Part One: OBLIGATION

[11
I DEFINITION AND SOURCES

Definition: Obligation is the juridical necessity to give to

do or not to do.1 It is also defined as a juridical relation
whereby a person (creditor) may demand from another
(debtor) the observance of a determinate conduct, and in
case of breach, may obtain satisfaction from the assets of the
[21 lat ter. 2

Essential Elements of Oblii:ation:

1. Juridical tie or vinculum juris - the efficient cause
established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts);
2. Object - the prestation or the particular conduct required
to be observed by the debtor (to give, to do or not to do};
3. Active subject (called the obligee or creditor)-the person
who can demand the fulfillment of the obligation; and ---
(
4. Passive subject (called the obligor or debtor)-
theperson from whom the obligation is juridically
demandable.'
◆ NOTE: Every obligation has two aspects. From the
standpoint of the active subject, the obligation is a
right. However, from the standpoint of the passive
subject, it is a debt.

[31 Sources of Oblipti ons:4

1. Law
2. Contract

1
Art. 1156, NCC.
'lMakati Stock Exchange, Inc. v. Campos, G.R. No. 138814, April 16, 2009.
'Ang Yu Asuncion v. CA, G.R. No.109125, December 2, 1994.
 4
Art.1167, NCC.

3
4 CIVIL LAW REVIEWER
CHAPTER ONE 6
OBLIGATIONS & CONTRACTS

3. ·-Qu
a si-con tra ct
[5.21 Relativity ofcontracts: Under the
4. Delict principleofrelativityof contracts, however, contracts are
5. Quasi-delict effective only between the parties, including their heirs
and assigns, except when the rights and obligations
NOTE: 1n general, obligations emanate in one hand, arising therefrom are intransmissible by their nature, or
from law; and on the other hand, from private acts (such as by stipulation or by provision of law."
contracts, quasi-contracts, delicts and-quasi-delicts). Those
emanating from private acts, in tum, are produced either is known as the principle of obligatory force of contracts.
bybilateral acts (as in contract) or by unilateral acts (as in
quasi-contract, delict and quasi-delict). Those arising
from unilaternl acts, in turn, are produced either by
lawful acts (such as quasi-contract) or by unlawful acts
(such as delict and quasi-delict).

f4] Qbliflations Arisintl From Law CEx Leif):

[4.1] Not presumed: These obligations are not to be
presumed because they constitute a limitation upon
individual freedom, imposing duties which the obligor
cannot avoid. Only those expressly determined in the
New Civil Code of the Philippines or in special laws•
are demandable. They are thus governed and regulated
by the law creating them. However, the provisions of
Book IV of the Civil Code have suppletory effect.
[4.2] Examples of obligation arising from law:
1) The obligation to pay taxes in accordance with tax
statutes.
2) The obligation of the spouses to support each other
in accordance with the provisions of the Family
Code of the Philippines.

{5] Obligations Arising From Contracts (!Ex Contractu_)'_.·_ .

[5.lJ Obligatory force of contracts: Obligations arising from
contracts have the force of law between the contracting
parties and should be complied with in good fait h.7 This
[6] Obliiations Arisini From Quasi-ContractsrEx Quasi Contrw:
rnl:
[6.11 Quasi-contract. defined: It is a juridical relation
arising from certain lawful, voluntary and unilateral
acts with the objective of preventing unjust
enrichment or benefit at the expense of another.9
{6.21 Distinguished from implied contract:
{6.2.1] Concept of implied contract: An implied
con tract, in the proper sense, is a contract
which arises where the intention of the
parties is not expressed, but an agreement
in fact, creating an obligation, is implied or
presumed from their acts, or where there are
circumstances which, according to the
ordinary course of dealing and the common
6
Art. 1158, NCC.
Id.
'Art. 1159, NCC.
understanding of men, show a mu tual intent
to contract.10
(6.2.2] Distinctions:
1) An implied contract requires consent of
the parties while quasi-contract is not
predicat ed on consent, being a unilateral
act.
2) The basis of an implied contract is the will
of the parties while the basis of a quasi
contract is law, to the end that there be
no unjust enrichment.
[6.31 Forms of quasi-contracts: There are various forms of
quasi-contracts" but the two well-known forms are that
ofnegotiorum gestio and solutio indebiti.
8
Art. 1311, 1st par., NCC.
9
Art. 2142, NCC.
10
S wedish East Asia Co. v. Manila Port Service, 26 SCRA 639.
"Art. 2143, NCC; Arts. 2164-2175, NCC.
6 CIVIL LAW REVIEWER CHAPTER ONE 7
OBLIGATIONS & CONTRACTS

