incumbent. towards the co-debtors, in case the debt had
been totally paid by anyone of them before the
Justice JBL REYES: Art. 1213 places unjustifiable and remission was effected.
unnecessary burden on the rts of solidary creditors upon
his own share. The article shd have read as:
Art. 1915. If two or more persons have appointed
 A solidary creditor who assigns his rts w/o the an agent for a common transaction or
consent of his co-creditors shall answer undertaking, they shall be solidarily liable to the
subsidiarily for any prejudice caused by the agent for all the consequences of the agency.
assignee in connection w/ d credit assigned.
 Liability was compared to agent&principal;
Tolentino:
Novation  A solidary debtor binds himself alone,
Balane: assumes the debt, releases the other debtors. But this
General Rule  A debtor may pay any of the solidary debtor cannot bind himself to a new debt w/o the
creditors. consent of others.

Exception  If demand is made by one creditor upon If creditor makes the novation w/one debtor and does
the debtor, in w/c case the latter must pay the not secure consent of other debtors, the latter is
demanding creditor only. released. The new contract binds only the debtor who
secured the novation.
Tolentino:
Judicial Demand  when such is made by one of Mere extension of time given by creditor to a solidary
solidary creditors, tacit mutual representation is debtor does not release others from the Ø  no
deemed revoked. novation here.

 Defendant-debtor shd pay to d plaintiff-creditor Dation in payment by one debtor extinguishes as in


to effect extinguishment; payment to any of payment if made immediately, otherwise if promised
other creditors who did not sue would be only, this is a novation.
deemed payment to a 3rd person.
When merger & compensation is total there is
 plaintiff-creditor merely consolidates in himself extinguishment of the Øs; only reimbursements remain;
the representation of all the others, but the if partial tho, applic. Of payments shd govern;
essence of solidarity of creditors shd not be
nullified; A surety who is bound in solidum will be released by
any material alteration in the principal contract made
Extra-judicial Demand  same as above; demand by w/o knowledge & consent of surety, e.g. extension of
time, unless surety’s liability is varied, as in installment
several creditors separately, debtor shd pay the one payments.
who notified him 1st ; if they demand at d same time, or
collectively, debtor may choose to whom to pay.
Other Instances: When 1 creditor makes a remission, the extent of that
particular Ø is extinguish, this creditor is liable to co-
Debtor upon whom demand was made pays to a creditors for their shares.
creditor other than the one who made the
demand in violation of Art. 1214  This is
considered payment to a third person (Art. 1241, When remission favors only one debtor, in full share, this
par. 2) & the debtor can still be made to pay the debtor is released fr solidary Ø, if partial, he retains the
debt. The only concession given to the debtor is solidary Ø & becomes a surety of the whole Ø;
that he is allowed to deduct the share of the
receiving creditor fr. the total amount due even if he Factors to consider in Effects of Acts under 1215:
paid the entire amount due to that creditor. 1. the relation bet. Creditors and that of debtors;
2. the relation among co-debtors themselves.

Creditor A makes demand on debtor Y  Does it Baviera:


mean that he cannot pay the share pertaining to  Principals are always liable solidarily;
creditor B?  Agents are not liable solidarily unless
A: According to commentators he can. But this is expressly stipulated (res inter alios acta)
dangerous bec. there may already be an agreement
on the part of the creditors.
b. Passive Solidarity
Tolentino warns that to make the debtors pay for the
whole amount to the demanding creditor even if Art. 1216. The creditor may proceed against any
partial payment has already been made to another one of the solidary debtors or some or all of them
creditor might amount to unjust enrichment. This simultaneously. The demand made against one of
rule/restriction has already been scrapped in some
modern civil codes allowing freedom of choice to the them shall not be an obstacle to those w/c may
debtor even after demand. subsequently be directed against the others, so
long as the debt has not been fully collected.
Q: There are three creditors A, B & C & there are
three debtors X, Y & Z. A makes a demand on Y. X
pays B. Q: If a judgment made in an action brought by a
A: This is not covered by Art. 1214. solidary cretditor vs a solidary debtor will it be
res judicata vs the co-debtors?
A: A favorable judgment that inures to the benefit of the
co-creditors will be res judicata as to the latter;
Art. 1215. Novation, compensation, confusion or An adverse judgment would have the same effect if the
remission of the debt, made by any of the action of the plaintiff-creditor is not founded on a cause
solidary creditors or w/ any of the solidary personal to him, but actually consolidates in him all the
22
rts.as well of his co-creditors. (Tolentino)  similarly
translated as to co-debtors; Distinctions Passive Suretyship
Solidarity
Solidary debtor liable only as to
 Since in solidarity, there is unity of legal tie, is liable for his his own Ø
notwithstanding plurality of subjects; own Ø & that of
 A judgment that declares the Ø does not exist his co-debtors’
extinguished the Ø the defendant-debtor, and Primary liability Subsidiary
such decision inures to the benefit of co- liability
Extension of does not release releases a
debtors, unless the cause is personal to the def- Time given by a solidary debtor solidary
debtor. creditor (novation) guarantor or
surety
PASSIVE SURETY (extinguishment)
SOLIDARITY
Solidary debtors solidary Art. 1217. Payment made by one of the solidary
guaranty debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor
Extent of whole Ø only to the
may choose w/c offer to accept.
Liability extent of
contract
stipulations/as He who made the payment may claim fr. his co-
expressed debtors only the share w/c corresponds to each,
Liability Primary Subsidiary w/ the interest for the payment already made. If
Effects of solidary Ø releases the the payment is made before the debt is due, no
Extension of remains surety interest for the intervening period may be
time granted by demanded.
creditor
When one of the solidary debtors cannot, bec. of
CASE: If one of the alleged solidary debtor dies his insolvency, reimburse his share to the debtor
during the pendency of the collection case, the paying the obligation, such share shall be borne
court where said case is pending retains by all his co-debtors, in proportion to the debt of
jurisdiction to continue hearing the charge as each.
against the surviving defendants. (1216)

PNB V. INDEPENDENT PLANTERS [122 SCRA 113] - Art. 1218. Payment by a solidary debtor shall not
FACTS: entitle him to reimbursement fr. his co-debtors if
PNB’s complaint vs.several solidary debtors for such payment is made after the obligation has
collection of sum of money; one of defendants (Ceferino prescribed or become illegal.
Valencia) died during the pendency of the caase after
plaintiff had presented its evidence;
Art. 1219. The remission made by the creditor of
Defs. Move to dismiss the money claim in accord w/ Rule the share w/c affects one of the solidary debtors
86 ROC, sec.6 Solidary Ø of decedent – where directs does not release the latter fr. his responsibility
that the claim shd be filed vs the estate of the decedent-
debtor w/o prejudice to rt. of d estate to go vs the other towards the co-debtors, in case the debt has been
debtors for reimbursement. totally paid by anyone of them before the
remission was effected.
ISSUE: WON death of one solidary debtor-defendant
deprives the court of ju’s to proceed w/d case vs. d
surviving defs., being a money-claim based on ©? Tolentino: Payment by one solidary debtor in whole –
extinguishes the Ø and releases the credit  gives rise
Held: It is crystal clear that Art. 1216 is the applicable to a new Ø for reimbursement by the other debtors to
provision in this matter. Said provision gives the creditor this one debtor who paid (JOINT Ø); plaintiff creditor may
the SUBSTANTIVE right to proceed against anyone of the
solidary debtors or some or all of them simultaneously. be properly substituted by the debtor who paid;
The choice is undoubtedly left to the solidary
creditor to determine against whom he will EXCEPT: If payment was made after the Ø prescribed or
enforce collection. In case of the death of the solidary become illegal (mistake or not). (1218)
debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors w/o necessity of  After the Ø has prescribed or becomes illegal, it
filing a claim in the estate of the deceased debtors. It is no longer due & demandable. None of the
is not mandatory for him to have the case solidary debtors can be compelled by the
dismissed against the surviving debtors & file its creditors to pay.
claim in the estate of the deceased solidary
debtor.  Thus, if one debtor pays, he cannot reimburse fr
his co-debtors b/c his action will not revive the
Rules of Procedure cannot prevail over inexistent Ø;
substantive law.-- If Sec. 6, Rule 86, ROC were  Generally, neither could he recover fr the
applied literally, Art. 1216 would, in effect, be repealed
since under the ROC, petitioner has no choice but to creditor to whom he paid (Art. 1424); except
proceed against the estate of Manuel Barredo only. perhaps under solutio indebiti.
Obviously, this provision diminishes the Bank's right
under the NCC to proceed against any one, some or all Balane:
of the solidary debtors. Such a construction is not Effect of Remission.-- Problem: Solidary debtors W,
sanctioned by the principle xxx that a substantive law X, Y & Z are indebted to A for P12,000. A remits the
cannot be amended by a procedural law. Otherwise share of Y (P3,000)
stated, Sec. 6 of Rule 86 cannot be made to prevail over
Art. 1216, the former being merely procedural, while the
latter, substantive. Q: Can Y be sued?
A: Yes, for the P9,000 (P12,000 less P3,000 share of Y)
his share was remitted but not the solidary Ø
Tolentino: Passive Solidarity vs. Suretyship –

Similarity: (1) both stands for some other person; Q: Supposing X is insolvent?
(2) both may require reimbursement A: Y can still be made to contribute. Remission will
benefit Y only in so far as his share is concerned. His
liability in case of insolvency of one co-creditor is not
 If surety binds itself in solidum, creditor may go affected.
vs. anyone of them.
Q: Can A demand the P9,000 fr. Y?
23
A: Yes. But he can recover the same fr. W, X & Z.  In case of non-performance without loss of
the thing/has not become impossible: but
Q: If W paid the whole debt before A remits Y’s there is delay, fraud, fault or negligence, or
share, may W still demand reimbursement of Y’s some other breach of Ø, creditor may also
share? recover damages; here, if guilty debtor pays, he
A: Yes, Art. 1219, Y will not be released from his will not shoulder the whole amount, his co-
solidary Ø. Upon W’s full payment the entire Ø was debtors will pay him their equivalent share in
extinguished, there’s nothing more to remit in Y’s favor. the original Ø. Guilty debtor shoulders the
amount of damages though.
Q: After A remits share of Y, W pays in full the
remaining 12,000. X then becomes insolvent. Balane:
May Y be compelled to contribute to the share of Three Defenses of Solidary Debtor:
X?
A: Yes (Manresa and Tolentino), gratuitous acts 1. Those derived fr. the nature of the
obligation is a total defense;
shd be construed restrictively as to permit the
e.g., prescription, illegality of obligation (illicit
least transmission of rts (Art.1378). Thus, if W object); vitiated consent; unenforceability under
paid 9,000 and X and Z were suppose to the Statute of Frauds; non-happening of
reimburse him 3000 ea, Y could be compelled to condition; arrival of resolutory period;
contribute 1000 as to the insolvency of X. extinguished Ø d/t payment, remission;

2. Those defenses personal to the debtor-


defendant;
e.g., insanity  If it involves vitiation of consent,
Art. 1220. The remission of the whole obligation, total defense. If it involves a special term or a
obtained by one of the solidary debtors, does not condition, a partial defense.
entitle him to reimbursement fr. his co-debtors.
3. Those defenses personal to other co-
debtors;
Art. 1221. If the thing has been lost or if the e.g., defense as to the share corresponding to
prestation has become impossible w/o the fault of other debtors is a partial defense, i.e.
suspensive condition or period as to the Ø of
the solidary debtors, the obligation shall be one co-debtor.
extinguished.
4. AS TO PERFORMANCE OF PRESTATION
If there was fault on the part of any one of them,
all shall be responsible to the creditor, for the a. Divisible Obligations
price & the payment of damages & interest, w/o
prejudice to their action against the guilty or Art. 1223. The divisibility or indivisibility of the
negligent debtor. things that are the object of obligations in w/c
there is only one debtor & only one creditor does
not alter or modify the provisions of Chapter 2 of
If through a fortuitous event, the thing is lost or this Title (Nature & Effect of Obligations).
the performance has become impossible after one
of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand upon Balane:
him by the creditor, the provisions of the  This kind of obligations has something to do w/
preceding paragraph shall apply. the performance of the prestation, & not to the
thing.
 The thing may be divisible but the Ø may still be
Art. 1895. If solidarity has been agreed upon, indivisible, e.g. Ø to deliver 100 sacks of jasmine
rice found in Warehouse of specific address on a
each of the agents is responsible for the non- fixed date (determinate Ø);
fulfillment of the agency, & for the fault or  Or thing is indivisible but performance is
negligence of his fellow agents, except in the divisible, i.e. stage-by-stage construction of a
latter case when the fellow agents acted beyond public road where obligor may deliver every
the scope of their authority. 15% of work done and collect its proportionate
cost from govt agency concerned, performance
bonds here may also be termed as such.
Art. 1222. A solidary debtor may, in actions filed Divisible obligation is one susceptible of partial
performance.
by the creditor, avail himself of all defenses w/c An indivisible obligation is one that must be
are derived fr. the nature of the obligation & of performed in one
those w/c are personal to him, or pertain to his act.
own share. With respect to those w/c personally
belong to the others, he may avail himself thereof Test of Divisibility: WON it is susceptible of partial
only as regards that part of the debt for w/c the performance.
latter are responsible.
General rule: Obligation is indivisible w/c means
that it has to be performed in one act singly.
Effects of 1221 limited to non-performance b/c of loss of Why? Bec. the law provides so: Unless there is an
d thing or impossibility of prestation that’s due  if such express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in w/c the
is d/t FE, w/o fault or delay on any debtor, then Ø is obligation consists. Neither may the debtor be required
extinguished; no debtor is liable. to make partial payments. xxx (Art. 1248, par. 1.)

 If debtor is at fault on the loss/impossibility; Or if Tolentino:


in delay even b4 d loss/impossibility  the Ø is  When division would diminish the value of
the whole
converted to indemnification (of the price,
 QUALITATIVE, when the thing is not really
damages & interests). homogeneous, i.e. inheritance;
 If guilty debtor is made to pay by demand of  QUANTITATIVE, when the thing divided is
creditor, he cannot recover fr his co-debtors (if homogeneous and may be separated into parts
there was loss/imp), he will shoulder the whole if movable, or limits may be set if immovable;
amount of the loss thing + indemnity;  IDEAL, when parts are not separated materially,
 If another co-debtor pays the whole amount he but assigned to several persons, as in pro-
indiviso co-owners;
could recover fr his co-debtors;

24
Three Exceptions to the Rule on Indivisibility: they remain to be bound to
1. When the parties so provide. (Art. 1248, perform the same
par. 1.) prestation
2. When the nature of the obligation
necessarily entails performance in parts. Factors to Determine Whether Ø is Divisible or
not:
3. Where the law provides otherwise.
1. will or intention of the parties, whc may be
Divisibility of Obligation distinguished fr. expressed or presumed;
divisibility of object: 2. objective or purpose of stipulated prestation;
 Divisibility of obligation or prestation does 3. nature of the thing;
not necessarily mean a divisible obligation.
4. provisions of law affecting the prestation
 Divisibility of object is not the same as  In Øs to give, indivisibility is presumed;
divisibility of obligation. except:
1. when work is agreed to be by
 But the reverse is not the same. units of time or measure;
Indivisibility of object means an indivisible 2. or otherwise susceptible of
obligation. partial performance =
divisible
Art. 1224. A joint indivisible obligation gives rise
to indemnity for damages fr. the time anyone of  In indivisible Ø, partial performance is equal to
the debtors does not comply w/ his undertaking. non-performance. Thus, partial payment based on
The debtors who may have been ready to fulfill quantum meruit is not availed. (Arts. 1233 and
their promises shall not contribute to the 1248 forbids partial fulfillment)
indemnity beyond the corresponding portion of “Work half done is worst than work undone!”
the piece of the thing or of the value of the Exceptions:
service in w/c the obligation consists. (1) Ø has been substantially performed in good
faith  debtor may recover as if there had
Art. 1225. For the purposes of the preceding been complete performance, minus the
articles, obligations to give definite things & damages suffered by creditor;
those w/c are not susceptible of partial (2) Creditor accepts, despite partial
performance shall be deemed to be indivisible. performance, with knowledge of
incompleteness, without protest  Ø is deemed
fully performed.
When the obligation has for its object the
execution of a certain number of days of work, ENTIRE © SEVERABLE ©
the accomplishment of work by metrical units, or
Consideration single apportioned
analogous things w/c by their nature are
(expressly/implie
susceptible of partial performance, it shall be
d)
divisible.
Prestation/s several, distinct,
separate items
However, even though the object or service may When a part is whole © partly
be physically divisible, an obligation is indivisible illegal unenforceable enforceable
if so provided by law or intended by the parties. One void void © if not illegal, then
undertaking valid covenants
may be enforced
In obligations not to do, divisibility or
Viz. Statute of must be in if separate
indivisibility shall be determined by the character
Frauds writing chattels may be
of the prestation in each particular case.
sold below limits
set by Statute of
TOLENTINO: To enforce a Joint Indivisible Ø, Art. Frauds, even
1209 has established the necessity of COLLECTIVE when the
FULFILLMENT and the action must be against all the sumtotal
debtors. exceeds, © not
affected
 in case of non-performance by any of the
debtors, the Ø is converted into liability for b. Indivisible Obligations
losses & damages = DIVISIBLE.
 THUS, if one debtor is insolvent, or fails to Art. 1209. If the division is impossible, the right
pay his share, the other debtors will no longer of the creditors may be prejudiced only by their
be liable for his share. The entire liability for all collective acts, & the debt can be enforced only
damages is shouldered by the defaulting debtor. by proceeding against all the debtors. If one of
Solidarity vs. Indivisibility: the latter should be insolvent, the others shall
not be liable for his share.
Solidarity Indivisibility
Refers to vinculum, and refers to the prestation or
principally to the subjects the object of the Ø Art. 1210. The indivisibility of an obligation does
of Ø not necessarily give rise to solidarity. Nor does
Requires plurality of plurality not req’d solidarity of itself imply indivisibility.
subjects
Solidarity remains even in when Ø is converted to Examples of Indivisible Obligations:
case of breach of one, they liability for damages, the
all remain liable for indivisibility ceases to (1) By virtue of its object
indemnity exist, each debtor
becomes liable for his part Art. 618. Easements are indivisible. If the
of indemnity servient estate is divided between two or more
Death of debtor terminates indivisibility affects the persons, the easement is not modified, & each of
solidarity heirs of a decedent debtor,
25
them must bear it on the part w/c corresponds to
him. Where there is a contract of sale of goods to be
If it is the dominant estate that is divided delivered by stated installments, w/c are to be
between two or more persons, each of them may separately paid for, & the seller makes defective
use the easement in its entirety, w/o changing the deliveries in respect of one or more installments,
place of its use, or making it more burdensome in or the buyer neglects or refuses w/o just cause to
any other way. take delivery of or pay for one or more
installments, it depends in each case on the
(2) Express provision of law terms of the contract & the circumstances of the
case, whether the breach of contract is so
material as to justify the injured party in refusing
Art. 2089. A pledge or mortgage is indivisible, to proceed further & suing for damages for
even though the debt may be divided among the breach of the entire contract, or whether the
successors in interest of the debtor or of the breach is severable, giving rise to a claim for
creditor. compensation but not to a right to treat the
whole contract as broken.
Therefore, the debtor's heir who has paid a part
of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.
(3) Express agreement
Neither can the creditor's heir who received his
Art. 1714. If the contractor agrees to produce the
share of the debt return the pledge or cancel the
work fr. material furnished by him, he shall
mortgage, to the prejudice of the other heirs who
deliver the thing produced to the employer &
have not been paid.
transfer dominion over the thing. This contract
shall be governed by the following articles as well
From these provisions, it is expected the case in as by the pertinent provisions on warranty of title
w/c, there being several things given in mortgage & against hidden defects & the payment of price
or pledge, each one of them guarantees only a in a contract of sale.
determinate portion of the credit.

The debtor, in this case, shall have a right to the 5. AS TO THE PRESENCE OF AN ACCESSORY
extinguishment of the pledge or mortgage as the UNDERTAKING IN CASE OF BREACH:
portion of the debt for w/c each thing is specially
answerable is satisfied. a. Obligations w/ a Penal Clause

Art. 1226. In obligations w/ a penal clause, the


Art. 2090. The indivisibility of a pledge or penalty shall substitute the indemnity for
mortgage is not affected by the fact that the damages & the payment of interests in case of
debtors are not solidarily liable. non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty
Art. 1612. If several persons, jointly & in the
of fraud in the fulfillment of the obligation.
same contract, should sell an undivided
immovable w/ a right of repurchase, none of them
may exercise this right for more than his The penalty may be enforced only when it is
respective share. demandable in accordance w/ the provisions of
this Code.
The same rule shall apply if the person who sold
an immovable alone has left several heirs, in w/c Balane: Articles 1226 to 1230 on obligation w/ a penal
case each of the latter may only redeem the part clause is the same as liquidated damages found in
w/c he may have acquired. Articles 2226 to 2228 by authority of Lambert v. Fox,
26 Phil. 588.

Art. 1613. In the case of the preceding article, (Tolentino) Penal Clause.-- A penal clause is an
the vendee may demand of all the vendors or co- accessory undertaking to assume greater liability in
heirs that they come to an agreement upon the case of breach. The purpose is to strengthen the
repurchase of the whole thing sold; and should coercive force of the obligation. When a penal clause is
present, damages do not have to be proved.
they fail to do so, the vendee cannot be
compelled to consent to a partial redemption. Thus, DUAL FUNCTION OF PENAL CLAUSE:
(1) To provide for liquidated damages
(2) To strengthen the coercive force of the Ø by
Art. 1248. Unless there is an express stipulation threat of greater resp.in case of breach.
to that effect, the creditor cannot be compelled
partially to receive the prestations in w/c the Characteristics of Penal Clause:
obligation consists. Neither may the debtor be
required to make partial payments. 1. Subsidiary (also called alternative)  upon non-
performance, only the penalty may be demanded.

However, when the debt is in part liquidated & in Exception: Where penalty is joint
part unliquidated, the creditor may demand & the (cumulative) - where both the principal
debtor may effect the payment of the former w/o undertaking & penalty may be demanded --
Art. 1227, second sentence: "xxx unless this
waiting for the liquidation of the latter. right has been clearly granted him."

Notice the word clearly (not explicitly) w/c


Art. 1583. Unless otherwise agreed, the buyer of means that the right can be clearly granted by
goods is not bound to accept delivery thereof by implication.
installments.

26
2. Exclusive  penal clause is for reparation. It
takes the place of damages. Pamintuan made incomplete deliveries, asked the
president of the Co. for cash payment and adjustments
Exception: When it is for punishment  in w/c in price, which the co.agreed to. When Pamintuan
case both penalty & damages may be demanded, refused to complete his deliveries, he invoked that the
namely-- © was novated and Co. failed to comply thereto.
 If there is a stipulation that both penalty &
damages are recoverable in case of breach Co. filed for damages vs. Pamintuan. Lower court
 If the obligor refuses to pay the penalty awarded actual damages, liquidated damages as
 If the obligor is guilty of fraud in the fulfillment stipulated, and moral damages.
of his obligation.
Pamintuan appealed. CA found Pamintuan guilty of
fraud, and sustained the LC.
Balane: The SC considered the 4% interest as not a
penal clause bec. it does not strengthen the coercive ISSUE:WON the Co. is entitled only to liquidated
force of the obligation. damages as appearing in the contract of sale?
ROBES-FRANCISCO V. CFI [86 S 59] We hold that appellant's contention cannot be sustained
FACTS: In May 1962, Petitioner Realty Corp. sold to bec. the second sentence of Art. 1226 itself provides
Lolita Millan a parcel of land in Camarin, Caloocan on that "nevertheless, damages shall be paid if the
installment basis. Millan complied w/her side of the Ø obligor xxx is guilty of fraud in the fulfillment of
and finished paying in full on Dec. 1971, incl. interests the obligation." xxx The trial court & the CA found
and expenses for registration of title. Thus, Millan that Pamintuan was guilty of fraud bec. he did not make
demanded from the Corp. execution of final deed of sale a complete delivery of the plastic sheeting & he
and issuance of her TCT. Deed of sale was executed in overpriced the same. xxx
Mar. 1973, wherein VENDOR warrants that it shall issue
TCT w/in 6 mos.,, should the vendor fail to issue the
TCT w/in 6 mos. fr. the date of full payment, it Penalty & Liquidated damages:
shall refund to the vendee the total amount paid  There is no justification for the NCC to make an
for w/ interest at the rate of 4% p.a. apparent distinction bet. penalty & liquidated
damages bec. the settled rule is that there is no
Failing to do so, Millan filed a case of specific difference bet. penalty & liquidated damages
performance and damages vs. Robes in CFI. On trial it insofar as legal results are concerned & either
was found that Corp. failed to deliver the TCT b/c such may be recovered w/o the necessity of proving
was mortgaged w/GSIS. Corp. was found guilty of delay actual damages & both may be reduced when
amounting to non-performance of Ø, thus Art. proper. Xxx
1170 was applied.
 We further hold that justice would be adequately
Petitioner here invokes Art. 1226, that in lieu of the done in this case by allowing Yu Ping Kun Co.,
contract Millan shd be allowed to recover damages more Inc. to recover only the actual damages proven,
than what was agreed upon. & not to award to it the stipulated liquidated
damages of P10,000 for any breach of the
ISSUE: WON award by CFI of nominal damages of P20K contract. The proven damages supersede the
improper. stipulated liquidated damages.

HELD: The foregoing argument of petitioner is totally  This view finds support in the opinion of
devoid of merit. We would agree w/ petitioner if the Manresa that in cases of fraud the difference
clause in question were to be considered as a penal bet. the proven damages & the stipulated
clause. Nevertheless, for very obvious reasons, said penalty may be recovered.
clause does not convey any penalty, for even w/o it,
pursuant to Art. 2209 of the NCC, the vendee would be Legality of Penal clause: not contrary lo law, morals,
entitled to recover the amount paid by her w/ legal rate public order
of interest w/c is even more than the 4% provided for in (e.g. usurious, immoral, unjust, merciless)
the clause. How construed: strictly construed, in accord
w/stipulation, (effecting minimal rts)
Vendee failing to present evidence of actual
damages, she is atleast entitled to nominal damages, When there could be damages aside from
whc is not indemnification but recognition of a right Penalty:
violated (Art. 2221/2222)
(1) Express provision: ex. “legal interest of 12% p.a.
aside fr penalty may be had, plus attorney’s
CASE DOCTRINES: The theory that penal and fees of 20%”
liquidated damages are the same cannot be sustained
where obligor is guilty of fraud in fulfillment of Ø; (2) Debtor refused to pay penalty
 The penalty clause does not partake of the
nature of liquidated damages. (3) There’s fraud in debtor’s non-performance
 Party to a contract whc was breached by the  Non-performance gives rise to
other, may be given the rt. to recover actual presumption of fault, debtor has
damages instead of stipulated liquidated burden of proof: defenses may be force
damages. majeure, or act of creditor himself;
 A creditor, in case of fraud by the obligor is CASE:
entitled to stipulated penalty plus the difference
bet.the proven damages & such stipulated BACHRACH V. ESPIRITU [52 P 346]
penalty. RE: Chattel Mortgage with PENAL CLAUSE
FACTS:
Faustino Espiritu purchased from Bachrach Motor in
PAMINTUAN V. CA [94 S 556] - JULY,1925, a 2-ton white-truck on installment basis. This
FACTS: truck was mortgaged, incl. two other white trucks owned
RE: Recovery of compensatory damages for breach of © by defendant whc are fully paid for, to secure the loan.
of sale in addition to liquidated damages.
In 1960, MARIANO C. PAMINTUAN, w/his barter license, In FEB. 1925 def. also purchased another 1-ton white
was authorized to export to Japan 1000 m.Tons of white truck fr same plaintiff corp. w/downpd, balance on
flint corn valued @USD 47K, in exchange for collateral installment basis also, placing this truck on mortgage for
importation of plastic sheetings of equal value. As such security and incl the 2 above mortgaged trucks also.
he entered into © w/ TOKYO MENKA KAISHA, LTD. Of Again, def. failed to pay this debt.
OSAKA, JAPAN. He also ©’s TO SELL the plastic
sheetings to YU PING KUN, CO., INC. for Php 265K, thus
the latter undertook to open an irrevocable domestic In both sales, a 12% p/a/ interest was agreed upon the
letter of credit in favor of Pamintuan. unpaid portion of the ©s, and upon maturity, when due,
non-payment of total remaining debt would give rise to
25% penalty; aside fr mortgage deed, there was a PN,
Further agreed that Pamintuan would deliver the PS to co-signed by def.brother solidarily. Thus, Rosario
bodegas of Yu Ping in Manila and suburbs “within appeared as intervenor in the collection suits alleging to
1month upon arrival of carrying vessels”; &that upon be the sole owner of the two other trucks mortgaged.
breach, aggrieved party may collect liquidated damages He alleged that he did not sign the mortgage and did
of php 10K. not consent to the inclusion of his two trucks therein.
27
 Thus penalty is mitigated in:
While the cases were pending in lower court, the trucks 1. partial or irregular performance
were sold by virtue of the mortgage and brought in a net 2. iniquitous or unconscionable penalty
sum not enough to settle the debts due; Lower court
directed payments of all the sums due and in both two
cases ordered the payment of 12% interest p.a. until 1. Distinguished fr. Ø with suspensive condition:
fully paid and a penalty of 25% in addition as appearing  Happening of the condition gives rise to the Ø;
in the contracts. To these matters the defs. Alleged that in penal there is already a principal Ø
these amounts to usury.
 The principal Ø itself is dependent upon a future
ISSUE: WON the 12% interest p.a. plus additional and uncertain event; in penal, only the
penalty of 25% makes the contract usurious? accessory Ø (the penalty) depends upon non-
HELD: performance or breach.
Art. 1152 of the OCC permits the agreement upon a
penalty apart fr. the interest. Should there be such an
agreement, the penalty xxx does not include the 2. Distinguished fr. alternative obligations
interest, & as such the two are different & distinct things
w/c may be demanded separately. The penalty is not to Art. 1227. The debtor cannot exempt himself fr.
be added to the interest for the determination of the performance of the obligation by paying the
whether the interest exceeds the rate fixed by law, since penalty, save in the case where his right has been
said rate was fixed only for the interest.
expressly reserved for him. Neither can the
BUT, considering partial performance, SC reduced creditor demand the fulfillment of the obligation
penalty to 10% in accord with Art. 1154. (Art. & the satisfaction of the penalty at the same
1229, NCC) time, unless this right has been clearly granted
him. However, if after the creditor has decided to
Art. 1227. The debtor cannot exempt himself fr. require the fulfillment of the obligation, the
the performance of the obligation by paying the performance thereof should become impossible
penalty, save in the case where this right has w/o his fault, the penalty may be enforced.
been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
& the satisfaction of the penalty at the same Art. 1200. The right of choice belongs to the
time, unless this right has been clearly granted debtor, unless it has been expressly granted to
him. However, if after the creditor has decided to the creditor.
require the fulfillment of the obligation, the
performance thereof should become impossible The debtor shall have no right to choose those
w/o his fault, the penalty may be enforced. prestations w/c are impossible, unlawful or w/c
could not have been the object of the obligation.
 GR: Debtor cannot avoid performance by
paying the penalty; except when expressly ALTERNATIVE Ø Ø W/PENAL CLAUSE
granted to debtor. 2 or more Øs are due but there’s only 1 principal Ø,
performance of 1 is only in case of non-
enough performance shall the
 GR as to creditor: may not demand both
penal clause be
fulfillment and payment of penalty at the same
enforceable
time; except if such rt. is granted clearly.
Impossibility of one of Øs, impossibility of principal Ø,
the other/s subsists penal clause extinguished
 as to the last sentence, when it becomes Debtor can choose whc debtor cannot choose to
impossible w/o creditor’s fault  will happen only prestation to fulfill pay penalty to avoid
if thru debtor’s fault or delay, for penalty to performance, unless
become enforceable; b/c if thru FE w/o credotor’s expressed
nor debtor’s fault, principal Ø would be X obliged to deliver a X obliged to deliver a
extinguished and so will the penal clause. horse to Y or pay him P500 horse to Y. if he fails he will
Art. 1228. Proof of actual damages suffered by pay him P500
the creditor is not necessary in order that the
penalty may be demanded. 2. Distinguished fr. Facultative obligations

Art. 1206. When only one prestation has been


Baviera: Courts enforce contracts according to their agreed upon, but the obligor may render another
terms in substitution, the obligation is called
facultative.
Art. 1229. The judge shall equitably reduce the
penalty when the principal obligation has been The loss or deterioration of the thing
partly or irregularly complied w/ by the debtor. intended as a substitute, through the negligence
Even if there has been no performance, the of the obligor does not render him liable. But
penalty may also be reduced by the courts if it is once the substitution has been made, the obligor
iniquitous or unconscionable. is liable for the loss of the substitute on account
of his delay, negligence or fraud.

Art. 1230. The nullity of the penal clause does


not carry w/ it that of the principal obligation. Art. 1227. The debtor cannot exempt himself fr.
the performance of the obligation by paying the
The nullity of the principal obligation penalty, save in the case where this right has
carries w/ it that of the penal clause. been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation
Partial Performance  refers to extent or quantity of & the satisfaction of the penalty at the same
fulfillment time, unless this right has been clearly granted
Irregular Performance  refers to the form him. However, if after the creditor has decided to
 Doctrine of Strict Construction will apply as require the fulfillment of the obligation, the
against the enforcement of the penalty in its performance thereof should become impossible
entirety, when the clause is clearly punitive, not w/o his fault, the penalty may be enforced.
when it is impliedly intended as liquidated
damages;
28
FACULTATIVE Ø Ø w/ PENAL CLAUSE
Debtor has power to make GR, none; except when
substitution expressed
Creditor cannot demand such right to demand both
both prestations may be given

GUARANTY Ø w/ PENAL CLAUSE


Is a © by whc virtue, a 3rd Ø to pay penalty is
person (guarantor) obliged different fr the principal Ø,
himself to fulfill prestation but also paid in lieu of
in lieu of debtor’s non- debtor’s non-performance
performance
Intended to insure Intended to insure
performance of principal Ø performance of principal Ø
Accessory & subsidiary Ø Accessory & subsidiary Ø
Principal debtor cannot be both Øs can be assumed
guarantor by one person
Subsists even when penalty is extinguished in
principal Ø is voidable or such case, unless assumed
unenforceable by 3rd person

Q: When does delay set in?