[6.4] NeJ1Qtiorum Gestio: the affair and its incidents. He can

[6.4.1) Definition: It is a juridical relation which
arises when a person voluntarily takes charge
of the agency or management of another's
abandoned or neglected business or property
without the owner's
• authority.1
[6.4.2) Requisites: In order for this relation to arise,
the following must concur -
1) A person (called the officious manager or
gestor) voluntarily assumes the manage
ment or agency of the business or property
of another;13
2) The property must be neglected or aban
doned; otherwise what results is a case of
unauthorized/unenforceable contract and
ot negotf:9.rnm gestio; •
3) There is no authorization from the owner,
whether express or implied; otherwise,
what results is a contract of agency and
not nego tiorum gestio;16 and
4) The assumption of agency or management
·must be done in good faith.
[6.4.3J Effects of ratification of manaum,ent: If the
owner ratifies the management of the business,
the effects of an express agency shall be pro
duced, even if the business may not have been
successful.10.. ..• -- -- ----_- .
[6.4.4] Obligations created in nt:6otiorum estio:
a) On the part of the officious manaK,er or
us·
mi:.:
uArt. 2144(2), NCC.
16
Art. 2149, NCC.
or management until the
12
Art. 2144, NCC.
13/d.
14
Art. 2144(1), NCC.
only require the owner to substitute
him if the latter is in a position to do
so."
2) In the performance of his duties as such,
he is obliged to observe the diligence of
a good father of a family. If the owner
suffers damage by reason of the fault or
negligence of the officious manager, the
latter is liable to pay damages to the for
mer.•a The courts may, however,
increase or moderate the indemnity
according to the circumstances of each
case.19
3) Ordinarily, he is not liable for any loss - or
damage to the property or business by
reason of fortuit.ous event. But in the. _
following situations, he is liable for any
fortuitous event if he -
i. Undertakes risky operations which
the owner was not accustomed to
embark upon;
ii. Prefers his own interest t.o that of
the owner;
iii. Fails to return the property or busi
ness after demand by the owner;
iv. Assumes the management in bad
faith;20
v. Is manifestly unfit to carry on the
management, except when the
same was assumed to save the
property or business from
imminent danger; and
vi. Prevents, by his interventio-n, a
1) He is obliged to
continue with the
agency
11
termination of Art. 2144, NCC. a1 Art . 2145, NCC. '"Id.
20
Art. 2147, NCC.
 more nt person from taking up
compete the management, except
8 CIVIL LAW REV1EWER
property or business from imminent
danger.21
4) He is personally liao1e----ror contracts
which he has entered into with third
persons, insofar as the latter shall be
concerned, even though he acted in the
name of the owner.i2 Hence, as a
rule, there shall be no right of action
between the owner and such third
persons, ex cept -
b. If the owner has ratified the ma
nagement, either expressly or tac
itly; or
c. When the contract refers to things
pertaining to the owner of the busi
ness.23
5) If the officious manager delegates to
another person all or some of his duties,
he is liable for the acts of the delegate,
without prejudice to the direct obligation
of the delegate to the owner/◄
6) Liability of two or more officious mana
ge.rs_:
a. General rule: Their obligation is soli
dary.26
b. Exception: Their obligation is mere
ly joint when the management
was assumed to save the thing or
business from imminent danger.;6_
b) On thepart of the owner: The owner is liable
to the officious manager for the following:
(a) obligations incurred in his interest;
(b) necessary and useful expenses; and (c)
21
Art. 2148, NCC.
when same was assumed to save the
the
CHAPTER ONE 9
OBLIGATIONS & CONTRACTS
damages suffered by the officious manager
in the performance of his duties, in the
following situations -
1) If the owner enjoys the advantages of
the officious ma nage ment ;21 or
2) If the management had for its purpose
the prevention of an imminent and
manifest loss, although no benefit may
have been derived;23 or
3) Even ifhe did not derive any benefit
and there has been no imminent and
mani fest danger to the property and
business provided that -
a. The officious manager has acted in
good faith; and
b. The property or business is intact,
ready to be returned to the
owner.""
[6.4.5] Modes of extinguishini: the officious manali:e
:
1) Repudiation of management by the owner,
either expressly or tacitly;
2) Putting an end tomanagement by the owner;
3) Death, civil interdiction, insanity or insol
vency of either the owner or the officious
manager; and
4) Withdrawal from the management by the
of ficious manager;w but he can only do so
if the owner is in a position to substitute for
him.31
[6.5] Solutio Indebiti:
[6.5.1] Definition: It is a juridical relation which
arises when something is received when there is
no
Art. 2152, NCC.
22
'13/d. 21
Art. 2150, 1st par., NCC.
:uArt. 2146, let par., Art. 2150, 2nd par., NCC.
NCC. 29
Art. 2151, NCC.
:i-0Art. 2153, NCC.
211
Art. 2146, 2nd NCC. "Art. 2144, NCC.
pa,r.
2il/d.
10 CIVIL LAW REVIEWER
right todemand it, and it was unduly delivered
through mistakea. 2
[6.5.2) Rewiisites: In order forthis relation to arise, the
following must concur -
1) Payment is made when there exists nobind
ing relation between the payor, who has no
duty to pay, and the person who received
the payment, and
2) Payment is made through mistake, and not
through liberality or some other cause.33
(6.5.3] Obligations created:
1) The recipient has the obligation to return
what has been unduly delivered.34
2) If he acted in bad faith in accepting the un
due payment, he is also liable:
a) To pay legal interest, if a sum of
money is involved;
b) To return the fruits he received or
those which should have been
received, if the thing produces fruits;36
c) Toanswer for any loss or impairment
of the thing from any cause, until it is
re covered; and
d) To pay damages to the person who
deliv
- -ered the thing, until it is recovered.3°
3) Ifhe acted in good faith in accepting the un
due payment, he is responsible for the im
pairment or loss of the thing or its accesso
ries and accessions insofar as he has thereby
been benefited. If he has alienated it, he is
32
Art. 2154, NCC.
33
Power Commercial & Industrial Corp. v. CA, 274 SCRA 597.
"'Art. 2154, NCC.
' Art. 2159, 1st par., NCC.
6
30
Art. 2159, 2nd par., NCC.
CHAPI'ERONE 11
OBLIGATIONS & CONTRACTS
obliged to return the price or assign the ac
tion tocollect the sum."'
4) The responsibility of two or more payees,
when there has been payment of what is not
due, is solidary.38
[6.5.4] Presumption of mistake: Mistake in
payment is presumed if something which had
never been due or had already been paid was
delivered.» But the recipient may prove that the
delivery was made out of liberality or for any
other just cause."'
[6.5.5] Distini)llshed fromin rem verso:
[6.5.5.1] Concept of in rem verso: A person
who acquires or comes into possession
of something at the expense of another
without just or legal ground has the ob
ligation to return the same," and the
action for such recovery is called an ac
cion in rem verso.
(6.5.5.2) Elements: In order that accion in rem
verso may prosper, the following
requi sites must be present -
1) That the defendant has been en
riched;
2) That the plaintiff has suffered a
loss;
3} That the enrichment is without
just or legal ground; 8.1,1<\
4} That the plaintiff has no other
action based on contract, quasi
contract, crime or quasi-delict.0
ill Art. 2160, NCC.
""Art. 2157, NCC.
89
Art. 2163, NCC.
"'Id.
0
Art. 22, NCC.
'SUP v. Philab Industries, Inc., G.R. No. 152411,September 29, 2004.
12 CIVIL LAW REVIEWER
[6.5.5.3] Distinctions:
1) Mistake is an essential element
in solutio indebiti which is not
necessary in accion in rem
verso.
2) An accion in rem verso is consid
ered merely an auxiliary action,
available only when there is no-- -
other remedy on contract, quasi
contraet, crime or quasi-delict.
If there is an obtainable action
under any other institution of
positive law, that action must be
resorted-t o, and the principle of -·
accion in rem verso will not lie.(3
Hence, if the delivery is by rea son
of mistake, the action must be
based on the quasi-contract of
soluti'.o ind ebiti and not under in
rem verso.
[6.6) Other forms of quasi-cont racts:
[6.6.1] Su,pport and funeral expenses:
1) If support wa-s given by a stranger, without
the knowledge of the person obliged to
give support, the former has the right to
claim re imbursement from the latter unless
he gave it out of piety and without intention
ofbeing· repaid.«
2) When support is unjustly refused by the
person obliged to give it and a third person
furnished the same when urgently needed,
the latter h?L the right to demand reim
bursement from the former unless the same
wasgiven without the intention of being re
imbursed. This also applies when the
father
or mother of a minor unjustly refuses to sup-
5
' Art. 207, FC; Art. 2166, NCC.
CHAPTER ONE 13
OBLIGATIONS & CONTRACTS
- --·- - - - --- - -······- ·- ·-·-··-··-·- ·- - - -·-·
port or fails to give support to the child
when urgently needed.46
3) When funeral expenses are borne by a third
person, without the knowledge of the rela
tives whowere obliged to give support to
the
- deceased, the former may claim reimburse
ment from the latte r.46
[6.6.2] Accident and calamities:
1) Wnen··aunnga fire; ··oood, storm, or
other calamity, property is saved from
destruction by another person without the
knowledge of the owner, the latter is bound
to pay the for mer just compensati<>n-:"
2) When through an accident or other cause
a person is injured or becomes seriously
ill, andheistreated or helped while he is
not in a condition to give consent to a
contract, he shall beliable for the
services of the physi cian or other person
aiding him, unless the service has been
rendered out ofpure gener osity."'
3) When in a small community a majority
of the inhabitants of age decide upon a
mea sure for protedion against
lawlessness, fire, flood, storm or other
calamity, anyone who objects to the plan
and refuses to contri bute to the expenses
but is benefited by the project as
executed shall beliable to pay his share
of said expenses.•9
[6.6.3] Other situations:
1) A third person who pays the debtor's
indebt edness without the latter's
knowledge is en titled to demand
reimbursement but only up
43
U.P. v. Philab Industries, Inc., ..Art. 2165, NCC.
supra. "Art. 2168, NCC.
..Art. 2164, NCC; Act. 206, FC. ..Art. 21 67 , NCC.
49
Art. 2174, NCC.
14 CML LAW REVIEWER
to the extent that thepayment has benefited
the debtor.'"
2) Any person who is constrained to pay the
taxes of another shall be entitled to reim
bursement from the latt er.51
3) When the government, upon ihe failure of
- - ·-· any person to comply with health or
safety regulations concerning property,
under takes to do the necessary work, even
over his objection, he shall be liable to
pay the expenses.52 ·-
[7) Obligations Arising From Delicts CEx Delu;to):
[7.11 Basis of civil liability ex delicto: Generally, the basis
of civil liability arising from crime is the fundamental
postulate of our law that "every person criminally
liable fora felony is also ciuilly liable."03 Underlying the
foregoing principle is the view that from the standpoint
of its effects, a crime has dual character: (1) as an
offense against the State because of the disturbance of
the social order; and (2) as an offense against the private
person injured by the crime unless it involves the crime
of treason, rebellion, espionage, contempt and others
wherein no civil liability arisesonthe part of the offender
either because there are no damages to be compensated
or there is no private person injured by the crime."' In
the ultimate analysis, what gives rise to the civil liability
is really the obligation of everyone to repair or to make
whole the ..damage caused by another byreason ofhis act
or omission, whether done intentionally or negligently
and whether or not punishable by law.5G In other words,
criminal liability will give rise to civil liability
only if the same felonious act or omission results
in damage or injury to another and is the direct
00
Art. 2136, NCC; Art. 2173, NCC.
"'Art. 2175, NCC.
62
Art. 2169, NCC.
68
Art. 100, RPC.
"'Occena v. lcamina, 181 SCRA 328.
r,i,ld.
15
CHAPTERONE
OBLIGATIONS & CONTRACTS
and proximate cause thereof. Damage or injury to
another is evidently the foundation of the civil
action.,&
(7 .2 ] Effect of acguittal of accused: Our law recognizes two
kinds of acquittal, with different effects on the civil
liability of the accused (based on delict) -
[7.2.1] Not author of act or omission: First is an
acquittal on the ground that the accused is not
the author of the act or omission complained
of. This instance closes the door to civil
liability, for n person who has been found to be
not the perpetrator of any act or omission
cannot and can never be held liable for such act
or omission. There being no delict, civil
liability ex delicto
is out of the question, and the civil action, if
any, which may be instituted must be based
on grounds other than the delict complained
of.5' This is the situation contemplated in Rule
111 of the Rules of Court, which says that the
civil action based on delict shall be deemed
extinguished if there is a finding in a final
judgment in the criminal action that the act or
omission from which the civil liability may
arise did not exist.5-'l
NOTE: The afore-quoted section (Section
2 of Rule 111) applies only to a civil action
arising from crime or ex delicto and not to
a... civil action arising from quasi-delict or
culpa aquiliana. The extinction of civil
liability re ferred to in Section 2(b)ofRule 111
refersex• clusively to civil liability founded
on Article 100 of the Revised Penal Code,
whereas the civil liability for the same act
considered as a quasi-delict only and not as
a crime is not ex tinguished even by a
declaration in the crim inal case that the
criminal act charged has not happened or
has not been committed by
· the accused. 9 As regards civil liability aris-
68Banal v. Tadeo, Jr.,156SCRA 325.
7
Manan ta n v. CA, 350 SCRA 387.
 68 59
Sec. 2(h), Rule 11l, 2000 Rules of Criminal Procedure. Manliclic v. CaJaunan, 512 SCRA 642.
16 - CML LAW REVIEWER · - -- CHAPTER ONE 11 · --
OBLIGATIONS & CONTRACTS

ing from quasi-delict or culpa aquiliana,

ranted only where additional facts have t.o
the same will not be extinguished by an
be established or more evidence must be ad
acquit tal, whether it be on ground of
duced or where the criminal case has been
reasonable doubt or that accused was not
fully terminated and·a separat.e complaint
the author of the act or omission
would be just as efficacious or even more
complained of (or that there is declaration
expedient than a timely remand t.o the trial
in a final judgment that the fact from which
court where the criminal action was decided
the civil liability might arise did not exist).
for further hearings on the civil aspects of
The responsibility aris ing from fault or
the case.s-1
negligence in a quasi-delict is entirely -- ... ...... . .. ... ·- +· • •" ·

separate and distinct from the civil liability [7.3] lnsta.w:.eJL.where acquittal does not extinguish
arising from negligence under the Penal civil liability: The acquittal of the accused does not
Code. An acquittal or conviction in the aut.omati cally preclude a judgment against himon the
criminal case is entirely irrelevant in the civil aspect of the case. The extinction of the penal
civil case based on quasi-delict or culpa action does not
aquiliana.60 carry with it the extinction of the civil liability where:
[7.2.2) Reasonable doubt: ....... ...... -- - -
1) The acquittal is based onr easonable-doubt as only
The second instance is an
ac- preponderance of evidence is required.
quittal based on reasonable doubt on the guilt
of the accused. In this case, even if the guilt of 60Manliclic v. Calaunan, supra.
the accused has not been satisfactorily estab 6
'Mananta n v. CA, supra.
from
lished, he is not exempt civil liability based Padilla v. CA, 129 SCRA 558.
113fd.
ondelict which may be proved by
preponderance of evidence only. This is the
situation contem plated in Article 29 of the
Civil Code, where the civil action for damages
is "for the same act or omission."tit
-- ..........- - - - - •• +• +•

NOTE: The court may acquit the accused

based on reasonable doubt and, at the same
time, order the payment of civil liability al
ready proved in the same case without need
fora separate civil action.•• To require a
sep arate civil action simply because the
accused was acquitted would mean
needless clogging of court dockets and
unnecessary duplica tion of litigation with
all its attendant loss of time, effort, and
money on the part of all concerned.63 A
separate civil action is war-
 2) The court declares that the liability of the accused
is
only civil.
3) The civil liability of the accused does not arise
from or is not based upon the crime of which
the.accused_ is acqui t t.ed. 611
[7.41 Pr ocedu·rewhen demurrer to evidence is
anted: If the demurrer to evidence filed by the
accused is granted and tlie accused is acquitted
by the court, the accused has the right to adduce
evidence on the civil aspect of the case unless
the court also declares that the act or omission
from which the civil liability may arise didnot
exist. This is because when the accused files a
demurrer to evidence, he has not yet adduced
evidence both on the criminal and civil aspects
of the case. The only evidence on record is the
evidence for the prosecution. What the trial
court should dois issue an orderor partial
judgment granting the demurrer to evidence and
acquitting the accused, and set the case for
continuation of trial for the accused to adduce
evidence on the civil aspect of the case and for
the private complainant to adduce evidence

64
Padill a v. CA, supra.
66
Dayap v. Sendiong, 577 SCRA 134.
18 CML LAW REVIEWER
by way of rebut al. Thereafter, the court shall render
judgment o the civil aspect of the case.111:1
1
[7 Rule of imphed institution of civil action based on
5] delict:
(7 .5.1.J General nile: When a criminal action is insti-
tuted, the civil action for the recovery of civil
li ability ex delicto is deemed instituted with
the criminal action.•1
[7.5.2) Exc¢ptions: The civil action is not deemed in
stituted with the criminal action if the offended
party-
1. Waives the civil action;
2. Reserves his right to institute it sepa r
ately; or
3. Institutes the civil action prior to the
criminal action.68
NOTE: The civil action which is deemed
instituted with the criminal action is one
which is based on the delict. All the other
civil actions under Articles 32, 33, 34, and
2176 of the Civil Code are no longer
deemed instituted, and may be filed
separately and prosecuted independently
even without any reservation in the
criminal action.60
[7.61
Effect of death of accused pending appeal of his
convic iiml: If the accused dies during the pendency of
his ap peal and before the finality of the judgment against
him,
the following are the effects -
1) With respect to his criminal liability, the same is
extinguished.10
I
2) With respect to his civil liability arising from the
crime or delict (or civil liability ex delicto), the same
MDayap v. Se ndiong , supra.
67
Sec. I, Rule 111, 2000 Rules of Criminal Procedure.
CHAPTER ONE 19
OBLIGATIONS & CONTRACTS
is also e ti ngui shed.71 The death of the
accused during the pendency of his appeal
extinguished the civil liability that wa.s based
exclusively on the crime for which the accuse' d wa
convicted (i.e.,ex delicto), because no final judgmept
of conviction was yet rendered by the time of his
deat h.12
3) Only civil liability predicated on a source of
obligation other than the delicl survived the death
of the accused, which the offended party can
recover by means of a separate civil action. The
claim for civil liability survives notwith tanding
the death of the accused, if the same maya o be
predicated on a source of obligation other than
delict.73
4) Where the civil liability survives, an action for
recovery therefor may be pursued but onlyby way of
filing a separatecivil action.This separatecivil action
may be enforced either against the executor/admi
nistrator or the estate of the accused, depending
on the source of obligation upon which the same
is based. Finally, the private-offended party need
not fear a forfeiture of his rig t tofile this separate
civil action by prescription, iri cases where during:
the prosecutiqn of the criminal action and prior to:
its extin ction, : the private offended party instituted
togetherlth erewit h the civil action. In such case,
the statute oflimitations on the civil liability is
deemed interrupted during the pendency of the
criminal case, copformably with the provisions of
Article 1155 of'the Civil Code that should thereby
avoid any apprehension on a possible privation of
right by
prescn•p!ti•on. •
1
11
People v. Bayotas, 236 SCRA 239; Villegas v. CA, G.R. No. 82562, April 11,
1997; People v. Abungan, G.R. No. 136843, September 28, 2000; Gov. Looyuko, 537
SCRA 445. '
. "People v. Bunay, 630 SCRA 445, September 14, 2010, citing People v.
88/d.
•causapan v.Laroya, G.R. No. 145391, August 26, 2002.
 10
Art. 8 9(1), RPC.
20 CML LAW REVIEWER
[8] Obligations Arising From Quasi-Delicts CEx Cuasi Delito):
[8.lj Requisites for recovery: To sustain a claim based on
quasi-delict, the following requisites must concur:
1) Damage suffered by the plaintiff;
2) Fault or negligence of the defendant; and
3) Connection of cause and effect between the fault or
negligence of defendant and the damage incurred
by the plaintiff.75
[8.21 Distin uished from delict: A quasi-deJict is a separate
legalinstitution under the CivilCodewith asubstantivity
all its own, and individuality that is entirely apart and
independent from a delict or crime - a distinction exists
between the civil liability arising from a crime and the
responsibility for quasi-delict. The differences pointed
out between delict and quasi-delict are the following -
1) That crimes affect the public interest, while quasi
de]icts are only of private concern;
2) That, consequently, the Penal Code punishes or
corrects the criminal act, while the Civil Code,
by means of indemnification, merely repairs the
damage; and
3) That delicts are not as broad as quasi-delicts,
because the former are punished only if there is a
penal law clearly covering them, while the latter,
quasi-delicts, include all acts in which any kind of
fault or negligence inte rvenes.'16
[8.31 Scope of Q.uasi-delict:
[8.3.1] Also covers acts or omissions criminal in charac
:w..r: Article 2176 of the Civil Code, where it re
fers to"fault or negligence," covers not only
acts "not punishable by law " but also acts
criminal in character, whether intentional and
voluntary
Bayotas, supra.!
7 S[d .
"People v. Ayochok, 629 SCRA 324, August 25, 2010, citing People v. Bayotas,
supra.
or negligent.77 Hence, the same intentional, vol
untary or negligent act causing damages and
punished by law may produce two kinds of
civil liability: (1) civil liability arising from the
crime under Article 100 of the RPC; or (2)
civil liability arising from quasi-delict under
Article 2176 of the Civil Code.78 As a
consequence of the forego ing rnle-
1) Recall that upon the death of the accused
during the pendency of the appeal and be
fore the finality of the judgment, the civil
liability arising from the crime is also ex
tinguished together with the criminal, but
claims for civil liabili ty predicated on a
source other than the delict survive. Since
the same criminal act also produces a civil
liability based on quasi-delict, the latter is
not extinguished by the death of the
accused even if such liability is based on
the same act or omission.
2) Recall that upon the acquittal of the
accused on the ground that heis
nottheauthor of the act or omission
complained of extinguishes only the civil
liability based on the delict but not the civil
liability based on quasi-delict. Since the
same criminal act also produces a civil
liability based onquasi-delict, the latter is
not extinguished by the said acquittal of
the accused.
[8.3.2] Also covers damage to property: The concept of
quasi-delict under Article 2176 of the Civil Code
is so broad that it includes not only injuries
to persons but also damage to property. It makes
no distinction between "damage to persons" on
the one hand and "damage to property" on the
oth er .' 0
 76
DyTehan Trading, Inc. v. Ching, 543 SCRA 560; BPI v. Lifetime Marketing
Corp., 555 SCRA 373; Corinthian Gardens Association, Inc. v. Tanjangco, 556 77
Safeguard Security Agency, Inc. v. Tan,gco, 511 SCRA 67; Elcano v. Hill, 77
SCRA 154; Ngo Sin Sing v. LiSeng Giap & Sons , Inc., 572 SCH.A 625. SCRA 89; Garcia v. Barredo, supra.
7
6Garcia v. Barredo, 73 Phil. 60: Diana v. Batangas Transportation Co., 93 , sl d .
Phil. 392. 79
Cin co v. Canonoy, G.R. No. L-33171, May 31, 1979.
22 CML LAW REVIEWER CHAPI'ER ONE 23
oaLIGATION &CONTRACTS
"°Art. 2177, NCC.
"'Air France v. Carrascoso, 18 SCRA 155; Singson v. BPI, 23 SCRA 1117; YHT
[8.3.3] Prohibition against double recovery: The Civil Realty Corp. v. CA, 451 SCRA 638.
Code expressly prohibits the plaintiff, however,
82
Light Rail Transit Authority v. Navidad, 397 SCRA 75, 82-83; Schmitz Transport &
Brokerage Corp. v. Transport Venture, Inc., 456 SCRA 557.
from recovering damages twice under delict and
quasi-de1ict "for the same act or omission" of the
def d a nt .80
i

[8.4] Effect of pi;e-existing contractual relations: The exist

ence of a contract between the parties does not bar
the commission of aitort (quasi-delict) by one against
the
other and the con'sequent recovery ofdamages
therefore, when the abt that breaks the contract is
also a tort.81 In other words, when an act which
constitutes a breach of contract would have itself
constituted the source of a quasi-delictual liability
had no contract existed be tween the parties, the
contract can be said to have been breached by tort,
thereby allowing the rules on•tort to
apply.s2 ,
[8.5] Culva contractua;t and culpa extra contractual <or
culpa
aquiliana). distinguished:
1) In the first, the source ofobligation is contract;
while in the second, the source ofobligation is
quasi-delict.
2) In the first, the negligence is merely incidental to
the performance of an already existing obligation
(arising from contracts) and that the vinculum
juris exists independently of the negligence;
while in the second, the negligence is substantive
and independent in that it is the negligence itself
which creates the vinculum.
3) In the first, proof of the contract and of its non
performance is sufficient prima facie to warrant
recovery, hence, it is not necessary to prove the
negligence. In the second, the burden of proof rests
upon the plaintiff to prove the negligence and
failul;'e to do so shall result in the dismissal of the
action. 1