A: Delay sets-in in the following manner:

1. For Reciprocal simultaneous obligations


 by the readiness of one of the parties to perform &
his letting the other party know; & the other party is not
ready to comply in a proper manner w/ what is
incumbent upon him.

2. For Reciprocal obligations w/c are not


simultaneous
 Gen. Rule: Demand is necessary (Art. 1169, par.
(1) This is called mora solvendi ex persona.
Exception: When demand is not necessary (the
exceptions are found in Art. 11 69, par. 2.) This
is called mora solvendi ex re

Q: What kind of demand is necessary?


A: Judicial or extra-judicial
Exceptions:
When the obligation or the law expressly so
declare.-- when the contract says that w/o the
necessity of demand, default sets in upon the failure
of the obligor to perform on due date. There must
be something in the contract w/c explicitly states
that the demand is not necessary in order that delay
may set in.

When fr. the nature & the circumstances of the


obligation it appears that the designation of
the time when the thing is to be delivered or
the service is to be rendered was a controlling
motive for the establishment of the contract.

Illustration: Bong Baylon is getting married in


Valentines '96. Inno Sotto was supposed to make
Ella's (the bride) wedding gown. Feb. 14 comes , no
gown was delivered. Ella gets married in blue jeans
& T-shirt. Finally, on Feb. 15, Inno delivers the gown.
xxx Ella sues Inno for breach. Inno says there was
no demand. In this case, demand is not necessary
in order that delay may exist.

When demand would be useless, as when the


obligor has rendered it beyond his power to
perform.-- Example is the case of Chavez v.
Gonzales, infra.

29
July 9, 2008
Fraud as used in Art. 1170 is different fr. fraud as a
cause for vitiation of consent in contracts (more properly
E. BREACH OF OBLIGATIONS (ART. 1170) called deceit w/c prevents the contract fr. arising; this is
found in Art. 1380, et seq.)
Art. 1170. Those who in the performance of their
obligation are guilty of fraud, negligence or delay,  fraud as referred here is the deliberate and
& those who in any manner contravene the tenor intentional evasion of normal fulfillment of Øs; thus, as
thereof, are liable for damages. ground for damages fr this article, implies some kind of
malice or dishonesty, whc does not cover mistake,
erros of judgment made in GF.
Irregularity of Performance [Articles 1169 - 1174]
 Evasion of a legit.Ø for benefits admittedly received
Art. 1169. Those obliged to deliver or to do
constitutes unjust enrichment.
something incur in delay fr. the time the obligee
judicially or extrajudicially demands fr. them the
fulfillment of their obligation.
However, the demand by the creditor shall not be Q: What is a synonym for fraud as used in Art.
necessary in order that delay may exist: 1170?
A: Malice.
When the obligation or the law expressly so
declare; Effects of Fraud:
When fr. the nature & the circumstances of the 1. Creditor may insist on performance, specific
obligation it appears that the designation of the or substitute (Art. 1233.)
time when the thing is to be delivered or the 2. Creditor may resolve/ rescind (Art. 1191.)
3. Damages in either case (Art. 1170.)
service is to be rendered was a controlling motive
for the establishment of the contract;
When demand would be useless, as when the (2) Negligence
obligor has rendered it beyond his power to
perform. Art. 1171. Responsibility arising fr. fraud is
demandable in all obligations. Any waiver of an
In reciprocal obligations, neither party incurs in
action for future fraud is void.
delay if the other does not comply or is not ready
to comply in a proper manner w/ what is Art. 1172. Responsibility arising fr. negligence in
incumbent upon him. From the moment one of the the performance of every kind of obligation is
parties fulfills his obligation, delay by the other also demandable, but such liability shall may be
begins. regulated by the courts, according to the
circumstances.
Balane: Two Classes of Irregularity of Art. 1173. The fault or negligence of the obligor
Performance: consists in the omission of that diligence w/c is
required by the nature of the obligation &
1. Attributable to the debtor corresponds w/ the circumstances of the persons,
A. Fraud of the time & of the place. When negligence
B. Negligence shows bad faith, the provisions of articles 1171 &
C. Delay 2201, paragraph 2, shall apply.
2. Not attributable to the debtor
A. Fortuitous event.  Negligence is the absence of something that
should be there  due diligence.
(1) Fraud
Art. 1171. Responsibility arising fr. fraud is Measure of Due Diligence.-- There are two guides:
demandable in all obligations. Any waiver of an
1. Diligence demanded by circumstances of
action for future fraud is void. person, place & time
2. Care required of a good father of a family
Article 1338. There is fraud when, through (fictional bonus pater familias who was the
insidious words or machinations of one of the embodiment of care, caution & protection in
contracting parties, the other is induced to Roman law.)
enter into a contract which, without them, he
would not have agreed to. In common law, the degree of care required is the
diligence of a prudent businessman. This is
actually the same as the diligence of a good father of a
Article 1344. In order that fraud may make a family.
contract voidable, it should be serious and
should not have been employed by both Effects of Negligence:
contracting parties. 1. Creditor may insist on performance, specific or
substitute (Art. 1233.)
2. Creditor may resolve/ rescind (Art. 1191.)
Incidental fraud only obliges the person 3. Damages in either case (Art. 1170.)
employing it to pay damages.
 From 1173 = culpa contractual
Balane: Is it correct to say that fraud in Art. 1170  from 2176 = culpa aquiliana or extra-contractual
means deceit or insidious machinations? No.
** In both cases, for liability to attach, such negligence
LEGASPI OIL VS. CA [224 S 213] - Definition of must be the proximate cause of the injury to plaintiff.
Fraud.--
 In general, fraud may be defined as the (3) Delay
voluntary execution of a wrongful act, or  See Art. 1169.
willful omission, knowing & intending the
effects w/c naturally & necessarily arise fr. = default / mora, in the fulfillment of Øs;
such act or omission;
 The fraud referred to in Art. 1170 is the
deliberate & intentional evasion of the REQUISITES to be In Default:
normal fulfillment of obligation;
Ø is demandable and liquidated
 It is distinguished fr. negligence by the presence
of deliberate intent, w/c is lacking in the latter. debtor delays performance
30
creditor requires performance, jud or extrajud In case of fraud, bad faith, malice or wanton
demand attitude, the obligor shall be responsible for all
damages w/c may be reasonably attributed to the
non-performance of the obligation.
Art. 1165. xxx. If the obligor delays, or has
promised to deliver the same thing to two or
more persons who do not have the same interest, (4) ANY OTHER MANNER OF CONTRAVENTION:
he shall be responsible for any fortuitous event
 includes any illicit acts which impair the strict and
until he has effected the delivery.
faithful fulfillment of Ø, or every kind of defective
Article 1786. Every partner is a debtor of the performance;
partnership for whatever he may have
promised to contribute thereto. CASE: “in any manner contravene the tenor of
He shall also be bound for warranty in case of contract”
eviction with regard to specific and
determinate things which he may have AGCAOILI VS. GSIS [165 S 1]
contributed to the partnership, in the same FACTS:
cases and in the same manner as the vendor is GSIS approved applic. Of Artemio Agcaoili for purchase
bound with respect to the vendee. He shall also of H&L in Marikina, subjc.to condition that latter shd
be liable for the fruits thereof from the time forthwith occupy the house:
“If you fail to occupy the same w/in 3 days fr receipt of
they should have been delivered, without the this notice, ur applic. Will be considered automatically
need of any demand. disapprovd & said H&L will be awarded to another.”
Article 1788. A partner who has undertaken
to contribute a sum of money and fails to do so There was then a perfected contract of sale bet. the
parties; there had been a meeting of the minds upon the
becomes a debtor for the interest and damages purchase by Agcaoili of a determinate house & lot in the
from the time he should have complied with his GSIS Housing Project at Nangka, Marikina, Rizal, at a
obligation. definite price payable in amortizations at P31.56 per
mo., & fr. the moment the parties acquired the right to
The same rule applies to any amount he may reciprocally demand performance. It was, to be sure,
have taken from the partnership coffers, and the duty of the GSIS, as seller, to deliver the thing sold
his liability shall begin from the time he in a condition suitable for its enjoyment by the buyer for
converted the amount to his own use. the purpose contemplated, in other words, to deliver the
house subject of the contract in a reasonably livable
Article 1896. The agent owes interest on the state. This it failed to do.
sums he has applied to his own use from the day Agcaoili could not stay in the haus whc was only a shell,
on which he did so, and on those which he still It did not have a ceiling, stairs, double walling, lights,
water, CR, drainage. He asked a homeless friend
owes after the extinguishment of the agency. instead to stay and watch over the property. After
paying 1 installment &other fees, refused to make
st

further payments until GSIS wud make d haus habitable.


Article 1942. The bailee is liable for the loss Instead, GSIS cancelled the © and demanded Agcaoili to
of the thing, even if it should be through a vacate.
fortuitous event: Agcaoili filed w/CFI case for specific performance and
won. Thus GSIS’ appeal must fail.
(1) If he devotes the thing to any purpose xxx
different from that for which it has been Since GSIS did not fulfill that obligation, & was
loaned; not willing to put the house in habitable state, it cannot
(2) If he keeps it longer than the period invoke Agcaoili's suspension of payment of amortization
as cause to cancel the contract bet. them. It is
stipulated, or after the accomplishment of the axiomatic that "(i)n reciprocal obligations, neither
use for which the commodatum has been party incurs in delay if the other does not comply
constituted; or is not ready to comply in a proper manner w/
what is incumbent upon him.
(3) If the thing loaned has been delivered with WON Agcaoili breached the © by failing to
appraisal of its value, unless there is a occupy the house w/in 3 days as stipulated? NO,
stipulation exempting the bailee from argument of GSIS devoid of merit.
responsibility in case of a fortuitous event;
There being a perfected © of sale, it was
(4) If he lends or leases the thing to a third the duty of GSIS as seller to deliver the thing sold
person, who is not a member of his household; in a condition suitable for enjoyment by the buyer
for the purpose contemplated.
(5) If, being able to save either the thing
borrowed or his own thing, he chose to save the
latter. (OBLIGATIONS OF THE BAILEE) CASE DOCTRINE:

One who assumes a contractual obligation & fails


Delay is the non-fulfillment of the obligation w/ respect to perform the same on account of his inability to
to time. meet certain bank requirements w/c inability he
knew & was aware of when he entered into the
Kinds of Delay: contract, should be held liable in damages for
1. Mora Solvendi -- delay in the performance breach of contract.
(on the part of the debtor);
ARRIETA VS. NARIC [10 S 79]
2. Mora Accipiendi -- delay in the acceptance FACTS: (Paz Arrieta vs. National Rice & Corn Corp.)
(on the part of the creditor); On May 1952, Arrieta took part in public bidding by
NARIC to supply 20K m.Tons of Burmese rice, being the
3. Compensation Morae -- mutual delay lowest bidder she was awarded the contract. In the ©
of sale, Arrieta’s Ø was to deliver the rice at d price of
Art. 2201. xxx her bid, while NARIC’s Ø was to pay her in LOC,
irrevocable, confirmed and assignable, in USD in favor of
(2) In contracts & quasi-contracts, the damages Arrieta or supplier in Burma, “immediately.”
for w/c the obligor who acted in good faith is
liable shall be those that are the natural & NARIC knew that it did not have enough deposit in PNB
probable consequences of the breach of the to cover the Ø, thus it wrote a letter of request to
accom. the applic for LOC despite such fact in lieu of this
obligation, & w/c the parties have foreseen or © w/Arrieta. This applic. Was made by PNB on July 30,
could have reasonably foreseen at the time the 1952, a month after it entered in the © w/Arrieta and
obligation was constituted. promised to open the LOC “immediately.” By this time
Arrieta has made a 5% tender to her supplier in Burma,

31
whc will be confiscated if the required LOC will not be
received before August 4, 1952. Such fact was apprised To constitute a caso fortuito that will exempt a
by Arrieta to NARIC in a letter thru counsel. person fr. responsibility, it is necessary that: [Austria vs.
Abad,June 10, 1971]
PNB required NARIC to make a marginal deposit of 50%
of the amount of LOC before such will be released in 1. the event must be independent of human will;
favor of Arrieta’s supplier in Burma. Such condition 2. the occurrence must render it impossible for the
NARIC is not in any financial position to meet. PNB debtor to fulfill the obligation in a normal
conseq. Approved &released the LOC 2-mos. In delay. manner;
The Burmese supplier has cancelled the order on Aug. 3. that the obligor must be free of participation in,
20, 1952, and forfeited the 5% tender of Arrieta
amounting to P200K. NARIC and PNB did not even make or aggravation of, the injury to the creditor.
the 15-day grace period given by the supplier. Arrieta
endeavored to restore to no avail. It offered to Balane:
substitute w/Thailand rice, NARIC rejected. General Rule: The happening of a fortuitous
event exonerates the debtor fr. liability.
Thus, Arrieta demanded for payment of damages of USD
286K representing unrealized profits. Again rejected. EXEMPTIONS FROM APPLICATION OF G.R. ON F.E.:
Thus, this case.
1. When the law so specifies.-- e.g., if the debtor is
WON NARIC was in breach of contract? already in delay (Art. 1165, par. 3.)
2. When the parties so agree
YES> NARIC’s culpability arises from its willful and 3. When the nature of the obligation requires the
deliberate assumption of ©’al Øs even as it was assumption of risk, e.g., an insurance contract.
well aware of its own financial incapacity to
undertake the prestation.
EXAMPLES OF BY Express Provision of Law:
Under Art. 1170, not only debtors guilty of fraud,  IN Depositary
negligence or default but also every debtor, in
general, who fails the performance of his Art. 1979. The depositary is liable for the loss of
obligation is bound to indemnify for the losses & the thing through a fortuitous event:
damages caused thereby.
(1) If it is so stipulated;
Meaning of phrase "in any manner contravene the (2) If he uses the thing w/o the depositor's
tenor" of the obligation in Art. 1170  The phrase permission;
includes any illicit task w/c impairs the strict & faithful
fulfillment of the obligation, or every kind of defective (3) If he delays its return;
performance. (4) If he allows others to use it, even though he
himself may have been authorized to use the
Balane: This phrase is a catch-all provision. At same.
worst, it is a superfluity. At best, there is a safety net
just in case there is a culpable irregularity of
performance w/c is not covered by fraud, negligence or
delay. In this case, the SC was apparently not sure as to Q: What if a depositor was in the premises of the
what category the breach fell. This phrase is not really bank & was robbed of his money w/c he was
an independent ground. about to deposit?
A: Bank cannot be held liable for fortuitous
“ TIME IS OF THE ESSENCE” event (robbery) esp in CAB where the money
has not yet been actually deposited.
TELEFAST VS. CASTRO [158 s 445] -
FACTS: Sofia’s mother died while they were here in RP Art. 1979 provides for instances wherein depositary is
visiting..her father siblings were all abroad. Thus, that still liable even in cases of fortuitous event.
same day she sent a telegram to her father in the USA
via TELEFAST. Her mother was interred w/o her father
nor siblings in attendance. When Sofia went back to the Q: What kind of diligence is required of a
USA she learned that her telegram never reached her depositary?
father. A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a SDB was
HELD: Petitioner & private respondent Sofia C. Crouch stolen, rules on deposit will not apply bec. the contract
entered into a contract whereby, for a fee, petitioner governing the transaction is LEASE of safety deposit
undertook to send said private respondent's message box.
overseas by telegram. This, petitioner did not do,
despite performance by said pvt. resp. of her obligation
by paying the required charges. Petitioner was therefore Bailee in Commodatum
guilty of contravening its obligation to said private
respondent & is thus liable for damages. Art. 1942. The bailee is liable for the loss of the
thing, even if it should be through a fortuitous
ISSUE;WON there was here breach of contract, and WON event:
only actual damages are due?
YES, Art. 1170, ALSO Art. 2176 applied. (1) If he devotes the thing to any purpose
different fr. that for w/c it has been loaned;
This liability is not limited to actual or quantified (2) If he keeps it longer than the period
damages. To sustain petitioner’s contention and
award actual damages only would be iniquitous stipulated, or after the accomplishment of the use
such that he would be liable only for the cost of for w/c the commodatum has been constituted;
that telegram paid for 30 yrs ago. If the thing loaned has been delivered w/
appraisal of its value, unless there is a stipulation
exempting the bailee fr. responsibility in case of a
fortuitous event;
EXCUSE FOR NON-PERFORMANCE:
If he lends or leases the thing to a third person,
1. Loss due to Fortuitous Events who is not a member of his household;
(5) If, being able to save either the thing
Art. 1174. Except in cases expressly specified by borrowed or his own thing, he chooses to save
law, or when it otherwise declared by stipulation, the latter.
or when the nature of the obligation requires the
assumption of risk, no person shall be responsible In Negotiorum Gestio
for those events w/c could not be foreseen, or w/c
Art. 2147. The officious manager shall be liable
,though foreseen, were inevitable.
for any fortuitous event:

32
(1) If he undertakes risky operations w/c the (3) “when the nature of the Ø requires the
owner was not accustomed to embark upon; assumption of risks”
(2) If he has preferred his own interest to that of
the owner; Aleatory Contract
(3) If he fails to return the property or business Art. 2010. By an aleatory contract, one of the
after demand by the owner; parties or both reciprocally bind themselves to
(4) If he assumed the management in bad faith. give or to do something in consideration of what
the other shall give or do upon the happening of
an event w/c is uncertain, or w/c is to occur at an
Art. 2148. Except when the management was
indeterminate time.
assumed to save the property or business fr.
imminent danger, the officious manager shall be Art. 1175. Usurious transactions shall be
liable for fortuitous events: governed by special laws.
(1) If he is manifestly unfit to carry on the Tolentino:
management; Usury.-- Usury is the contracting for or receiving
something in excess of the amount allowed by law for
(2) If by his intervention he prevented a more the loan or forbearance or money, goods or chattels.
competent person fr. taking up the management. Special law on usury.-- The Usury Law was Act No.
2655. This law was repealed during the period of
martial law, leaving parties free to stipulate higher rates.
Payee in Solutio Indebiti
Art. 2159. Whoever in bad faith accepts an undue _________________________________________________________
payment, shall pay legal interest if a sum of CASES:
money is involved, or shall be liable for fruits Balane: Some of the elements were present in this
case. What was absent was the last element.
received or w/c should have been received if the
thing produces fruits.
NPC VS. CA [161 S 334] - NPC cannot escape
He shall furthermore be answerable for any loss liability bec. its negligence was the proximate
or impairment of the thing fr. any cause, & for cause of the loss & damage even though the
damages to the person who delivered the thing, typhoon was an act of God.
FACTS:
until it is recovered.
Typhoon “Welming”
Plaintiff ECI (Engr.Constrx,Inc) entered © w/NAWASA on
Lessee Aug.1964, to construct ipo-Bicti Tunnel in Norza.,Bul.
w/in 800 days; It has finished 1 st stage of the excavation
Art. 1648. Every lease of real estate may be works and was already on the Ipo site phase when
recorded in the Registry of Property. Unless a typhoon “Welming” came in Sept. 1967. it was
predicted that Welming wud pass through NPC’s Angat
lease is recorded, it shall not be binding upon Hydroelectric Project and Dam at Ipo. Consequent to
third persons. the heavy downpour, the dam reached danger height of
Art. 1671. If the lessee continues enjoying the 212 m. above sea level causing the NPC to decide to
open spillway gates at that point. Thus, the
thing after the expiration of the contract, over extraordinary large volume of water rushed out of the
the lessor's objection, the former shall be subject gates and hit the installations and constx worx of ECI at
to the responsibilities of a possessor in bad faith. Ipo Site w/terrific impact washing away and/or
destroying supplies and equipment of ECI.
Art. 552. xxx.
A possessor in bad faith shall be liable for It is clear fr. the appellate court's decision that based on
deterioration or loss in every case, even if caused its findings of fact & that of the trial court's, petitioner
NPC was undoubtedly negligent bec. it opened the
by a fortuitous event. spillway gates of the Angat Dam only at the height of
typhoon "Welming" when it knew very well that it was
safer to have opened the same gradually & earlier, as it
Independent Contractor was also undeniable that NPC knew of the coming of the
Art. 1727. The contractor is responsible for the typhoon at least 4 days bef. it actually struck. And even
though the typhoon was an act of God or what we may
work done by persons employed by him. call force majeure, NPC cannot escape liability bec. its
Art. 1728. The contractor is liable for all the negligence was the proximate cause of the loss &
claims of laborers & others employed by him, & of damage. As we have said in Juan Nakpil & Sons vs. CA,
144 SCRA 596,
third persons for death or physical injuries during
the construction. Thus, if upon the happening of a fortuitous event or an
act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in
Common Carrier any manner of the tenor of the obligation as
Art. 1763. A common carrier is responsible for provided for in Art. 1170, w/c results in a loss or
damage, the obligor cannot escape liability. The
injuries suffered by a passenger on account of the principle embodied in the act of God doctrine strictly
willful acts or negligence of other passengers or requires that the act must be one occasioned
of strangers, if the common carrier's employees exclusively by the violence of nature & human
through the exercise of the diligence of a good agencies are to be excluded fr. creating or
entering into the cause of the mischief. When the
father of a family could have prevented or effect, the cause of w/c is to be considered, is found to
stopped the act or omission. be in part the result of the participation of man, whether
it be fr. active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it was, &
(2) “when it is otherwise declared by stipulation” removed fr. the rules applicable to the acts of God.
(1174) Thus, it has been held that when the negligence of a
person concurs w/ an act of God in producing a loss,
Express agreement such person is not exempt fr. liability by showing that
the immediate cause of the damage was the act of God.
To be exempt fr. liability for loss bec. of an act of
Art. 1306. The contracting parties may God, he must be free fr. any previous negligence
establish such stipulations, clauses, terms & or misconduct by w/c the loss or damage may
conditions as they may deem convenient, have been occasioned.
provided they are not contrary to law, morals,
good customs, public order, or public policy. (2) ACT OF CREDITOR

33
CASE: City of Mla. failed to exercise the diligence of a to the bldg. was due to breach by def. of the terms of ©
good father of a family w/c is a defense in quasi-delict. and failure to follow the plan&specs. Def. filed 3rd party
complaint vs.the architects, petitioner herein. JFN&sons
stipulated in writing that it not be impleaded by
JIMENEZ vs. CITY OF MANILA [150 S 510] amendment of complaint. That in case court finds it
FACTS: Bernardino Jimenez went to Sta. Ana Public liable, it would be as if it was duly impleaded therein.
market to buy “bagoong” when his left foot fell in an
open hole that was hidden by muddy rainwater in the April 30, 1979, bldg. disputed was authorized to be
flooded market. His left leg was stuck by a rusty 4-in demolished at expense of plaintiff, after further
nail. His leg later on swelled and he was brought for earthquakes caused further damage to the bldg;
treatment to Veteran’s MH. He walked around
w/crutches for 15 days, unable to work, forced to hire a ISSUE: WON AN ACT OF GOD WHC CAUSED DAMAGE TO
temp.driver for his sch.bus biz.. Thus, he sued the City THIS BLDG, EXEMPTS FR LIABILITY, PARTIES WHO ARE
of Mla. For damages, and the Asiatic Integ. Corp. (AIC) OTHERWISE LIABLE B/C OF NEGLIGENCE? ART. 1723
who had the managing and operating © to that market.
Lower court dismissed his complaint for insuff. Of evid.
The appellate court found in his favor and placed sole To exempt obligor fr liability under Art. 1174, FE;
liability on AIC. or for a breach of Ø d/t an act of God, the ff. must
ISSUE: WON the City of Manila shd be held solidarily concur:
liable w/ Asiatic integ. Corp. for injuries suffered by 1. cause of the breach of Ø must be independent
petitioner? of the will of the debtor;
HELD: 2. the event must be either unforeseeable or
As a defense against liability on the basis of quasi-delict, unavoidable
one must have exercised the diligence of a good father 3. the event must be such as to render it
of a family. (Art. 1173, NCC) impossible for debtor to fulfill Ø in normal
There is no argument that it is the duty of the City of manner;
Mla. to exercise reasonable care to keep the public 4. debtor must be free from any participation in, or
market reasonably safe for people frequenting the place aggravation of the injury to the creditor.
for their marketing needs. While it may be conceded
that the fulfillment of such duties is extremely difficult Thus, if upon the happening of a FE or an AOG, there
during storms & floods, it must, however, be admitted concurs a corresponding fraud, negligence, delay or
that ordinary precautions could have been taken during violation or contravention in any manner of the tenor of
good weather to minimize the dangers to life & limb the Ø as provided in Art. 1170, whc results in loss or
under those difficult circumstances. For instance, the damage, the obligor cannot escape liability.
drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is To be an AOG, the event must be occasioned exclusively
the fact, that the City should have seen to it that the by violence of nature and all human agencies are
openings were covered. Sadly, the evidence indicates excluded from creating or entering into the cause of
that long before petitioner fell into the opening, it was mischief. With participation of man, whether active or
already uncovered, & 5 mos. after the incident neglect or failure to act, the occurrence is humanized,
happened, the opening was still uncovered. Moreover, and removed from the doctrine’s application.
while there are findings that during floods the vendors
remove the iron grills to hasten the flow of water, there Findings of lower court and IAC were both beyond
is no showing that such practice has ever been dispute that United and JFNakpil &Sons were both liable.
prohibited, much less penalized by the City of Mla. The defects in the plans&specs were proximate cause,
Neither was it shown that any sign had been placed the deviations of United fr the specs and failure to
thereabouts to warn passers-by of the impending observe required workmanship & degree of supervision
danger. on both makes them liable.
For liability under Art. 2189 NCC to attach, it is not CASE DOCTRINE: "One who negligently creates a
necessary that the defective public works belong to the dangerous condition cannot escape liability for
LGU concerned. What is req’d is “control or the natural & probable consequences thereof,
supervision.” although the act of a third person, or an act of
God for w/c he is not responsible, intervenes to
precipitate the loss." (citing Tucker v. Milan, 49
CASE: Requisites for exemption fr. liability due to OG 4379, 4380.)
an "act of God."

Juan F. NAKPIL & SONS vs. CA [144 S 596] - NAKPIL & SONS VS. CA [160 S 334] - APRIL 15,
October 3, 1986 1988

To exempt the obligor fr. liability under Art. 1174, FACTS:


for a breach of an obligation due to an "act of M.R. on the above decision
God," the following must concur: ISSUES RAISED ON THIS MR:
(1) That the building did not collapse on d earthquake of
4/2/68, thus the premise of the LC findings is
1. the cause of the breach of the obligation negated, Art. 1173 cannot apply  HELD: it is
must be independent of the will of the not the fact of collapse that was the premise on
debtor; applying Art. 1173 but on who shd be
2. the event must be either unforeseeable or responsible for the extreme damage to the bldg.
unavoidable; (c) the event must be such whc inevitably led to its collapse, or demolition.
as to render it impossible for the debtor to Trial court correctly found defs. Liable;
fulfill his obligation in a normal manner; & (2) That court failed to impute liability on PBA or on
3. the debtor must be fee fr. any Ozaeta for failure to provide legal duty to
participation in, or aggravation of the supervise, as owner  HELD: no legal nor
injury to the creditor. contractual basis. PBA sought technical
expertise of both United & JFN&sons for such
costs on this purpose. It was even JFN who
suggested administration basis.
FACTS: (3) That findings of bad faith had no factual anchor 
Construction of the office building of Plaintiff Phil. Bar HELD: Wanton negligence of both United &
Assoc. (PBA) in Intramuros was undertaken by United JFN&sons in effecting plans, specs, & constrx
Constrx. Inc. on an “administration” basis on suggestion designs is equivalent to BF in performance of
of United Pres. Juan Carlos. Such was approved by PBA their resp. duties;
Board, & Pres. Roman Ozaeta. Plans and specs were (4) Award of 5M had no basis, Commissioner’s report
done by Juan f. Nakpil & Sons. Bldg. was completed June est.only 1.1M  such initial report was based on
1966. the partial collapse only, after d 4/2/68 EQ, for
repairs; but after total collapse almost 20 yrs
August 1968 an unusually strong earthquake hit Manila. later, unrealized rentals and major reconstrx
The PBA bldg.sustained major damage, tenants had to makes even 5M a very conservative est.
vacate. Temp. rem. Worx done by United cost P13K+ (5) As to award of attys fees & damages  was court
discretion
Nov. 1968 PBA filed action to recover damages vs. (6) 12% interest p.a. accdg to CB Circular 416 (PD 116)
United, &Juan Carlos, as def, alleging that the damage applies only to (1) loans; (2) forbearance of
34
money, goods or credit; (3) rate allowed in Article 1178. Subject to the laws, all rights
JFO’s involving 1 & 2.  HELD: True, but, acquired in virtue of an obligation are transmissible,
12% is imposable only when there is delay in if there has been no stipulation to the contrary.
payment of judgment after its finality. (penalty,
not really interest)
Article 1191. The power to rescind obligations is
NPC VS. CA [222 S 415]  Petitioners cannot be
heard to invoke the act of God or force majeure to implied in reciprocal ones, in case one of the
escape liability for the loss or damage sustained by the obligors should not comply with what is incumbent
pvt. respondents since they, the petitioners, were guilty upon him.
of negligence. The event then was not occasioned
exclusively by an act of God or force majeure; a human The injured party may choose between the
factor-- negligence or imprudence-- had intervened. fulfillment and the rescission of the obligation, with
The effect then of the force majeure in question may be the payment of damages in either case. He may
deemed to have, even if only partly, resulted fr. the also seek rescission, even after he has chosen
participation of man. Thus, the whole occurrence was
thereby humanized, as it were, & removed fr. the rules fulfillment, if the latter should become impossible.
applicable to acts of God. The court shall decree the rescission claimed,
NPC VS. CA [223 S 649]  Petitioners have raised unless there be just cause authorizing the fixing of a
the same issues & defenses as in the 2 other decided period.
cases therein mentioned. Predictably therefore, this
petition must perforce be dismissed bec. the losses & This is understood to be without prejudice to the
damages sustained by the private resp.'s had been rights of third persons who have acquired the thing,
proximately caused by the negligence of the petitioners, in accordance with articles 1385 and 1388 and the
although the typhoon w/c preceded the flooding could
be considered as a force majeure. Mortgage Law.
Article 1192. In case both parties have committed
a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.

Article 2236. The debtor is liable with all his


property, present and future, for the fulfillment of
his obligations, subject to the exemptions provided
by law. (Concurrence & Preference of Credits)

Article 302. Neither the right to receive legal


F. REMEDIES FOR BREECH OF OBLIGATIONS: support nor any money or property obtained as
such support or any pension or gratuity from the
Article 1165. When what is to be delivered is a government is subject to attachment or execution.
determinate thing, the creditor, in addition to the (Support)
right granted him by article 1170, may compel the Article 1708. The laborer's wages shall not be
debtor to make the delivery. subject to execution or attachment, except for
If the thing is indeterminate or generic, he may ask debts incurred for food, shelter, clothing and
that the obligation be complied with at the expense medical attendance. (Contract Labor)
of the debtor.
If the obligor delays, or has promised to deliver the FAMILY CODE:
same thing to two or more persons who do not have Art. 153. The family home is deemed constituted
the same interest, he shall be responsible for any on a house and lot from the time it is occupied as a
fortuitous event until he has effected the delivery. family residence. From the time of its constitution
Article 1166. The obligation to give a determinate and so long as any of its beneficiaries actually
thing includes that of delivering all its accessions resides therein, the family home continues to be
and accessories, even though they may not have such and is exempt from execution, forced sale or
been mentioned. attachment except as hereinafter provided and to
Article 1167. If a person obliged to do something the extent of the value allowed by law.
fails to do it, the same shall be executed at his cost. Art. 155. The family home shall be exempt from
This same rule shall be observed if he does it in execution, forced sale or attachment except:
contravention of the tenor of the obligation. (1) For nonpayment of taxes;
Furthermore, it may be decreed that what has been (2) For debts incurred prior to the
poorly done be undone. constitution of the family
Article 1168. When the obligation consists in not home;
doing, and the obligor does what has been (3) For debts secured by
forbidden him, it shall also be undone at his mortgages on the premises
expense. before or after such
Article 1170. Those who in the performance of constitution; and
their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the
(4)
For debts due to laborers,
tenor thereof, are liable for damages. mechanics, architects, builders,
materialmen and others who
Article 1177. The creditors, after having pursued have rendered service or
the property in possession of the debtor to satisfy furnished material for the
their claims, may exercise all the rights and bring all construction of the building.
the actions of the latter for the same purpose, save
those which are inherent in his person; they may R.O.C. RULE 39, SEC. 13:
also impugn the acts which the debtor may have Section 13. Property exempt from execution. �
done to defraud them. Except as otherwise expressly provided by law, the
following property, and no other, shall be exempt
from execution:

35
 The judgment obligor's family home as debt, no imprisonment. If Ø can only be done by
provided by law, or the homestead in which he debtor, then only rem is damages.
resides, and land necessarily used in
connection therewith; RE 1168 Ø NOT TO DO was done  may compel
 Ordinary tools and implements personally used debtor to UNDO; but if impossible to undo, rem is
damages.
by him in his trade, employment, or livelihood;
 Three horses, or three cows, or three carabaos, RE 1170  RECOVERABLE DAMAGES = when the Ø is
or other beasts of burden, such as the to do something other than the payment of money;
judgment obligor may select necessarily used
by him in his ordinary occupation; If Ø is payment of money, 2209 is the rule re damages
 His necessary clothing and articles for ordinary  when debtors incurs in delay, is payment of interest
personal use, excluding jewelry; if w/o stipulation to the contrary, as agreed upon, if if
no agreement, the legal interest.
 Household furniture and utensils necessary for
housekeeping, and used for that purpose by
RE 1177  RIGHTS OF CREDITORS:
the judgment obligor and his family, such as
1. To levy by attachment & execution upon all
the judgment obligor may select, of a value not
the property of debtor except if exempt by law;
exceeding one hundred thousand pesos;
2. to exercise all the rights and actions of the
 Provisions for individual or family use sufficient debtor, except those inherently personal to
for four months; him; accion subrogatoria; prior court
 The professional libraries and equipment of approval is not required.
judges, lawyers, physicians, pharmacists, This shd concur w/d ff. requisites:
dentists, engineers, surveyors, clergymen, a. Cr. Has interest in the rt. or axn. Not
teachers, and other professionals, not only bcoz of his credit but d/t
exceeding three hundred thousand pesos in insolvency of debtor;
value; b. Malicious or negligent inaction of
debtor at level whc endanger claim of
 One fishing boat and accessories not exceeding Cr;
the total value of one hundred thousand pesos
owned by a fisherman and by the lawful use of c. Debtor’s rt. vs. 3rd person must be
which he earns his livelihood; patrimonial, or susceptible of being
transformed to patrim.value.
 So much of the salaries, wages, or earnings of
the judgment obligor for his personal services 3. ask for rescission of ©s made by debtor in
within the four months preceding the levy as fraud of Cr.’s rts.
are necessary for the support of his family;
 Lettered gravestones; Balane:
Q: Against what can the obligee demand
 Monies, benefits, privileges, or annuities performance?
accruing or in any manner growing out of any
life insurance; A: Against non-exempt properties of the debtor.-- The
debtor is liable w/ all his property, present & future,
 The right to receive legal support, or money or for the fulfillment of his obligations, subject to the
property obtained as such support, or any exemptions provided by law. (Art. 2236.)
pension or gratuity from the Government;
If number one is not enough, the creditor goes to any
 Properties specially exempted by law. claims w/c the debtor may have against third
But no article or species of property mentioned in persons. This is called accion subrogatoria,
this section shall be exempt from execution issued wherein the creditor is subrogated in the rights of
the debtor.
upon a judgment recovered for its price or upon a Personal rts. Of debtor:
judgment of foreclosure of a mortgage thereon. 1. Rt. to subsistence, support he receives
exempt
2. Public rts;
Tolentino: 3. Rts. Pertaining to honor
RE 1165  REMEDIES OF CREDITOR: For failure of 4. Rt. to use remaining powers available to
debtor to comply, him, e.g. SPA of agency or deposit;
1. SPECIFIC PERFORMANCE, to obtain administrator; to accept a ©
compliance of the prestations, whether 5. Non-patrimonial rts – estab. Status, legit or
illegit child; annulment of marriage, legal
determinate or generic; this action implies a sep., those arising fr, PFR;
contractual relation; 6. Personal rts. Arising fr. Patrimonial source,
2. TO RESCIND OR RESOLVE THE Ø e.g. to revoke a donation d/t ingratitude, to
3. AN ACTION FOR DAMAGES exclusively or demand exclusion of an unworthy heir;
in addition to 1 & 2.
Accion pauliana (Articles 1380-89).-- This is the right
of creditors to set aside fraudulent transfers w/c the
 Constitutional prohibition vs. imprisonment for debt debtor made so much of it as is necessary to pay
applies, except in subsidiary imprisonment when civil the debts.
liability arising from crime is not paid; or in contempt;  pertains to acts whc debtor may have done in fraud
 Exception to exception on the GR re FE: Debtor in of Cr. E.g. alienation of property, renunciation of
inheritance or rt. of usufruct, assgnmnt of credit,
default may still prove that he is not liable for FE bcoz remission of debts.
even if he had not performed, the loss wud still have
occurred in the same manner. (1) EXTRAJUDICIAL REMEDIES:

RE 1167  Performance of Ø by another at (a) EXPRESSLY GRANTED BY LAW


creditor’s choice a& at debtor’s cost – court may
not by discretion merely award damages to Cr. When (b) STIPULATED BY THE PARTIES
the Ø may be done in spite of debtor’s refusal to do so;
(a) EXPRESSLY GRANTED BY LAW, extrajudicial
But, law may not compel or force debtor to rem.
comply w/ Ø, if to do, would amount to invol. Serv., if

36
(In Obligations of the Partners) Art. 1170. Those who in the performance of their
Article 1786. Every partner is a debtor of the obligation are guilty of fraud, negligence or delay,
partnership for whatever he may have promised to & those who in any manner contravene the tenor
contribute thereto. thereof, are liable for damages.
He shall also be bound for warranty in case of
eviction with regard to specific and determinate (b) SUBSIDIARY REM  1380 /1177
things which he may have contributed to the Article 1380. Contracts validly agreed upon may
partnership, in the same cases and in the same be rescinded in the cases established by law.
manner as the vendor is bound with respect to the (Rescissible Contracts)
vendee. He shall also be liable for the fruits thereof Article 1177. The creditors, after having pursued
from the time they should have been delivered, the property in possession of the debtor to satisfy
without the need of any demand. their claims, may exercise all the rights and bring all
Article 1788. A partner who has undertaken to the actions of the latter for the same purpose, save
contribute a sum of money and fails to do so those which are inherent in his person; they may
becomes a debtor for the interest and damages also impugn the acts which the debtor may have
from the time he should have complied with his done to defraud them.
obligation. ---
The same rule applies to any amount he may have Rescission in reciprocal Ø in Art. 1191 is not identical to
taken from the partnership coffers, and his liability Rescission of ©s in Art. 1380+.
shall begin from the time he converted the amount
to his own use. Requisites of Rsn of a K (1380):
a rescissible K, ex. under Art. 1381 & 1382
no other legal means to obtain reparation for damages
(In Delivery of the Thing Sold) (Art. 1383)
Article 1526. Subject to the provisions of this Title, person demanding Rsn must be able to return whatever
notwithstanding that the ownership in the goods he may be obliged to restore if Rsn granted (Art. 1385)
may have passed to the buyer, the unpaid seller of objects of K must not have passed legally to poss’n of 3rd
goods, as such, has: p. in GF (Art. 1385)
Axn for Rsn brought w/in 4 years (Art. 1389)
(1) A lien on the goods or right to retain them
for the price while he is in possession of them;  Rescindable Ks are valid until voided & can’t be
(2) In case of the insolvency of the buyer, a attacked collaterally as in a land registration
right of stopping the goods in transitu after he proceeding. Direct proceeding necessary.
has parted with the possession of them;
 Rsn only for legal cause, as those in Art. 1381 & 1382
(3) A right of resale as limited by this Title; “Lesion” under Art. 1381 par. 1 & 2, to give rise to Rsn,
(4) A right to rescind the sale as likewise must be known or could have been known at the time of
making the K, & not due to circs subseq thereto or
limited by this Title. unknown to the parties.
Where the ownership in the goods has not passed
to the buyer, the unpaid seller has, in addition to his Accion Pauliana: Axn to set aside Ks in fraud of Crs. (Art.
other remedies a right of withholding delivery 1381 par. 3)
similar to and coextensive with his rights of lien and
Requisites for Accion Pauliana:
stoppage in transitu where the ownership has 1. Pff. Asking for Rsn has a credit prior to
passed to the buyer. alienation, though demandable later
2. Dbt has made a subsequent K conveying a
patrimonial benefit to 3rd p.
(2) JUDICIAL REMEDIES: 3. Cr-Pff has no other legal remedy to satisfy his
claim
(a) PRINCIPAL REMEDY  1191 / 1170 4. Act being impugned is fraudulent
5. 3rd p. who received prop., if by onerous title, is
(b) SUBSIDIARY REM  1380 /1177 accomplice in the fraud
(c) ANCILLARY REM  The Rules of Court
Rsn. is a subsidiary axn, w/c presupposes that the
(a) PRINCIPAL REMEDY  1191 / 1170 Cr has exhausted the prop. of the Db. Fraudulent
conveyance must be shown.

Article 1191. The power to rescind obligations is Test: WON conveyance by dbtor a bona fide
implied in reciprocal ones, in case one of the transxn
obligors should not comply with what is incumbent
upon him. Badges/ Signs of Fraud:
1. consideration of conveyance is inadequate
The injured party may choose between the 2. transfer made by Db after suit has begun &
fulfillment and the rescission of the obligation, with while pending v. him
the payment of damages in either case. He may 3. a sale upon credit by insolvent Db
also seek rescission, even after he has chosen 4. evidence of large indebtedness or complete
insolvency
fulfillment, if the latter should become impossible.
5. transfer of all or nearly all of prop of Db who is
The court shall decree the rescission claimed, insolvent or greatly embarrassed financially
unless there be just cause authorizing the fixing of a 6. transfer is made between father & son
period. 7. failure of vendee to take exclusive poss’n of
prop
This is understood to be without prejudice to the 8. If alienation is gratuitous, GF of transferee does
rights of third persons who have acquired the thing, NOT protect him O.W. Unjust enrichment
in accordance with articles 1385 and 1388 and the 9. If alienation is by onerous title, transferee must
Mortgage Law. be a party to the fraud, to have Rsn
Notes on 1191: As a rule, Rsn benefits only Cr who obtained Rsn. And
Two remedies are alternative & not cumulative, subject the extent of revocation is only to the amount of
prejudice suffered by Cr. As to the excess, the
to the exception in par. 2 where he may also seek alienation is maintained
rescission even after he has chosen fulfillment if the
latter should become impossible Axn for Rsn may be brought by:
(1) the person injured by the Rescue K,
(2) heirs of this person, &
37
(3) their Crs by virtue of rt granted under Art. 1177. W/N Tolentino can compel specific performance.
W/N Tolentino’s liability to pay the P17,000 covered by
Rt. of transferee to retain prop. depends upon the the promissory note subsists.
nature of the transfer & upon the complicity of the
former in the fraud.
Held: NO. The agreement is a loan agreement, w/c is a
When K can’t be rescinded bec. 3rd p. is in GF, the party reciprocal obligation. In reciprocal obligations, the
who caused the loss is liable for the damages obligation or promise of each party is the consideration
for that of the other; & when one party has performed or
Badges of fraud, & Art. 1387: Presumptions. May be is ready & willing to perform his part of the contract, the
rebutted by satisfactory & convincing evidence. other party who has not performed or is not ready &
willing to perform incurs in delay. The promise of
Art. 1388: Cr. With axn only v. subsequence transferees
only when an axn lies v. 1 st transferee. If 1st Tfee in GF, Tolentino to pay was the consideration for the obligation
no liability. If 1st Tfee in BF, the rescissible char. Of 2 nd of the Bank to furnish the P80,000. When Tolentino
alienation depends upon how 2nd Tfee acquired the executed a real estate mortgage, he signified his
thing. willingness to pay the loan. From such date, the
Art. 1191. The power to rescind obs. Is implied in obligation of the Bank to furnish the P80,000 accrued.
reciprocal ones, in case on of the obligors should The Bank’s delay started in 1965, lasted for 3 years or
not comply w/ what is incumbent upon him. when the Monetary Board issued Resolution No. 967 in
The injured party may choose between the 1968, w/c prohibited the Bank fr. doing further business.
fulfillment & the rescission of the ds., w/ the Resolution No. 1049 cannot interrupt the default of the
payment of damages in either case. He may also Bank in releasing the P63,000 bec. said resolution
seek rescission, even after he has chosen merely prohibited the Bank fr. making new loans. Since
fulfillment, if the latter should become the Bank was in default in fulfilling its reciprocal
impossible. obligation under the loan agreement, Tolentino may
The ct. shall decree the rescission claimed, unless choose between specific performance or rescission w/
there be just cause authorizing the fixing of a damages in either case. But since the Bank is now
period. prohibited fr. doing further business, the Court cannot
grant specific performance. Rescission is the only
This is understood to be w/o prejudice to the rts
alternative remedy left. However, rescission is only for
of third persons who have acquired the thing, in
the P63,000 balance, bec. the bank is in default only
accordance w/ Arts. 1385 & 1388 & the Mortgage
insofar as such amount is concerned.
Law.
The promissory note gave rise to Tolentino’s
Art. 1192. In case both parties have committed a reciprocal obligation to pay the P17,000 loan when it
breach of the obligation, the liability of the 1st falls due. Art. 1192 provides that in case both parties
infractor shall be equally tempered bye the cts. If have committed a breach of their reciprocal obligations,
it cannot be det. Which of the parties 1st violated the liability of the first infractor shall be equitably
the ©, the same shall be deemed extinguished, & tempered by the Court. The liability of the Bank for
each shall bear his own damages. damages in not furnishing the entire loan is offset by the
liability of Tolentino for damages, in the form of
Tolentino: penalties & surcharges for not paying his overdue
Similarities between Rsn under Art. 1191 & Art. P17,000 debt.
1380+:
(1) both presuppose ©s validly entered into & existing, ---
& CASES:
(2) both require mutual restitution when declared
proper.
UNIVERSAL FOOD CORP. vs. CA: (1970)
Differences:
(1) Rsn under 1191 may be demanded only by party to FACTS: Magdalo V. Francisco, Sr. PATENTEE or
the ©, under 1380+ by 3rd p. prejudiced by the ©; owner and author of the formula for MAFRAN SAUCE,
(2) Rsn under 1191 may be denied when there is manufactured and distributed by UFC, filed with the
sufficient reason to justify extension of time to perform,
under 1380+ such reason does NOT affect rt. to ask for CFI-Manila, an action for rescission of a contract
Rsn; entitled "Bill of Assignment." The plaintiffs prayed
(3) Non-perf. is the only grd. for Rsn under 1191, while the court to adjudge the defendant as without any right
there are various reasons of equity as grds. under 1191 to the use of the Mafran trademark and formula, and
applies only to recip. ds. where one party has not
performed, while under 1380(+) Ø may be unilateral or order the latter to restore to them the said right of
reciprocal & even when © has been fulfilled. user; to order UFC to pay Magdalo his unpaid salary
from December 1, 1960, as well as damages in the
sum of P40,000, and to pay the costs of suit.
CENTRAL BANK VS. CA (1985)
Petitioner UFC contends that the CA erred in granting
Facts: Islands Savings Bank approved the loan above prayers of plaintiff, holding that right to specific
application of Tolentino for P80,000. To secure the loan, performance is not conjunctive with the right to rescind
Tolentino executed a real estate mortgage on his 100- a reciprocal contract; that a plaintiff cannot ask for
hectare land. Only P17,000 was released by the Bank, both remedies; that the appellate court awarded the
for w/c Tolentino executed a promissory note payable respondents both remedies as it held that the
w/in 3 years. The balance was not released. In 1965, the respondents are entitled to rescind the Bill of
Monetary Board of the Central Bank issued Resolution Assignment and also that the respondent patentee is
No. 1049 prohibiting the Bank fr. doing business in the entitled to his salary aforesaid; that this is a gross error
Philippines. The Bank filed an application for of law.
extrajudicial foreclosure of the real estate mortgage of
Tolentino for non-payment of the promissory note for
P17,000. In turn, Tolentino filed an action for injunction, Certain provisions of the Bill of Assignment would seem
specific performance or rescission, alleging that the to support the petitioner's position that the respondent
Bank failed to fulfill its obligation to lend the balance of patentee ceded and transferred to the petitioner the
P63,000. formula for Mafran sauce.

Issues:

38
However, a perceptive analysis of the entire instrument which cannot be instituted except when the party
and the language employed therein would lead one to suffering damage has no other legal means to obtain
the conclusion that what was actually ceded and reparation for the same.
transferred was only the use of the Mafran sauce
formula. This was the precise intention of the parties: However, in this case the dismissal of the respondent
(1) 2% ROYALTY; provisions to preserve utmost secrecy patentee Magdalo V. Francisco, Sr. as the permanent
and monopoly of the formula by the patentee; etc.. chief chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment. He was
ISSUE: WON the rescission of the Bill of Assignment by dismissed without any fault or negligence on his part.
the CA is proper? Thus, apart from the legal principle that the option to
demand performance or ask for rescission of a
In this connection, we quote for ready reference the contract belongs to the injured party, the fact
following articles of the new Civil Code governing remains that the respondents-appellees had no
rescission of contracts: alternative but to file the present action for rescission
and damages. It is to be emphasized that the
respondent patentee would not have agreed to the
ART. 1191. The power to rescind other terms of the Bill of Assignment were it not for the
obligations is implied in reciprocal ones, basic commitment of the petitioner corporation to
in case one of the obligors should not appoint him as its Second Vice-President and Chief
comply with what is incumbent upon him. Chemist on a permanent basis; that in the manufacture
of Mafran sauce and other food products he would
The injured party may choose between have "absolute control and supervision over the
the fulfillment and the rescission of the laboratory assistants and personnel and in the
obligation, with the payment of damages purchase and safeguarding of said products;" and that
in either case. He may also seek only by all these measures could the respondent
rescission even after he has chosen patentee preserve effectively the secrecy of the
fulfillment, if the latter should become formula, prevent its proliferation, enjoy its monopoly,
impossible. and, in the process afford and secure for himself a
lifetime job and steady income. The salient provisions
The court shall decree the rescission of the Bill of Assignment, namely, the transfer to the
claimed, unless there be just cause corporation of only the use of the formula; the
authorizing the fixing of a period. appointment of the respondent patentee as Second
Vice-President and chief chemist on a permanent
status; the obligation of the said respondent patentee
This is understood to be without prejudice to continue research on the patent to improve the
to the rights of third persons who have quality of the products of the corporation; the need of
acquired the thing, in accordance with absolute control and supervision over the laboratory
articles 1385 and 1388 of the Mortgage assistants and personnel and in the purchase and
Law. safekeeping of the chemicals and other mixtures used
in the preparation of said product  all these
ART. 1383. The action for rescission is provisions of the Bill of Assignment are so
subsidiary; it cannot be instituted except interdependent that violation of one would result in
when the party suffering damage has no virtual nullification of the rest.
other legal means to obtain reparation for
the same. Separate Opinion: REYES, J.B.L., J., concurring:

ART. 1384. Rescission shall be only to the I concur with the opinion penned by Mr. Justice Fred
extent necessary to cover the damages Ruiz Castro, but I would like to add that the argument
caused. of petitioner, that the rescission demanded by the
respondent-appellee, Magdalo Francisco, should
HELD: The power to rescind obligations is be denied because under Article 1383, NCC
implied in reciprocal ones, in case one of the rescission can not be demanded except when the party
obligors should not comply with what is suffering damage has no other legal means to obtain
incumbent upon him. reparation, is predicated on a failure to distinguish
between a rescission for breach of contract under
The injured party may choose between Article 1191 of the Civil Code and a rescission by
fulfillment and rescission of the obligation, with reason of lesion or economic prejudice, under Article
payment of damages in either case. 1381, et seq.

In this case before us, there is no controversy that the (rescission for breach of contract under Article
provisions of the Bill of Assignment are reciprocal in 1191 )  The rescission on account of breach of
nature. The petitioner corporation violated the Bill of stipulations is not predicated on injury to economic
Assignment, specifically paragraph 5-(a) and (b), by interests of the party plaintiff but on the breach of faith
terminating the services of the respondent patentee by the defendant, that violates the reciprocity between
Magdalo V. Francisco, Sr., without lawful and justifiable the parties. It is not a subsidiary action, and Article
cause. 1191 may be scanned without disclosing anywhere
that the action for rescission thereunder is
subordinated to anything other than the culpable
The general rule is that rescission of a contract
breach of his obligations by the defendant. This
will not be permitted for a slight or casual
rescission is in principal action retaliatory in
breach, but only for such substantial and
character, it being unjust that a party be held
fundamental breach as would defeat the very
bound to fulfill his promises when the other
object of the parties in making the agreement.
violates his. As expressed in the old Latin aphorism:
The question of whether a breach of a contract is
"Non servanti fidem, non est fides servanda." Hence,
substantial depends upon the attendant
the reparation of damages for the breach is purely
circumstances. The petitioner contends that rescission
secondary.
of the Bill of Assignment should be denied, because
under article 1383, rescission is a subsidiary remedy
39
(Rescission by reason of lesion or economic sale being reciprocal, such obligations are governed by
prejudice, under Article 1381, et seq. )  On the article 1124 of the Civil Code which declares that the
contrary, in the rescission by reason of lesion or power to resolve, in the event that one of the obligors
economic prejudice, the cause of action is should not perform his part, is implied.
subordinated to the existence of that prejudice,
because it is the raison d'etre as well as the measure Upon the other hand, where, as in this case, the
of the right to rescind. Hence, where the defendant petitioner cancelled the contract, advised the
makes good the damages caused, the action cannot be respondent that he has been relieved of his obligations
maintained or continued, as expressly provided in thereunder, and led said respondent to believe it so
Articles 1383 and 1384. But the operation of these two and act upon such belief, the petitioner may not be
articles is limited to the cases of rescission for lesion allowed, in the language of section 333 of the Code of
enumerated in Article 1381 of the Civil Code of the Civil Procedure (now section 68 (a) of Rule 123 of the
Philippines, and does not, apply to cases under Article New Rules of Court), in any litigation the course of
1191. litigation or in dealings in nais, be permitted to
repudiate his representations, or occupy inconsistent
It is probable that the petitioner's confusion arose from positions, or, in the letter of the Scotch law, to
the defective technique of the new Code that terms "approbate and reprobate."
both instances as rescission without distinctions
between them; unlike the previous Spanish Civil Code U.P. VS. DELOS ANGELES (1970)
of 1889, that differentiated "resolution" for breach of
stipulations from "rescission" by reason of lesion or In the provincesof Laguna & Quezon, Land Grants were
damage. 1 But the terminological vagueness does not segregated from the public domain and given as an
justify confusing one case with the other, considering endowment to UP, to be operated and developed for
the patent difference in causes and results of either the purpose of raising additional income for its support,
action. pursuant to Act 3608;

MAGDALENA ESTATES VS. LOUIS MYRICK (1941) In 1960, UP and ALUMCO (Assoc. Lumber Manuf. Co)
entered into a logging agreement under which the
FACTS: Magdalena Estate, Inc., sold to Louis J. Myrick latter was granted exclusive authority, for a period
Parcel of lots in San Juan Subdivision, San Juan Rizal, starting from the date of the agreement to 31
with contract of sale providing for the price which shall December 1965, extendible for a further period of five
be payable in 120 equal monthly installments of each (5) years by mutual agreement, to cut, collect and
on the 2nd day of ea.mo. fr. the date of execution of the remove timber from the Land Grant, in consideration of
agreement. Simultaneously, the vendee executed and payment to UP of royalties, forest fees, etc.; ALUMCO
delivered to the vendor a PN for the whole purchase cut and removed timber therefrom but, as of 8
price. Myrick made several installment payments the December 1964, it had incurred an unpaid account of
last being Oct. 1930, but was in default as to May P219,362.94, which, despite repeated demands, it had
payment. failed to pay. After it had received notice that UP would
rescind or terminate the logging agreement, ALUMCO
Thus, vendor notified the vendee that, in view of his executed an instrument, entitled "Acknowledgment of
inability to comply with the terms of their contract, said Debt and Proposed Manner of Payments," dated 9
agreement had been cancelled as of that date, thereby December 1964, which was approved by the president
relieving him of any further obligation thereunder, and of UP, and which stipulated the following:
that all amounts paid by him had been forfeited in
favor of the vendor, who assumes the absolute right 3. In the event that the payments called for in
over the lots in question. To this communication, the Nos. 1 and 2 of this paragraph are not
vendee did not reply, and it appears likewise that the sufficient to liquidate the foregoing
vendor thereafter did not require him to make any indebtedness of the DEBTOR in favor of the
further disbursements on account of the purchase CREDITOR, the balance outstanding after the
price. said payments have been applied shall be paid
by the DEBTOR in full no later than June 30,
Myrick, respondent herein, commenced the present 1965;
action in CFI-Albay, against MEI for the sum of
P2,596.08 with legal interest thereon from the filing of 5. In the event that the DEBTOR fails to comply
the complaint until its payment, and for costs of the with any of its promises or undertakings in this
suit. Lower court granted, CA affirmed w/modif. That document, the DEBTOR agrees without
legal interest shd be computed fr d date of the reservation that the CREDITOR shall have
cancellation of the ©. Thus this petition. the right and the power to consider the
Logging Agreement dated December 2,
ISSUE: WON petitioner’s contention is correct, that a 1960 as rescinded without the necessity
bilateral contract may be resolved or cancelled only by of any judicial suit, and the CREDITOR
the prior mutual agreement of the parties, which is shall be entitled as a matter of right to
approved by the judgment of the proper court; and Fifty Thousand Pesos (P50,000.00) by way
that the letter of MEI was not assented to by the of and for liquidated damages;
respondent, and therefore, cannot be deemed to have
produced a cancellation, even if it ever was intended. ALUMCO continued its logging operations, but again
incurred an unpaid account, for the period from 9
HELD: Where the terms of a writing are clear, positive December 1964 to 15 July 1965, in the amount of
and unambiguous, the intention of the parties should P61,133.74, in addition to the indebtedness that it had
be gleaned from the language therein employed, which previously acknowledged.
is conclusive in the absence of mistake. The letter said
“cancelled” and it was unequivocal. Thus, UP informed ALUMCO that it had, as of that date,
considered as rescinded and of no further legal effect
The fact that the contracting parties herein did not the logging agreement that they had entered in 1960;
provide for resolution is now of no moment, for the and UP filed a complaint vs. ALUMCO, at CFI-Rizal, for
reason that the obligations arising from the contract of the collection or payment of sums of money w/

40
prayer for injunction. But before pre.injunction may be final judgment of rescission is rendered when the law
issued, UP had taken steps to have another itself requires that he should exercise due diligence to
concessionaire take over the logging operation, by minimize its own damages (Civil Code, Article 2203).
advertising an invitation to bid; that bidding was
conducted, and the concession was awarded to Sta. We see no conflict between this ruling and the previous
Clara Lumber Company, Inc.; the logging contract jurisprudence of this Court invoked by respondent
was signed on 16 February 1966. ALUMCO had filed declaring that judicial action is necessary for the
several motions to discharge the writs of attachment resolution of a reciprocal obligation, 1 since in every
and preliminary injunction but were denied by the case where the extrajudicial resolution is contested
court. Thus, ALUMCO filed a petition to enjoin only the final award of the court of competent
petitioner University from conducting the bidding & for jurisdiction can conclusively settle whether the
preliminary injunction. Respondent judge issued the resolution was proper or not. It is in this sense that
first of the questioned orders, enjoining UP from judicial action will be necessary, as without it, the
awarding logging rights over the concession to extrajudicial resolution will remain contestable and
any other party. subject to judicial invalidation, unless attack thereon
should become barred by acquiescence, estoppel
UP received the TRO after it had concluded its contract or prescription.
with Sta. Clara, and said company had started logging
operations. On motion, ALUMCO and one Jose Rico, ZULUETA VS. MARIANO
the court, declared petitioner UP in contempt of
court and Sta. Clara Lumber to refrain from exercising
logging rights or conducting logging operations in the FACTS: Petitioner Jose C. Zulueta is the registered
concession. owner of a residential house and lot situated within the
Antonio Subdivision, Pasig, Rizal. On November 6,
1964, petitioner Zulueta and private respondent
UP’s MR was denied. Lamberto Avellana, a movie director, entered into a
"Contract to Sell" the aforementioned property for
ISSUE: whether petitioner U.P. can treat its contract P75,000.00 payable in twenty years with respondent
with ALUMCO rescinded, and may disregard the same buyer assuming to pay a down payment of P5,000.00
before any judicial pronouncement to that effect. and a monthly installment of P630.00 payable in
advance before the 5th day of the corresponding
In the first place, UP and ALUMCO had expressly month, starting with December, 1964 – WITH FURTHER
stipulated that, upon default by the debtor ALUMCO, SPECIFIC STIPULATIONS IN CASE OF BREACH OF SUCH
the creditor (UP) has "the right and the power to ©.
consider, the Logging Agreement as rescinded without
the necessity of any judicial suit." As to such special Avellana occupied the property but title remained with
stipulation, and in connection with Article 1191 of the petitioner Zulueta. Upon the allegation that
Civil Code, this Court stated in Froilan vs. Pan Oriental respondent had failed to comply with the monthly
Shipping Co., et al., L-11897, 31 October 1964, 12 amortizations stipulated in the contract, despite
SCRA 276: demands to pay and to vacate the premises, and that
thereby the contract was converted into one of
there is nothing in the law that prohibits the lease, petitioner, commenced an Ejectment suit
parties from entering into agreement that against respondent before the MTC-Pasig. Respondent
violation of the terms of the contract would controverted by contending that the Municipal Court
cause cancellation thereof, even without court had no jurisdiction over the nature of the action as it
intervention. In other words, it is not always involved the interpretation and/or rescission of the
necessary for the injured party to resort contract; and made some affirmative defenses and
to court for rescission of the contract. counterclaim. Lower court found in favor of plaintiff,
asked def. to vacate & pay back rentals,etc. CA
reversed & ruled vs. ju’s of muni.court finding the case
Of course, it must be understood that the act of party as one of interpretation & rescission of © b/c d © to
in treating a contract as cancelled or resolved on sell was converted to © of lease. MR denied.
account of infractions by the other contracting party
must be made known to the other and is always
provisional, being ever subject to scrutiny and review ISSUE: WON the original © to sell was rescinded d/t
by the proper court. If the other party denies that the automatic resc.clause in the ©, thus the case was
rescission is justified, it is free to resort to unlawful detainer cognizable by the MTC or one of
judicial action in its own behalf, and bring the judicial rescission of © cognizable by then CFI?
matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was HELD: Thus, the basic issue is not possession but one
not warranted, the responsible party will be of rescission or annulment of a contract, which is
sentenced to damages; in the contrary case, the beyond the jurisdiction of the Municipal Court to hear
resolution will be affirmed, and the consequent and determine.
indemnity awarded to the party prejudiced.
A violation by a party of any of the stipulations
In other words, the party who deems the contract of a contract on agreement to sell real property
violated may consider it resolved or rescinded, would entitle the other party to resolved or
and act accordingly, without previous court rescind it. An allegation of such violation in a
action, but it proceeds at its own risk. For it is only the detainer suit may be proved by competent
final judgment of the corresponding court that will evidence. And if proved a justice of the peace
conclusively and finally settle whether the action taken court might make a finding to that effect, but it
was or was not correct in law. But the law definitely certainly cannot declare and hold that the
does not require that the contracting party who contract is resolved or rescinded. It is beyond
believes itself injured must first file suit and wait for a its power so to do. And as the illegality of the
judgment before taking extrajudicial steps to protect its possession of realty by a party to a contract to
interest. Otherwise, the party injured by the other's sell is premised upon the resolution of the
breach will have to passively sit and watch its damages contract, it follows that an allegation and proof
accumulate during the pendency of the suit until the of such violation, a condition precedent to such

41
resolution or rescission, to render unlawful the Questioning the validity of the rescission of the
possession of the land or building erected contract, respondent filed a letter complaint with the
thereon by the party who has violated the National Housing Authority (NHA) for reconveyance
contract, cannot be taken cognizance of by a with an altenative prayer for refund. NHA, finding the
justice of the peace court. ... rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto
True, the contract between the parties provided for Onstott, jointly and severally, to refund immediately to
extrajudicial rescission. This has legal effect, however, Dumpit the amount of P13,722.50 with 12% interest
where the other party does not oppose it. Where it is from the filing of the complaint. Petitioners' MR was
objected to, a judicial determination of the issue is still denied. Appeal to the OP was also denied.
necessary.
HELD: Well settled is the rule, as held in previous
A stipulation entitling one party to take jurisprudence, that judicial action for the rescission
possession of the land and building if the other of a contract is not necessary where the contract
party violates the contract does not ex proprio provides that it may be revoked and cancelled
vigore confer upon the former the right to take for violation of any of its terms and conditions.
possession thereof if objected to without
judicial intervention and' determination. However, even in the cited cases, there was at least a
written notice sent to the defaulter informing him of
But while respondent Judge correctly ruled that the the rescission. As stressed in University of the
Municipal Court had no jurisdiction over the case and Philippines vs. Walfrido de los Angeles the act of a
correctly dismissed the appeal, he erred in assuming party in treating a contract as cancelled should
original jurisdiction, in the face of the objection be made known to the other.
interposed by petitioner. Section 11, Rule 40, leaves no
room for doubt on this point: ANGELES VS CALASANZ

Section 11. Lack of jurisdiction �A case tried FACTS: Ursula Torres Calasanz and Tomas Calasanz
by an inferior court without jurisdiction over and plaintiffs-appellees Buenaventura Angeles and
the subject matter shall be dismiss on appeal Teofila Juani entered into a contract to sell a piece of
by the Court of First Instance. But instead of land located in Cainta, Rizal for the amount of
dismissing the case, the Court of First Instance P3,920.00 plus 7% interest per annum.
may try the case on the merits, if the parties
therein file their pleadings and go to trial The plaintiffs-appellees made a downpayment of
without any objection to such jurisdiction. P392.00 upon the execution of the contract. They
promised to pay the balance in monthly installments of
There was no other recourse left for respondent Judge, P 41.20 until fully paid, the installments being due and
therefore, except to dismiss the appeal. payable on the 19th day of each month. The plaintiffs-
appellees paid the monthly installments until July 1966,
If an inferior court tries a case without when their aggregate payment already amounted to
jurisdiction over the subject-matter on appeal, P4,533.38. On numerous occasions, the defendants-
the only authority of the CFI is to declare the appellants accepted and received delayed installment
inferior court to have acted without jurisdiction payments from the plaintiffs-appellees. On December
and dismiss the case, unless the parties agree 7, 1966, the defendants-appellants wrote the plaintiffs-
to the exercise by the CFI of its original appellees a letter requesting the remittance of past
jurisdiction to try the case on the merits. 4 due accounts. On January 28, 1967, the defendants-
appellants cancelled the said contract because the
plaintiffs-appellees failed to meet subsequent
The foregoing premises considered, petitioner's prayer payments. The plaintiffs' letter with their plea for
for a Writ of Execution of the judgment of the Municipal reconsideration of the said cancellation was denied by
Court of Pasig must perforce be denied. the defendants-appellants.