[8.6] SAMPLE PROBLEM: Taxi driver, driving
recklessly, killed his passenger.!Discuss the source
of obligations of the driver and his employer to the
passenger and the
defenses available to the employer.
ANSWER: There are three possible sources of obliga
, tions in this situation.
[8.6.1] Breach of Contract of Carriafle:
1) The source of liability is the breach of
the contract because a common carrier
is obliged to bring its passenger safely
to his destina tion.63
2) Who shall be liable? The liability
devolves upon the employer because
the drive is not a party to the contract
of carriage and may not be held liable
under the contract."'
' 8. IArt. 1759, par. 2, NCC.
3) The employer cannot relieve himself
of liability by proving that he
24 CIVIL LAW REVIEWER
[8.6.2] Delict {crime of reckless imprudence resulting to
---- homicide}:
1) The source of obligation is the crime comJJ:1: t
ted by the employee.
2) Who shall beliable? The employee is directly
and primarily liable, while the employer is
subsidi-arily -lia b-le: 88 I f the cause of
action - against the employee was based on
delict, it is not correct to hold the employer
jointly and severally liable with the employee,
based on quasi-delict under Articles 2176 and
2180 of the Civil Code. Articles 2176 and
2180 of the Civil Code pertain to the
vicarious liability of an employer for quasi-
delicts that an em ployee has committed. Such
provision oflaw does not apply to civil
liability arising from
delict._a_.L -- - --- -- - - - -···-·-·
exercised all the diligence of a good father
of a family in the selection and supervision
of his employees.86 At best, such proof of
due diligence may only serve to mitigate
his liability.
4) The plaintiff is not required to prove the
exis tence of negligence in order to recover.
Proof of the contract and ofits non-
performance is sufficient prima facie to
warrant recovery.86 Under the law on
common carriage, in fact, the common
carrier is presumed to have been at fault or
to have acted negligently1in case of dea th of
or injuries to passen ers.•1
8.'lArt . 1755, NCC.
"'FGU Insurance Cotp. v. G.P. Sarmiento Trucking Corp., G.R. No. 141910,
Augu!lt 6, 2002.
FGU Insurance Corp. v. G.P. Sarmiento Trucking Corp., supra; Calalas v.
CA, 332 SCRA 356.
67
Art. 1756, NCC.
OBLIGATIONS & CONTRACTS
d) The execution against the em• ploye-
e-s has not been satisfied due to
insolven cy.90
NOTE: The determination of the forego-
.. ___}n_g_conditions may be done in the
same criminal action in which the
employee's liability, criminal and civil, has
been pronounced, in a hearing set for that
precise purpose, with due notice to the
employer, as part of the proceedings for the
execution of the judgment.&1 If all the
foregoing requisites are present, the em
ployer becomes ipso facto subsidiarily Ii-
- able upon the employee's conviction and
upon proof of the latter's insolvency.92
4) A judgment of conviction sentencing a de
fendant employee to pay an indemnity in
the absence of any collusion between the
de
 3) Requisites in order for the subsidiary liabil
ity of the employer to attach: The
provisions of the RPC on subsidiary
liability-Articles
-W2 and 103-aredeemed written into
the judgments in cases to which they are
appli cable. Thus, in the dispositive portion
of its decision, the trial court need not
expressly pronounce the subsidiary liability
of the em ployer. Nonetheless, before the
employer's subsidiary liability is enforced,
adequate evidence must exist establishing
that -
a) They are indeed the employers of
_ the convicted em ployees;_
b) They are engaged in some kind
of industry;
c) The crime was committed by the
employees in the discharge of
their duties; and
88
Art. 103, RPC.
89Calang v. People, 626 SCRA 679,August 3, 2010.
26 CML LAW REVIEWER
istence of a contract between the parties is
not a bar to the recovery of civil liability
un der quasi-delict, if the same act that
breaks the contract is also a tort. Hence, in
the giv en situation, quasi-delict is another
possible source of obligation.
2) Who shall be liable under quasi-delict?
a) The employee, under Article 2176 of the
NCC; and/or
b) The employer, under Article 2180 of the
NCC.
3) In quasi-delict, the negligence or fault _should .
be clearly established because it is the basis
of the action...
4) Whenever an employee's negligence causes
damage or injury to another, there instantly
fendant and the offended party is conclusive
upon the employer in an action for the e-n
forcement of the latter's subsidiary liability
not only with regard to the civil liability,
but also with regard to its amount.93
5) Here, the employer cannot relieve himself of
liability by proving that heexercised all the
diligence of a good father of a family in the
selection and supervision of his employees.
This is so because of the very nature of the
obligati':)
_n. (8.6.3) Quasi-Delict:
1) Note that the same..act or omission, charac
terized by fault or negligence, may produce
two distinct sources of obligations: (1 )
delict; or (2) quasi-delict. Note further that
the ex-
00
Calang v. People, supra; see also Joaquin v. Aniceto, 120 Phil. 1110; Pajarito
v.Seneris, 87 SCRA 275; Carpio v. Doroja, G.R. No. 84516, December 5, 1989.
91/d.
92
93 Carpio v. Doroja, supra.
Vda. de Paman v. Seneris, 115 SCRA 709.
employer under Article 2180 of the
NCC is direct and primary, subject to
the defense of due diligence in the
selection and supervision of the
employee.9<I If the em ployee and the
employer are sued together, their
liability is solidary.•1 - -
· - ---- -- - - -
6) An employer's liability for acts of
its employ ees attaches only when
the tortuous conduct of the
employee relates to, or is in the
course of, his employment. Hence,
an employer in curs no liability
under quasi-delict when an
5)
 O acting on their own and beyond the range
B
L of their employment.!l(j
I
G 7) In quasi-delict, the employers are liable
A
T for the damages caused by their employe€s
I acting within the scope of their assigned
O
N tasks.99 Under the law on common carriage,
S howe ver, the common carrier or employer is
&
liable for the death of or injuries to passen gers
through the negligence or willful acts of the
C former's employees, although such em ployees
O may have acted beyond the scope of their
N
T authority or in violation of the ordersof the
R common carrier or employer1.00 And such
A liability does not cease upon proof that the
C
T common carrier or employer exercised all
S the diligence of a good father of a family in
the selection and supervision of its employ
ees.101 Note that in the latter, the source of
yond the employer's obligation is not quasi-delict
range
employ - ---·-hut -t he contract-ef common carriage.
ment
such KINDS OF OBLIGATIONS
when
the
A Civil and Natural Obligations
employe
esBasis of Classification: From the view point of their juridical
staging
quality and/or efficaciousness, obligations are classified into-
a
Civil Obligations - Those that are based on positive law
in and give a right of action to compel their performance; 102

[9] case,
and
they
Natural Obligations - Those that are based on equity
consider
and natural law and which do not grant a right of action to
edenforce
employee's conduct, act or omission is be-
98Universal Aquarius, Inc. v. Q.C. Hum.an Resources Managemen t Cor,p. 533
SCRA 147.
99
"'Calalas v. CA, 332 SCRA 356. Mendoza v. Soriano, 524 SCRA.260.
00
Real v. Belo, 513 SCRA 111; ManJiclic v. Calaunan, 512 SCRA ' Art. 1759, NCC.
IOl[d.
642. 02
.. Aguila v. Baldovizo, 517 SCRA 91. ' Art. 1423, NCC.
t?Mercury Drug Corp. v. Huang, 525 SCRA 427.
28 CM L L A W REVIEW ER their performance, but after voluntary fulfillment by the obligor,
- ·- - -
they authorize the retention of what has been delivered or rendered
 by reason thereof.103 -
[10) Natural and Purely Moral Obliga-tions, Distine:uished:
While both kindsofobligations are not enforceable in courts and
their performance depend upon one's conscience, they differ in
the following respects -
1) In natural obligation, there is a juridical tie (although
the same has been rendered ineffective by some
special circumstance, such as prescription or statute
of limitations); while there is none in a purely moral
obligation
2) As a consequence, the law does not recognize any legal
consequence arising from a purely moral obligation
while the law recognizes c..-ertain legal effects flowing
out of a natural obligation, as follows:
a. In case --of -·volun ta ry fulfillment of a natural ·
obligation by the debtor, the creditor is authorized
to--retain what has been delivered or rendered by
reason thereof.10• But in order forthe performance
or fulfillment of-a -Ratural obligation to be
considered "voluntary," the debt.or must have
acted with knowledge that he cannot be compelled
to perform the obligation. If the performance of the
obligation was by reason of mistake, the debtor
can recover the payment on the basis of solutio
indebiti."'" Note that Article 1960 of the NCC
recognizes the distinction between solutio indebiti
and voluntary payment ofnatural obligations.
b. A natural obligation can be ratified and converted
int.o a civil obligation.
c. A natural obligation can be guaranteed106 which,
in effect, results in the ratification and conversion
of the same into a civil obligation.
10
•Art. 1423, NCC.
!().1/d.
106
Art . 2166, NCC.
"l<IArt. 2052, 2nd par., NCC.
CHAPTER ONE 29
OBLIGATIONS & CONTRACTS
[11) Examples of Natural Obligations under the Civil Code:
1) When the right tosue upon a civil obligation has
lapsed by extinctive prescription (or barred by statute
of limitations), the obligation is converted int.o a
natural obligation.'"'
2) The debtor may not be compelled t.o pay monetary
interest on a loan unless the same has been expressly
stipulated in writing.108 However, if the -borr
ower voluntarily pays the monetary interest in the
absence of stipulation therefore, he cannot recover the
same because such voluntary payment is a case of
natural obligation.109 But if the payment of the interest
was by reason of mistake, the debtor may still recover
it pursuant to solutio indebiti .1'0 _
3) When without the knowledge or against the will of the
debtor, a third person pays a debt which the-obligor
is not legally bound to pay because the action thereon
has prescribed, the third-party payor may not demand
reimbursement from the debtor because such payment
has not been beneficial to the lat ter .111 The
obligation of the debt.or to the third-party payor is not
civil, but a natural one. Hence, if the debtor later
voluntarily reimburses the third person, he cannot
recover what he has paid.112
4) 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.115
5) The rule is that an heir is not liable beyond the
valueof the property he received from the decedent.'"
But when he voluntarily pays a debt of the decedent
exceeding the value of the property which he
received by will or
107
Art . 1424 , NCC.
108
Art. 1956, NCC.
109
Art. 1960, NCC.
nord.
mArt. 1236, 2nd par., NCC-
112Art. 1425, NCC.
113Art . 1428, NCC.
1HArt . 1311, 1st par., NCC.
30 CML LAW REVIEWER
by the law of intestacy from the estate of the deceased,
the payment is valid and cannot be rescinded by the
pay-0r.m
6) When a will is declared void because it has not been
executed in accordance with theformaHties required
by law, the estate shall pass to the legal or intestate
heirs by the law ofintestacy. But if oneof the intestate
heirs, after the settlement ofthe debts of the
deceased, paysa legacy in compliance with a clause
in the defective will, the payment is effective and ir
revocable.116
B. Real and Personal Obligations
[12] Basis of Classification: From the view point of the kind of
prestation present in an obligatlon, it is classified either as -
a) Real Obligation - which involves an obligation to
give or to deliver. A real obligation, in turn, is either:
Determinate or Specific Obligation - which
involves an obligation to deliver a determinate or
specific thing; or
Indeterminate or Generic Obligation - which
involves the obligation to deliver an indeterminate
or generic thing.
b) Personal Obligation - which involves an obligation
to door not to do. A personal obligation, in turn, is
either:
Positiue - which involves an obligation to do; or
Negative - which involves an obligation not to do.
[13] Determinate or Specific Oblir:ation:
[13.11 When considered determinate: A thing is
considered determinate or specific when it has been
particularly designated or physically segregated from
all others of the same class or species.117
111
Art.1429, NCC.
CHAPI'ERONE 31
OBLIGATIONS & CONTRACTS
[13.21 Accessory obligations in detenninate ones: In a deter
minate obligation, the principal obligation of the debt or
is to.deliver the specific or determinate thing due. In
every determinate obligation, however, the following
obligations are considered accessory -
[13.2.1] The obligation to preserve the thing to be
•· delivered with the proper diligence of a good
father of a family, unless the law or the
stipulation of the parties requires .another
standard of care.11•
Reminders:
a. The parties may validly agree on a kind of
diligence which is lower than that ofa good
father of a family, e.g., slight care.·····-··-·
b. The parties mayalso validly agree on a
degree of diligence which is higher than that
of a· good father of a family, e.g., extra-
ordinary diligence.
c. The parties may also validly agree to make
the debtor liable even if the loss or
deteriora tion is byreason of fortuitous
event.m
d. But the parties maynot validly agree
tomake the debtor absolutely exempt from
any li ability arising from his own
negligence. Such waiver is contrary to
public policy.
[13.2.2] The obligation to deliver the fruits if the
creditor is already entitled to it.120
Reminders·: -
a . .. The . rn djtor acq\!ll'es a right to demand for
the delivery of the fruits of the determinate
thing due from the time the obligation to de
liver the determinate thing arises.121
1
" Art. 1430, NCC.
111
Art. 1400, 1st par., NCC.
118
Art. 1163, NCC.
llDArt. 1174, NCC.
120
Art. 1164, NCC.
1211d.
32 · GML LAW-REVJEWER
b. The obligation to deliver the determinate
thing ordinarily arises.at the_time of the
per fection of the contract, if contract is the
source of the obligation,122 except if the
obligation to deliveris made to depend upon
the happening of a suspensive condition, in
.which case, the obligation arises only upon
the happening of
.the saicLcondition.' 23·········· --
c. But if the obligation to deliver the specific
thing is subject merely to a term or period,
as when another date has been fixed for the
delivery of the thing, it must be understood
that the right of the creditor to the fruits be
gins from the moment the uinculum attaches
or upon the perfection of the contr act.••1 Note
that Article 1164 of the NCC speaks of-the
arising or birth of the obligation to deliver,
and ·nnt of the demandability of its perfor
mance.'26
[13.2.3] The obligation to deliver the accessions and
accessories, even though they may not have
been mentioned.126
[13.3] Alternative remedies of the creditorin-case of:breach of
a determinate obligation:
··-
1) Right to compel the debtor to deliver the deter-
minate thing due in an action for specific perfor-
with a right to recover damages.' 27
2) Right to rescind the obligation, in proper cases,
with a right to recover damages.
3) Right to recover damages where it is the only
feasible remedy.
122Art . 1315, NCC.
1
Art. 1181, NCC.
i 2 -
mrv Vicente Francisco, Ciuil Code oft Philippines, p. 50.
' Id.
l:leArt. 1166, NCC.
mArt. 1165, 1st par., NCC.
CHAPTER ONE 33
OBLIGATIONS & CONTRACTS
[14] Indeterminate or Generic Obligations:
[14.1] When considered neric: A thing is generic if it has
been designated merely by its class or genus.
(14.2] Remedies in case of breach: In case of breach of
generic or indeterminate obligations, the following are
the alternative remedies of the creditor:
1) Right to compel the debtor to make the
deliv ery of the generic thing, with a right to
recover da mages .
2) Right to ask another person to make the
deliv ery, at the expense of the debtor,"'"
with a right to recover damages.'29
3) Right to rescind the obligation, in proper cases,
with a right to recover damages.
[15] Positive Personal Obligation:
[15.1] When considered breached:
a) If the debtor fails to do the obligation; or
_ .. .b) Even in case of performance but the same is
done either in a poor manner or in contraven
tion of the tenor of the obligation.130
(15.2] No compulsion of debtor: In case of breach of an
obligation to do, the creditor may not compel the debtor
to perform the act required against the latter's will
because the same amounts to involuntarily servitude,
mance, which is prohibited under the Constitutio,n,, a and such
compulsion may amount to coercion, which is
penalized under the Revised Penal Code1.32
(16.3] Remedy in case of non-performance: In cas1H>fnon-
per formance of an obligation to do, the creditor is
entitled to ask another person to perform the obligation
and
128
Art. 1165, 2nd par., NCC.
"'"Art. 1170, NCC.
'
30
Art. 1167, NCC.
131
Sec. 18(2), Art. Ill, 1987 Philippine Constitution.
 '3'.!Art . 286, RPC.