PALAY, INC. vs. CLAVE (1983) The plaintiffs-appellees filed with CFI-Rizal to compel
the defendants-appellants to execute in their favor the
FACTS: Petitioner Palay, Inc., through its President, final deed of sale alleging inter alia that after
Albert Onstott executed in favor of private respondent, computing all subsequent payments for the land in
Nazario Dumpit, a Contract to Sell a parcel of Land of question, they found out that they have already paid
the Crestview Heights Subd. in Antipolo, Rizal, owned the total amount of P4,533.38 including interests,
by said corporation. The sale price was P23,300.00 realty taxes and incidental expenses for the
with 9% interest p.a., payable with a downpayment of registration and transfer of the land.
P4,660.00 and monthly installments of P246.42 until
fully paid. Contract provided for automatic The defendants-appellants alleged in their answer that
extrajudicial rescission upon default in payment of the complaint states no cause of action and that the
any monthly installment after the lapse of 90 days plaintiffs-appellees violated paragraph six (6) of the
from the expiration of the grace period of one month, contract to sell when they failed and refused to pay
without need of notice and with forfeiture of all and/or offer to pay the monthly installments
installments paid. Respondent Dumpit paid the corresponding to the month of August, 1966 for more
downpayment and several installments amounting to than five (5) months, thereby constraining the
P13,722.50. The last payment was made on December defendants-appellants to cancel the said contract.
5, 1967 for installments up to September 1967. Almost
six (6) years later, private respondent wrote petitioner
offering to update all his overdue accounts with The lower court rendered judgment in favor of the
interest, and seeking its written consent to the plaintiffs-appellees. MR denied.
assignment of his rights to a certain Lourdes Dizon.
Replying petitioners informed respondent that his ISSUE: WON the contract to sell has been
Contract to Sell had long been rescinded and the lot automatically and validly cancelled by the defendants-
had already been resold. appellants

42
HELD: The right to rescind the contract for non- Ketchum on his own behalf assigned to J.
performance of one of its stipulations, therefore, is not Amado Araneta the managerial rights over Solomon
absolute. In Universal Food Corp. v. Court of Appeals Boysaw, presumably in preparation for his engagement
(33 SCRA 1) the Court stated that� with Elorde. Then, Araneta assigned to Alfredo J. Yulo,
Jr. the managerial rights over Boysaw. The next day,
The general rule is that rescission of a contract Boysaw wrote Lope Sarreal, Sr. informing him of his
will not be permitted for a slight or casual arrival and presence in the Philippines.
breach, but only for such substantial and Yulo, Jr. wrote to Sarreal informing him of his
fundamental breach as would defeat the very acquisition of the managerial rights over Boysaw and
object of the parties in making the agreement. indicating his and Boysaw's readiness to comply with
(Song Fo & Co. v. Hawaiian-Philippine Co., 47 the boxing contract of May 1, 1961. On the same date,
Phil. 821, 827) The question of whether a on behalf of Interphil, Sarreal wrote a letter to the
breach of a contract is substantial depends Games and Amusement Board [GAB] expressing
upon the attendant circumstances. concern over reports that there had been a switch of
managers in the case of Boysaw, of which he had not
The breach of the contract adverted to by the been formally notified, and requesting that Boysaw be
defendants-appellants is so slight and casual called to an inquiry to clarify the situation.
when we consider that apart from the initial The GAB called a series of conferences &
downpayment of P392.00 the plaintiffs-appellees had changed the schedule the Elorde-Boysaw fight. The
already paid the monthly installments for a period of USA National Boxing Association which has supervisory
almost nine (9) years. In other words, in only a short control of all world title fights approved the date set by
time, the entire obligation would have been paid. the GAB. Yulo, Jr. refused to accept the change in the
fight date.
Article 1234  If the obligation has been The fight never materialized. Thus, Boysaw
substantially performed in good faith, the obligor may and Yulo, Jr. sued Interphil, Sarreal, & Nieto in CFI-Rizal
recover as though there had been a strict and for damages.
complete fulfillment, less damages suffered by the The power to rescind obligations is
obligee. implied, in reciprocal ones, in case one of the
obligors should not comply with what is
We agree with the observation of the lower court to the incumbent upon him. [Part 1, Art. 1191, Civil
effect that: Code].
There is no doubt that the contract in question
Although the primary object of selling gave rise to reciprocal obligations. "Reciprocal
subdivided lots is business, yet, it cannot be obligations are those which arise from the same
denied that this subdivision is likewise cause, and in which each party is a debtor and a
purposely done to afford those landless, low creditor of the other, such that the obligation of
income group people of realizing their dream of one is dependent upon the obligation of the
a little parcel of land which they can really call other. They are to be performed simultaneously,
their own. so that the performance of one is conditioned
upon the simultaneous fulfillment of the other"
[Tolentino]
The contract to sell entered into by the parties has
some characteristics of a contract of adhesion. The The power to rescind is given to the
defendants-appellants drafted and prepared the injured party. "Where the plaintiff is the party who
contract. The plaintiffs-appellees, eager to acquire a lot did not perform the undertaking which he was bound
upon which they could build a home, affixed their by the terms of the agreement to perform 4 he is not
signatures and assented to the terms and conditions of entitled to insist upon the performance of the contract
the contract. They had no opportunity to question nor by the defendant, or recover damages by reason of his
change any of the terms of the agreement. It was own breach " [Seva vs. Alfredo Berwin 48 Phil. 581].
offered to them on a "take it or leave it" basis. Another violation of the contract in question
was the assignment and transfer, first to J. Amado
The contract to sell, being a contract of adhesion, must Araneta, and subsequently, to appellant Yulo, Jr., of the
be construed against the party causing it. We agree managerial rights over Boysaw without the knowledge
with the observation of the plaintiffs-appellees to the or consent of Interphil. The assignments, from
effect that "the terms of a contract must be interpreted Ketchum to Araneta, and from Araneta to Yulo, were in
against the party who drafted the same, especially fact novations of the original contract which, to be
where such interpretation will help effect justice to valid, should have been consented to by Interphil.
buyers who, after having invested a big amount of Novation which consists in substituting a
money, are now sought to be deprived of the same new debtor in the place of the original
thru the prayed application of a contract clever in its one, may be made even without the
phraseology, condemnable in its lopsidedness and knowledge or against the will of the
injurious in its effect which, in essence, and in its latter, but not without the consent of the
entirety is most unfair to the buyers." creditor. [Art. 1293]
Creditor not bound to deal w/unilaterally
BOYSAW VS INTERPHIL substituted debtor - Under the law when a contract
FACTS: Solomon Boysaw and his then Manager, Willie is unlawfully novated by an applicable and unilateral
Ketchum, signed with Interphil Promotions, Inc. substitution of the obligor by another, the aggrieved
represented by Lope Sarreal, Sr., a contract to engage creditor is not bound to deal with the substitute.
Gabriel "Flash" Elorde in a boxing contest for the The consent of the creditor to the change of
junior lightweight championship of the world. It was debtors, whether in expromision or delegacion is an,
stipulated that the bout would be held at the Rizal indispensable requirement . . . Substitution of one
Memorial Stadium in Manila on September 30, 1961 or debtor for another may delay or prevent the fulfillment
not later than thirty [30] days thereafter should a of the obligation by reason of the inability or insolvency
postponement be mutually agreed upon, and that of the new debtor, hence, the creditor should agree to
Boysaw would not, prior to the date of the boxing accept the substitution in order that it may be binding
contest, engage in any other such contest without the on him.
written consent of Interphil Promotions, Inc.

43
Thus, in a contract where x is the creditor and under the circumstances, still in the instant case
y is the debtor, if y enters into a contract with z, under there is a clear WAIVER of the stipulated right of
which he transfers to z all his rights under the first "automatic rescission," as evidenced by the
contract, together with the obligations thereunder, but many extensions granted private respondents by
such transfer is not consented to or approved by x, the petitioner. In all these extensions, the petitioner
there is no novation. X can still bring his action against never called attention to the proviso on "automatic
y for performance of their contract or damages in case rescission."
of breach. [Tolentino]
From the evidence, it is clear that the CENTRAL BANK VS. CA (1985)
appellees, instead of availing themselves of the options
given to them by law of rescission or refusal to Facts: Islands Savings Bank approved the loan
recognize the substitute obligor Yulo, really wanted to application of Tolentino for P80,000. To secure the loan,
postpone the fight date owing to an injury that Elorde Tolentino executed a REM on his 100-hectare land. Only
sustained in a recent bout. That the appellees had the P17,000 was released by the Bank, for w/c Tolentino
justification to renegotiate the original contract, executed a PN payable w/in 3 years. The balance was
particularly the fight date is undeniable from the facts not released. In 1965, the Monetary Board of the Central
aforestated. Under the circumstances, the appellees' Bank issued Reso.No. 1049 prohibiting the Bank fr. doing
desire to postpone the fight date could neither be business in RP. The Bank filed an application for
unlawful nor unreasonable. extrajudicial FREM vs. Tolentino for non-payment of the
We uphold the appellees' contention that since PN. In turn, Tolentino filed an action for injunction,
all the rights on the matter rested with the appellees, specific performance or rescission, alleging that the
and appellants' claims, if any, to the enforcement of Bank failed to fulfill its obligation to lend the balance of
the contract hung entirely upon the former's pleasure P63,000.
and sufferance, the GAB did not act arbitrarily in
acceding to the appellee's request to reset the fight Issues: W/N Tolentino can compel specific performance.
date to November 4, 1961. It must be noted that WON Tolentino is entitled to rescission.
appellant Yulo had earlier agreed to abide by the GAB
ruling. Held: NO. The agreement is a loan agreement, w/c is a
reciprocal obligation. In reciprocal obligations, the
obligation or promise of each party is the consideration
PILIPINAS BANK VS. I.A.C. for that of the other; & when one party has performed or
FACTS: Hacienda Benito, Inc. (petitioner's predecessor- is ready & willing to perform his part of the contract, the
in-interest) as vendor, and private respondents, Jose W. other party who has not performed or is not ready &
Diokno and Carmen I. Diokno, as vendees executed a willing to perform incurs in delay. The promise of
Contract to Sell over a parcel of land in Victoria Valley Tolentino to pay was the consideration for the obligation
Subdivision in Antipolo, Rizal, subject to terms and of the Bank to furnish the P80,000. When Tolentino
conditions as stipulated. At vendees’ failure to pay, executed a real estate mortgage, he signified his
vendor sent several demands for the former to settle willingness to pay the loan. From such date, the
arrearages, requests for extensions were give, further obligation of the Bank to furnish the P80,000 accrued.
demand was again given several times, until a Notice The Bank’s delay started in 1965, lasted for 3 years or
of rescission was given to Carmen Diokno after she when the Monetary Board issued Resolution No. 967 in
informed the Corp that she wanted an audience with 1968, w/c prohibited the Bank fr. doing further business.
the Pres. b/c she had a prospective buyer of the Resolution No. 1049 cannot interrupt the default of the
property. Bank in releasing the P63,000 bec. said resolution
merely prohibited the Bank fr. making new loans. Since
Thus, private respondents filed Complaint for Specific the Bank was in default in fulfilling its reciprocal
Performance with Damages to compel petitioner to obligation under the loan agreement, Tolentino may
execute a deed of sale in their favor, and to deliver to choose between specific performance or rescission w/
them the title of the lot in question. Petitioner filed an damages in either case. But since the Bank is now
Answer with counterclaim for damages in the form of prohibited fr. doing further business, the Court cannot
attorney's fees, claiming that Contract to Sell has been grant specific performance. Rescission is the only
automatically rescinded or cancelled by virtue of alternative remedy left. However, rescission is only for
private respondents' failure to pay the installments due the P63,000 balance, bec. the bank is in default only
in the contract under the automatic rescission clause. insofar as such amount is concerned.
After trial, the lower court rendered a decision in
private respondents' favor, holding that petitioner The promissory note gave rise to Tolentino’s
could not rescind the contract to sell, because: (a) reciprocal obligation to pay the P17,000 loan when it
petitioner waived the automatic rescission clause by falls due. Art. 1192 provides that in case both parties
accepting payment on September 1967, and by have committed a breach of their reciprocal obligations,
sending letters advising private respondents of the the liability of the first infractor shall be equitably
balances due, thus, looking forward to receiving tempered by the Court. The liability of the Bank for
payments thereon; (b) in any event, until May 18, 1977 damages in not furnishing the entire loan is offset by the
(when petitioner made arrangements for the liability of Tolentino for damages, in the form of
acquisition of additional 870 square meters) petitioner penalties & surcharges for not paying his overdue
could not have delivered the entire area contracted for, P17,000 debt.
so, neither could private respondents be liable in
default, citing Art. 1189, NCC. CA affirmed.

ISSUE: WON the Contract to Sell was rescinded or


cancelled, under the automatic rescission clause
contained therein.
HELD: We find the petition meritless. While it is true
that a contractual provision allowing "automatic
rescission" (without prior need of judicial
rescission, resolution or cancellation) is VALID,
the remedy of one who feels aggrieved being to
go to Court for the cancellation of the rescission
itself, in case the rescission is found unjustified
44
FOR JULY 16, 2008: In this case, Molina can make out a case of
extinguishment of obligation on the ground of want of
interest. The obvious purpose of the stipulation is to
G. MODES OF EXTINGUISHMENT OF OBLIGATIONS prevent unfair competition.

Art. 1231. Obligations are extinguished


BY:
(1) Payment or Performance;
(2) Loss of the thing due;
(3) Condonation or Remission of the debt;
(4) Confusion or Merger of the rights of
creditor & debtor;
(5) Compensation;
(6) Novation. CASE:
Other causes of extinguishment of obligations,
such as annulment, rescission, fulfillment of a SAURA IMPORT & EXPORT BANK VS. DBP [44 S
resolutory condition, & prescription are governed 445]
elsewhere in this Code. FACTS: Plaintiff Saura, Inc. applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into
Balane: DBP, for an industrial loan of P500,000.00, to be used
Art. 1231 gives us ten modes of extinguishing as follows: P250,000.00 for the construction of a
an obligation. One of the modes mentioned is factory building (for the manufacture of jute sacks);
rescission. P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and
But it does not tell us whether this is rescission P9,100.00 as additional working capital. The jute mill
under Art. 1191 (resolution) or rescission under machinery had already been purchased by Saura on
Art. 1380, et. seq.
If it means both, then we have eleven modes of the strength of a LOC by PBTC. RFC approved the loan
extinguishing an obligation under Art. 1231. (Similar to secured by a first mortgage on the factory building to
Tolentino’s) be constructed, the land site thereof, and the
machinery and equipment to be installed, and the loan
 This enumeration is not exclusive. to be released at the discretion of RFC, subject to
availability of funds, &as the construction of the factory
Other modes of extinguishing an obligation are buildings progresses, to be certified to by an appraiser
the following:
of RFC. China Engineers, Ltd. had again agreed to act
1. Death  particularly where the obligation is as co-signer for the loan. When the RFC Board later
purely personal, e.g., death of one partner decided to decrease the loan fr. 500K to 300K, China
dissolves the partnership/agency; Eng signified to withdraw as co-maker. Thus, when
2. Renunciation by the creditor Saura requested for the release of the 500K loan, RFC
signified that the Loan Agreement has been cancelled.
3. Compromise
Saura, Inc. does not deny that the factory he was
4. Arrival of Resolutory Term / fulfillment of building in Davao was for the manufacture of bags
reso.condi. from local raw materials, a Kenaf mill plant, to
5. Mutual Desistance or mutuo disenso (Saura v. manufacture copra and corn bags, runners, floor
DBP) mattings, carpets, draperies; out of 100% local raw
6. In some cases, Unilateral Withdrawal, e.g., in materials. When negotiations came to a standstill.
partnership, any partner can w/draw any time fr. Saura, Inc. did not pursue the matter further. Instead, it
the partnership. requested RFC to cancel the mortgage which RFC did.
It appears that the cancellation was requested to make
7. In some cases, change of civil status, e.g., if
marriage is annulled, it extinguishes obligations way for the registration of a mortgage contract,
like the obligation to give support, among executed over the same property in favor of PBTC,
others. under which contract Saura, Inc. had up to December
8. Unforeseen Events  (rebus sic stantibus) 31 of the same year within which to pay its obligation
(Art. 1267.) on the trust receipt heretofore mentioned. It appears
further that for failure to pay the said obligation PBTC
9. Want of Interest  GR: No, but there are sued Saura.
certain cases:
NINE YRS LATER, Saura commenced the present suit
 if it is equitable to deem the Ø extinguished d/t for damages, alleging failure of RFC /DBP to comply
want of interest of Cr in the fulfillment of such Ø. with its obligation to release the proceeds of the loan
10. Abandonment of the thing  as in Art. 662, applied for and approved, thereby preventing the
partywall; plaintiff from completing or paying contractual
commitments it had entered into, in connection with its
Or aband.of a vessel under Code of Comm.
jute mill project. The trial court rendered judgment for
11. Insolvency of debtor judicially declared & the plaintiff.
discharged.

ISSUE: WON the Ø of RFC to Saura in the perfected


Illustration: Carale owns a restaurant. He hires Molina
as a chef. In the contract of employment, there was a loan © subsists
stipulation that if Molina resigns fr. Carale's restaurant,
he cannot seek employment fr. another restaurant for a
period of five years. Subsequently, Molina resigns fr. When RFC turned down the request of Saura, the
Carale's restaurant & wants to apply to Mildo's House of negotiations which had been going on for the
Chicken. In this case, Molina cannot work w/ Mildo's implementation of the loan agreement reached an
bec. of the stipulation in the contract he signed w/ impasse. Saura, Inc. obviously was in no position to
Carale. Suppose, however, Carale, closes down his
restaurant & engages in a totally different business, a comply with RFC's conditions. So instead of doing so
construction business, for example, Molina can apply for and insisting that the loan be released as agreed upon,
work at Mildo's even before the lapse of the five year Saura, Inc. asked that the mortgage be cancelled,
prohibitive period. which was done by RFC. The action thus taken by both
parties was in the nature of mutual desistance - what
45
Manresa terms as "mutuo disenso" - which is a mode Art. 1244. The debtor of a thing cannot compel the creditor to receive a
of extinguishing obligations. It is a concept that derives different one, although the latter may be of the same value as, or more
valuable than that w/c is due.
from the principle that since mutual agreement
can create a contract, mutual disagreement by In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
the parties can cause its extinguishment.
Art. 1246. When the obligation consists in the delivery of an indeterminate
or generic thing, whose quality & circumstances have not been stated, the
Extinguishment of Øs by mutual desistance  creditor cannot demand a thing of superior quality. Neither can the debtor
Where after approval of his loan, the borrower, instead deliver a thing of inferior quality. The purpose of the obligation & other
of insisting for its release, asked that the mortgage circumstances shall be taken into consideration.
given as security be cancelled & the creditor acceded
thereto, the action taken by both parties was in the Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses
nature of mutual desistance - what Manresa terms required by the payment shall be for the account of the debtor. With regard
"mutuo disenso" - w/c is a mode of extinguishing to judicial costs, the Rules of Court shall govern.
obligations. It is a concept that derives fr. the principle Art. 1248. Unless there is an express stipulation to that effect, the creditor
that since mutual agreement can create a contract, cannot be compelled partially to receive the prestations in w/c the obligation
mutual disagreement by the parties can cause its consists. Neither may the debtor be required to make partial payments.
extinguishment.
However, when the debt is in part liquidated & in part unliquidated,
the creditor may demand & the debtor may effect the payment of the former
w/o waiting for the liquidation of the latter.
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, & if it is not possible to deliver such currency, then in the
currency w/c is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived fr. the original obligation shall be
held in abeyance.
Art. 1250. In case an extraordinary inflation or deflation of the currency
A. Payment or Performance
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
PERTINENT PROVISIONS/ reading matters: an agreement to the contrary.
Art. 1232. Payment means not only the delivery of money but also the Art. 1251. Payment shall be made in the place designated in the obligation.
performance, in any other manner, of an obligation.
There being no express stipulation & if the undertaking is to deliver a
Art. 1233. A debt shall not be understood to have been paid unless the determinate thing, the payment shall be made wherever the thing might be
thing or service in w/c the obligation consists has been completely delivered at the moment the obligation was constituted.
or rendered, as the case may be.
In any other case the place of payment shall be the domicile of the
Art. 1234. If the obligation has been substantially performed in good faith, debtor.
the obligor may recover as though there had been a strict & complete
If the debtor changes his domicile in bad faith or after he has
fulfillment, less damages suffered by the obligee.
incurred in delay, the additional expenses shall be borne by him.
Art. 1235. When the obligee accepts the performance, knowing its
These provisions are w/o prejudice to venue under the Rules of
incompleteness or irregularity, & w/o expressing any protest or objection,
Court.
the obligation is deemed fully complied w/.
Article 1302. It is presumed that there is legal subrogation:
Art. 1236. The creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the obligation, unless 1) When a creditor pays another creditor who
there is a stipulation to the contrary. is preferred, even without the debtor's
knowledge;
Whoever pays for another may demand fr. the debtor what he has
paid, except that if he paid w/o the knowledge or against the will of the 2) When a third person, not interested in the
debtor, he can recover only insofar as the payment has been beneficial to the obligation, pays with the express or tacit
debtor. approval of the debtor;
Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or 3) When, even without the knowledge of the
against the will of the latter, cannot compel the creditor to subrogate him in debtor, a person interested in the fulfillment
his rights, such as those arising fr. a mortgage, guaranty, or penalty. of the obligation pays, without prejudice to
the effects of confusion as to the latter's
Art. 1238. Payment made by a third person who does not intend to be
share
reimbursed by the debtor is deemed to be a donation, w/c requires the
debtor's consent. But the payment is in any case valid as to the creditor who Republic Act No. 529, as amended by R.A. No. 4100, provides:
has accepted it. SECTION 1. Every provision contained in, or made with respect to, any
Art. 1239. In obligations to give, payment made by one who does not have domestic obligation to wit, any obligation contracted in the Philippines
the free disposal of the thing due & capacity to alienate it shall not be valid, which provision purports to give the obligee the right to require payment
w/o prejudice to the provisions of article 1427 under the Title on "Natural in gold or in a particular kind of coin or currency other than Philippine
Obligations." currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void, and of no
Art. 1240. Payment shall be made to the person in whose favor the
effect, and no such provision shall be contained in, or made with respect
obligation has been constituted, or his successor in interest, or any person
to, any obligation hereafter incurred.
authorized to receive it.
The above prohibition shall not apply to
Art. 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as the (a) transactions where the funds involved are the proceeds of loans
payment has been beneficial to him. or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies
Payment made to a third person shall also be valid insofar as it has
and instrumentalities, and international financial banking
redounded to the benefit of the creditor. Such benefit to the creditor need not
institutions so long as the funds are identifiable, as having
be proved in the following cases:
emanated from the sources enumerated above;
(1) If after the payment, the third persons acquires the
creditor's rights;
(b) transactions affecting high-priority economic projects for
(2) If the creditor ratifies the payment to the third person;
agricultural, industrial and power development as may be
(3) If by the creditor's conduct, the debtor has been led to determined by the National Economic Council which are financed
believe that the third person had authority to receive the by or through foreign funds;
payment.
Art. 1242. Payment made in good faith to any person in possession of the
(c) forward exchange transactions entered into between banks or
credit shall release the debtor.
between banks and individuals or juridical persons;
Art. 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
(d) import-export and other international banking, financial
investment and industrial transactions.
46
Payment  in obligations to give,
With the exception of the cases enumerated in items (a), (b), (c) Performance  in obligations to do.
and (d) in the foregoing provision, in which cases the terms of the parties’
agreement shall apply, every other domestic obligation heretofore or Payment/ performance is the paradigmatic mode of
hereafter incurred, whether or not any such provision as to payment is extinguishment of an obligation.
contained therein or made with respect thereto, shall be discharged upon  It is the only normal way of extinguishing an
payment in any coin or currency which at the time of payment is legal obligation.
tender for public and private debts.

Art. 1233. A debt shall not be understood to have


Provided, That if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind of coin or
been paid unless the thing or service in w/c the
currency other than Philippine currency, it shall be discharged in obligation consists has been completely delivered
Philippine currency, measured at the prevailing rates of exchange at the or rendered, as the case may be.
time the obligation was incurred, except in case of a loan made in a
foreign currency stipulated to be payable in the same currency in which
case the rate of exchange prevailing at the time of the stipulated date of Tolentino: This art. States Two requisites for Payment:
payment shall prevail. All coin and currency, including Central Bank (1) Identity, of the prestation, &  the very thing or
notes, heretofore or hereafter issued and declared by the Government of
service due must be delivered or released;
the Philippines shall be legal tender for all debts, public and private.
Pertinent portion of Republic Act No. 8183 states: (2) its integrity  prestation must be fulfilled completely
SECTION 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties For BALANE: Art. 1233 states these requisites of
may agree that the obligation or transaction shall be settled in any other payment –
currency at the time of payment. I. Re: The prestation
1. Identity
SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the
2. Integrity
Uniform Value of Philippine Coin and Currency" is hereby repealed.
(Approved on June 11, 1996)
3. Indivisibility

II. Re: The parties


 The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of
removing the prohibition on the stipulation of currency other 1. Payor/ obligor/ debtor
than Philippine currency, such that obligations or transactions 2. Payee/ obligee/ creditor
may now be paid in the currency agreed upon by the parties.
III. Re: Time & place

 Just like R.A. No. 529, however, the new law does not provide for Discussion:
the applicable rate of exchange for the conversion of foreign
currency  incurred obligations in their peso equivalent. I. With respect to prestation:
1. Identity
 If specific prestation, this requisite means that
 It follows, therefore, that the jurisprudence established in R.A. No. the very thing or service must be delivered.
529 regarding the rate of conversion remains applicable. Thus, in (Art. 1244.)
Asia World Recruitment, Inc. v. National Labor Relations
Commission,13 the Court, applying R.A. No. 8183, sustained the  If generic, the requisite requires the delivery of
ruling of the NLRC that obligations in foreign currency may be something of neither inferior or superior quality
discharged in Philippine currency based on the prevailing rate (Art. 1246). It must be something in the middle.
at the time of payment. In case of money, there are special rules:

Governing rule: RA 529 as amended by RA 4100


CONCEPT OF PAYMENT
 In case of money debts, you will have to
Art. 1232. Payment means not only the delivery pay in legal tender in the Philippines. This
of money but also the performance, in any other law supersedes Art. 1249.
manner, of an obligation.
 If the parties stipulate that payment will
be made in foreign currency, the
 it is the fulfillment of the prestation due whc obligation to pay is valid but the
extinguishes the Ø by the realization of the purposes obligation to pay in foreign currency is
for whc it was constituted. void. Payment will be made in Phil.
currency.
 it is a juridical act whc is voluntary, licit and
made with the intent to exting. d Ø; LEGAL TENDER – means such currency whc in a given
ju’s can be used for payment of debts public & priv,
 it is made not only by 1 who owes money but also &whc cannot be refused by Cr.
by 1 bound to do something or to refrain fr doing
In the RP the ff are legal tender: (sec. 54, RA 265)
 Thus, Payment is identical w/ Fulfillment. 1. RP silver peso & half peso for debts of any
amount, RP subsidiary silver coins 20 ¢& 10 ¢ for up
Requisites of Payment or Performance: to P20 debts, and RP minor nickel &copper coins for
[TOLENTINO] up to P2.00 debts;
1. the person who pays  must have requisite 2. RP Treasury certs., new Victory series (EO 25, s.
capacity 1944, already w/drawn fr circ)
2. the person to whom payment is made  “ 3. All notes and coins issued by CB.
3. the thing to be paid  in accordance w/ the Ø
Q: How do you convert?
4. the manner, time and place of payment, etc. A: In case of an obligation w/c is not a loan in foreign
currency, if incurred bef. RA 529, conversion must be as
 payment shd be made by the debtor to the creditor at of the time the obligation was incurred.
the right time and place.
If incurred after RA 529 became effective, the
KINDS: conversion must be as of the time the obligation was
1. NORMAL  when Db voluntarily performs incurred (Kalalo v. Luz)
2. ABNORMAL  when Db is forced by judicial
proceeding If the loan is in foreign currency, the conversion is as of
the time of payment. (RA 529.)
Balane:
Payment or Performance are used interchangeably. But Payment in negotiable paper  This may be refused
technically, by the creditor. Payment in manager's check or
certified check is not payment in legal tender. The
47
ruling in Seneris has been reversed in the case of 4. Anyone interested in the fulfillment of
Bishop of Malolos. The Malolos ruling is better. the obligation, e.g., a guarantor
I found it hard to accept that manager's check or
certified check is good as legal tender. There are b. With the creditor's consent -- Anyone.
always risks to w/c cashier's checks are subject.  This is a departure fr. the rule in the Old Civil
What if after having issued a cashier's check, the Code w/c did not require consent on the part
drawee-bank closes, what happens to your cashier's of the creditor.
check?
c. Effect of payment by a third person:
 In any event, payment by check can be refused by
the creditor. And even if payment by check is accepted
by the creditor, the acceptance is only a provisional 1. If the payment was w/ the debtor's consent,
payment until the check is he becomes the agent of the debtor. The
effect is subrogation (Articles 1236-1237.)
(a) encashed or Exception: If the person paying intended it
(b) when through the fault of the creditor to be a donation. (Art. 1238.)
they have been impaired.
2. If payment was w/o the debtor's consent,
The case of Namarco v. Federation, 49 SCRA 238, the third person may demand repayment to
interprets the phrase "when through the fault of the the extent that the debtor has been
creditor, they have been impaired" as to apply only benefited. (Art. 1236, par. 2.)
to a check used in payment if issued by a person other
than the debtor.
2. Who may be the payee?
Why? Bec. if the check was issued by the debtor
himself, all that the debtor have to do is to issue another 1. The obligee proper (Articles 1240, 1626.)
check. 2. His successor or transferee (Art. 1240.)
3. His agent (ibid.)
Revaluation in case of extraordinary inflation or 4. Any third person subject to the following
deflation (Art. 1250) qualifications:
a. provided it redounded to the obligee's
 This rule has never been used. It was only during the benefit & only to the extent of such
Japanese occupation that there was a recognition of benefit. (Art. 1241, par. 2.)
extraordinary inflation in this country. b. If it falls under Art. 1241, par. 2 nos. 1, 2
& 3, benefit is deemed to be total.
Exceptions to the requirement of identity
5. Anyone in possession of the credit. (Art.
1242.)
(i) Dacion en pago (Art. 1245.)
(ii) Novation  In all these five (5) cases, it is required that the debt
should not have been garnished. (Art. 1243.)
In both cases, there is a voluntary change in the object.
III. With respect to the time & place of payment:
2. Integrity  There must be delivery of the entire
prestation due. (Art. 1233) or completely fulfilled; 1. When payment to be made: When due
2. Place (Art. 1251.)
The exceptions to the requirement of integrity Primary rule: As stipulated
are:
1. In case of substantial performance in good faith Secondary rule: Place where the thing was at the time
(Art. 1234.) This is an equity rule. the obligation was constituted if the obligation is to
2. In case of waiver of obligee/ creditor (Art. 1235.) deliver a determinate thing.
3. In case of application of payments if several
debts are equally onerous (Art. 1254, par. 2.) Tertiary rule: At the debtor's domicile
3. Indivisibility  This means that the obligor must
perform the prestation in one act & not in parts. (Art. Balane:
1248.) ** Payment or Performance are used
interchangeably.
There are several exceptions to this
requirement:  But technically, payment is used in obligations to give
1. In case or express stipulation. (Art. 1248.) whereas performance is used in obligations to do.
2. In case of prestations w/c necessarily entail Payment/ performance is the paradigmatic mode of
partial performance. (Art. 1225, par. 2) extinguishment of an obligation. It is the only normal
3. If the debt is liquidated in part & unliquidated in way of extinguishing an obligation.
part. (Art. 1248.)
Art. 1234. If the obligation has been substantially performed in good faith,
4. In case of joint divisible obligations (Art. 1208.)
the obligor may recover as though there had been a strict & complete
5. In solidary obligations when the debtors are
bound under different terms & conditions. (Art. fulfillment, less damages suffered by the obligee.
1211.)
6. In compensation when a balance is left. (Art. Substantial Performance:
1290.) 1. an attempt in GF to perform, w/o any willful or
7. If the work is to be delivered partially, the price intentional departure fr it
or compensation for each part having been 2. deviation fr perf. of Ø must be slight, & omission
fixed. (Art. 1720.) or defect must be so technical & unimpt, & must
8. In case of several guarantors who demand the not pervade the whole, must not be so material
right of division. (Art. 2065.) to the achievement of the very purpose of the
9. In case of impossibility or extreme difficulty of parties;
single performance. 3. party claiming substantial perf. must show
attempt in GF
II. With respect to the parties
There are two parties involved:
1. Payor/ obligor/ debtor CASES on Payment:
2. Payee/ obligee/ creditor

Requirements: J.M. TUASON V. JAVIER [31 S 829] - In the interest


1. Art. 1226 - 1238. Who should the payor be: of justice & equity, court may grant the vendee a
new term where he substantially performed in
good faith according to Art. 1234, regardless of
a. Without need of the creditor's consent Art. 1592 of the same Code.
1. The debtor himself
2. His heirs or assigns FACTS:
3. His agent

48
Contract to Sell bet. Plaintiff JM Tuazon and def.
Ligaya Javier on a parcel of land in Sta. Msa Hts. Subd. xxx If the petitioner is fussy enough to invoke it now, it
On installment w/ down & interest of 10% p.a. Def. took stands to reason that he would have fussed it too in the
poss’n of prop. After payment of 1 st installment on receipt he willingly signed after accepting, w/o
execution of © in Sept. 1954 & pd. Mo.installmts until reservation & apparently w/o protest only P7,000. Art.
Jan. 1962. After subseq. Default by def. of monthly inst. 1235 is applicable.
Plaintf informed her that © has been rescinded. But def.
refused to vacate. Thus, pltff filed case w/CFI-Rizal for Petitioner says that he could not demand payment of
judicial rescission of © and payment of arrears. the balance of P200 on 10/26/60, date of receipt bec.
Based on Art. 1592, CFI found in favor of def. the rental for the crop year 1961-1962 was due on or
but made the latter pay arrears w/in 60 days, plus before 1/30/61. But this would not have prevented him
interests, attys fees, and that title shd be transferred fr. reserving in the receipt his right to collect the balance
after such payment w/costs at the expense of def. when it fell due. Moreover, there is evidence in the
Article 1592. In the sale of immovable record that when the due date arrived, he made any
property, even though it may have been demand, written or verbal, for the payment of that
stipulated that upon failure to pay the price at amount.
the time agreed upon the rescission of the
contract shall of right take place, the vendee Art. 1235. When the obligee accepts the
may pay, even after the expiration of the period,
as long as no demand for rescission of the performance, knowing its incompleteness or
contract has been made upon him either irregularity, & w/o expressing any protest or
judicially or by a notarial act. After the demand, objection, the obligation is deemed fully complied
the court may not grant him a new term. w/.
Thus pltff appealed for erroneous applic of 1592
b/c this is a © TO Sell not OF Sale.

ISSUE: WON CFI erred in NOT declaring herewith © 1. To whom payment should be made
rescinded.

HELD: NO. What applies here is Art. 1234: Art. 1240. Payment shall be made to the person
in whose favor the obligation has been
Art. 1234. If the obligation has been substantially constituted, or his successor in interest, or any
performed in good faith, the obligor may recover person authorized to receive it.
as though there had been a strict & complete
fulfillment, less damages suffered by the obligee. ARAÑAS V. TUTAAN [127 S 828]
LEGARDA HERMANOS V. SALDANA [55 S 324] -
The Court's doctrine in J.M. Tuason v. Javier is fully Payment by judgment debtor to the wrong party
applicable to the present case, RE Substantial does not extinguish judgment debt.
performance of © Ø in GF, Art. 1234.
FACTS: CFI-Rizal,Quezon declared petitioner-plaintiff sps.
FACTS: Contract to Sell bet. Plaintiff vendee, Felipe Arañas as owner of 400 shares of stocks in Universal
Saldana and Def.vendor, Legarda Hermanos, Textile Mills, Inc. UTEX, whc the Corp-defendant issued
subdivision-owner, on 2 written ©’s, payable for 10yrs, to co-def. Gene Manuel and BR Castaneda, incl. stock
120 equal monthly installments w/ 10% interst p.a., fr. dividends whc accrued to said shares. This court a quo
May 1948 rendered decision in August 1971. UTEX made a motion
 resp. Saldana faithfully pd. For 8-yrs about 95- for clarification and such was answered in 1972 clearly
mos.instalmnts out of 120; he stopped paying fr. Filing of directing UTEX to pay sps.petitioners as rightful owners
this case w/CFI-Manila in 1961; after his 1st 5yrs of of all accruing dividends from their stocks fr after the
paying, resp. called attention of vendors that he wanted judgment by the court, and for the transfer of the
to build a house on his lot but they have to start disputed shares of stocks to the names of petitioner-sps.
improvements on d subd, e.g. roads. Instead, he was In lieu of the appeal filed by Manuel and Castaneda,
informed of cancellation of © for failure to pay as UTEX failed to transfer the names of the shares and pay
stipulated, the 120installments and his payments were the dividends to petitioners. Thus, sps-pet asked for a
to be treated as rents. writ of execution fr court a quo for payment of cash
> LC dismissed resp.’s complaint, upheld the dividends fr 1972-1979 w/interest and to effect the
cancellation of the ©. Appellate court reversed, and transfer of the shares to them. Lower court granted
ordered the conveyance of one of the 2 lots to defs. At such order but absolved UTEX of payment of cash
the latter’s choice. It was found that the lots cud not be dividends whc they have already paid to Manuel and
delivered bcoz they were still submerged in water and Castaneda on the ground of equity.
there were no roads in the subdv. (for equity and justice)
ISSUE: WON UTEX shd be made to pay sps.Arañas the
ISSUE: WON cancellation here was proper? cash dividends fr 1972-1979 w/interests, after it has
already paid the same to Manuel and Castañeda,
HELD: NO. Applying Doctrine in JM Tuazon v. Javier despite knowledge of the court’s decision otherwise.

HELD:
The burden of recovering the supposed
payments of the cash dividends made by UTEX to the
AZCONA V. JAMANDRE [151 S 317] - wrong parties Castaneda & Manuel squarely falls upon
itself by its own action & cannot be passed by it to
FACTS: GUILLERMO AZCONA leased 80 Ha. Out of his petitioners as innocent parties.
150 Ha pro-indiviso share in hacienda Sta. fe in
Escalante, Negros Occ. To CIRILO JAMANDRE, decedent *** It is elementary that payment made by a
rep.by Administrator to his Estate; judgment debtor to a wrong party cannot
> Yearly rental agreed: P7,200 for 3-agri.years fr. 1960, extinguish the judgment obligation of such debtor
extendible to 1965 at lessee’s option. 1st annual rental to its creditor. xxx
due on Mar. 1960; but resp. did not pay for failure of
Pet. To deliver possn of the prop. To him until he pd in
Oct. 1960 of P7000;  A payment in order to be effective to
> In April 1961, Pet. Notified Resp. that © is deemed discharge an obligation must be made to
cancelled for failure to comply w/conditions therein; the proper parties.--
> resp. filed complaint, def. filed counterclaim; both
were dismissed by TC for pari de licto; In general, a payment, in order to be effective to
discharge an obligation, must be made to the proper
ISSUE: WON the payment of P7000, lacking of 200 fr the person. Thus, payment must be made to the obligee
agreed annual rental of 7200, amounts to delay and himself or to an agent having authority, express or
ground for rescission implied, to receive the particular payment.
HELD: No. the receipt showed full payment as per Payment made to one having apparent authority
contract; no mention of the short of 200; whc means to receive the money will, as a rule, be treated as
that rental was reduced, perhaps b/c of the reduction of though actual authority had been given for its
the 80Ha. By 16Ha. Used by Pet. As grazing land. But receipt.
the rest of the © subsists.
49
Likewise, if payment is made to one who by law is 2. Paymt. to Incap. Cr shall be valid only
authorized to act for the creditor, it will work a insofar as it accrued to his benefit. Absence
discharge. The receipt of money due on a judgment by of benefit, Db may be made to pay again by
an officer authorized by law to accept it will, therefore Cr when he attains capacity, or his legal rep
satisfy the debt. during the inc.

xxx The theory is where a payment is 3. Same principles are applicable to paymt
made to a person authorized & recognized made to 3P, but person who paid has right
by the creditor, the payment to such a to recover fr. 3P
person so authorized is deemed payment 4. In ff. Cases, paymt. To 3P releases Db:
to the creditor. xxx
 Unless authorized by law or by consent of (a) when w/o notice to assngmt. of credit, he
the obligee, a public officer has no pays to original Cr [Art. 1626] &
authority to accept anything other than
money in payment of an obligation under (b) when in GF he pays to one in poss’n of
a judgment being executed. credit [Art. 1242]
5. If mistake of Db due to fault of Cr, then Cr
In the absence of an agreement, either express or cannot demand anew
implied, payment means the discharge of a debt or
obligation in money & unless the parties so agree, a
debtor has no rights, except at his own peril, to Art. 1242. Payment made in good faith to any person
substitute something in lieu of cash as medium of
payment of his debt. Consequently, Unless authorized in possession of the credit shall release the debtor.
by law or by consent of the obligee, a public officer has
no authority to accept anything other than money in
payment of an obligation under a judgment being (Assignment of Credits & Other Incorporeal
executed. Strictly speaking, the acceptance by the Rights)
sheriff of the petitioner's checks, in the case at bar, does
not, per se, operate as a discharge of the judgment Art. 1626. The debtor who, before having knowledge
debt. [PAL V. CA (181 S 557)] of the assignment, pays his creditor shall be released fr.
the obligation.
Tolentino:

Authority to receive: LEGAL or CONVENTIONAL 2. Who shall make payment


Art. 1236. The creditor is not bound to accept
Legal: conferred by law, such as authority of guardian payment or performance by a third person who has
to inc. creditor (Cr), or the adm’r of estate no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Conventional: autho. Fr. Cr himself, as when agent is
appted. To collect fr. Debtor (Dr) Whoever pays for another may demand fr. the
debtor what he has paid, except that if he paid w/o
 Payment to wrong party does NOT the knowledge or against the will of the debtor, he
extinguish oblig to Cr, if there is no can recover only insofar as the payment has been
fault or negligence w/c can be imputed
to the latter, even when Db acted in beneficial to the debtor.
utmost GF & by mistake as to the Art. 1237. Whoever pays on behalf of the debtor
person of his Cr, or thru error induced w/o the knowledge or against the will of the latter,
by fraud of 3P, EXCEPT AS PROV. IN ART.
1241 cannot compel the creditor to subrogate him in his
rights, such as those arising fr. a mortgage, guaranty,
 Deposit by Db in bank, in the name or penalty.
of & to the credit of Cr, w/o latter’s Art. 1238. Payment made by a third person who
autho. Does NOT constitute
payment; but when the Cr cannot be does not intend to be reimbursed by the debtor is
found in the place of payment, such deemed to be a donation, w/c requires the debtor's
deposit may be a valid excuse for not consent. But the payment is in any case valid as to
holding the Db in default the creditor who has accepted it.
GR: Consignation in ct. of thing or amt. due, when Art. 2173. When a third person, w/o the knowledge
properly made will ext. oblig. of the debtor, pays the debt, the rights of the former
are governed by articles 1236 & 1237. (Other Quasi-
Art. 1241. Payment to a person who is Contracts)
incapacitated to administer his property shall be Art. 1239. In obligations to give, payment made by
valid if he has kept the thing delivered, or insofar one who does not have the free disposal of the thing
as the payment has been beneficial to him. due & capacity to alienate it shall not be valid, w/o
Payment made to a third person shall also prejudice to the provisions of article 1427 under the
be valid insofar as it has redounded to the benefit Title on "Natural Obligations."
of the creditor. Such benefit to the creditor need Art. 1427. When a minor between eighteen &
not be proved in the following cases: twenty-one years of age, who has entered into a
(1) If after the payment, the third contract w/o the consent of the parent or guardian,
persons acquires the creditor's voluntarily pays a sum of money or delivers a
rights; fungible thing in fulfillment of the obligation, there
(2) If the creditor ratifies the payment shall be no right to recover the same fr. the obligee
to the third person; who has spent or consumed it in good faith.
(3) If by the creditor's conduct, the
debtor has been led to believe that  NOTE: age of majority is now 18.
the third person had authority to
receive the payment. Tolentino:
 Where the person paying has no capacity to
make the pymt, the Cr cannot be compelled to
Baviera: Number three is Estoppel in Pais accept it. Consign’n will not be proper.
 In case Cr accepts, the pymt will not be valid,
Tolentino: except in the case provided in A 1427.
1. When Cr is incapacitated, payment must be
made to his legal rep. or deliver the thing to Art. 1243. Payment made to the creditor by the debtor
ct. for consignation ff. Art. 1256 after the latter has been judicially ordered to retain the
debt shall not be valid.

50
Tolentino: TIBAJIA V. CA (1993)
 Pmt to Cr after the credit has been attached or
garnished is void as to the party who
obtained the attachmt or garnishmt, to the Facts: In a suit for collection of a sum of money, Eden Tan
extent of the amt of jdgmt in his favor; obtained judgment against Petitioners, spouses Norberto
Tibajia, Jr. and Carmen Tibajia. The decision having become
 Db can therefor be made to pay again to the final, Eden Tan filed motion for execution and the garnished
party who secured the attachtmt or garnishmt, funds which by then were on deposit with the cashier of the
but he can recover the same to the extent of RTC-Pasig were levied upon.
what he has pd to his Cr
Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima
Art. 1244. The debtor of a thing cannot compel the the total money judgment in Cashier's Check P262,750.00,
creditor to receive a different one, although the latter and in Cash 135,733.70 = Total P398,483.70. Tan, refused to
may be of the same value as, or more valuable than accept such payment and instead insisted that the garnished
that w/c is due. funds deposited with RTC-Pasig be withdrawn to satisfy the
judgment obligation. Defendant spouses (petitioners) filed a
In obligations to do or not to do, an act or motion to lift the writ of execution on the ground that the
forbearance cannot be substituted by another act or judgment debt had already been paid. Trial court denied on
forbearance against the obligee's will. the ground that payment in cashier's check is not payment in
legal tender and that payment was made by a third party
other than the defendant. MR was denied. CA affirmed,
holding that payment by cashier's check is not payment in
Tolentino: legal tender as required by RA No. 529. MR denied again.
 Defects of the thing delivered may be waived by
the Cr, if he expressly so declares, or if, w/ ISSUE: whether or not payment by means of check (even by
knowledge thereof, he accepts the thing w/o cashier's check) is considered payment in legal tender as
protest or disposes of it or consumes it required by the Civil Code, Republic Act No. 529, and the
Central Bank Act.
Art. 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in The provisions of law applicable to the case at bar are the
money, shall be governed by the law of sales. following:
Art. 1246. When the obligation consists in the delivery
of an indeterminate or generic thing, whose quality & a. Article 1249 of the Civil Code which provides:
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the Art. 1249. The payment of debts in money shall be made in
debtor deliver a thing of inferior quality. The purpose of the currency stipulated, and if it is not possible to deliver such
the obligation & other circumstances shall be taken into currency, then in the currency which is legal tender in the
consideration. Philippines.

Tolentino: The delivery of promissory notes payable to order, or bills of


 Cr or Db may waive the benefit of this Art. exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
 Cr may require a thing of inferior qlty & Db may
deliver a thing of superior qlty, unless the price through the fault of the creditor they have been impaired.
to be pd in the latter case is dependent upon
the qlty In the meantime, the action derived from the original
obligation shall be held in abeyance.;
Art. 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment shall be
b. Section 1 of Republic Act No. 529, as amended,
for the account of the debtor. With regard to judicial which provides:
costs, the Rules of Court shall govern.
Sec. 1. Every provision contained in, or made with respect to,
Art. 1248. Unless there is an express stipulation to any obligation which purports to give the obligee the right to
that effect, the creditor cannot be compelled partially to require payment in gold or in any particular kind of coin or
receive the prestations in w/c the obligation consists. currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is
Neither may the debtor be required to make partial
hereby declared against public policy null and void, and of no
payments. effect, and no such provision shall be contained in, or made
However, when the debt is in part liquidated & with respect to, any obligation thereafter incurred. Every
in part unliquidated, the creditor may demand & the obligation heretofore and hereafter incurred, whether or not
debtor may effect the payment of the former w/o any such provision as to payment is contained therein or
waiting for the liquidation of the latter. made with respect thereto, shall be discharged upon payment
in any coin or currency which at the time of payment is legal
tender for public and private debts.
BALANE CASE:
c. Section 63 of Republic Act No. 265, as amended
Art. 1249. The payment of debts in money shall be (Central Bank Act) which provides:
made in the currency stipulated, & if it is not possible to
deliver such currency, then in the currency w/c is legal
Sec. 63. Legal character � Checks representing deposit
tender in the Philippines. money do not have legal tender power and their acceptance
The delivery of promissory notes payable to in the payment of debts, both public and private, is at the
order, or bills of exchange or other mercantile option of the creditor: Provided, however, that a check which
documents shall produce the effect of payment only has been cleared and credited to the account of the creditor
when they have been cashed, or when through the fault shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
of the creditor they have been impaired.
In the meantime, the action derived fr. the
From the aforequoted provisions of law, it is clear that this
original obligation shall be held in abeyance. petition must fail.

A check, whether a manager's check or


ordinary check, is not legal tender, and an offer
of a check in payment of a debt is not a valid
51
tender of payment and may be refused receipt Provided, That, ( a) if the obligation was incurred prior to the
by the obligee or creditor. enactment of this Act and required payment in a particular kind
of coin or currency other than Philippine currency, it shall be
discharged in Philippine currency measured at the prevailing rate
of exchange at the time the obligation was incurred, (b) except in
KALALO V. LUZ [34 S 337] - Under RA 529, if the case of a loan made in a foreign currency stipulated to be
obligation was incurred prior to the enactment in a payable in the same currency in which case the rate of exchange
particular kind of coin or currency other than the Phil. prevailing at the time of the stipulated date of payment shall
currency the same shall be discharged in Phil. currency prevail. All coin and currency, including Central Bank notes,
heretofore or hereafter issued and declared by the Government of
measured at the prevailing rate of exchange at the time the Philippines shall be legal tender for all debts, public and
the obligation was incurred. RA 529 does not provide for private.
the rate of exchange for the payment of the obligation
incurred after the enactment of said Act. The logical
conclusion is that the rate of exchange should be that Under the above-quoted provision of Republic Act 529,
prevailing at the time of payment for such contracts. if the obligation was incurred prior to the enactment of
the Act and require payment in a particular kind of coin
FACTS: or currency other than the Philippine currency the
Octavio KALALO, a licensed civil engineer doing business
under the firm name of O. A. Kalalo and Associates, entered same shall be discharged in Philippine currency
into an agreement with Alfredo LUZ, a licensed architect, measured at the prevailing rate of exchange at the
doing business under firm name of A. J. Luz and Associates, time the obligation was incurred.
whereby the former was to render engineering design services
to the latter for fees, as stipulated in the agreement. The
services included design computation and sketches, contract As we have adverted to, Republic Act 529 was enacted
drawing and technical specifications of all engineering phases on June 16, 1950. In the case now before us the obligation
of the project designed by O. A. Kalalo and Associates bill of
quantities and cost estimate, and consultation and advice of appellant to pay appellee the 20% of $140,000.00, or the
during construction relative to the work. The fees agreed upon sum of $28,000.00, accrued on August 25, 1961, or after the
were percentages of the architect's fee. enactment of Republic Act 529. It follows that the provision of
Kalalo in his complaint against Luz alleged that for services Republic Act 529 which requires payment at the prevailing
rendered in connection with the different projects there was
due him fees in US$, excluding interests, of which some were rate of exchange when the obligation was incurred cannot be
paid, thus leaving unpaid the balance plus prayer for applied.
consequential and moral damages, as well as moral damages,
attorney's fees and expenses of litigation; and actual
damages. Republic Act 529 does not provide for the rate of exchange for
the payment of obligation incurred after the enactment of said
Act. The logical conclusion, therefore, is that the rate of
Luz admitted that appellee rendered engineering services, as
exchange should be that prevailing at the time of
alleged, but averred that some were not in accordance with
payment.
the agreement and such claims were not justified by the
services actually rendered, and that the aggregate amount
actually due was only P80,336.29, of which P69,475.21 This view finds support in the ruling of this Court in the case
had already been paid, thus leaving a balance of only of Engel vs. Velasco & Co. where this Court held that even if
P10,861.08. Luz denied liability for any damage claimed by the obligation assumed by the defendant was to pay the
appellee to have suffered, as alleged in the second, third and plaintiff a sum of money expressed in American currency, the
fourth causes of action. Appellant also set up affirmative and indemnity to be allowed should be expressed in Philippine
special defenses, alleging that appellee had no cause of currency at the rate of exchange at the time of judgment
action, that appellee was in estoppel because of certain acts, rather than at the rate of exchange prevailing on the date of
representations, admissions and/or silence, which led defendant's breach. This is also the ruling of American court
appellant to believe certain facts to exist and to act upon said as follows:
facts, that appellee's claim regarding the Menzi project was
premature because appellant had not yet been paid for said
project, and that appellee's services were not complete or The value in domestic money of a payment
were performed in violation of the agreement and/or made in foreign money is fixed with respect to
otherwise unsatisfactory. Appellant also set up a counterclaim the rate of exchange at the time of payment.
for actual and moral damages for such amount as the court
may deem fair to assess, and for attorney's fees.
PONCE V. CA [90 S 533] - It is to be noted that while
an agreement to pay in dollars is declared as null & void
TC authorized the case to be heard before a Commissioner. & of no effect, what the law specifically prohibits is
The Commissioner rendered a report which, in resume, states payment in currency other than legal tender. It does not
that the amount due to appellee was US$28K as his fee in the defeat a creditor's claim for payment, as it specifically
IRRI Project, and P51,539.91 for the other projects, less the provides that "every other domestic obligation xxx
sum of P69,475.46 which was already paid by the appellant. whether or not any such provision as to payment is
The Commissioner also recommended the payment to contained therein or made w/ respect thereto, shall be
discharged upon payment in any coin or currency w/c at
appellee of the sum of P5,000.00 as attorney's fees. Both had the time of payment is legal tender for public & pvt.
no objection to the findings of fact of the Commissioner use." A contrary rule would allow a person to profit or
contained in the Report enrich himself inequitably at another's expense.

ISSUE: WON the recommendation in the Report that the


payment of the amount due to the plaintiff in dollars was FACTS:
legally permissible, and if not, at what rate of exchange it On June 3, 1969, private respondent Jesusa B. Afable, together
should be paid in pesos. with Felisa L. Mendoza and Ma. Aurora C. Diño executed a
promissory note in favor of petitioner Nelia G. Ponce in the
sum of P814,868.42, Philippine Currency, payable, without
HELD: Under the agreement, Exhibit A, appellee was entitled interest, on or before July 31, 1969. It was further provided
to 20% of $140,000.00, or the amount of $28,000.00. therein that should the indebtedness be not paid at maturity,
Appellee, however, cannot oblige the appellant to pay him in it shall draw interest at 12% per annum, without demand; that
dollars, even if appellant himself had received his fee for the should it be necessary to bring suit to enforce pay ment of the
IRRI project in dollars. This payment in dollars is prohibited by note, the debtors shall pay a sum equivalent to 10% of the
Republic Act 529 which was enacted on June 16, 1950. total amount due for attorney's fees; and, in the event of
Said act provides as follows: failure to pay the indebtedness plus interest in accordance
with its terms, the debtors shall execute a first mortgage in
favor of the creditor over their properties or of the Carmen
SECTION 1. Every provision contained in, or made with respect
to, any obligation which provision purports to give the obligee the Planas Memorial, Inc.
right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money For failure to comply w/Ø, a Complaint was filed by PONCE at
of the Philippines measured thereby, be as it is hereby declared CFI-Manila for the recovery of the principal sum of
against public policy, and null, void and of no effect, and no such P814,868.42, plus interest and damages.
provision shall be contained in, or made with respect to, any
obligation hereafter incurred. Every obligation heretofore or here Trial Court rendered judgment ordering respondent Afable and
after incurred, whether or not any such provision as to payment is her co-debtors, Felisa L. Mendoza and Ma. Aurora C. Diño , to
contained therein or made with respect thereto, shall be
discharged upon payment in any coin or currency which at the pay petitioners, jointly and severally, the sum of P814,868.42,
time of payment is legal tender for public and private debts: plus 12% interest per annum from July 31, 1969 until full

52
payment, and a sum equivalent to 10% of the total amount HELD: It is to be emphasized that the check deposited
due as attorney's fees and costs. by the petitioner in the amount of P50,000 is not an
ordinary check but a Cashier's check of the Equitable
From said Decision, by respondent Afable appealed to the Banking Corp., a bank of good standing & reputation. It
Court of Appeals. She argued that the contract under was even a certified crossed check. It is well known &
consideration involved the payment of US dollars and was, accepted practice in the business sector that a Cashier's
therefore, illegal; and that under the in pari delicto rule, since check is deemed as cash.
both parties are guilty of violating the law, neither one can
recover. It is to be noted that said defense was not raised in Moreover, since the said check has been certified by the
her Answer. drawee bank, by the certification, the funds represented
by the check are transferred fr. the credit of the maker
CA affirmed TC. MR denied. CA’s holding: the agreement is to that of the payee or holder, & for all intents &
null and void and of no effect under Republic Act No. 529. purposes, the latter becomes the depositor of the
Under the doctrine of pari delicto, no recovery can be made in drawee bank, w/ rights & duties of one in such situation.
favor of the plaintiffs for being themselves guilty of violating Where a check is certified by the bank on w/c it is
the law. drawn, the certification is equivalent to
acceptance. Said certification "implies that the
ISSUE: WON the subject matter is illegal and against public check is drawn upon sufficient funds in the hands
policy, thus, doctrine of pari delicto applies. of the drawee, that they have been set apart fort
its satisfaction, & that they shall be so applied
HELD: WE DISAGREE. It is to be noted that while an whenever the check is presented for payment. It
agreement to pay in dollars is declared as null and void and of is an understanding that the check is good then, & shall
no effect, what the law specifically prohibits is payment continue to be good, & this agreement is as binding on
in currency other than legal tender. It does not defeat a the bank as its notes in circulation, a certificate of
creditor's claim for payment, as it specifically provides that
deposit payable to the order of the depositor, or any
other obligation it can assume. The object of certifying
"every other domestic obligation ... whether or not any such a check, as regards both parties, is to enable the holder
provision as to payment is contained therein or made with to use it as money." When the holder procures the
respect thereto, shall be discharged upon payment in any coin check to be certified, "the check operates as an
or currency which at the time of payment is legal tender for assignment of a part of the funds to the creditors."
public and private debts." A contrary rule would allow a Hence, the exception to the rule enunciated under Sec.
person to profit or enrich himself inequitably at another's 63 of the CB Act shall apply in this case:
expense. Sec. 63. Legal Character – Checks
representing deposit do not have legal tender
Section 1 of Republic Act No. 529, which was enacted power and their acceptance in payment of
on June 16, 1950: debts, both pub & priv, is at the option of the Cr.
Section 1. Every provision contained in, or made with respect to, any Provided, however that a check w/c has
domestic obligation to wit, any obligation contracted in the Philippines been cleared & credited to the account of
which provision purports to give the obligee the right to the creditor shall be equivalent to a
require payment in gold or in a particular kind of coin or delivery to the creditor in cash in an
currency other than Philippine currency or in an amount of amount equal to the amount credited to
money of the Philippines measured thereby, be as it is hereby his account.
declared against public policy, and null and void and of no
effect and no such provision shall be contained in, or made
with respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions were the funds involved BISHOP OF MALOLOS V. IAC [191 S 411]
are the proceeds of loans or investments made directly or indirectly, FACTS:
through bona fide intermediaries or agents, by foreign governments, Petitioner is vendor of parcels of land in Bulacan to
their agencies and instrumentalities, and international financial and vendee Robes-Francisco Realty Corp. w/ downpym of
banking institutions so long as the funds are Identifiable, as having 20K+ and bal of 100K payable w/in 4yrs w/12% int. p.a.
emanated from the sources enumerated above; (b) transactions fr exec. Of © on July 7, 1975, w/forfeiture clause in case
affecting high priority economic projects for agricultural industrial and vendee fails to pay in 4yrs.
power development as may be determined by the National Economic On July 17, 1975, vendee wrote a letter requesting for
Council which are financed by or through foreign funds; (c) forward extension and allowance to pay in installment w/in 6mos
exchange transactions entered into between banks or between banks
w/interests. Petitioner denied, granted only 5 days grace
and individuals or juridical persons; (d) import-export and other
international banking financial investment and industrial transactions.
period. Request for 30-days grace on the 4 th day was
With the exception of the cases enumerated in items (a) (b), (c) and (d)
also denied by pet. Priv. resp. later purports tender of
in the foregoing provision, in, which cases the terms of the parties' payment (in check) on 5th day was refused by pet. TC
agreement shall apply, every other domestic obligation favored pet. IAC reversed after finding that resp. had
heretofore or hereafter incurred whether or not any such sufficient funds at the time of tender of check payment
provision as to payment is contained therein or made with- to pet. On the 5th day of the grace period, and concluded
respect thereto, shall be discharged upon payment in any coin that there was valid tender of paymnt.
or currency which at the time of payment is legal tender for
public and private debts: Provided, That if the obligation was ISSUE: WON offer of check is vaid tender of pymnt of Ø
incurred prior to the enactment of this Act and required under a © whc stipulates that consid. Of sale is in Phil.
payment in a particular kind of coin or currency other than Currency?
Philippine currency, it shall be discharge in Philippine currency
measured at the prevailing rates of exchange at the time the
obligation was incurred, except in case of a loan made in
HELD:
foreign currency stipulated to be payable in the currency in
which case the rate of exchange prevailing at the time of the Finding of suff.avail.funds by CA does not constitute
stipulated date of payment shall prevail All coin and currency, proof of tender of pymnt. (non sequitur)
including Central Bank notes, heretofore and hereafter issued
and d by the Government of the Philippines shall be legal Tender of Payment involves a positive & uncondi. Act
tender for all debts, public and private. (As amended by RA by the obligor of offering legal tender currency as
4100, Section 1, approved June 19, 1964) payment to oblige for the Ø & demanding that the latter
accept the same.

Since a negotiable instrument is only a substitute for


NEW PACIFIC TIMBER V. SENERIS [101 S 686] - money & not money, the delivery of such an instrument
FACTS: does not, by itself, operate as payment. A check,
Upon a compromise judgment against petitioner, and for whether a manager's check or ordinary check, is not
the latter’s failure to comply, CFI-Zambo issued a writ of legal tender, & an offer of a check in payment of a debt
exec. Sheriff levied on personal properties or pet. And is not a valid tender of payment & may be refused
set such for auction sale. Prior to whc date of auction, receipt by the obligee or creditor.
pet. Deposited w/clerk of court, ex-officio sheriff, the
payment of the judgment Ø consisting of cash and
checks. Priv. resp., Ricardo TONG refused to accept and
requested the auction to proceed. Tong was the highest Tolentino:
bidder in the auction, for total amount short of the
judg.debt.  Legal tender: such currency w/c in a given
jurisdiction can be used for the pmts of debts,
ISSUE: WON judge erred in not issuing a cert. of public & private, & w/c cannot be refused by the
satisfaction of judgment after priv.resp. refused to Cr
accept payment in checks and cash.

53
 Since pmt must be in money that is legal damages in the sum of P25,000.00, and attorney's fees in the
tender, pmt in check even when good may be sum of P5,000.00, plus costs of suit.
validly refused by Cr In its answer, the Republic alleged, among others, that the
land was either donated or sold by its owners to the province
 Pymt by Check: WON MgrC or ordinary is NOT a of Cebu to enhance its value, and that in any case, the right of
valid tender of pmt the owner, if any, to recover the value of said property was
already barred by estoppel and the statute of limitations,
Art. 1250. In case an extraordinary inflation or defendants also invoking the non-suability of the Government.
deflation of the currency stipulated should supervene, Plaintiff's complaint was dismissed on the grounds relied upon
by the defendants therein. SC reversed, and the case was
the value of the currency at the time of the
remanded to the court of origin for the determination of the
establishment of the obligation shall be the basis of compensation to be paid the plaintiff-appellant as owner of
payment, unless there is an agreement to the contrary. the land, including attorney's fees, also directed the
determination of just compensation on the basis of the price
Baviera: or value thereof at the time of the taking.

ISSUE: WON Article 1250 applicable in determining JUST


This article applies to contracts only. EXTRAORDINARY
compensation payable to Amigable fr taking in 1924.
means unusual or beyond the common fluctuation, not
foreseen Art. 1250 does applies only to cases where a contract or
agreement is involved. It does not apply where the
Tolentino: Does NOT apply where oblig to pay arises fr obligation to pay arises fr. law, independent of contracts.
law, independent of Ks, like the taking of private prop by The taking of private property by the govt in the
the govt in the exercise of its pwr of emt domain exercise of its power of eminent domain does not give
rise to a contractual obligation.
FIL. PIPE & FOUNDRY CORP. V. NAWASA
Facts: In ’61 NWS entered © w/FPFC for d supply of DEL ROSARIO V. SHELL [164 S 556]
cast iron pressure pipes for the constrxn of the FACTS: DR leased to Shell his land in Ligao, Albay at
Waterworx Msbate & Samar. NWS paid in installments. 250/mo. w/stipulation on currency adjustment accdg to
inflation. An EO was promulgated by Pres D. Macapagal
Leaving a bal. + unpd.interests. thus, fpfc filed a collexn prompting DR to demand for increase in rental fr Shell
case vs NWS in CFI-Mla whc the latter refused to pay. Thus DR filed w/CFI-Mla
In ’67, CFI ordered NAWASA to pay FPFC the balance IN whc was dismissed.
NWS negotiable bonds,redeemable in 10yrs w/6%p.a.
int..NWS failed to pay, neither delivered bonds. In ’71, ISSUE: WON the effect of EO 195 is official devaluation
of peso as contemplated in the Lease Contract
FPFC filed another complaint seeking an adjustment of
the unpaid balance d/t change in value of judgment in HELD: In the case at bar, while no express reference
peso in ’67 to ‘71. TC dismissed the complaint holding has been made to metallic content, there nonetheless is
that the inflation was a worldwide occurrence & that a reduction in par value or in the purchasing power of
there was no proof of extraord inflation in the sense Phil. currency. Even assuming there has been no official
contemplated by Art. 1250. devaluation as the term is technically understood, the
fact is that there has been a diminution or lessening in
the purchasing power of the peso, thus there has been a
Issue: WON there was extraord inflation to apply Art "depreciation" (opposite of "appreciation.") Moreover,
1250 when laymen unskilled in the semantics of economics
use the terms "devaluation" or "depreciation" they
certainly mean them in their ordinary signification--
Held: None. Extraord. inflation exists when there is a decrease in value. Hence, as contemplated by the
decrease or increase in the purchasing pwr of the Phil parties herein in their lease agreement, the term
currency w/c is unusual or beyond the common "devaluation" may be regarded as synonymous w/
fluctuation value of the said currency, & such dec or inc "depreciation," for certainly both refer to a decrease in
the value of the currency. The rentals should therefore,
cud not have been reasonably foreseen or was by their agreement, be proportionately increased.
manifestly beyond the contemplation of the parties at
the time of the estab of the obligation. The decline of Art. 1251. Payment shall be made in the place
the purchasing pwr of the currency cannot be designated in the obligation.
considered extraord. It was due to oil embargo crisis the
There being no express stipulation & if the
effect of w/c was worldwide.
undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be at
VELASCO V. MERALCO [42 S 556] the moment the obligation was constituted.
FACTS:
Velasco’s MR; SC decision incorrectly reduced amt of In any other case the place of payment shall be
damages due him based only his BIR assessed income the domicile of the debtor.
not consid his undeclared source of income whc he did If the debtor changes his domicile in bad faith or
not disclose. He now urges that damages awarded him
was inadeq consid present hi cost of living, applying Art after he has incurred in delay, the additional expenses
1250. shall be borne by him.
These provisions are w/o prejudice to venue
HELD: From the employment of the words
"extraordinary inflation or deflation of the currency under the Rules of Court.
stipulated" in Art. 1250, it can be seen that the same
envisages contractual obligations where a specific
currency is selected by the parties as the medium of
payment; hence it is inapplicable to obligations
arising fr. tort & not fr. contract. Besides, there is
no showing that the factual assumption of said article
has come into existence.