34 . .. CIVIL LAW REVIEWER

CHAPI'ER ONE 35 .
OBLIGATIONS & CONTRACTS

to have the cost thereof charged against the debtor,133

-· rn addition to his right to·recover damages from the -
debtor.'·" But if the personal qualificationsof the debtor
have been taken into consideration in the constitution
of the obligation, this Temedy is unavailing, in which
- case, the only remedy of the creditor is to demand
pay ment of damages from the debtor.
[15.4) Additional remedy todemand undoing: In cases where
the performance of the obligation is done in a poor
manner or in contravention ofthe tenor ofthe
obligation, the creditor has an additional remedy of
demanding for the undoing of what has been done (if
the same is still possible), at the expense of the
debtor, in addition to his right to avail of the remedies
mentioned in Section
15.3 above1.36
[161 Negative Persona] Obligailim:
[16.11 Nature of creditor's right: The rigfil of the creditor is
not to demand an act but an omission, and its non
fulfillment consists in executing the act of which the
obligor is forbidden to do.
{16.21 Remedies of creditor in case of breach of obligation: If
the obligor does what he is forbidden to do, the creditor
may demand the undoing of what has been done at the
expense of the obligor,.'.:"' in addition to the creditor's
right to recover dam ages. •
13
If it becomes
physically or legally impossible to exercise the right to
demand the undoing of what has been done, the remedy of
the creditor is simply to recover damages from the debtor.
(17) Remedies of Creditor to Protect and Enforce His Credit: The
creditor may avail of the following remedies, in the order
mentioned:
1) To exhaust the properties of the debtor;
2) To be subrogated to all of the rights and actions of the
debtor, save those which are inherent in his person
(accion subrogatori.a); and
3) To impugn all of the acts wnich the debto-r may have
done to defraud him (aceion pauliana).'38 'l'he second and
third remedies, however, are subsidiary to the first.
Breach of Obligations
[18] Causes of Non-Performance of Obligations: May either be-
a) Involuntary - Those causes which are independent
of the will of the parties, such as fortuitous event and
forc<?,_majeure; _CJ:r
b) Voluntary - Those causes which arise from the will
of the parties, such as:-(1) mora or delay; (2) dolo or
fraud, (3) culpa or negligence; and (4) contravention of
the tenor of the obligation.
[19] Mora or Delay:
[19.1] Kinds of delay or mora:
[19.1.1] Mora soluendi - (or debtor's default), is
defined as a delay in the fulfillment of an
obligation, by reason of a cause imputable to
the debtor.'39
[19.1.2) Mora accipiendi - (or creditor's default), it
relates to delay on the part of the obligee in
accepting the performance of the obligation by
the obligor.1•0 The requisites of mora
accipiendi are the following:
1) An offer of performance by the debtor
who has the required capacity;
2) The offer must be to comply with the
prestation as it should be performed; and

137
133
Art. 1170, NCC.
Art. 1167, 1st par., NCC.
l:UArt_ 1170, NCC.

J.J6Art. 1167, 2nd par., NCC.

136
Art . 1168, NCC.
 138
Art. 1177, NCC.
139
Selegna
Management and
Development Corp. v.
UCPB, G.R. No.
165662, May 3, 2006.
140
Pantal eon v.
American Expres!I
Inte rnatio nal, Inc.,
G.R. No. 174269,
May
8, 2009.

36 CML LAW REVIEWER -
3) The creditor refuses the performance
without just cause.1L -
_[19.1.3] Compensation morae - default on the part
of both parties because neither has
completed their part in their reciprocal
obligation.•1 2
(19.2] Mora solvendi: Mora solvendi, or debtor's default, is
defined as a delay in the fulfillment of an obligation,
by reason of a cause imputable to the debtor"3 or
because of dolo (malice) or culpa (negligence).'"'The
delayin the performance of the obligation must be
either malicious or negligent, otherwise, the debtor
cannot be held
-· liable for damages.146 In order that the debtor may be
in default it is necessary that the following requisites
be present:
1) That the obligation be demandable and
already fiquidated;
2) That the debtor delays performance; and
3) That the creditor requires the performance ju
dicially or ext ra judicially. 1 Once the creditor
makes a demand, whether judicial or extra
judicial, the debtor incurs mora or
delay.147 Hence, absent any demand from the
obligee, the obligor does not i_n ur delay.'""
Reminders:
• Mora may occur only in obligations to give
and obligations to do but not in obligations
not to do, for the debtor fulfills by not doing
what is forbidden him.
•
11
Pantaleonv. American Express lntemational, Inc., supra.
1
° Cortes v. CA, G.R. No. 126083, July 12, 2006.
" 3Selegna Management and Development Corp. v. UCPB, supra.
""Titan-Ikeda Construction & Development Corp. v. Primetown Property
Group, Inc., G.R. No. 158768, February 12, 2008.
U 5RCBC v. CA, 305 SCRA 449, 456.
l«iSocial Security System v. Moonwalk Development and Hou.sing Corp., 221
SCRA 119; Selegna Management and Development Corp. v. UCPB, supra; Pantaleon
v.American Express International, Inc., supra.
" Art. 1169, NCC; Titan-Ikeda Construction and Development Corp. v.
7
Primet.own Property Group, Inc., supra.
CHAPTER ONE 37
OBLIGATIONS & CONTRACTS
• The demand may be in any form,
provided that it can be proved, and the
proof of the demand will be incumbent
upon the creditor.
[19.3] Exceptions to requirement of demand: The debtor
incurs mora or delay, even in the absence of a demand,
in the following circumstances:
·1) When the obligation expressly so declares;
2) When the law expressly so declares;
3) When from the nature and the circumstances
- -of the obligation it appears that
thedesignation of the time when the thing is
to bedelivered or the service is to be rendered
was a controlling motive for the
establishment of the contract; or
4) When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.•1•
[19.3.ll Mere expiration ofperiod, not delay:Under
the first and second exceptions, it is not
enough that the law or the ob1igation fixes a
period for the performance of the latter, if it
does not .expressly add that, upon the
expiration thereof, delay shall commence.
Hence, mere expiration of the period fixed
by the part ies_ will not cause delay.rn°
· [19.3.2] Time is of essence: In Lorenzo Shippin-g Gorp.
v. BJ Marthel International,l nc.,1 1 the Court
ij
held that in determining whether time is of
the essence in a contract, the ultimate crite
rion is the-actual-or apparent intention of the
parties and before time maybe so regarded
by a court, there must be a sufficient
manifesta tion, either in the contract itself or
the sur rounding circumstances of that
intention. For
"'Solid Homes, Inc. v. CA, 465 SCRA 137.
149
Art. 1169, 2nd par., NCC.
160
Pah nar es v. CA, G.R. No.126490, March 31, 1998.
38 CIVIL LAW REVIEWER
example, time is of the essence in exchange
contracts because of the speculative and
fluc tuati!): value of st •ocks.1 2
[19.4J Effects ofmora solvendi:
1) The debtor violates the obligation in point of time if
there is mora or delay. Now, there is nomora or
de lay unless there isa demand.'" Andso long as the
obligor does not incur in delay, he cannot be said
to be guilty of some omission violative of the obli
gee's rights. Consequently, as long as the obligor is
not guiltyof some omission violative of the
obligee's rights, the latter has nocause of action
against the former. AB a result, the prescriptive
period within which the obligee may bring an
action against the obligor does not commence to run
until a demand is made.104
2) The debtor becomes liable for damages. 1;!;
1
If the
ob ligation consists in the payment ofa sum of
money, and the debtor incurs in delay, the
indemnity for damages there being no stipulation
to the contrary, shall be the payment of the
inter·est agreed upon, and in the absence of
stipulation, the legal interest, which is six percent
per·annu m,·wh et h er constitut ing a loan or
forbearance of money or not.156
3) The debtor remains liable if the thing waslost after
he has incurred in delay even if the loss was with-·
out his fault157 or by reason of fortuitous event.•1 8
(19.5] Delay in reciprocal obligations: -
[19.5.1} Si.mYltaneous performance, as a rule:
Recipro cal obligations are those which arise
from the same cause, and which each party is a
debtor
IMI,opez, Locsin, Ledeema & Co., Inc. v. CA, 168 SCRA 276.
1
MSolid Homes, Inc. v. CA, supra .
'"'id.
166Art . 1170, NCC.
161
443 SCRA 163, 174.
OBLIGATIONS & CONTRACTS
and a creditor of the other, such that the ob
ligation of one is dependent upon the
obliga tion of the ot her. 1 They are to be
M
performed simultaneously, so that the
performance of one is conditioned upon the
simultaneous fulfillment of the other.•M
Hence, the mutual inaction of the parties
gives rise to compen sation morae.'"' This
principle is expressed in Article 1169, last
paragraph of the NCC, which states that ''in
reciprocal obligations, neither party incurs
in delay if the other does not comply or is
not ready to comply in a man ner with what
is incumbent upon him." But from the
moment one of the parties fulfills his
obligation, delay by the other begins.162
This rule does not apply however, when
different dates for performance are fixed for
the obliga tions in which case, the rule stated
in the first and second paragraphs of Article
1169 of the NCC will apply.
[19.5.2] Requirement of demand: In reciprocal
obli gations, as in a contract of sale, the
general rule is that the fulfillment of the
parties' re spective obligations should be
simultaneous. Hence, no demand is
generally necessary be cause, once a party
fulfills his obligation and the other party
does not fulfill his, the latter automatically
incurs in delay.'"' But when dif ferent dates
forperformance of the obligations are fixed,
the default for each obligation must be
determined by the rules given in the first
paragraph of Article 1169 of the New Civil
Code, that is, the other party would incur in
delay only from the moment the other party
demands fulfillment of the former's obliga
tion. Thus, even in reciprocal obligations, if
1
&1JArt. 2209, NCC; Eastern Shipping Lines, Inc. v. CA, 234 SCRA 78, as
modified by Monetary &ard Circular No. 799, which took effect on July 1, 2013.
• 7Art . 1262, 1st par., NCC.
u;•Att. 1165 , last pur., NCC.
 169
Cortes v. CA, G.R. No.126083, July 12, 2006.
•6'/Jd.
161/ d.
162
Art.1169, last par., NCC.
"'"Solar Harvest, Inc. v. Davao Corrugated Carton Corp.,G.R. No.176868,July
26, 2010.
40 CIVIL LAW REVIEWER CHAPTER ONE 41
OBLIGATIONS & CONTRACTS