COMMISSIONER OF PUBLIC HIGHWAYS V. BURGOS


[96 S 831] -
FACTS:
Victoria Amigable is the owner of parcel of land in Cebu whc
the Government took for road-right-of-way purpose in 1924.
The land had since become streets known as Mango Avenue
and Gorordo Avenue. In 1959, Amigable filed in CFI-Cebu a
complaint, to recover ownership and possession of the land,
and for damages in the sum of P50,000.00 for the alleged
illegal occupation of the land by the Government, moral

54
Four Special Kinds of Payments: and Chattel m. After defaulting in 9 installments,
Filinvest sent demand letter to PAC, to pay or return the
1. Dacion en pago (Art. 1245.) vehicle. PAC returned the car but Filinvest cannot sell
2. Application of payments (Subsection the car d/t unpaid taxes thereon incurred by PAC. Fil
1.) offered to deliver back the car to Pac, the latter refused.
Fil thus filed a complaint for collection of money
3. Payment by cession (Subsection 2.) w/damages in CFI-Mla. PAC averred that Fil has no COA
4. Consignation (Subsection 3.) vs PAC b/c when the car was returned after the demand
letter, the Ø was extinguished.

Art. 1245. Dation in payment, whereby property ISSUE: WON the return of mortgaged vehicle to
is alienated to the creditor in satisfaction of a appellee by voluntary surrender by appellant
debt in money, shall be governed by the law of totally extinguished the Ø, as in dacion en pago?
sales.
HELD: We find appellant's contention devoid of
persuasive force. The mere return of the mortgaged
[Tolentino] motor vehicle by the mortgagor, the herein appellant, to
Dation in payment is the delivery & the mortgagee, the herein appellee, does not constitute
transmission of ownership of a thing by the Db to the dation in payment in the absence, express or implied of
Cr as an accepted equivalent of perf. of Ø; the true intention of the parties. The demand for return
merely showed appellee’s interest to secure the value of
the vehicle and prevent loss, damage, destruction or
 It may be a thing or a real rt (i.e. usufruct), or of a fraudulent transfer to 3P, as shown in the doc, “Vol. Surr.
credit vs a 3P; w/SPA To Sell” whc never said that such return is in full
satisfaction of the mortgaged debt. The conveyance
EX: assgmnt by an heir-Db of his interests in Sx to the was as to rts only, ownership never left the mortgagor,
Cr, made after d death of decedent, extinguishes d Ø. as such burdens on the property shd still be shouldered
by him.
Effect on Ø  extinguished to the extent of the value
of thng delivered Dacion en pago, according to Manresa, is the
 Db does not have to be insolvent, agreement transmission of the ownership of a thing by the
only betw d parties makes dation possible. debtor to the creditor as an accepted equivalent
of the performance of an obligation.
When personal prop is delivered it is PLEDGE, not  In dacion en pago, as a special mode of
dation, unless parties clearly stipulate, but in doubt, the payment, the debtor offers another thing to the
presumption is pledge, w/lesser transmission of rts. creditor who accepts it as equivalent of
payment of an outstanding debt.
Warranties of Db  Dation is an onerous transmission
or © of alienation, provision in Sales Re warranty vs Dacion en pago in the nature of sale.-- The
eviction & vs hidden defects of d thing applies, Db is undertaking really partakes in one sense of the nature of
vendor, Cr is vendee; sale, that is, the creditor is really buying the thing or
 If Cr is evcted, original Ø is not revived, but Cr is property of the debtor, payment for w/c is to be charged
entitled to recover fr breach of warranty in Art. against the debtor's debt.
1555.  As such, the essential elements of a contract of
[Balane] sale, namely, consent, object certain, & cause or
 Dacion en pago, in Roman law, called "datio consideration must be present.
in solutum", in French, "dation en
paiement," in Spanish, "dacion en pago.") Dacion en pago in its modern concept.-- In its
 Dation in payment is possible only if there is modern concept, what actually takes place in dacion en
a debt in money. Instead of money, a pago is an objective novation of the obligation
thing is delivered in satisfaction of the where the thing offered as an accepted equivalent of the
debt in money. (Dation en pago is explained performance of an obligation is considered as the object
in the case of Filinvest v. Phil Acetylene). of the contract of sale, while the debt is considered as
the purchase price. In any case, common consent is an
There are two ways at looking at dacion en pago: essential prerequisite, be it sale or novation, to have the
effect of totally extinguishing the debt or obligation.
1. Classical way  where dacion en pago is
treated as a sale.
CITIZENS SURETY V. CA [162 S 738]
2. Modern concept  w/c treats dacion en pago RATIO: There is no dation in payment when there
as a novation. is no obligation to be extinguished
FACTS:
Castan has another view  Both are wrong. Pet. Issued 2 surety bonds to Pascual Perez to guarantee
his compliance in a Contract of Sale of Goods he entered
* A dacion en pago is not a sale bec. there is no w/Singer Sawing Machine Co. Perez in turn executed a
intention to enter into a contract of sale. deed of assignment of its stock of lumber to pet. And a
* It is not also a novation bec. in novation, the old 2nd REM to guaranty reimbursement of whatever liability
obligation is extinguished & a new obligation takes it will be made to pay in the future on Perez’s liabilities.
its place. Perez failed to comply. Singer made pet. Pay Perez’s Øs.
** But here, the old obligation is extinguished. Pascual failed to reimburse pet. Thus pet. Filed a claim
What takes its place? Nothing. So what is it? It is vs the estate of Nicasia Sarmiento whc was being
a special form of payment w/c resembles a administered by Perez. Perez averred that his liability to
sale. the surety has been extinguished by the deed of
assgnmnt of the lumber.
There are two more things to remember in the TC held Perez and the estate of Sarmiento solidarily
cases of Filinvest v. Phil. Acetylene, supra. & liable to Citizens Surety. CA reversed and dismissed
Lopez v. CA, 114 SCRA 671: Citizens’ claim vs the estate of Sarmiento.

 Dacion en pago can take place only if both ISSUE: WON CA erred in concluding there was
parties consent. dation in payment by the execution of the Deed of
Assgment?
Q: To what extent is the obligation extinguished?
Answer: Up to the value of the thing given (the thing HELD: The transaction could not be dation in payment.
must be appraised) unless the parties agree on a xxx [W]hen the deed of assignment was executed on
total extinguishment. (Lopez. v. CA, supra.) 12/4/59, the obligation of the assignor to refund the
assignee had not yet arisen. In other words, there was
no obligation yet on the part of the petitioner, Citizens'
to pay Singer Sewing Machine Co. There was nothing to
FILINVEST V. PHIL. ACETYLENE [111 S 421] be extinguished on that date, hence, there could not
FACTS: have been a dation in payment.
Phil. Acetylene Co. purchased fr Alexander LIM w/Deed
of Sale, a Chevrolet 1969 model w/downpd, and balance 2ND SPECIAL KIND OF PAYMENT: Application of
payable for 34 mos. w/12% int.p.a. reflected in a PN, Payment
w/chattel mortgage as security in Lim’s favor. Lim
assigned to Filinvest Finance Corp. his interests in the PN
55
[Balane] Q: Why is payment by cession a special form of
Application of payment (Imputacion in payment?--
Spanish) is the designation of a debt w/c is being paid A: Bec. there is no completeness of performance (re:
by the debtor who has several obligations of the same integrity.)
kind in favor of the creditor to whom the payment is In most cases, there will be a balance due.
made.
Rules where the amount sent by the debtor to the Q: Difference between dacion en pago &
creditor is less than all that is due: payment by cession:

No.1: Apply in accordance w/ the agreement. In dacion en pago, there is a transfer of ownership fr. the
debtor to the creditor.
No.2: Debtor may apply the amount (an obvious
limitation bec. of the principles of indivisibility & In payment by cession, there is no transfer of
integrity) where there would be partial payment. ownership. The creditors simply acquire the right to sell
the properties of the debtor & apply the proceeds of the
No.3: Creditor can make the application. sale to the satisfaction of their credit.

No.4: Apply to the most onerous debt. (Art. 1252, par. Q: Does payment by cession terminate all debts
1.) due?-
Q; What are the rules to determine w/c is the A: Generally, NO, only to the extent of the net proceeds.
most onerous debt? The extinguishment of the obligation is pro tanto.
A: (1252)  Exc. In Legal cession where the
1. If one is interest paying & the other is not, the extinguishment of the obligation is total. Legal
debt w/c is interest paying is more onerous. cession is governed by the Insolvency Law.

2. If one is a secured debt & the other is not, the Art. 1255. The debtor may cede or assign his property
secured debt is more onerous to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only
3. If both are interest free, one is older than the release the debtor fr. responsibility for the net proceeds
first, the newer one is more onerous bec.
prescription will take longer w/ respect to the of the thing assigned. The agreements w/c, on the
newer debt. effect of the cession, are made between the debtor &
his creditors shall be governed by special laws.
5th Rule: Proportional application if the debts are
equally onerous.
4th SPECIAL FORM OF PAYMENT:
Art. 1252. He who has various debts of the same kind Tender of Payment & Consignation
in favor of one & the same creditor, may declare at the
time of making the payment, to w/c of them the same Art. 1256. If the creditor to whom tender of payment
must be applied. Unless the parties so stipulate, or when has been made refuses w/o just cause to accept it, the
the application of payment is made by the party for debtor shall be released fr. responsibility by the
whose benefit the term has been constituted, applica- consignation of the thing or sum due.
tion shall not be made as to debts w/c are not yet due. Consignation alone shall produce the same effect
If the debtor accepts fr. the creditor a receipt in in the following cases:
w/c an application of the payment is made, the former 1. When the creditor is absent or unknown, or does
cannot complain of the same, unless there is a cause for not appear at the place of payment;
invalidating the contract. 2. When he is incapacitated to receive the
payment at the time it is due;
[Tolentino] 3. When, w/o just cause, he refuses to give a
 Necessary that Øs must all be due receipt;
 Only in case of mutual agreement, or upon
consent of the party in whose favor the term 4. When two or more persons claim the same right
was estab, that pmts may be applied to Øs w/c to collect;
have not yet matured
5. When the title of the obligation has been lost.
Art. 1253. If the debt produces interest, payment of
the principal shall not be deemed to have been made [Balane]
until the interests have been covered. “Subsection 3.-- Tender of Payment &
Consignation”
Art. 1254. When the payment cannot be applied in
The title of the subsection is wrong. It should have
accordance w/ the preceding rules, or if application can been Consignation only bec. that is the special mode
not be inferred fr. other circumstances, the debt w/c is of payment & not the tender of payment.
most onerous to the debtor, among those due, shall be  It is a special mode of payment bec. payment is
deemed to have been satisfied. made not to the creditor but to the court.
If the debts due are of the same nature &
burden, the payment shall be applied to all of them  Consignation is an option on the part of
the debtor bec. consignation assumes that the
proportionately. creditor was in mora accipiendi (when the
creditor w/o just cause, refuses to accept
[Baviera] payment.)
The ff. Are the rules for applic’n of pmts:
Consequence when the creditor w/o just cause,
1 - The first choice belongs to the Db refuses to accept payment  The debtor may just
2 - If the Db did not choose, the Cr may choose, w/c he delay payment. But something still hangs above his
will manifest in a receipt. head. He is therefore, given the option to consign.
3 - If neither specified the applic’n, pmt shall be made to Distinguish this fr. BGB (German Civil Code) w/c states
the most onerous debt. that mora accipiendi extinguishes the obligation.

[Tolentino]
3rd SPECIAL FORM OF Payment – by Cession  Tender of pmt b4 consig’n is required by the
present Art only in case where the Cr refuses to
[Balane] accept it w/o just cause
 Property is turned over by the debtor to the
creditor who acquires the right to sell it & divide Effect on INTEREST: When tender is made in a form
the net proceeds among themselves. that Cr cld have immdtly realized pymt (cash),
followed by a prompt attempt of the Db to make
consign’n., the accrual of interest will be suspended
fr. the date of such tender.
56
But when tender is not accompanied by means of pmt,  In order to be valid, the tender of payment must be made
& the Db did not take any immdte step to consign, in lawful currency. While payment in check by the debtor
then interest is not suspended fr. the time of such may be acceptable as valid, if no prompt objection to said
tender. payment is made (Desbarats vs. Vda. de Mortera, L-4915,
May 25, 1956)
CASES:
 The fact that in previous years payment in check was
accepted does not place its creditor in estoppel from
SOCO V. MILITANTE [123 S 160] - Requiremts of
consign’n requiring the debtor to pay his obligation in cash (Sy vs.
Eufemio, L-10572, Sept. 30, 1958).
FACTS: Disputed here is decision of lower court in an  Thus, the tender of a check to pay for an obligation is
UD case filed by lessor SOLEDAD SOCO vs. private resp. not a valid tender of payment thereof (Desbarats vs. Vda.
REGINO FRANCISCO JR. lessee of a building owned by
Soco, whose payments of rentals were considered valid de Mortera, supra).
and effective, dismissed the UD case and made lessor  Tender of payment must be distinguished from
pay moral & exemp. Damages, attys fees, holding there
was substantial compliance in the w/d requisites of consignation –
consignation. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and
Francisco and Soco entered into a Contract of Lease for a from which are derived the immediate consequences which
monthly rental of P 800.00 for a period of 10 years renewable
for another 10 years at the option of the lessee. Francisco the debtor desires or seeks to obtain.
subleased the bldg for a rental of 3,000/month. Knowing this,
Soco apparently stopped accepting rental payments of  Tender of payment is extrajudicial, while consignation is
Francisco and later demanded him to vacate the bldg. and necessarily judicial, and the priority of the first is the attempt
filed for rescission/annulment of Lease Contract w/CFI-Cebu. to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).
ISSUE: WON the provisions in Arts. 1256-1261,
NCC re rquisites of Consignation must be Art. 1257. In order that the consignation of the thing
complied w/fully & strictly, mandatorily / did the due may release the obligor, it must first be announced
lower ct. err in ruling substantial compliance thereto? to the persons interested in the fulfillment of the
HELD: We do not agree with the questioned decision. We hold
obligation.
that the essential requisites of a valid consignation must be The consignation shall be ineffectual if it is not
complied with fully and strictly in accordance with the
law, Articles 1256 to 1261, New Civil Code. That these made strictly in consonance w/ the provisions w/c
Articles must be accorded a mandatory construction is clearly regulate payment.
evident and plain from the very language of the codal
provisions themselves which require absolute compliance with Art. 1258. Consignation shall be made by depositing
the essential requisites therein provided. Substantial the things due at the disposal of judicial authority,
compliance is not enough for that would render only a
directory construction to the law. The use of the words "shall" before whom the tender of payment shall be proved, in
and "must" which are imperative, operating to impose a duty a proper case, & the announcement of the consignation
which may be enforced, positively indicate that all the in other cases.
essential requisites of a valid consignation must be complied
with. The Civil Code Articles expressly and explicitly direct The consignation having been made, the
what must be essentially done in order that consignation shall
be valid and effectual. interested parties shall also be notified thereof.

[Tolentino]
 Notice: The reqmt is fulfilled by the service of
Consignation Defined: summons upon the Def together w/ copy of
 Consignation is the act of depositing the complaint
thing due w/ the court or judicial
authorities whenever the creditor (1)
cannot accept or (2) refuses to accept Art. 1259. The expenses of consignation, when
payment, & it generally requires a prior properly made, shall be charged against the creditor.
tender of payment.

Requisites of Valid Consignation: [


In order that consignation may be effective, the debtor must Tolentino] Proper when 
first comply with certain requirements prescribed by law. The 1. Cr accepts consign’n after deposit w/o
debtor must show protest though Db failed to comply w/ reqs.
Or
1. that there was a debt due;
2. that the consignation of the obligation had 2. Ct. declares consig’n as validly made
been made because the creditor to whom
tender of payment was made refused to accept Art. 1260. Once the consignation has been duly made,
it, or because he was absent or incapacitated, the debtor may ask the judge to order the cancella-
or because several persons claimed to be tion of the obligation.
entitled to receive the amount due (Art. Before the creditor has accepted the
1176,NCC); consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may
3. that previous notice of the consignation had
w/draw the thing or the sum deposited, allowing the
been given to the person interested in the
obligation to remain in force.
performance of the obligation (Art. 1177,NCC);
4. that the amount due was placed at the disposal [Tolentino]
of the court (Art. 1178,NCC); and
5. that after the consignation had been made the Effects of Consignation:
person interested was notified thereof (Art.
1. Db is released in the same manner as if he had
1178,NCC). performed the oblig
 Failure in any of these requirements is enough
ground to render a consignation ineffective. (Jose 2. Accrual of INTEREST is suspended
Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil.
311). 3. Deterioration or loss of thing or amt consigned
w/o fault of Db must be borne by Cr
 Without prior notice, a consignation is void as
payment. (Limkako vs. Teodoro, 74 Phil 313) 4. Any increment or increase in value of thing
inures to the benefit of Cr

57
SC: ISSUE: WON offer to redeem was insincere in the absence of
 When money is deposited in ct under the provs consignation of such amount in Court?
of the law on consig’n, it is in custodia legis &
therefore exempt fr. Attachmt & execution HELD: NO. The right to redeem is a RIGHT NOT AN Ø,
(Manejero v. Lampa) thus no consignation is required.

Art. 1261. If, the consignation having been made, the  To preserve the right to redeem, consignation
is not required. But to actually redeem, there
creditor should authorize the debtor to w/draw the must of course be payment or consignation
same, he shall lose every preference w/c he may have (deposit) itself.
over the thing. The co-debtors, guarantors & sureties
shall be released.
(2nd MODE OF EXTINGUISHEMENT)
[Baviera] LOSS OF THE THING DUE OR IMPOSSIBILITY OF
Q: When is there a need to tender pmt? PERFORMANCE
A: (a) upon demand & (b) when debt is due
Art. 1262. An obligation w/c consists in the delivery of
Q: There are 2 or more claims. What will Db do a determinate thing shall be extinguished if it should be
after consignation?
A: File INTERPLEADER. lost or destroyed w/o the fault of the debtor, & before he
has incurred in delay.
Q: Why tender first? When by law or stipulation, the obligor is liable
A: ‘Coz no need to consign if Cr accept pymt. We can even for fortuitous events, the loss of the thing
only know this through tender. (EXHAUSTION OF does not extinguish the obligation, & he shall be
EXTRAJUDICIAL MEANS)
responsible for damages. The same rule applies
Q: B4 & after consign’n, there is a need to notify when the nature of the obligation requires the
the Cr. Why is this? assumption of risk.
A: So that the Cr can get the money fr. the Clerk of ct &
avoid costs of litigation.
Balane:
Q: Db consigns. Hearing…B4 the ct cld approve, Art. 1262 is the same as fortuitous event in Art.
the City Hall burned + money. Shld Db pay again? 1174. The effect is the same:
A: No. When money is consigned, it is no longer generic.  The Ø is extinguished if the Ø is to deliver a
It becomes specific. Cr bears the loss bec. although it determinate thing. If the Ø is to deliver a generic thing,
was due to a fortuitous event, there was delay on his the Ø is not extinguished.
part when he refused to accept pymt.
[GR] Genus nunquam perit ("Genus never perishes." )
Q: K of Sale w/ pacto de retro. The vendor
tendered pmt w/in the 3-yr pd but vendee refused But what is not covered by this rule is an Ø to deliver a
to accept. Axn for spec perf by Vr. Accdg to Ve, limited generic – something in bet. specific & generic
since money was not consigned, Vr cannot claim thing,
rt of repurchase. Tenable argument? e.g., "For P3,000, I promise to deliver to you one of my
watches." This Ø does not really fall under either Art.
A: No. As long as there was tender, no need to consign. 1262 or Art. 1263. But this Ø really falls under Art.
But in one case of a co-owner wanting to redeem at 1262. In this case, the Ø may be extinguished by the
reasonable price (was exorbitant), the court held that loss of all the thing through FE.
reasonable price is det accdg to the circums. So if you
want to redeem, consign the full amt in ct & ask it to fix Art. 1263. In an obligation to deliver a generic thing,
the reasonable compensation. the loss or destruction of anything of the same kind
does not extinguish the obligation.
IMMACULATA V. NAVARRO [160 S 211] - We hereby grant
said alternative cause of action or prayer. While the sale was Art. 1264. The courts shall determine, whether, under
originally executed in Dec. 1969, it was only on Feb. 3, 1974 the circumstances, the partial loss of the object of the
when, as prayed for by prvt. res, & as ordered by the court a
quo, a deed of conveyance was formally executed. Since the obligation is so important as to extinguish the obligation.
offer to redeem was made on 3/24/75, this was clearly w/in the
5-yr. period of legal redemption allowed by the Public Art. 1265. Whenever the thing is lost in the possession
Land Act. of the debtor, it shall be presumed that the loss was due
to his fault, unless there is proof to the contrary, & w/o
FACTS: A previous complaint, for annulment of judgment and prejudice to the provisions of article 1165. This
deed of sale with reconveyance of real property alleged that
Juanito Victoria, with the cooperation of defendant Juanita presumption does not apply in case of earthquake,
Naval and others succeeded in causing plaintiff Lauro flood, storm, or other natural calamity.
Immaculata, petitioner herein, to execute a Deed of Absolute
Sale in favor of Juanito Victoria, by unduly taking advantage of Art. 1165. When what is to be delivered is a
the mental illness and/or weakness of petitioner and thru determinate thing, the creditor, in addition to the right
deceit and fraudulent means, purportedly disposed of by way
of absolute sale, a 5,000-sq.m.parcel of land w/TCT, for P granted him by article 1170, may compel the debtor to
58K, which petitioner supposedly received, but in truth and in make the delivery.
fact did not; Jus of the court over the person of the defendant
was also questioned but such was upheld thru valid service of If the thing is indeterminate or generic, he may
summons to the guardian ad litem and also later thru ask that the obligation be complied w/ at the expense of
voluntary appearance in lieu of pleadings asking for exercise
of jus by the same court. Accordingly, respondent Court the debtor.
directed the respondent Sheriff to execute the deed of
conveyance prayed for by Juanito Victoria, by reason of which, If the obligor delays, or has promised to deliver
without the knowledge and consent of petitioner, a new TCT the same thing to two or more persons who do not have
was issued in favor of Juanito Victoria; that the said TCT is null the same interest, he shall be responsible for any
and void having been based on void proceedings;
fortuitous event until he has effected the delivery.
*** that, in the alternative, petitioner prays that he be Art. 1170. Those who in the performance of their
allowed to repurchase the property within five (5) years
from the time judgment is rendered by the respondent obligations are guilty of fraud, negligence, or delay, &
court upholding the validity of the proceedings and the sale those who in any manner contravene the tenor thereof
since the land in question was originally covered by a Free are liable for damages.
Patent title;
Art. 1266. The debtor in obligations to do shall also be
Respondent Court dismissed the complaint on the ground of released when the prestation becomes legally or
res judicata. In this present MR, the pet. Merely asks of this
Court to consider a point inadvertently missed – the matter of physically impossible w/o the fault of the obligor.
LEGAL REDEMPTION, whc has remained unresolved. The
bar of res jud is as to questions on the validity of the sale.
[Balane]
An offer to redeem was made clearly within the 5-yr-period Objective & Subjective Impossibility:
allowed by law, Public Land Act. (Sec. 119, CA No. 141)

58
 In objective impossibility, the act cannot be done circum. was already considered by the parties when
by anyone. The effect of objective impossibility is to they entered into the K.
extinguish the Ø. BAR Q: What if the prices rose so high as to be beyond
 In subjective impossibility, the Ø becomes the contemplation of the parties due to the oil crisis?
impossible only w/ respect to the obligor.
Answer: Released.
There are 3 views as to the effect of a subjective
impossibility: Balane:
1. One view holds that the Ø is not extinguished. Rebus sic stantibus.-- Literally means "things as they
The obligor should ask another to do the Ø. stand."
2. Another view holds that the Ø is extinguished.
3. A third view distinguishes one prestation w/c is It is short for clausula rebus sic stantibus ("agreement of
very personal & one w/c are not personal such things as they stand.")
that subjective impossibility is a cause for
extinguishes a very personal Ø, but not an Ø w/c This is a principle of international law w/c holds that
is not very personal. when 2 countries enter into a treaty, they enter taking
into account the circumstances at the time it was
CASES: entered into & should the circumstances change as to
make the fulfillment of the treaty very difficult, one may
ask for a termination of the treaty. This principle of
PEOPLE V. FRANKLIN [39 S 363] - international law has spilled over into Civil law.
FACTS:
Appellant, ASIAN SURETY & INS.CO.INC. contends that This doctrine is also called the doctrine of
the CFI-PAMPANGA erred in forfeiting its bail bond for the extreme difficulty & frustration of commercial
provisional release of NATIVIDAD FRANKLIN, it contends object.
that lower court should have released it fr. all liability It has four (4) requisites:
under the bail bond bec. its failure to produce &
surrender the accused was due to the negligence of the
Phil. Govt itself in issuing a passport to said accused, 1. The event or change could not have been
thereby enabling her to leave the country. In support of foreseen at the time of the execution of the
this contention, the provisions of Art. 1266 are invoked. contract;
2. The event or change makes the performance
ISSUE: WON Surety shd be held liable? extremely difficult but not impossible;
3. The event must not be due to an act of either
HELD: Art. 1266, NCC does not apply to a surety upon party;
a bail bond 4. The contract is for a future prestation. If the
contract is of immediate fulfillment, the gross
Art. 1266 does not apply to a surety upon a bail bond, as inequality of the reciprocal prestation may
said Art. speaks of a relation bet. a debtor & creditor, involve lesion or want of cause.
w/c does not exist in the case of a surety upon a bail
bond, on one hand, & the State, on the other. For while In the case of Naga, the court did not consider the 4th
sureties upon a bail bond (or recognizance) can element as an element.
discharge themselves fr. liability by surrendering their
principal, sureties on ordinary bonds or commercial  The attitude of the courts on this doctrine is
contracts, as a general rule, can only be released by very strict. This principle has always been
payment of the debt or performance of the act strictly applied. To give it a liberal application is
stipulated. to undermine the binding force of an obligation.
Every obligation is difficult. The performance
It is clear, therefore, that in the eyes of the law a surety becomes the must be extremely difficult in order for rebus sic
legal custodian and jailer of the accused, thereby assuming the
stantibus to apply.
obligation to keep the latter at all times under his surveillance, and to
produce and surrender him to the court upon the latter's demand. CASES:

That the accused in this case was able to secure a Philippine passport LAGUNA V. MANABAT [59 S 650]
which enabled her to go to the United States was, in fact, due to the FACTS:
surety company's fault because it was its duty to do everything and LEASE © was executed betw. BTC and LTB, w/monthly
take all steps necessary to prevent that departure. This could have rental of Php 2500 of CPC,(cert. of public conv.)
provisionally approved by the PSC, public service comm.
been accomplished by seasonably informing the Department of Later, BTC was declared insolvent and FRANCISCO
Foreign Affairs and other agencies of the government of the fact that MANABAT was appointed as assignee. Rentals were still
the accused for whose provisional liberty it had posted a bail bond was paid, until strikes by EEs of BTC caused them some
facing a criminal charge in a particular court of the country. Had the further losses. Thus they asked for permission of PSC to
surety company done this, there can be no doubt that no Philippine suspend operation of the CPC also in lieu of low
passport would have been issued to Natividad Franklin. passenger trafc on these lines and high cost of
operation. Manabat opposed the ju’s of PSC to suspend
the lease © being an impairment of Ø. PSC contended
that it had the power to suspend, as it did so, as a
consequence of its power to issue the same CPC, and
not as an interpretation of the prov. Of the Lease ©,whc
NOTES: is a fxn of reg.courts.
 Liability of Sureties on a bail bond is conditioned
upon appearance of accused t time set for ISSUE: WON petitioners may ask PSC for reduction of
arraignment or trial or any other time as fixed rentals in lieu of such suspension and decl. of insolvency
by court, the bondsman being the jailer of the of the corp. citing Art. 1680.
accused and absolutey responsible for his
custody, w/duty at all times to keep him under
surveillance. HELD: Art. 1680, it will be observed is a special
provision for leases of rural lands. No other legal
 Surety will be exonerated where the perf. of provision makes it applicable to ordinary leases. xxx
condi. Of bail bond is rendered impossible by
act of God (e.g. death of accused), of the Even if the cited article were a general rule on lease, its
obligee (arrested by govt), or the law (law provisions nevertheless do not extend to petitioners.
punishing him is repealed). Or also under One of the requisites is that the cause of the loss
Rule 114, sec. 16. of the fruits of the leased prop. must be an
"extraordinary & unforeseen fortuitous event."
The circumstances of the case fail to satisfy such
Art. 1267. When the service has become so difficult as requisite. xxx [T]he alleged causes for the suspension
to be manifestly beyond the contemplation of the of operations on the lines leased, namely, the high
parties, the obligor may also be released therefr., in prices of spare parts & gasoline & the reduction of the
dollar allocations (by the CB Monetary B), "already
whole or in part. existed when the contract of lease was executed." The
cause of petitioners' inability to operate on the lines
[Baviera] Ordinarily, on a K for a piece of work, an cannot, therefore, be ascribed to FE or circumstances
increase in prices will not relieve the K’or bec. such
59
beyond their control, but to their own voluntary
desistance. [Tolentino]
When Db tenders pmt & Cr refuses to accept w/o just
*** Performance is not excused by subsequent cause, Db has 2 alternatives: (1) to consign or
inability to perform, by unforeseen difficulties, by (2) to just keep the thing in his poss’n, w/ the oblig
unusual or unexpected expenses, by danger, by to use due diligence, subj to the gen rules of Øs, but no
inevitable accident, by the breaking of machinery, longer to the spec liab under Article 1268.
by strikes, by sickness, by failure of a party to
avail himself of the benefits to be had under the ART. 1189, 1174, 1165, 1268, 1942, 1979, 2159:
contract, by weather conditions, by financial
stringency, or by stagnation of business. Neither
is performance excused by the fact that the Art. 1189. When the conditions have been imposed w/
contract turns out to be hard & improvident, the intention of suspending the efficacy of an obligation
unprofitable or impracticable, ill-advised or even to give, the following rules shall be observed in case of
foolish, or less profitable, or unexpectedly
burdensome. the improvement, loss or deterioration of the thing
during the pendency of the condition.
OCCENA V. JABSON [73 S 637] 1. If the thing is lost w/o the fault of the debtor, the
FACTS: obligation shall be extinguished;
Tropical HOMES INC, filed complaint for modification of 2. If the thing is lost through the fault of the
Terms & Condi of subdv. © w/pet. Occena, landowners of
disputed lands in Davao, citing Art. 1267, and the debtor, he shall be obliged to pay damages; it is
worldwide increases in prices. understood that the thing is lost when it
The NCC authorizes the release of an perishes, or goes out of commerce, or
obligor when the service has become so difficult disappears in such a way that its existence is
as to be manifestly beyond the contemplation of unknown or it cannot be recovered;
the parties.
3. When the thing deteriorates w/o the fault of the
ISSUE: WON the above art. Gives the court the authority debtor, the impairment is to be borne by the
to consequently modify the contents of the contract creditor;
HELD: Respondent's complaint seeks not release fr. the 4. If it deteriorates through the fault of the debtor,
subdivision contract but that the court "render judgment the creditor may choose between the rescission
modifying the terms & conditions of the contract... by of the obligation & its fulfillment, w/ indemnity
fixing the proper shares that should pertain to the herein for damages in either case:
parties out of the gross proceeds fr. the sales of
subdivided lots of subject subdivision." 5. If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of
 Art. 1267 does not grant the courts this the creditor;
authority to remake, modify, or revise the
contract or to fix the division of shares bet. the 6. If it is improved at the expense of the debtor, he
parties as contractually stipulated w/ the force of law shall have no other right than that granted to
bet. the parties, so as to substitute its own terms for the usufructuary.
those covenanted by the parties themselves.
[Balane]
There are three requisites in order for Art. 1189
Balane: In this case the interpretation of the court is to apply--
too literal. According to the court, it can release a 1. There is loss, deterioration or improvement
debtor fr. the obligation but it cannot make the before the happening of the condition.
obligation lighter. But if you look at Art. 1267, partial 2. There is an obligation to deliver a determinate
release is permitted. thing (on the part of the debtor)
3. The condition happens.
NAGA TELEPHONE V. CA [230 S 351] - The term
"service" should be understood as referring to the Art. 1174. Except in cases expressly specified by law,
"performance" of the obligation.-- Art. 1267 speaks of or when it otherwise declared by stipulation, or when
"service" w/c has become so difficult. Taking into the nature of the obligation requires the assumption of
consideration the rationale behind this provision, the
term "service" should be understood as referring to the risk, no person shall be responsible for those events w/c
"performance" of the obligation. In the present case, could not be foreseen, or w/c ,though foreseen, were
the obligation of prvt. resp. consists in allowing inevitable.
petitioners to use its posts in Naga City, w/c is the
service contemplated in said article. Furthermore, a Art. 1165. When what is to be delivered is a
bare reading of this article reveals that it is not a determinate thing, the creditor, in addition to the right
requirement thereunder that the contract be for future granted him by article 1170, may compel the debtor to
service w/ future unusual change. Accdg. to Tolentino, make the delivery.
Art. 1267 states in our law the doctrine of unforeseen
events. This is said to be based on the discredited If the thing is indeterminate or generic, he may
theory of rebus sic stantibus in public international law; ask that the obligation be complied w/ at the expense of
under this theory, the parties stipulate in the light of the debtor.
certain prevailing conditions, & once these conditions
cease to exist the contract also ceases to exist. If the obligor delays, or has promised to deliver
Considering practical needs & the demands of equity & the same thing to two or more persons who do not have
good faith, the disappearance of the basis of a contract the same interest, he shall be responsible for any
gives rise to a right to relief in favor of the party
prejudiced. fortuitous event until he has effected the delivery.
Art. 1268. When the debt of a thing certain &
Balane: The Court went too far in this case. It even determinate proceeds fr. a criminal offense, the debtor
went to the extent of stipulating for the parties in the shall not be exempted fr. the payment of its price,
name of equity.
whatever may be the cause for the loss, unless the thing
Art. 1268. When the debt of a thing certain & having been offered by him to the person who should
determinate proceeds fr. a criminal offense, the debtor receive it, the latter refused w/o justification to accept it.
shall not be exempted fr. the payment of its price, Art. 1942. The bailee is liable for the loss of the thing,
whatever may be the cause for the loss, unless the thing even if it should be through a fortuitous event:
having been offered by him to the person who should 1. If he devotes the thing to any purpose different
receive it, the latter refused w/o justification to accept it. fr. that for w/c it has been loaned;
Art. 1269. The obligation having been extinguished by 2. If he keeps it longer than the period stipulated,
the loss of the thing, the creditor shall have all the rights or after the accomplishment of the use for w/c
of action w/c the debtor may have against third persons the commodatum has been constituted;
by reason of the loss.