the period for the fulfillment of the obligation

is fixed, demand upon the obligee is still nec
essary before the obligor can be considered in
default and before a cause of action for rescis
sion will accrue.104 Without a previous
demand for the fulfillment of the obligation,
there is no cause of action yet for rescission
against the other party as the latter will not yet
be considered in breach of its contractual
obliga
and gives rise to an obligation between two persons
not formally bound by any other obligation, or as
culpa contractual, which is the fault ornegligence
incident in the performance of an obligation which
already existed, and which increases the liability from
such already existing obligation. Culpa aquiliana is
governed by Article 2176 of the Civil Code and the
immediately following Articles; while culpa
contractual is governed by Articles 1170 to 1174 of
the same Code1...

(20] Dolo or tion.166

[21.2] Distinctions:
Fraud:
a) The first (culpa aquiliana or culpa extra-con

[20.1] Concept of fraud: Fraud or dolo, under Articles 1

e-tSolar v. Harvest, Inc. v. Davao Corrugated Carton Corp., G.R. No. 176868,
1170 and 1171of the NCC, is the deliberate and July 26, 2010.
intentional evasion of the normal fulfillment of 'fJ/,ld.
obligations. It is distinguished from negligence by 1
66Geraldez v. CA, G.R. No. 108253, February 23, 1994.
187
the presence of deliberate intent, which is lacking in Art. 1171, NCC.
the latter.
[20.2) Kinds of fraud: Fraud may be employed either during
the birth or perfection of the contract or only during
the performance of an already existing obligation. It
is the latter kind of fraud which is being referred to
in Articles 1170 and 1171, which renders the debtor
liable for the payment of damages. The former kind of
fraud, which is present or employed at the time ofbirth
or perfection of a contract may either be dolo causante
or dolo incidente,'66 which concepts will be discussed
under Voidable Contracts.
[20.3] Prohibited waiver: Any waiver of an action for future
fraud is void.161

(21) Culpa or Negligence:

[21.1) Kinds ofculpa: Culpa,or negligence, may be
understood in two different senses: either as culpa
aquiliana (or culpa extra contractual), which is the
wrongful or negligent act or omission which createsa
vinculumjuris
 tractual) is the wrongful or negligent act or
omission which creates a vinculum juris and
gives rise to an obligation between two
persons not formally bound by any other
obligation. The second (culpa contractual)
is the fault or negligence incident in the
performance of an obligation which already
existed.1se
b) The first has as its source the negligence of
the tortfeasor. The second is premised upon
the negligence in the performance of a
contractual obligation.110
c) Consequently, in quasi-delict or culpa
aquili ana, the negligence or fault should be
clearly established because it is the basisof
the action, whereas in culpa contractual or
breach of con tract, the action can be
prosecuted merely by proving the existence
of the contract and its breach.m
[21.3] Culpa. defined: Culpa or negligence is the omission
of that diligence which is required by the nature of
the obligation and corresponds with the
circumstances of the persons, of the time and of
the place.112 It is the failure to observe for the
protection of the interests of

l6-8Sps. Batal v. Sps.San Pedro, G.R. No. 164601, September 27, 2006.
,..,Id.
170
Calalas v. CA, 332 SCRA 356.
m1d.
112
Art.1173, NCC.
 42 CML LAW REVIEWER CHAPTER ONE 43
OBLIGATIONS & CONTRACTS
Art. 1173, in relation to Art. 1171, NCC.
177

178
another person that degree of care, precaution, and Nogales v. Capitol Medical Center, G.R. No. 142625, December 19, 2006.
vigilance which the circumstances justly demand, by
reason of which such other person suffers injury. 178
The diligence with which the law requires the
individual at all times to govern his conduct varies
with the nature of the situation in which he is placed
and the importance of the act which he is to
perform.'7•
[21.4) Test in determining existence of negligence: The
test to determine the existence ofnegligence in a
particular case may be stated as follows: Did the
defendant in the performance of the alleged
negligent act use reasonable care and caution which
an ordinary person would have used in the same
situation? If not, then he is guilty of negligence."'
The existence of negligence in a given case is not
determined by reference to the personal judgment of
the actor in the situation before him. The law
considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and
prudence and determines liability by that norm.116
[21.5] When culpa becomes dolo: When negligence shows
bad faith, it is tantamount to fraud, hence, the
provisions on fraud also apply. Consequently, any
waiver of an action for future negligence showing bad
faith is also void.m
NOTE: A blanket release in favor of hospitals
"from any and all claims," which includes claims
due to bad faith or gross negligence, would be con
trary to public policy and thus void1.18 Even
simple negligence is not subject to blanket release in
fa vor of establishments like hospitals but may only
mitigate liability depending on the circumstances.
When a person needing urgent medical attention

173
Agusan Del Norte Electric Cooperative, Inc. (ANECO) v. Balen, G.R. No.
173146, November 25, 2009.
msicam v. Jorge, 529 SCRA 443, citing Cruz v. Gangan, 443 Phil. 856, 863.
116
/d.; Jarco Marketing Corp. v. CA, G.R. No. 129792, December 21, 1999; Gaid
v. People of the Philippines, G.R. No. 171636, April 7, 2009.
""Id.
 9

,soArt. 1174; Calalas v. CA, supra.

181
Sicam v. Jorge, 529 SCRA 443, citing Republic v. Luzon Stevedoring Corp.,
rushes to a hospital, he cannot bargain on 21 SCRA279.
equal footing with the hospital on the '"'Asset Privatization Trust v. T.J. Enterprises, G.R. No. 167195, May 8, 2009.
terms of admis sion and operation. Such a IMArt. 1174, NCC.
person is literally at the mercy of the
hospital."9

[22] Caso Fortuito or Fortuitous Event:

[22.1] Definition: It is an event which could not be
foreseen, or which, though foreseen, is
inevitable.180 Fortuitous events by definition
are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the
event should not have been foreseen or
anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening
is not impossibility to foresee the sa me.18'
[22.2) Includes acts of God and force ma,jeure: A
fortuitous event may either be an act of God,
or natural occur rences such as floods or
typhoons, or an act of man (force majeure)
such as riots, strikes, or wars.182
[22.3) Effect u,pon the obligation and requisites:
The rule is that no person shall be responsible
for a fortuitous event.183 Hence, the obligor, as
a rule, is not liable for any loss or
deterioration caused by a fortuitous event.
However, to exempt the obligor from liability
for a breach of an obligation by reason of a
fortuitous event, the following requisites must
concur:
1) The cause of the breach of the
obligation must be independent of the
will of the debtor;
2) The event must beeither
unforeseeable or un avoidable;
3) The event must be such as to render it
impos• sible for the debtor to fulfill
his obligation in a normal manner;
and

L1 Nogales v. Capitol Medical Center, G.R. No. 142625, December 19, 2006.
44 - CML LAW REVIEWER 46
CHAPTERONE
OBLIGATIONS & CONTRACTS

4) The debtor must befree from any participation
in, or aggravation of, the injury to the credi-
tor.ia. --- ··
Reminders:
• The burden of proving that the loss was
due to a fortuitous event rests on him
who invokes it.18'
■ And, in order for a fortuitous event to
exempt one from liability, it is
necessary that onehascommitted no
negligence or- misconduct that may
have occasioned the loss.'"" If the
negligence- or fault of the obligor
coincided with the occurrence of
1
the fortuitous event, and caused the
ties and tha-t nefthe-r Hie claimant nor the
person alleged to be negligent has any
parti cipation.189 Carnapping does not
foreclose the possibility of fault or
negligence on the part of the obligor.100
[22.3.2] Robbery: Robbery per se,just like
carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on
the part of the obligor.191 The unforeseen
event, the robbery, must take place without
any concurrent fault onthe debtor's part in
order to be appreciated as a fortuitous event
under Article 1174 of the NCC.
.. Mindex Resourc.es Development Corp. v. Morillo, 428 Phil. 934, 944, citing

loss or damage or the aggravation Sian v. Inchausti& Co., 22 Phil. 152; Juan F.Nakpil &Sonsv. CA, 228 Phil.564,578.
1 7
" CollegeAssurance Plan v. Belfranlt Development, Inc., 538 SCRA 27.
thereof, JMAsset Privatization Truf!t v. T.J. Enterprises, supra; Sicam v. Jorge, supra.
the fortuitous event cannot shield the
obligor from liability for his
negligence,187
In other words, when the loss is found
to be partly the result of a person's
participation - whether by active
intervention, neglect or failure to act -
the whole occurrence is humanized
and removed from the rules applicable
to a fortuitous event.188
[22.3.1) ilJJ:rilll,lpmg: Carnapping per se may not be
considered as a fortuitous event. The fact
that a thing was unlawfully and forcefully
taken from another's rightful possession, as
in cases of carnapping, does not
automatically give rise to a fortuitous event.
To be considered as such, camapping entails
more than the mere forceful taking of
another's property. It must be proved and
established that the event was an act of God
or was done solely by third par-