60
3. If the thing loaned has been delivered w/ 4. Capacity of the parties.
appraisal of its value, unless there is a
stipulation exempting the bailee fr. responsibility The form of donation must be observed. If the
in case of a fortuitous event; condonation involves movables, apply Art. 748. If it
involves immovables, apply Art. 749.
4. If he lends or leases the thing to a third person,
who is not a member of his household; But note that the creditor may just refuse to collect (w/o
observing any form.) In this case, the Ø will be
5. If, being able to save either the thing borrowed extinguished not by virtue of condonation but by waiver
or his own thing, he chooses to save the latter. under Art. 6.
Art. 1979. The depositary is liable for the loss of the
thing through a fortuitous event: Art. 1270. Condonation or remission is essentially
gratuitous, & requires the acceptance by the obligor. It
(1) If it is so stipulated; may be made expressly or impliedly.
(2) If he uses the thing w/o the depositor's One & the other kind shall be subject to the
permission; rules w/c govern inofficious donations. Express condona-
(3) If he delays its return; tion shall, furthermore, comply w/ the forms of donation.
(4) If he allows others to use it, even though he
himself may have been authorized to use the FORMS of Condonation:
same.
a. By a Will
Q: What if a depositor was in the premises of the
bank & was robbed of his money w/c he was Art. 935. The legacy of a credit against a third person
about to deposit? or of the remission or release of a debt of the legatee
A: Bank cannot be held liable for fortuitous event shall be effective only as regards that part of the credit
(robbery) esp in CAB where the money has not yet been
actually deposited. or debt existing at the time of the death of the testator.
In the first case, the estate shall comply w/ the
 Art. 1979 provides for instances wherein legacy by assigning to the legatee all rights of action it
depositary is still liable even in cases of may have against the debtor. In the second case, by
fortuitous event.
giving the legatee an acquittance, should he request
Q: What kind of diligence is required of a one.
depositary? In both cases, the legacy shall comprise all
A: Ordinary Diligence. interests on the credit or debt w/c may be due the testa-
tor at the time of his death.
*Safety Deposit Box: If the jewelry inside a SDB was
stolen, rules on deposit will not apply bec. the contract Art. 936. The legacy referred to in the preceding
governing the transaction is LEASE of safety deposit article shall lapse if the testator, after having made it,
box. should bring an action against the debtor for payment of
his debt, even if such payment should not have been
In Negotiorum Gestio
effected at the time of his death.
Art. 2147. The officious manager shall be liable for any
fortuitous event: The legacy to the debtor of the thing pledged by
him is understood to discharge only the right of pledge.
(1) If he undertakes risky operations w/c the owner was
not accustomed to embark upon;
b. By Agreement
(2) If he has preferred his own interest to that of the
owner;
Art. 1270. Condonation or remission is essentially
(3) If he fails to return the property or business after gratuitous, & requires the acceptance by the obligor. It
demand by the owner; may be made expressly or impliedly.
(4) If he assumed the management in bad faith. One & the other kind shall be subject to the
rules w/c govern inofficious donations. Express condona-
Payee in Solutio Indebiti tion shall, furthermore, comply w/ the forms of donation.
Art. 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
Art. 746. Acceptance must be made during the
involved, or shall be liable for fruits received or w/c
lifetime of the donor & of the donee.
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss
or impairment of the thing fr. any cause, & for damages Art. 752. The provision of article 750 notw/standing,
to the person who delivered the thing, until it is no person may give or receive, by way of donation,
recovered. more than he may give or receive by will.
The donation shall be inofficious in all that it may
exceed this limitation.
3rd MODE OF EXTINGUISHMENT OF Ø:
CONDONATION OF REMISSION OF THE DEBT Art. 750. The donation may comprehend all the
present property of the donor, or part thereof, provided
[Balane] he reserves, in full ownership or in usufruct, sufficient
 Condonation or remission is an act of means for the support of himself, & of all relatives who,
liberality by virtue of w/c, w/o receiving any at the time of the acceptance of the donation are by law
equivalent, the creditor renounces enforcement entitled to be supported by the donor. Without such
of an obligation w/c is extinguished in whole or
in part. reservation, the donation shall be reduced on petition of
any person affected.
This has four (4) requisites:
1. Debt that is existing. You can remit a debt
even before it is due. Art. 748. The donation of a movable may be made
2. Renunciation must be gratuitous. If orally or in writing.
renunciation is for a consideration, the An oral donation requires the simultaneous
mode of extinguishment may be something
else. It may be novation, compromise of delivery of the thing or of the document representing
dacion en pago. the right donated.
3. Acceptance by the debtor

61
If the value of the personal property donated & doer of the whole act; otherwise, that things
exceeds five thousand pesos, the donation & the accept- w/c a person possesses, or exercises acts of
ance shall be made in writing. Otherwise, the donation ownership over, are owned by him;
shall be void. (k) That a person in possession of an order
on himself for the payment of money, or
Art. 749. In order that the donation of an immovable the delivery of anything, has paid the
may be valid, it must be made in a public document, money or delivered the thing accordingly;
specifying therein the property donated & the value of xxx
the charges w/c the donee must satisfy.
The acceptance may be made in the same deed Under the 1985 Rules of Court, as amended: Rule
of donation or in a separate public document, but it shall 131, Sec. 3. Disputable presumptions.-- The
not take effect unless it is done during the lifetime of the following presumptions are satisfactory if
donor. uncontradicted, but may be contradicted & overcome by
If the acceptance is made in a separate other evidence:
instrument, the donor shall be notified thereof in an xxx
authentic form, & this step shall be noted in both
(c) That a person intends the ordinary
instruments.
consequences of his voluntary act;
xxx
Presumption IN Condonation:
(f) That money paid by one to another was due
Art. 1271. The delivery of a private document, to the latter;
evidencing a credit, made voluntarily by the creditor to (g) That a thing delivered by one to another
the debtor, implies the renunciation of the action w/c the belonged to the latter;
former had against the latter. (h) That an obligation delivered up to the
If in order to nullify this waiver it should be debtor has been paid;
claimed to be inofficious, the debtor & his heirs may (i) That prior rents or installments had been paid
uphold it by providing that the delivery of the document when a receipt for the later ones is produced;
was made in virtue of payment of the debt.
(k) That a person in possession of an order on
[Balane:] Articles 1271 & 1272 refer to a kind of implied
renunciation when the creditor divests himself of the proof himself for the payment of they money, or the
credit. According to De Diego, this provision is absurd & delivery of anything, has paid the money or
immoral in that it authorizes the debtor & his heirs to prove that delivered the thing accordingly;
they paid the debt, when the provision itself assumes that
there has been a remission, w/c is gratuitous. xxx
[Tolentino]
VELASCO V. MASA
This is Limited to Private Document  Art. 1271 has no
application to public documents bec. there is always a copy in the Facts: Velasco filed a complaint for the recovery of a
archives w/c can be used to prove the credit. sum of money he gave to Masa as a loan, as contained
in a private doc. V claims that while he was imprisoned
 Private document refers to the original in order for Art. 1271 during the Jap occupation, M coerced & tricked V’s wife
to apply. (Trans-Pacific. v. CA, supra.) into surrendering the doc to M. V filed a crim case b4 v.
M w/c was dismissed for lack of juris. M contends that
CASE:
doc was voluntarily delivered to him through Osmena.
TC dismissed the axn.
TRANS-PACIFIC V. CA [234 S 494]
HELD: It may not be amiss to add that Art. 1271 raises
a presumption, not of payment, but of the renunciation Issue: WON there was condonation
of the credit where more convincing evidence would be
required than what normally would be called for to prove Held: Yes. No satisfactory proof as to allegation of
payment. coercion & trickery on V’s wife. It is an unquestionable
fact that the instru proving the debt now claimed passed
The rationale for allowing the presumption of
renunciation in the delivery of a private to the possession of the Dr. For this reason, unless the
instrument is that, unlike that of a public contrary is proven, it must be presumed that in
instrument, there could be just one copy of the accdance w/ the provisions of the law, that delivery was
evidence of credit. voluntarily made. This fact implies a renunciation of the
axn w/c Cr had for the recovery of his credit. It shld be
Where several originals are made out of a private
document, the intendment of the law would thus be to noted that the doc is of a private nature, the only case
refer to the delivery only of the original rather than to subj to the provs of Articles 1187 to 1189 OCC, so that
the original duplicate of w/c the debtor would normally a tacit renunciation of the debt may be presumed, in
retain a copy. It would thus be absurd if Art. 1271 were the absence of proof that the doc was delivered for
to be applied differently. some other reason than the gratuitous waiver of the
debt & the complete extinction of the oblig to pay.
Art. 1272. Whenever the private document in w/c the
debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved.

Rule 131, Sec. 5 (b), (j), (k), Rules of Court,


Disputable presumptions.-- The following
presumptions are satisfactory if uncontradicted, but may
be contradicted & overcome by other evidence:
xxx
Effect of Partial Remission:
(b) That an unlawful act was done w/ an
unlawful intent;
Art. 1273. The renunciation of the principal debt shall
xxx extinguish the accessory obligations; but the waiver of
(j) That a person found in possession of a thing the latter shall leave the former in force.
taken in the doing of a wrongful act is the taker

62
Art. 2076. The obligation of the guarantor is
extinguished at the same time as that of the debtor, &
for the same causes as all other obligations.
Art. 2080. The guarantors, even though they be
solidary, are released fr. their obligation whenever by a. Principal Parties
some act of the creditor they cannot be subrogated to
the rights, mortgages, & preferences of the latter. Art. 1276. Merger w/c takes place in the person of the
principal debtor or creditor benefits the guarantors.
(Provisions Common to Pledge & Mortgage) Confusion w/c takes place in the person of any of the
Art. 2085. The following requisites are essential to the latter does not extinguish the obligation.
contracts of pledge & mortgage:
(1) That they be constituted to secure the [Tolentino]
fulfillment of a principal obligation;  Extinguishment of the principal oblig through
xxx confusion releases the guarantors, whose oblig
is merely accessory
Art. 1274. It is presumed that the accessory obligation  When merger takes place in the person of the
of pledge has been remitted when the thing pledged, guarantor, oblig is NOT extinguished.
after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns b. Among guarantors
the thing.
(Effects of Guaranty as Between Co-Guarantors)
[Balane] Art. 2073. When there are two or more guarantors of
The accesory obligation of pledge is extinguished bec. pledge is a the same debtor & for the same debt, the one among
possessory lien. them who has paid may demand of each of the others
 The presumption in this case is that the pledgee has the share w/c is proportionally owing fr. him.
surrendered the thing pledged to the pledgor. This is
not a conclusive presumption according to Art. 2110, If any of the guarantors should be insolvent, his
par. 2. share shall be borne by the others, including the payer,
in the same proportion.
Art. 2093. In addition to the requisites prescribed in The provisions of this article shall not be
article 2085, it is necessary, in order to constitute the applicable, unless the payment has been made in virtue
contract of pledge, that the thing pledged be placed in of a judicial demand or unless the principal debtor is
the possession of the creditor, or of a third person by insolvent.
common agreement.
Art. 2105. The debtor cannot ask for the return of the c. Joint Obligations
thing pledged against the will of the creditor, unless &
until he has paid the debt & its interest, w/ expenses in
a proper case. Art. 1277. Confusion does not extinguish a joint
obligation except as regards the share corresponding to
the creditor or debtor in whom the two characters
4TH MODE OF EXTINGUISHMENT: concur.
Confusion or Merger of Rights
d. Solidary Obligations
Art. 1275. The obligation is extinguished fr. the time
the characters of creditor & debtor are merged in the Art. 1215. Novation, compensation, confusion or
same person. remission of the debt, made by any of the solidary credi-
tors or w/ any of the solidary debtors, shall extinguish
[Balane] the obligation, w/o prejudice to the provisions of article
 Confusion is the meeting in one person of the 1219.
qualities of the creditor & debtor w/ respect to The creditor who may have executed any of
the same obligation.
these acts, as well as he who collects the debt, shall be
There are two (2) requisites: liable to the others for the share in the obligation
1. It must take place between the creditor corresponding to them.
& the principle debtor (Art. 1276.) Article 1219. The remission made by the creditor of
2. The very same obligation must be
involved. the share w/c affects one of the solidary debtors does
not release the latter fr. his responsibility towards the
Rationale  You become your own creditor or you co-debtors, in case the debt had been totally paid by
become your own debtor. So how can you sue yourself. anyone of them before the remission was effected.
Art. 1216. The creditor may proceed against any of
What may cause a merger or confusion?
one of the solidary debtors or some or all of them
(1) Succession, whether compulsory, testamentary or
intestate; simultaneously. The demand made against one of them
(2) Donation; shall not be an obstacle to those w/c may subsequently
(3) Negotiation of a negotiable instrument. be directed against the others, so long as the debt has
not been fully collected.
 Because of its nature, confusion/ merger may Art. 1217. Payment made by one of the solidary
overlap w/ other causes of extinguishment.
debtors extinguishes the obligation. If two or more soli-
For example, I owe Ms. Olores P100,000. She bequeath dary debtors offer to pay, the creditor may choose w/c
to me that credit. And then she died. In this case, there offer to accept.
is extinguishment both by merger. But in this case, He who made the payment may claim fr. his co-
merger could overlap w/ payment.
debtors only the share w/c corresponds to each, w/ the
Art. 1276 ( below) is perfectly in consonance w/ Art. interest for the payment already made. If the payment is
1275. made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, bec. of
his insolvency, reimburse his share to the debtor paying
the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each.

63
e. Indivisible Obligations they do prove is that a letter of credit might have been
opened for ISABELA by PNB, but not that the credit was
Art. 1209. If the division is impossible, the right of the ever availed of [by ISABELA's foreign correspondent
(MAN)], or that the goods thereby covered were in fact
creditors may be prejudiced only by their collective acts, shipped, & received by ISABELA.
& the debt can be enforced only by proceeding against
all the debtors. If one of the latter should be insolvent,
FRANCIA V. IAC [162 S 753]
the others shall not be liable for his share. RATIO: [T]here can be no off-setting of taxes
Art. 1224. A joint indivisible gives rise to indemnity for against the claims that the taxpayer may have
damages fr. the time anyone of the debtors does no against the govt.
comply w/ his undertaking. The debtors who may have FACTS:
ENGRACIO FRANCIA is regd owner of lot & 2storey house
been ready to fulfill their promises shall not contribute to in Pasay City, a portion of whc lot was subject of exprop
the indemnity beyond the corresponding portion of the by RP, w/ just comp computed at assessed value. Fr
price of the thing or of the value of the service in w/c the 1963, to 1977 Francia has not paid RETs on the prop.
obligation consists. Thus, such was sold on public auction by the City Treas
of Pasay City pursuant to sec. 73 PD 464 Real Prop.Tax
Code to satisfy his delinquency. Ho Fernandez was the
5TH MODE OF EXTINGUISHMENT: highest bidder. In ’79 Francia received notice that Ho
wants TCT transferred to him after a Final Bill of Sale
Compensation was issued to him. Francia filed a complaint to annul the
auction sale. He was in Iligan at that time, but such was
dismissed & court ordered RD to effect the transfer of
Art. 1278. Compensation shall take place when two title, and for him to pay Ho atty’s fees. IAC affirmed.
persons, in their own right, are creditors & debtors of
each other. ISSUE: WON Francia’s tax delinquency of 2400 has been
[Balane] set-off by the govt’s indebtedness to him of 4116 after
apportion of his lot was expropriated.
 Compensation is a mode of extinguishing, to the
concurrent amount, the obligations of those HELD: NO. Circumstances do not satisfy requirements
persons who in their own right are reciprocally of Art. 1279.
debtors & creditors of each other. [Castan]
A person cannot refuse to pay a tax on the
ground that the govt owes him an amount equal to or
 Perhaps, next to payment, compensation is the greater than the tax being collected. The collection of a
most common mode of extinguishing an tax cannot await the results of a lawsuit against the
obligation. govt.
Distinguished fr. Confusion  In compensation, A claim for taxes is not such a debt, demand, contract or
there are 2 parties & 2 debts, whereas in confusion, judgment as is allowed to be set-off xxx
there are 2 debts & only 1 party. The general rule based on grounds of public
policy is well-settled that no set-off admissible
CASES: against demands for taxes levied for general or
local governmental purposes.  The reason on w/c
the gen. rule is based, is that taxes are not in the
GAN TION vs. CA [28 S 235, 1969] – Award of atty’s nature of contracts bet. the party & party but
fees is proper subject of legal compensation. grow out of duty to, & are the positive acts of the
FACTS: govt to the making & enforcing of w/c, the
Ong Wan Sieng was a tenant in certain premises personal consent of individual taxpayers is not
owned by Gan Tion. Gan filed ejectment case vs. Ong in required. xxx (Republic v. Mambulao Lumber.)
1961 for non-payment of rents for 2 mos. Total of P360.
Ong denied and said that agreed rental was not 180 but In Cordero v. Gonda, we held that: "xxx internal
160 whc he offered but was refused by Gan. Trial court revenue taxes can not be the subject of
favored plaintiff. Appellate ct reversed & ordered compensation: Reason: govt & taxpayer 'are not
plaintiff to pay Atty’s fees of P500. This became final. mutually creditors & debtors of each other under
Art. 1278 & a "claim for taxes is not such a debt,
When Ong obtained writ of exec, Gan Tion went demand, contract or judgment as is allowed to be
to the appellate ct. and pleaded legal compensation set-off.
averring that Ong owed him more than P4K in rentals fr
Aug ’61 to Oct. ’63. Appel. Ct said that atty’s fees may
not be legally compensated b/c such constitute trust Art. 1286. Compensation takes place by operation of
fund for benefit of lawyer. And the requisites of Art. law, even though the debts may be payable at different
1278 not complied with. places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment.
ISSUE: WON there was legal compensation bet. Pet Gan
Tion and resp. Ong Wan Sieng.
A. Different Kinds of Compensation:
HELD: Yes. The award of atty’s fees is in favor of litigant
not of his counsel, thus litigant is judgment Cr who may Legal Compensation (Articles 1279, 1290) w/c takes
enforce judgment by execution. Such is credit therefore place automatically by operation of law once all the
whc can be proper subject of legal compensation. requisites are present.

PNB V. ONG ACERO [148 S 166, 1987] Art. 1279. In order that compensation may be proper,
RATIO: There is no compensation where the it is necessary:
parties are not creditors & debtors of each other.
FACTS: (1) That each one of the obligors be bound
Savings account of ISABELA Constrx & Devt Corp with principally, & that he be at the same time a
the PNB of P2M is subject of 2 conflicting claims – that of principal creditor of the other;
the Aceros, judgment Cr of ISABELA and of PNB as Cr of (2) That both debts consist in a sum of money,
the depositor d/t a loan or credit agreement by ISABELA
w/PNB the deposit being the collateral. IAC decided vs or if the things due are consumable, they be of
PNB. the same kind, & also of the same quality if the
latter has been stated;
ISSUE: WON by operation of Art. 1278, where PNB and
ISABELA has become here debtors and creditors of each (3) That the two debts be due;
other (4) That they be liquidated & demandable;
HELD: The insuperable obstacle to the success of PNB's (5) That over neither of them there by any
cause is the factual finding of the IAC that it has not retention or controversy, commenced by third
proven by competent evidence that it is a creditor of persons & communicated in due time to the
ISABELA. The only evidence presented by PNB towards debtor.
this end consists of 2 documents marked in its behalf.
But as the IAC has cogently observed, these documents [Balane]
do not prove any indebtedness of ISABELA to PNB. All Requisites under Art. 1279:

64
also filed MR asking court to exclude lessees of the bldg
1. Mutual Debtors & Creditors  The parties fr such order as they are not parties to the case. TC
must be mutually debtors & creditors (1) in denied both MRs. TC granted motion of sps. Farin for
their own right, & (2) as principals. There can RCA to release rentals incurred for repair of the bldg. TC
be no compensation if 1 party occupies only a ratiocinated that RCA never presented any proof of
representative capacity. Likewise, there can be Farin’s indebtedness whc it wants to offset w/its rentals.
no compensation if in one obligation, a party is a
principal obligor & in another obligation, he is a ISSUE: WON resp. Judge erred in denying claim of RCA
guarantor. that compensation of debts has taken place b/c records
2. Fungible Things Due  The word consumable showed no proof of plaintiffs’ indebtedness to RCA.
is wrong. Under Art. 418, consumable things
are those w/c cannot be used in a manner HELD: YES. Proof of the liquidation of a claim, in order
appropriate to their nature w/o their being that there be compensation of debts, is proper if such
consumed. In a reciprocal obligation to deliver claim is disputed. But, if the claim is undisputed, as in
horses, the things due are not consumable; yet the case at bar, the statement is sufficient & no other
there can be compensation. (Tolentino.) The proof may be required. xxx
proper terminology is "fungible" w/c refers to
things of the same kind w/c in payment can be
substituted for another.
3. Maturity of Debts  Both debts must be due SOLINAP V. DEL ROSARIO [123 S 640]
to permit compensation. RATIO: Compensation cannot take place where
4. Demandable & Liquidated Debts  one's claim against the other is still the subject of
Tolentino: Demandable means that the debts court litigation. It is a requirement, for
are enforceable in court, there being no compensation to take place, that the amount
apparent defenses inherent in them. The involved be certain & liquidated.
obligations must be civil obligations, excluding
those that are purely natural. xxx Before a FACTS: SPS TIBURCIO LUTERO & ASUNCION MAGALONA,
judicial decree of rescission or annulment, a owners of Hacienda Tambal, leased such to LOTERO
rescissible or voidable debt is valid & SOLINAP for 10yrs w/ rental of P50K/yr, further agreed
demandable; hence, it can be compensated. that half of annual rental would be paid by Solinap to
PNB as amort.on indebtedness of sps.Lutero. When
Tiburcio died, testate est. proceedings was instituted at
CFI-Iloilo whc authorized the administrator of est., Judge
Nicolas Lutero, grandson of decedent, to take fr the
heirs and pay rising Øs of the est.w/PNB w/ rts of
subrogation. After compliance, the heirs who paid
A debt is liquidated when its existence & subjugated to the PNBs claim vs lessee Solinap for
amount are determined. xxx And a debt is payment of rentals. Solinap instituted separate action
considered liquidated, not only when it is expressed vs. sps. Lutero, the administrator, who allegedly owed
already in definite figures w/c do not require Solinap P71K w/REM as security. In this case sps Lutero
verification, but also when the determination of the setup a counterclaim of P125K in unpaid rentals of
exact amount depends only on a simple arithmetical pet.on Hacienda Tambal.
operation. xxx
ISSUE: WON TC erred in not holding that legal
 The debt must not have been garnished. compensation has taken place in these cases by
(additional requirement) operation of Art. 1278.

Compensation is not prohibited by any provision HELD: Petitioner contends that respondent judge
of law like Articles 1287, 1288 & 1794. gravely abused her discretion in not declaring the
mutual obligations of the parties extinguished to the
Art. 1287. Compensation shall not be proper when one extent of their respective amounts. He relies on Art.
1278 to the effect that compensation shall take place
of the debts arises fr. a depositum or fr. the obligations when 2 persons, in their own right, are creditors &
of a depositary or of a bailee in commodatum. debtors of each other. The argument fails to
Neither can compensation be set up against a consider Art. 1279 w/c provides that
compensation can take place only if both
creditor who has a claim for support due by gratuitous obligations are liquidated.
title, w/o prejudice to the provisions of paragraph 2 of In the case at bar, the petitioner's claim against the
article 301. resp. Luteros is still pending determination by the court.
While it is not for Us to pass upon the merits of the
Art. 1288. Neither shall there be compensation if one pltff's cause of action in that case, it appears that the
of the debts consists in civil liability arising fr. a penal claim asserted therein is disputed by the Luteros on
offense. both factual & legal grounds. More, the counterclaim
interposed by them, if ultimately found to be
Art. 1794. Every partner is responsible to the meritorious, can defeat petitioner's demand. Upon this
partnership for damages suffered by it through his fault, premise, his claim in that case cannot be categorized as
& he cannot compensate them w/ the profits & benefits liquidated credit w/c may properly be set-off against his
w/c he may have earned for the partnership by his obligation. Compensation cannot take place where
one's claim against the other is still the subject of
industry. However, the courts may equitably lessen this court litigation. It is a requirement, for
responsibility if through the partner's extraordinary compensation to take place, that the amount
efforts in other activities of the partnership, unusual involved be certain & liquidated.
profits have been realized.

CASES: SYCIP V . CA [134 S 317]


RATIO: Compensation cannot take place where, w/
REPUBLIC V. DE LOS ANGELES [98 S 103] respect to the money involved in the estafa case,
RATIO: Compensation of debts arising even w/o the complainant was merely acting as agent of
proof of liquidation of claim is allowable where another. In set-off the two persons must in their
the claim is undisputed. own right be creditor & debtor of each other
FACTS:
Sps FARIN got a loan fr MARCELO STEEL CORP of p600k FACTS:
& did a REM of their lot in QC as security in favor of JOSE LAPUZ received fr ALBERT SMITH 2000 shares of
MARCELO STEEL. A yr later MARCELO STEEL asked stock of REPUBLIC FLOUR MILLS in the name of Dwight
sheriff assist in extrajud FREM of such lot. Sps Farin filed Dill who left for Honolulu. Jose was suppose to sell his
for injunction and succeeded. Thus, MARCELO STEEL shares at market value fr whc he wud get commission.
invoked par. 5 in the mortgage © and asked the court Accdg to Jose, Sycip approached him and volunteered to
instead to compel the lessees of “Dona Petra Bldg” sell the shares. SPA was granted by Dill to Lapuz, the
situated on the mortgaged lot, incl the Rice & Corn latter transacted w/Sycip. Series of their transactions
Admin (RCA), to direct their rental payments to were duly paid for and transferred. But the later
MARCELO STEEL. Such an order was issued by the payments were pocketed by Sycip.
court. RCA filed an MR praying to be excluded fr such
order b/c sps Farin has a standing Ø w/RCA whc shd be ISSUE: WON CA erred in not applying Art. 1278-79
setoff w/ their rental Øs, thus rents of RCA has been despite evidence showing Lapuz’ indebtedness to pet.
previously assigned by sps Farin to Vidal Tan. Sps Farin Sycip.
65
Atrium being the sole bidder, acquired them only at 20M
HELD: Petitioner contends that resp. CA erred in not in all. At the end she is still indebted in the amt of
applying the provisions on compensation or setting-off P6.81M.
debts under Art. 1278 & 1279, despite evidence She thus filed a complaint w/TC for annulment of the
showing that Jose Lapuz still owed him an amount of sheriff’s sale of her mortgaged properties the debt not
more than P5,000 & in not dismissing the appeal yet being due & demandable, the release of the balance
considering that the latter is not legally the aggrieved of her loan of P30M, and recovery of the proceeds of her
party. money-market investments.
The IAC ordered ICB to pay plaintiff Pajardo the proceeds
This contention is untenable. Compensation cannot of her money-market investments. CA affirmed. On
take place in this case since the evidence shows that execution, ICB’s 20 motor vehicles were levied upon,
Jose Lapuz is only an agent of Albert Smith &/ or and upon motion by plaintiff, its branches were ordered
Dr. Dwight Dill. Compensation takes place only when to pay.
two persons in their own right are creditors & debtors of
each other, & that each one of the obligors is bound Petitioner contends that after foreclosing the mortgage,
principally & is at the same time a principal creditor of there is still due fr. prvt. resps as deficiency the amount
the other. Moreover, xxx Lapuz did not consent to of P6.81 million against w/c it has the right to apply or
the off-setting of his obligation w/ petitioner's set off prvt. respondent's money market claim of
obligation to pay for the 500 shares. P1,062,063.83.

ISSUE: WON there was legal compensation in this case,


COMPANIA MARITIMA v. CA [135 S 593] that after Pet. Foreclosed the mortgage, upon the
RATIO: Compensation cannot take place where deficiency amount, it has the right to setoff plaintiff’s
one of the debts is not liquidated as when there money-market investments proceeds.
is a running interest still to be paid thereon.
HELD: The argument is w/o merit. Compensation shall
FACTS: take place when two persons, in their own right are
creditors & debtors of each other. When all the
FERNANDO FROILAN purchased fr SHIPPING ADMIN a requisites mentioned in Art. 1279 are present,
boat for 200K, pd down of 50K, constituted a mortgage compensation takes effect by operation of law, even w/o
on the vessel for the unpaid balance. RP Pres. Approved the consent or knowledge of the debtors. (Art. 1290.)
the contract. Froilan defaulted in payment of the
balance and interests as well as insurance premiums on
the vessel whc was paid for by the SH.ADMIN. Art. 1279 requires among others, that in order that
Thus, Sh.AD. took imme.possn of the vessel as well as legal compensation shall take place, 'the two
its cargoes, w/claim that the vessel is not repossessed debts be due' & 'they be liquidated &
but its ownership is retransferred to the Sh.Ad./govt. demandable.' Compensation is not proper where the
claim of the person asserting the set-off against the
PAN ORIENTAL offered to charter the same vessel other is not clear nor liquidated; compensation cannot
w/monthly rental of 3K, govt agreed w/further stipulation extend to unliquidated, disputed claim arising fr. breach
that charterer will pay cost of labor, drydocking and of contract.
repairs, incl spareparts needed. Froilan protested to the
Pres this charter agreement.
Before formal bareboat charter was to be approved by There can be no doubt that petitioner is indebted to prvt
GM of Sh.Ad. a Cabinet resolution was issued revoking resp. in the amount of P1,062,063.83 representing the
the cancellation of the © of Sale to Froilan, restored him proceeds of her money market investment. This is
to all his rts., on condition he will pay at least 10K to admitted. But whether prvt. resp is indebted to
settle partially his outstanding accounts, reimburse Pan petitioner in the amount of P6.81 million representing
Oriental of its expenses incurred, and file a bond to the deficiency balance after the foreclosure of the
cover the rest of his undertaking w/govt. After posting mortgage executed to secure the loan extended to her,
his bond, court ordered to restore Froilan’s poss’n of the is vigorously disputed. This circumstance prevents legal
vessel. Pan Oriental resisted. COMPANIA MARITIMA as compensation fr. taking place.
purchaser of the vessel fr Froilan was allowed to be
intervenor.
Art. 1280. Notw/standing the provisions of the
ISSUE: WON the Court erred in holding that Froilan, preceding article, the guarantor may set up
Compania and rp shd pay pan oriental reimbursements compensation as regards what the creditor may owe the
of its legitimate expenses w/legal int. from the time of
disbursement, instead of fr. The date of principal debtor.
dispossession, failing to consider legal compensation Art. 1283. If one of the parties to a suit over an
betwn. RP and Pan O. obligation has a claim for damages against the other,
the former may set it off by proving his right to said
HELD: More, the legal interest payable fr. 2/3/51 on the
sum of P40,797.54, representing useful expenses damages & the amount thereof.
incurred by PAN-ORIENTAL, is also still unliquidated since
interest does not stop accruing "until the expenses are
fully paid." Thus, we find w/o basis REPUBLIC's Effect of Legal Compensation:
allegation that PAN-ORIENTAL'S claim in the amount of
P40,797.54 was extinguished by compensation since the Art. 1289. If a person should have against him several
rentals payable by PAN-ORIENTAL amount to P59,500 debts w/c are susceptible of compensation, the rules on
while the expenses reach only P40,797.54. Deducting
the latter amount fr. the former, REPUBLIC claims that the application of payments shall apply to the order of
P18,702.46 would still be owing by PAN-ORIENTAL to the compensation.
REPUBLIC. That argument loses sight of the fact that to Art. 1290. When all the requisites mentioned in article
the sum of P40,797.54 will still have to be added the
legal rate of interest "fr. Feb. 3, 1951 until fully paid." 1279 are present, compensation takes effect by
operation of law, & extinguishes both debts to the
concurrent amount, even though the creditors & debtors
INTERNATIONAL CORPORATE BANK V. IAC [163 S are not aware of the compensation.
296] - Art. 1279. In order that compensation may be proper,
Requisite of legal compensation under Art. it is necessary:
1279.--
(1) That each one of the obligors be bound
FACTS: principally, & that he be at the same time a
NATIVIDAD PAJARDO secured from Investment principal creditor of the other;
Underwiriting and ATRIUM Capital, predecessors of ICB,
a loan of P50M, whc she secured w/REM of her (2) That both debts consist in a sum of money,
properties in Quiapo & Bulacan w/total market value of or if the things due are consumable, they be of
110M. Only 20M of the loan was approved for release. the same kind, & also of the same quality if the
Whc same amount went to pay her standing Øs w/d latter has been stated;
same bank, thus she did not receive the same amt. She
also made a money-market placement w/ATRIUM of (3) That the two debts be due;
more than P1M @17% int.p.a. for 32 days. At maturity,
proceeds of such was not released to her but instead (4) That they be liquidated & demandable;
allegedly applied to her mortgaged indebtedness whc
she failed to pay. Her properties were auctioned and
66
(5) That over neither of them there by any
retention or controversy, commenced by third Q: If there is an oblig of the depositary to the depositor
persons & communicated in due time to the for damages(already liquidated & demandable) in case
of negligence & if the depositor owes the depositary a
debtor. sum of money, can there be set-off?