184
Mondragon Leisure and Resorts Corp. v. CA, 460 SCRA 279.
1
!l3Co v. CA, 128 Phil. 313, 318.
 Reminders:
• In the case of Hernandez v. Chairman,
COA,192 the disbursing officer of the
Philippine Tourism had just encashed the
check for the salaries of the government
employees when he was robbed inside a
passenger jeepney in broad daylight while
the jeep was on a busy highway and in the
presence of other passengers. The Court
held that the robbery here wasa fortuitous
event because the same could not be said
to be the result of the victim's imprudence
and negligence. Here, there was no
concurring negligence on the part of the
disbursing officer.
• But in the caseof Sicam v. Jorge,"'" the
robbery took place in the pawnshop
which is under the control of petitioners.
Petitioners had the means to screen the
persons who were allowed entrance to
the premises and to protect itself from
unlawful intrusion but it failed to
exercise precautionary measures. Hence,
the robbery was not considered
fortuitous event

'89Co v. CA, 353 Phil. 305-

'"°Jd.
191
Siciun v. Jorge, 529SCRA 443.
192
179 SCRA 39.
93
' Supra_
46 CNIL LAW REVIEWER CHAPTERONE 47
OBLIGATIONS & CONTRACTS
1116
Perla Compania De Seguros, Inc. v. Sarangaya III, 474SCRA 191.
'90Fil-Estate Propert ies, Inc. v. Go, 530 SCRA 621.
because there was concurring negligence on
the part of the petitioners.
[22.3.3] Tire blow out: The explosion of the new
tire may not be considered a fortuitous event.
There are human factors involved in the
situation. The fact that the tire was new
did not imply that it was entirely free from
manufacturing defects or that it wasproperly
mounted on the vehicle. Neither may the fact
that the tire bought and used in the vehicle is
ofa brand name noted for quality, resulting
in the conclusion that it could not explode
within five days' use. Be that as it may, it is
settled that an accident caused either by
defects in the automobile or through the
negligence ofits driver is not a caso fortuito
that would exempt the carrier from liability
for damages.t 94
[22.3.4] Mechanical defect: In a vehicular accident,
a mechanical defect will not release the
defendant from liability if it is shown that the
accident could have been prevented had he
properly maintained and taken good care of
the vehicle.•10
[22.3.5] 1997Asian financial crisis: The 1997
financial crisis that ensued in Asia did not
constitute a valid justification to renege on
obligations - the Asian financial crisis in
1997 is not among the fortuitous events
contemplated under Article 1174 of the Civil
Code. 106
[22.4J Exceptions to foregoing rule: The obligor remains
liable for a breach of an obligation by reason of a
fortuitous event in the following instances:
1) When the law expressly so specifies;
2) When it is otherwise declared by the parties; and

Yobidov.CA, G.R. No. 113003, October 17, 1997; Juntilla v. Fontanar,

194

G.R.
No. L-45637, May 31, 1985.
 a third per son, or saves his property
3) When the nature of the obligation requires the as instead of the thing borrowed.0•1
sumption of risks.,., e) The depositary who uses the thing
[22.4.1] Instances where law expressly provides for without the depositor's permission, de
liability even in cases of fortuitous events: lays its return, or allows others to use
it.202
a) The obligor delays or has promised
to deliver the same thing to two or fl The negotiorum gestor or officious
more persons who do not have the manager who undertakes risky trans
same in terest."" actions, prefers his interest to that of
b) The possessor in bad faith in every the owner, fails to return the property
case.109 after demand by the owner, or
assumes management in bad faith.m
c) If the common carrier negligently in
curs in delay in transporting the
goods, a natural disaster shall not free 191
such carrier from responsibility.200 Art. 1174, NCC.
198
Art. 1165, last par., NCC.
199
d) The borrower who uses the thing Art. 552 , par. 2, NCC.
200
for a purpose different from that Art. 1740, NCC.
201
Art. 1942, NCC.
intended, delays its return, receives 202
Art. 1979, NCC.
the thing under appraisal, lends it to mArt. 2147, NCC.
48 CIVIL LAW REVIEWER
CHAPTERONE 49
OBLIGATIONS & CONTRACTS
[24.1] Definition: A pure obligation is that which no condition
g) When the obligation to deliver a deter .- , j • is placed, nor a
,, ,.,,. .., ··r ,,.,; · ... .
<½Y
fixed for it jl compliance.
minate thing proceeds from a criminal ( t . ·• J • ., , ·, .,. , \ • -...................................]

offense, unless prior to its loss the
person who should receive it refused
acceptance without justification.204
C. Pure, Conditions andObligations with a Period
[23] Basis of Classification: From the view point of the presence
or absence ofa condition or term (period), obligations are
classified into-
Pure obligation - the obligation is not subject to any
condition or term. (period).
Conditional obligation - one which is subject to a
condition.
Obligation with a term orperiod - those whose effects
are subjected in one way or another to the expiration
of said term.
[24.2] .E.fThd: If· the obliga tion · is pure, it is immediately
demandable.200
[24.3) Other obligations which are also demandable at once:
(1) obligations with a resolutory condition;206 and
(2)
obligations with a resolutory term or period.207
[251 Conditional Obligations:
[25.IJ Condition, defined: It is an uncertain event which
wields an influence on a legal relation.206 It is also de
fined as every future and uncertain event upon
which

[24] Pure Obligation:

 Casual - the fulfillment depends exclusively upon
an obligation or provision is made to depend The chance or other factors (including the will of third
essential thing about condition is uncertainty. Thus, persons), and not upon the will of the parties to the
although the death of a person may be in the future and juridical relation.
there is uncertainty as to the date of its arrival, the
Mixed - the fulfillment depends partly upon the
certainty of its happening makes it a term and not a
will of one of the parties to the juridical relation
condition.21 •
and partly upon chance or other factors (including
[25.2] Kinds of condit ion: the will ofa third person).
.- a) Suspensive and Resolutory c) Positive and Negative
Suspensive - the happening of which gives rise to Positive - the condition refers to an act.
an obligation. ' ",, c .-, , , : ' _ ..(
Negative - the condition refers to an omission.
Resolutory - the happe g of which extinguishes
an obligation. c s. '... t ,· \ , y : . •: r'd , ; . ,(<- t: L ,· d) Divisible or Indivisible
t :\ ' ,_
b) P ote s t at ive , Casual and Mixed Divisible - if by its nature, byagreement or under
Potestative - the fulfillment depends upon the will the law, it can be performed in parts.
of one of the parties to the juridical relation.
_
_ , .,,/ 1 . , t, ,.,, ,. ;../' . I •"."r r,' ; 1 Indivisible- if by its nature, by agreementor un
der the law, it cannot beperformed in parts.
2'MArt . 1268,
NCC.
200
Art . 1179, par. 1, NCC.
. """Art. 1179, par. 2, NCC. 209
Es riche, Law Dictionary.
,o1 Art. 1193, par. 2, NCC.
2088 M1mresa 126.
210
s Manresa 129.
50 CML LAW REVIEWER
-- - ·- CHAPTER-ONE 61
OBLIGATIONS & CONTRACTS

e) Conjunctive and Disjunctive [26.1.2.2] No riimt yet: In the same way,

Conjunctive - requires the fulfillment of all the creditor does not acquire a
condi tions. right until the happening of the
event which constitutes the con
Disjunctive - requires the fulfillment ofone dition. Nevertheless, the creditor
condi tion. has, during the pendency of the
0 Express or Implied condition, an expectancy based
upon the occurrence of the condi
Express - the condition is stated. tion and of which he has the right
Implied- thecondition is merely inferred. to protect by taking appropriate
actions.•14
g) Possible or Impossible
[26.1.31 Effects of fulfillment of suspensive condition:
Possible - the fulfillment is possible.
[26.1.3.1] Birth of rights and obligation:
Impossible - the fulfillment is impossible, either The happening of the suspensive
physically or legally. con dition gives birth to the right
(of the creditor) or to the
[26] Suspensive and Resolutory Condition : obligation (of the debtor).
(26.1] Suspensive Condition:
(26.1.3.2] Retroactivity:
[26.1.1] .Q.Qn. : When the acquisition ofrights or
(26.1.3.2.1] In obligations to give:
the existence ofobligationsis madetodepend
upon the fulfillment of the condition, the Once the suspensive
condition is suspensive (or condition condition is fulfilled,
precedent). If the suspensive condition is the effects of a con
fulfilled, the obligation arises.211 If the ditional obligation to
suspensive condition does not give retroact to the
·· take place, the parties would stand as if the day on which the obli-
·· gation was constitut
conditional obligation had never existed.m
ed.215 In other words,
[26.1.2] During the pendency of condition: the obligation is then
[26.1.2.1] No obligation yet: The obligation considered as if it
does not arise yet, hence, it can were pure and simple
not be demanded. The debtor may from the first day.
therefore, pending the fulfillment L26.1 . 3.2.1.1 J In oblj-
of a suspensive condition, recover gations which
what during the same time he has imposes recip
paid by mist ake.213 rocal presta
ilims: When
the obligation
Zll8 Manresa 130-131
212
Gaite v. Fonacier, G.R. No. L-11827, July 31, 1961; The Insular Life

Assurance Company, Ltd. v.Toyota Bel-Air, Inc., G.R. No. 137884, March 28, 2008.
213 214
Art. 1188, par. 2, NCC. Art. 1188, par. 1, NCC.
2 1
a Art . 1187, par. 1, NCC,
62 CIVIL LAW REVIEWER CHAPTER ONE 63
OBLIGATIONS & CONTRACTS

to give stituting it was

imposes different.rn
reciprocal pre [ 26 .1. 3 .2.21 In oblieations to do
stations upon
the parties, the
and not to do: The
fruits and in courts may, in each
case, determine the
terests during
retroactive effect of
the pendency
the condition that has
of the
been complied with ,
condition are
218 including fixing the
deemed to have
date of such retroac
been mu tually
tive effect.
compen
sated.21• The (26.1.4] Effect of loss, deterioration or improyement
purpose is to occurring during the pendency of condition
avoid the ne (if the condition is later on fulfilled}:
cessity of mu
tual account [26.1.4.1] If the thin2'. is lost: A thing is
ing ofthe fruits con sidered lost (i) when it
perishes, or
and interests
received. (ii) when it goes out of
commerce, or (iii) when it
[26.1.3.2.1.21In uni disappears in such a way that its
lateral existence is un known or it
obliga tions.: cannot be recovered.1t1 If the loss
When the occurs without the fault of the
obligation to debtor, the obligation is
give is uni- extinguished220 unless there is a
lateral, the stipulation to the contrary. But if
debtor owns the loss occurs through the fault
all the fruits of the debtor , he is liable for
and interests dam ages to the creditor"' upon
received up
fulfill. ment of the condition.
to the day the
condition is
fulfilled, un- [26 .1.4 . If the tbini deteriorated: If
less by the na 2] dete rioration occurs without the
ture and cir fault of the debtor, the impairment
cumstances of is
the obligation . to be borne by the creditorr. 12 But
it should be
in ferred that 211
Supra.
the
intention of 218
Art . 1187, par. 2, NCC.
the person con- 21
220 . 1189(2), NCC.
9 Art
 Art . 1189(1), NCC.
221
Art. 1189(2), NCC.
222
Art. 1189(3), NCC.
Art. 1187, par. 1,
118