MINDANAO PORTLAND CEMENT V. CA [120 S 930] A: No since it arose out of a deposit. Not allowed by law. Cld be a
way of Cr to collect a bad debt.
FACTS:
Atty. Laquihon, in behalf of 3P def. Pacweld Steel Corp
filed a Motion to direct payment of atty’s fees to Art. 1794. Every partner is responsible to the
counsel” invoking the fact that Pet.MPCC was adjudged partnership for damaged suffered by it through his fault,
to pay Pacweld 10K in atty’s fees. MPCC opposed this & he cannot compensate them w/ the profits & benefits
motion stating that such amt is compensated w/ an w/c he may have earned for the partnership by his
equal amt it is entitled fr Pacweld after the latter is also
adjudged by same CFI-Mla in another case to pay to industry. However, the courts may equitably lessen this
MPCC. Court issued the motion of Atty. Laquihon. responsibility if through the partner’s extraordinary
Denied MR of MPCC. efforts in other activities of the partnership, unusual
profits have been realized.
ISSUE: WON TC erred in not holding the 2 judgment
debts of the 2 corps. vs ea other mutually compensated
Contractual/ Conventional compensation w/c takes
HELD: It is clear fr. the record that both corporations, place when parties agree to set-off even if the requisites of
petitioner Mindanao Portland Cement Corp. (appellant) legal compensation are not present, e.g., Art. 1282. ( Baviera
& resp. Pacweld Steel Corp. (appellee), were creditors & OL: F. Comp 1. Kinds a. Voluntary)
debtors of each other, their debts to each other
consisting in final & executory judgements of the CFI in Art. 1282. The parties may agree upon the
2 separate cases, ordering the payment to each other of compensation of debts w/c are not yet due.
the sum of P10T by way of attorney's fees. The 2
obligations, therefore, respectively offset each other,
compensation having taken effect by operation of law & [Tolentino]
extinguished both debts to the concurrent amount of 1. Voluntary Compensation is not limited to
P10T, pursuant to the provisions of Art. 1278, 1279 & obligations w/c are not yet due. The parties
1290, since all the requisites provided in Art. 1279 for may compensate by agreement any obligations,
automatic compensation "even though the in w/c the objective requisites provided for legal
creditors & debtors are not aware of the compensation are not present. xx
compensation" were duly present.
2. Judicial Compensation when decreed by the
Automatic compensation, requisites of, present  court in a case where there is a counterclaim,
Extinguishment of two debts arising fr. final & executory such as that provided in Art. 1283. (Baviera OL:
F. Comp 1. Kinds b. Judicial)
judgments due to compensation by operation of law.
Art. 1283. If one of the parties to a suit over an
Facultative Compensation w/c takes place when obligation has a claim for damages against the other,
compensation is claimable by only one of the the former may set it off by proving his right to said
parties but not of the other, e.g., Articles 1287,
1288. damages & the amount thereof.

Art. 1287. Compensation shall not be proper when one [Baviera} What is the idea behind legal comp?
of the debts arises fr. a depositum or fr. the obligations  To facilitate collxn of money. For
of a depositary or of a bailee in commodatum. expediency.
Neither can compensation be set up against a
creditor who has a claim for support due by gratuitous Effect of Assignment of Credit:
title, w/o prejudice to the provisions of paragraph 2 of
article 301. Art. 1285. The debtor who has consented to the
Art. 301. The right to receive support cannot be assignment of rights made by a creditor in favor of a
renounced; nor can it be transmitted to a third person. third person, cannot set up against the assignee the
Neither can it be compensated w/ what the recipient compensation w/c would pertain to him against the
owes the obligor. assignor, unless the assignor was notified by the debtor
at the time he gave his consent, that he reserved his
However, support in arrears may be right to the compensation.
compensated & renounced, & the right to demand the
same may be transmitted by onerous or gratuitous title. If the creditor communicated the cession to him
but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the
[Baviera] Note that Art. 301 of the NCC is not found in cession, but not of subsequent ones.
FC.
 Future support cannot be compensated. If the assignment is made w/o the knowledge of
the debtor, he may set up the compensation of all
credits prior to the same & also later ones until he had
Thus, a father who paid damages for son’s q-delict
knowledge of the assignment.
cannot claim comp by not giving support to his son.
However under 301, support IN ARREARS may be
compensated & renounced & the rt to demand the same [Balane]
may be transmitted by onerous or gratuitous title. There are 3 situations covered in this
article:
[Balane]
1. Assignment w/ the debtor's consent;
 The depositary cannot set up compensation w/ 2. Assignment w/ the debtor's knowledge but w/o
respect to the things deposited to him. his consent; &
 But the depositor can set up the compensation. 3. Assignment w/o the debtor's knowledge (&
obviously w/o his consent.)

Art. 1288. Neither shall there be compensation if one Rules:


of the debts consists in civil liability arising fr. a penal Assignment w/ the debtor's consent  Debtor
offense. cannot set up compensation at all unless the
right is reserved.
[Baviera]
 The oblig of the depositary to return a spec thing Assignment w/ the debtor's knowledge but
cannot be compensated or substituted by delivery of a w/o his consent  The debtor can set up
thing of the same kind.
67
compensation w/ a credit already existing at
the time of the assignment. Art. 1292. In order that an obligation may be
extinguished by another w/c substitute the same, it is
Assignment w/o the debtor's knowledge  imperative that it be so declared in unequivocal terms,
Debtor can set up as compensation any credit
existing at the time he acquired knowledge or that the old & the new obligations be on every point
even if it arose after the actual assignment. incompatible w/ each other.

Art. 1284. When one or both debts are rescissible or [TOLENTINO]


voidable, they may be compensated against each other  Novation is NEVER presumed.
before they are judicially rescinded or avoided.
It must be established that 
6 MODE OF EXTINGUISHMENT:
TH 1. the old & the new contracts are
Novation incompatible in all points,
2. or that the will to novate appear by
express agreement of the parties
Art. 1291. Obligations may be modified by: 3. or in acts of equivalent import.
(1) Changing their object or principal conditions; IMPLIED NOVATION  There is no specific form
(2) Substituting the person of the debtor; required for an implied novation. All that is required is
INCOMPATIBILITY between the original & the subsequent
(3) Subrogating a third person in the rights of the contracts.
creditor.
 A mere extension of the term of payment does
[TOLENTINO] not result in novation, for the period affects only
the performance, not the creation of the
 Novation is the extinguishment of an obligation
obligation by the substitution or change
of the obligation by a subsequent one
w/c extinguishes or modifies the first, CASES:
either by changing the object of
principal conditions, or by substituting MILLAR VS. COURT OF APPEALS
the person of the debtor, or by FACTS: Millar obtained a judgment against Gabriel. A
subrogating a third person in the rights
of the creditor. (Manresa.) writ of execution was issued, on the basis of w/c G’s
Willy’s Ford Jeep was seized. Subsequently, G pleaded
 Novation is the most unusual mode of extinguishing w/ M to release the jeep under an agreement whereby G
an obligation. would mortgage the jeep in favor of M to secure the
payment of the judgment debt. The chattel mortgage
 It is the only mode whereby an obligation is reduced the amount to be paid by G.
extinguished & a new obligation is created to take its The TC said there was no novation bec. the mortgage
place.
was executed only to secure the judgment.
The other modes of extinguishing an obligation are
absolute in the sense that the extinguishment of the ISSUE: WON the mortgage K novated the judgment
obligation is total (w/ the exception of compromise.) debt.
Novation, on the other hand, is a relative mode of HELD: Where the new obligation merely
extinguishing an obligation.
reiterates or ratifies the old Ø, although the
Classification of Novation: former effects but minor alterations or slight
modifications w/ respect to the cause or object or
1. Subjective (Personal) or novation by a change conditions of the latter, such changes do not
of subject effectuate any substantial incompatibility bet. the
2 Ø s.
2. Active subjective or a change of creditor; also Only those essential & principal changes
known as subrogation.
introduced by the new Ø producing an alteration or
3. Passive subjective or a change of debtor modification of the essence of the old Ø result in implied
novation.
4. Objective (Real) or novation by change in the In the case at bar, the mere reduction of the
object or in the principal conditions. amount due in no sense constitutes a sufficient indicium
 Novation by a change in the principal of incompatibility, especially in the light of (a) the
conditions is the most problematic kind explanation by the petitioner that the reduced
of novation bec. you have to determine
whether or not the change in the indebtedness was the result of the partial payments
conditions is principal or merely made by the resp. before the execution of the chattel
incidental. mortgage agreement, & (b) the latter's admissions
 For example, a change fr. straight terms bearing thereon.
to installment terms & a change fr. non-
interest bearing obligation to an interest
bearing one are changes in the principal
conditions. INTEGRATED CONSTRUCTION VS. RELOVA, [146 SC
360]
5. Mixed novation w/c is a combination of both
subjective & objective novation.
Novation; While the tenor of the subsequent
Requisites of Novation: letter-agreement in a sense novates the
judgment award there being a shortening of the
1. There must be a previous valid obligation; period within which to pay, the failure of the
2. Agreement of the parties to create the new party to comply w/d suspensive & conditional
obligation; nature of d agreement, remitted the parties to
3. Extinguishment of the old obligation. (I would their original rights under the judgment award.
consider this an effect, rather than a requisite of
novation-- Balane);
4. Validity of the new obligation. (Tiu Siuco v. FACTS:
Habana, 45 P 707.) Pets., 2 constrx co.’s, Integrated, and Eng’rg, sued the
MWSS, formerly NAWASA, at CFI-Mla. The Arbitration
5. There must be CONSENT of all the parties to the Board rendered decision-award whc became final &
substitution, resulting in the extinction of the old exec, ordered MWSS t pay pets. Pets. Subseq. Agreed to
obligation & the creation of a valid one.
68
give MWSS some discounts, T&C f whc was approved by thereby extinguished, or that the new obligation be on
MWSS Board. Failing therefrom, pets. Moved for every point incompatible w/ the old one. Novation is
Execution of judgment vs MWSS, the court denied d/t never presumed; it must be established either by the
novation. discharge of the old debt by the express terms of the
new agreement, or by the acts of the parties whose
HELD: intention to dissolve the old obligation as a
While the tenor of the subsequent letter-agreement in consideration of the emergence of the new one must be
a sense novates the judgment award there being a clearly discernible.
shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the If old debtor is not released, no novation
suspensive and conditional nature of the said occurs & the third person who assumed the
agreement (making the novation conditional) is obligation becomes a co-debtor or surety or a co-
expressly acknowledged and stipulated in the 14th surety.  Again, if subjective novation by a change in
whereas clause of MWSS' Resolution. MWSS' failure to the person of the debtor is to occur, it is not enough that
pay within the stipulated period removed the very the juridical relation bet. the parties to the original
cause and reason for the agreement, rendering some contract is extended to a third person. It is essential
ineffective. Petitioners, therefore, were remitted to that the old debtor be released fr. the obligation, & the
their original rights under the judgment award. third person or new debtor take the place in the new
relation. IF the old debtor is not released, no novation
As to whether or not petitioners are now in estoppel to occurs & the third person who has assumed the
question the subsequent agreement, suffice it to state obligation of the debtor becomes merely a co-debtor or
that petitioners never acknowledged full payment; on surety or a co-surety.
the contrary, petitioners refused MWSS' request for a
conforme or quitclaim. (p. 125, Rollo) Novation is not implied when the parties
to the new obligation expressly negated the
lapsing of the old obligation.  Neither can the
Accordingly, the award is still subject to execution by
petitioners anchor their defense on implied novation.
mere motion, which may be availed of as a matter of
Absent an unequivocal declaration of extinguishment of
right any time within (5) years from entry of final
a pre-existing obligation, a showing of complete
judgment in accordance with Section 5, Rule 39 of the
incompatibility bet. the old & the new obligation (&
Rules of Court.
nothing else) would sustain a finding of novation by
implication. But where, as in this case, the parties to
the new obligation expressly recognize the continuing
COCHINGYAN VS. R & B SURETY [151 S 339] existence & validity of the old one, where, in other
Novation defined. words, the parties expressly negated the lapsing of the
old obligation, there can be no novation. The issue of
FACTS: PAGRICO (P) submitted a surety bond issued by implied n ovation is not reached at all.
R & B surety in favor of PNB. Under the bond, PNB had
the right to proceed directly against R&B w/o going after
P. In turn, 2 indemnity agreements were entered into w/
R&B by CCM & Joseph Cochingyan in his capacity as
CCM prexy & in his personal capacity; & by P, PACOCO,
Jose Villanueva as P’s manager & in his personal FUA VS. YAP [74 P 287]
capacity, Liu Tua Beth, as PACOCO prexy, & in his NOVATION BY SUBSEQUENT AGREEMENT
personal capacity. 2 years after the execution of these
documents, a TRUST AGREEMENT was entered into bet. FACTS: Fua Cam Lu, judgment-Cr of Yap Fauco and Yap
Jose & Susana Cochingyan, Tomas Besa, a PNB officer, Singco, agreed subsequently to execution of a mortgage
as trustee; & PNB was the beneficiary. The trust in his favor by the Yaps of a camarin plus reduction of
debt to 1,200 payable in 4 installments; that in case of
agreement expressly provided that it shall not, in any default they wud pay balance plus the discounted
manner release R&B fr. their respective liabilities under amount and 10% attys fees.
the bond. When P failed to pay, PNB demanded
payment fr. R%B. R&B in turn demanded reimbursement HELD: The Yap’s liability under the judgment has been
fr. Joseph Cochingyan & Jose V. who refused to pay on extinguished by the new agreement. Although the
mortgage did not expressly cancel the old obligation,
the ground that the trust agreement had extinguished this was impliedly novated by reason of incompatibility
their oblig under the Indemnity Agreements. resulting fr. the fact that, whereas the judgment was for
P1,538.04 payable at one time, did not provide for
HELD: Novation is the extinguishment of an attorney's fees, & was not secured, the new obligation is
for P1200 payable in installments, stipulates for
obligation by the substitution or change of the attorney's fees & is secured by a mortgage. The later
obligation by a subsequent one w/c terminates it, agreement did not merely extend the time to pay the
either by changing its object or principal judgment, bec. it was therein recited that appellants
conditions, or by substituting a new debtor in promised to pay P1,200 to appellee as a settlement of
place of the old one, or by subrogating a third the said judgment. Said judgment cannot be said to
have been settled, unless it was extinguished.
person to the rights of the creditor. ** Foreclosure of such new mortgage under the
Novation through a change of the object or judgment in the old Ø was VOID.
principal conditions of an existing obligation is referred
to as objective (or real) novation. SANDICO VS. PIGUING [42 S 322]
Novation by the change of either the person of FACTS:
the debtor or of the creditor is described as subjective Sps. Sandico and Timbol as rep of Est of Sixta Paras
(or personal) novation. obtained judgment in their favor against Desiderio Paras
Novation may also be both objective & for the recog of easement and payment of damages;
the judgment debt was later on agreed by them to be
subjective (mixed) at the same time. In both objective reduced and was subseq paid by def.
& subjective novation, a dual purpose is achieved  an When the sps demanded for performance of the part of
obligation is extinguished & a new one is created in lieu d judgment abt the recof of d easement, they demanded
thereof. that def rebuild & reconstruct the irrigation canal in its
original dimensions. When def,refused, sps.asked d
court a quo in a motion for exec 2compel them or hold
Novation is never presumed.-- If objective them in contempt.Alias writ of exec was issued whc was
novation is to take place, it is imperative that the new later on appeal was ordered quashed by the CA bec. The
obligation expressly declare that the old obligation is parties “novated by subseq. Agreement” the judgment
in question, thus there is nothing more to be executed.
69
son Waldo del Castillo as for attorney-in-fact,
ISSUE: WON CA erred in quashing the alias writ of exec accepted payments from petitioners and gave
d/t its interpret. That the subseq agreement extingusihd petitioners several extensions of time to pay their
d def’s Ø on d judgment of court a quo remaining Øs.

HELD: NO. CA was not in grave abuse of disc. ISSUE: WON decision of trial court in its judgment by
Novation results in 2 stipulations  (1) to compromise was novated and amended by the
extinguish an existing obligation, and (2) to substitute a subsequent mutual agreements and actions of
new one in its place. Fundamental it is that novation petitioners and private respondents
effects a substitution or modification of an obligation by
another or an extinguishment of one obligation by the HELD: The fact therefore remains that the amount of
creation of another. In the case at hand, we fail to see P84,000 payable on or before May 15, 1981 decreed by
what new or modified obligation arose out of the the trial court in its judgment by compromise was
payment by the resp. of the reduced amount of P4,000 novated & amended by the subsequent mutual
& substituted the monetary liability for P6,000 of the agreements & actions of petitioners & prvt. resps.
said resp. under the appellate court's judgment. Petitioners paid the aforestated amount on an
Additionally, to sustain novation installment basis & they were given by prvt. resps no
necessitates that the same be so declared in less than 8 extensions of time to pay their obligation.
unequivocal terms  clearly & unmistakably These transactions took place during the pendency of
shown by the express agreement of the parties or by the motion for recon. of the order of the trial court dated
acts of equivalent import  or that there is complete & 4/26/83, during the pendency of the petition for
substantial incompatibility bet. the 2 obligations. certiorari before the IAC & after the filing of the petition
Record showed that def bef. Us. This answers the claim of the resps. on the
attempted to rebuild the irrigation canal but not in the failure of the petitioners to present evidences or proofs
original dimensions, whc was not disputed by both of payment in the lower court & the appellate court.
parties. Such partial recons does not constitute
substantial compliance. Thus SC remanded d case to TC
for ocular on the job done & if def refuses to complete to PEOPLE'S BANK VS. SYVEL'S [164 S 247]
ask another to do the work at the expense of def.
RATIO: When does novation take place; Novation
is never presumed.
NPC VS. DAYRIT [125 S 849]
RATIO: Novation is never presumed but must be Absence of existence of an explicit
explicitly stated; No novation in the absence of novation nor incompatibility between the old &
explicit novation or incompatibility on every point the new agreements.
between the old & the new agreements of the Novation was not intended in the case at
parties. bar as the REM was taken as additional security
FACTS: for the performance of the contract.
DANIEL E. ROXAS, doing business under the name and If objective novation is to take place, it is
style of United Veterans Security Agency and Foreign essential that the new obligation expressly declare that
Boats Watchmen, sued the NATIONAL POWER the old obligation is to be extinguished or that the new
CORPORATION (NPC) and two of its officers in Iligan obligation be on every point incompatible w/ the old
City. The purpose of the suit was to compel the NPC to one. xxx
restore the contract of Roxas for security services
which the former had terminated. The parties drafted a FACTS:
Compromise Agreement which the TC approved. The Action for foreclosure of chattel mortgage
agreement consisted of NPC paying plaintiff sum of executed in favor of the plaintiff by the def. Syvel's Inc.
money, plaintiff will pay or return materials lost & on its stocks of goods, personal properties and other
found by his agency, the © for security services w/NPC materials owned by it and located at its stores or
will remain, and they both waive other claims & warehouses. This chattel mortgage was duly
counter-c w/ea other. registered in RD of Manila and Pasay City, in
NPC subseq. Contracted another security agency. connection with a credit commercial line in the
Thus, plntf asked court a quo for writ of exec whc was amount of P900K granted to Syvel’s; defendants
granted. NPC appealed claiming that d judgment was Antonio & Angel V. Syyap guaranteed absolutely and
novated thus extinguished,nothing more to exec. unconditionally and without the benefit of excussion
the full and prompt payment of any indebtedness to be
ISSUE: WON novation of judgment by subseq agreement incurred on account of the said credit line.
of parties extinguished d Ø of NPC to sustain the > failure of Syvels’ to pay in accord w/terms and
security © w/plantff conditions of the Commercial Credit Agreement,
HELD: It is elementary that novation is never bank started to foreclose extrajudicially the chattel
presumed; it must be explicitly stated or there must mortgage but was not pushed thru after Syvel’s
be manifest incompatibility between the old and the attempted to settle. As no payment was made, this
new obligations in every aspect. Thus the Civil Code case was filed in Court. During its pendency, Syyap
provides: proposed to have the case settled amicably and to that
Art. 1292. In order that an obligation may be end a conference was held in which Mr. Antonio de las
extinguished by another which substitutes the same, it Alas, Jr., VP of the Bank, plaintiff, defendant Antonio V.
is imperative that it be so declared in unequivocal Syyap and Atty. Mendoza were present. Mr. Syyap
terms, or that the old and the new obligations be on requested that the plaintiff dismiss this case because
every point incompatible with each other. he did not want to have the goodwill of Syvel's
In the case at bar, there is nothing in the May Incorporated impaired, and offered to execute a REM
14, 1982 agreement w/c supports the petitioner's on his property in Bacoor. Mr. De las Alas consented,
contention. There is neither explicit novation nor and so the REM.
incompatibility on every point bet. the "old" & the "new"
agreements…said contract was executed precisely to ISSUE: WON on the ground that by the execution of
implement the compromise agreement for which said real estate mortgage, the obligation secured by
reason there was no novation. the chattel mortgage subject of this case was novated,
and therefore, appellee's cause of action thereon was
BALILA V. IAC [155 S 262] extinguished.
RATIO: Subsequent mutual agreements & actions
of petitioners & private respondents allowing the HELD: Novation takes place when the object or
former extension of time to pay their obligations principal condition of an obligation is changed or
& in installments novated & amended the period altered. It is elementary that novation is never
of payment decreed by the trial court in its presumed; it must be explicitly stated or there
judgement by compromise. must be manifest incompatibility bet. the old &
the new obligations in every aspect.
FACTS:
In the case at bar, there is nothing in the REM
Amicable settlement of this dispute was arrived at and w/c supports appellants' submission. The contract on its
made basis of decision of TC. Defendants admitted face does not show the existence of an explicit novation
"having sold under a pacto de retro sale the parcels of nor incompatibility on every point bet. the old & the new
land 4 described in the complaint in the amount of agreements as the second contract evidently indicates
P84,000.00" and that they "hereby promise to pay the that the same was executed as new additional security
said amount within the period of four (4) months but to the CM previously entered into by the parties.
not later than May 15,1981. Subseq,
priv.resp.Guadalupe Vda. de del Castillo, rep.by her

70
Records show that in the real estate mortgage, 3. Subrogation/Subjective Novation
appellants agreed that the chattel mortgage "shall
remain in full force and shall not be impaired by this a. In case of active subjective
(real estate) mortgage." novation
It is clear, therefore, that a novation was not
intended. The real estate mortgage was evidently
taken as additional security for the performance of the Art. 1300. Subrogation of a third person in the rights
contract of the creditor is either legal or conventional. The former
is not presumed, except in cases expressly mentioned in
b. FORMS OF NOVATION: this Code; the latter must be clearly established in or
order that it may take effect.
Art. 1281. Compensation may be total or partial. When
the two debts are of the same amount, there is a total Legal (Art. 1302)  In all cases of Art. 1302,
compensation. (Classmates, I think there was a typo subrogation takes place by operation of law.
error in Ma’am Bubbles’ outline. I think this should have
been Art. 1291, reproduced below) Art. 1302. It is presumed that there is legal
subrogation:
1. Substitution of debtor-- (1) When a creditor pays another creditor who is
preferred, even w/o the debtor's knowledge;
Art. 1236. The creditor is not bound to accept payment (2) When a third person, not interested in the
or performance by a third person who has no interest in obligation, pays w/ the express or tacit approval
the fulfillment of the obligation, unless there is a of the debtor;
stipulation to the contrary. (3) When, even w/o the knowledge of the
Whoever pays for another may demand fr. the debtor, a person interested in the fulfillment of
debtor what he has paid, except that if he paid w/o the the obligation pays, w/o prejudice to the effects
knowledge or against the will of the debtor, he can of confusion as to the latter's share;
recover only insofar as the payment has been beneficial
to the debtor. Conventional/ Contractual (Art. 1301)  Consent of the 3
Art. 1237. Whoever pays on behalf of the debtor w/o parties (old creditor, debtor & new creditor) are required.
the knowledge or against the will of the latter, cannot
Art. 1301. Conventional subrogation of a third person
compel the creditor to subrogate him in his rights, such
requires the consent of the original parties & of the third
as those arising fr. a mortgage, guaranty, or penalty.
person.
Art. 1835 second paragraph
A partner is discharged fr. any existing liability upon Q: Is it possible for a creditor to transfer his
dissolution of the partnership by an agreement to that credit w/o consent of the debtor?
effect between himself, the partnership creditor & the
person or partnership continuing the business; & such A: Yes. But this is not novation but an assignment of
agreement may be inferred fr. the course of dealing rights under Art. 1624.
between the creditor having knowledge of the
 Assignment is also a novation but much simpler.
dissolution & the person or partnership continuing the But is not subrogation.
business.
KINDS OF NOVATION:
PNB VS. MALLARI
a. Legal
FACTS: Def borrowed fr. PNB & this loan was secured by
a chattel mortgage on his standing crop. Mallari Art. 1302. It is presumed that there is legal
defaulted so the sacks of rice deposited in a warehouse subrogation:
were attached. Guanzon, defendant’s Er, offered to pay (1) When a creditor pays another creditor
the obli of the latter. This was accepted by PNB so the who is preferred, even w/o the debtor's
attachment was later lifted. Guanzon defaulted in his knowledge;
payment so PNB sued the def on the same obligation.
(2) When a third person, not interested in
The LC dismissed the comp on the ground that there
the obligation, pays w/ the express or tacit
was novation brought about by the alteration of the
approval of the debtor;
principal conditions of the original obli & the substitution
of a news debtor. (3) When, even w/o the knowledge of the
debtor, a person interested in the
HELD: The acceptance of PNB of the offer of G to pay fulfillment of the obligation pays, w/o
under the terms specified by him constituted not only a prejudice to the effects of confusion as to
substitution of the debtor but an alteration or the latter's share;
modification of the terms & conditions of the original K.
Art. 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
Effect of insolvency of new debtor-- claims, may exercise all the rights & bring all the actions
of the latter for the same purpose, save those w/c are
Article 1294. If the substitution is w/o the knowledge inherent in his person; they may also impugn the acts
or against the will of the debtor, the debtor’s insolvency w/c the debtor may have done to defraud them.
or non-fulfillment of the obligation shall not give rise to
(Conventional Redemption)
any liability on the part of the original debtor.
Art. 1610. The creditors of the vendor cannot make
Art. 1295. The insolvency of the new debtor, who has
use of the right of redemption against the vendee, until
been proposed by the original debtor & accepted by the
after they have exhausted the property of the vendor.
creditor, shall not revive the action of the latter against
the original obligor, except when said insolvency was Art. 1729. Those who put their labor upon or furnish
already existing & of public knowledge, or known to the materials for a piece of work undertaken by the
debtor, when he delegated his debt. contractor have an action against the owner up to the
amount owing fr. the latter to the contractor at the time
the claim is made. However, the following shall not
2. Change of Principal Condition or Object
prejudice the laborers, employees & furnishers of
materials:
71
(1) Payments made by the owner to the
contractor before they are due; The obligation to discharge the mortgage indebtedness
therefore, remained on the shoulders of the original
(2) Renunciation by the contractor of any debtors & their heirs, petitioners herein, since the record
amount due him fr. the owner. is devoid of any evidence of contrary intent. xxx

This article is subject to the provisions of special Art. 1835. xxx


laws: A partnership is discharged fr. any existing liability upon
(Assignment of Credits & Other Incorporeal dissolution of the partnership by an agreement to that
Rights) effect between himself, the partnership creditor & the
person or partnership continuing the business; & such
Art. 1629. In case the assignor in good faith should agreement may be inferred fr. the course of dealing
have made himself responsible for the solvency of the between the creditor having knowledge of the
debtor, & the contracting parties should not have dissolution & the person or partnership continuing the
agreed upon the duration of the liability, it shall last for business.
one year only, fr. the time of the assignment if the
period had already expired.
[Balane]
If the credit should be payable w/in a term or Passive Subjective Novation-- Articles
period w/c has not yet expired, the liability shall cease 1293 & 1295
one year after the maturity.
Art. 2207. If the plaintiff's property has been insured,  Art. 1293 talks of expromission (not upon the
& he has received indemnity fr. the insurance company old debtor's initiative. It could be upon the
initiative of the creditor or of the new debtor.)
for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall  Art. 1295 talks of delegacion (change at the
be subrogated to the rights of the insured against the old debtor's initiative.)
wrongdoer or the person who has violated the contract.
If the amount paid by the insurance company does not  In expromission, the change in the person of the
fully cover the injury or loss, the aggrieved party shall debtor is not upon the initiative of the old
be entitled to recover the deficiency fr. the person debtor, whether or not he gave his consent. As
soon as a new debtor & creditor agree, novation
causing the loss or injury. takes place.

2. Effect:  In both cases, the intent of the parties must be


Art. 1304. A creditor, to whom partial payment has to release the old debtor.
been made, may exercise his right for the remainder, &
he shall be preferred to the person who has been What is the difference in effect between
expromission & delegacion?
subrogated in his place in virtue of the partial payment
of the same credit.  In expromission, the release of the old debtor
Art. 1303. Subrogation transfers to the person is absolute (even if it turns out that the new
subrogated the credit w/ all the rights thereto apper- debtor is insolvent.)
taining, either against the debtor or against third
 In delegacion, the release of the old debtor is
persons, be they guarantors or possessors of not absolute. He may be held liable (1) if the
mortgages, subject to stipulation in a conventional new debtor was already insolvent at the time of
subrogation. the delegacion; & (2) such insolvency was
either known to the old debtor or of public
knowledge.
b. Passive Subjective Novation
(Substitution of the debtor) Cases of expromission are quite rare.

Art. 1293. Novation w/c consists in substituting a new Effect of Novation


debtor in the place of the original one, may be made
even w/o the knowledge or against the will of the latter, Art. 1296. When the principal obligation is
but not w/o the consent of the creditor. Payment by the extinguished in consequence of a novation, accessory
new debtor gives him the rights mentioned in articles obligations may subsist only insofar as they may benefit
1236 & 1237. third persons who did not give their consent.
Art. 1236. The creditor is not bound to accept [Balane]
payment or performance by a third person who has no  Effect of novation as to accessory
interest in the fulfillment of the obligation, unless there obligations Accessory obligations may
is a stipulation to the contrary. subsist only insofar as they may benefit third
persons who did not give their consent, e.g.,
Whoever pays for another may demand fr. the stipulation pour atrui
debtor what he has paid, except that if he paid w/o the
knowledge or against the will of the debtor, he can General rule: In a novation, the accesory obligation is
recover only insofar as the payment has been beneficial extinguished.
to the debtor. Exception: In an active subjective novation, the
guarantors, pledgors, mortgagors are not released.
Art. 1237. Whoever pays on behalf of the debtor w/o
the knowledge or against the will of the latter, cannot Look at Art. 1303, accessory obligations are not
compel the creditor to subrogate him in his rights, such extinguished. So there is a conflict.
as those arising fr. a mortgage, guaranty or penalty.
How do you resolve? According to commentators,
Art. 1303 is an exception to Art. 1296.
RODRIGUEZ V. REYES
Art. 1297. If the new obligation is void, the original
HELD: By buying the property covered by TCT No. one shall subsist, unless the parties intended that the
48979 w/ notice that it was mortgaged, resp. Dualan former relation should be extinguished in any event.
only undertook either to pay or else allow the land's
being sold if the mortgage creditor could not or did not Art. 1298. The novation is void if the original
obtain payment fr. the principal debtor when the debt obligation was void, except when annulment may be
matured. Nothing else. Certainly, the buyer did not claimed only by the debtor, or when ratification
obligated himself to replace the debtor in the principal validates acts w/c are voidable.
obligation, & he could not do so in law w/o the creditor's
consent. (Art. 1293)

72
Art. 1299. If the original obligation was subject to a Art. 1956. No interest shall be due unless it has been
suspensive or resolutory condition, the new obligation expressly stipulated in writing.
shall be under the same condition, unless it is otherwise
stipulated.
VILLAROEL v. ESTRADA

ANSAY v. NDC

H. NATURAL OBLIGATIONS – ARTS. 1423-1430.


1155

Art. 1423. Obligations are civil or natural. Civil


obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity & natural law, do not grant a
right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in
the following articles.

Art. 1424. When a right to sue upon a civil obligation


has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what
he has delivered or the value of the service he has
rendered.

Art. 1425. When w/o the knowledge or against the will


of the debtor, a third person pays a debt w/c the obligor
is not legally bound to pay bec. the action thereon has
prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has
paid.

Art. 1428. When, after an action to enforce a civil


obligation has failed, the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.

Art. 1429. When a testate or intestate heir voluntarily


pays a debt of the decedent exceeding the value of the DBP v. CONFESSOR:
property w/c he received by will or by the law of
intestacy fr. the estate of the deceased, the payment is
valid & cannot be rescinded by the payer.

Art. 1430. When a will is declared void bec. it has not


been executed in accordance w/ the formalities required
by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy
in compliance w/ a clause in the defective will, the
payment is effective & irrevocable.

Art. 1960. If the borrower pays interest when there has


been no stipulation therefor, the provisions of this Code
concerning solutio indebiti, or natural obligations, shall
be applied, as the case may be.

73
74