NCC.
54 CML LAW REVIEWER
if the deterioration is due to the
fault of the debtor, the creditor
may choose between: (1) rescis
sion, with indemnity for
damages; or (2) fulfillment, with
indemnity for damages.228
[26.1.4.31 If the thing is improved: If the
thing improves by nature with out
the intervention of the debt or,
such improvement inures to the
benefit of the creditor .224 On the
other hand, if the thing is
improved at the expense of the
debtor, the latter is granted only
the rights of a usufru ct uary .i111
As a consequence:
1) The debtor is not entitled to
demand reimbursement of
his expenses.'""
2) But he can remove the im
provements, should it be pos
sible to do so without damage
to the property,:m
3) He may also set off the im
provements he made on the
property against any damage
he caused to the same.228
(26.2] Resolutozy Condition:
[26.2.1] Concept: When the extinguishment of
rights and obligations is made to depend
upon the fulfillment of the condition, the
condition is resolutory (or condition
subsequent). An obligation subject to a
resolutory condition
223
Art. 1189(4), NCC.
224
Art. 1189(5), NCC.
228
Art. 1189(6), NCC.
228
Art. 579, NCC.
'Wlfd.
CHAPTER ONE 55
OBLIGATIONS & CONTRACTS
is immediately demandable229 but it is extin
guished upon the happening of the
condition.230 If the condition does not take
place, the legal relation is consolidated.
NOTE: It has been ruled that when a
person donates land to another on the
condition that the latter would build
upon the land a school, the condition
imposed was not a condition precedent
or a suspensive condition but a
resolutory one.231 It is not correct to
say that the schoolhouse had to be
constructed before the donation
became effective, that is, before the
donee could become the owner of the
land, otherwise, it would be invading
the property rights of the donor. The
donation had to be valid before the
fulfillment of the condition.u•
[26.2.21 During the pendency of the condition: In an
obligation subject to a resolutory condition,
the debtor has an expectancy that the thing
he delivered to the creditor will be eventually
returned to him upon the fulfillment of the
condition. In other words, the condition that
is resolutory for the principalobligation
becomes a suspensive condition for the
obligation to return. Hence, the debtor is, by
analogy, also entitled to take appropriate
actions to protect
his expectancy pursuant to Article 1188 of
the NCC. ·----
[26.2.3] Effects of fulfillment of resolutor:y
condition: An obligation subject to a
resolutory condition is demandable at
once,2:1.'J but the happening of the resolutory
condition produces the
223
Art. 680, NCC.
 229
Ar t. 1179,
NCC.
230
Art. 1181,
NCC.
mcentr
al Philippine
University v.
CA.G.R. No.
112127,July
17, 1995;
Quijada v.
CA, G.R. No.
126444,
December 4,
1998.
'J:J2Jd.
233
Art , 1179,
par. 2, NCC.
56 CML I.AW REVIEWER CHAPI'ERONE 57
OBLIGATIONS & CONTRACTS
:<38Art. 1190 , par . 3, NCC.
219
Art. 1190, par. 2, NCC.
extinguishment of the obligation as though
it had not existed resulting, as well, in the
extinguishment or loss of rights already
acquired.'™ Accordingly, the parties must
make mutual restitution of what they have
received from each other,m including not
only the thing delivered with its fruits, but
also the price paid with its interests. 236 In
other words, the restitution will be absolute:
each one must restore everything he has
received, because an obligation that has not
existed could not have produced any
effects:m
[26.2.3.1) Retroactive effects in obligations
to do and not to do: The courts
shall determine the retroactive
effects of the fulfillment of a reso
lutory condition.2.'lll
[26.2.3.2) Effect of loss. deterioration or
im provement of the thing
during the pendency of the
condition (if the resolutory
condition is later on fulfilled):
The rules contained in Article 1189
of the NCC are also applicable to
the creditor who is bound to return
upon the fulfill ment of the
resolutory condition, because in
that respect he be comes a
debtor.239
(26.3] Reciprocal Obligations:
[26.3.lJ Concept of reciprocal obligations:
Reciprocal obligations are those which arise
from the same cause, and in which each party
is a debt or and a creditor of the other, such
that the obligation of one is dependent upon
the obli-

ZWArt. 1181, NCC.

236Art. 11 90 , par.1, NCC.
Arts. 1385, par. 1 and 1398, par. 1, NCC.
231
8 Manresa, 149-150.

gation of the other. They are to
be performed simultaneously
such that the performance of one
is conditioned upon the
simultaneous ful fillment of the
other.= For example, the obli
gation of the se1ler to transfer
the ownership and to deliver the
thing sold and the obliga tion of
the buyer to pay the purchase
price are reciprocal.2
(26.3.2] Alternative remedies in case of
breach of reciprocal obligations:
In case one of the obligors should
not comply with what is incumbent
upon him, the "injured party" has
the choice between rescission or
the fulfillment of the obligation,
with payment of damages in either
case.z-<2 After the injured party has
chosen specific performance, he
may yet seek rescission, if the
former should become
impossible.'243 But ifhe
58 CML LAW REVIEWER
a breach of the obligation .246 Where
there is nothing in the contract empowering
the injured party to rescind it without
resort to the courts, the injured party's action
in unilaterally terminating
the contract
unjustified.2<1 However, a judicial action for
the rescission of a contract is not necessary
where the contract provides that it maybe
revoked and cancelled for violation of any of
its terms and conditions.246 The law on
obligations and contracts does not prohibit
parties from entering into an agreement
providing that violation of the terms of the
contract would cause its cancellation even
without judicial intervention.249
[26.3.51 Riimt tp ask rescission not absolute:
hasdemanded rescission, he cannot thereafter
ask for performance.
[26.3.3) Right to rescind is implied: The power to
rescind obligations is implied in reciprocal
ones, in case one of the obligors should not
comply with what is incumbent upon him,2..
such that "absent any provisi.on providing for
a right to rescind, the parties may
nevertheless rescind the contract should the
other obligor fail to comply with its
obligations. 6
[26.3.4] Power must "
be invoked judicially: But in
the absence of a stipulation to the contrary,
the power to rescind must be invoked
judicially
- it cannot be exercised solely on the party's
own judgment that the other has committed
210
Heirs of Antonio Bernabe v. CA, 559 SCRA 53.
24
'Carr ascoso, Jr. v. CA, 477 SCRA 666; Agro Conglomerates, Inc. v. CA, 348
SCRA450.
2
:i. Art. 1191,par. 2, NCC; Paguyo v. Astorga, 470 SCRA33.
243/d.
""Art. 1191, par. 1, NCC.
245
Casi fio, Jr. v. CA, 470 SCRA 57.
CHAPTER ONE 59
OBLIGATIONS & CONTRACTS
1) The right to elect rescission is not abso lute,
since rescission cannot be demand ed byan
injured party whois not in a po sition to
return what he had received.200 Neither may
rescission take place when the object of the
contract is in the posses sion of a third person
who has not acted in bad faith.251
is
2) Where the non-compliance by the other
party is with respect only to time, the court
has discretionary power to refuse to grant
rescission and instead fix or grant a period
when there exists a just cause therefore.262
This discretionary power may not,
therefore, beexercised in a case where there
is refusal to perform.203
ueong v. Bognalbal, 501 SCRA 490.
241
Tan v. CA, 175 SCH.A 656.
 W<Dijamco v. CA, 440 SCRA 190.
u 9HeirsofLateJuetice Jose B.L.Reyesv. CA, 338 SCRA 282;alsoin
Reisenbeck 3) The general rule is that rescission will
v. Maceren, Jr., 480SCH.A 362, not be permitted for slight or casual
376. 160Art. 1385, par. 1, breach of the contract, but only for
NCC. 261Art. 1385, par. 2, such breaches as are so substantial and
NCC.
u2Art. 1191, par. 3, NCC. fundamental as to defeat the object of
"""8 Manresa 157. the parties in making the agreement.264
[26.3.6] Prescriptive period: The action for
rescission under Article 1191 of the NCC or,
more accura tely, resolution, is a principal
action predicated on a breach of faith by the
other party that violates the reciprocity
between them. 255 The prescriptive period is
10 years from accrual of the right of action,
for written contracts2llll or six years, for
verbal contracts.267
(26.3.7] Effect of rescission under Article 1191:
While the rescission in Article 1191is
different from the rescission in Article 1381of
the NCC, the Supreme Court in a number of
cases applied the effects of rescission under
Article 1385 of the NCC to the rescission
under Article 1191. Hence, mutual
restitution is also required in cases involving
rescission under Article 1191.2""
[26.3.8] If both parties have committed a breach of
reciprocal obligations:
[26 .3.8.1 ] If it can be determined who is
the first infractor: The first
infrac tor is liable for damages but
the same shall be equitably
tempered by the courts,26" since
the second
infractor also derived or thought

264
Song Fo & Companyv. Hawaiian-PhilippineCo., 47 Phil. 821;Yaneza v. CA,
672 SCRA 413.
2MCannu v. Galang, 459 SCRA 672.
" Art. 114 4 (1), NCC.
06

257
Art. 1145(1), NCC; lringan v. CA, 366 SCRA 41; Ce.nnu v. Galang, supra;
Unlad Resources Development Corp. v. Dragon, 560 SCH.A 63; Heirs ofSofia Quirong
v. Development Bank ofthe Phil., G.R. No.173441, December 3, 2009.
2 11
s Unlad Resources Development Corp. v. Dragon, ibid.; Laperal v. Solid
Homes, Inc., 460 SCRA 375; Velarde v. CA, 361 SCRA 56; Co v. CA, 312 SCRA
528.
269
Art. 1192, NCC.
60 CML LAW REVIEWER
he would derive some advantage
by his own act or neglect.200
The second infractor is not liable
for damages at all; the damages
for the second breach, which
would have been payable by the
second infractor to the first
infractor, be ing compensated
inste ad by the mitigation of the
first infractor's liability for
damages arising from his earlier
breach.261
[26.3.8.2] If it cannot be determined who
the first infractor is: The obliga
tions are deemed extinguished
and each shall bear his own dam
ages.2•2
[27) Potestative, Casual and Mixed Conditions:
[27.l] Effect of potestative condition:
[27.1.1] Which is also suspensive: An obligation
sub ject to a suspensive condition, the
fulfillment of which is dependent upon the
sole will of the debtor, is non-demandable,
and hence, illu sory. Such a condition
renders the obligation dependent upon it
void.263 Howevre , where the fulfillment of
the condition which is depen dent upon the
sole will of the debtor relates to the
fulfillment of an already existing obliga tion
and not to its inception, it is only such
condition that is avoided as being
contrary to law and public policy,2•6 leaving
-- - - unaffected the obligation itself.=
/ [27.1.2]
Which is also resolutory: Article 1182 of the
NCC is applicable only when the condition
.,Ong v. Bognalbal, 501 SCRA 409.
'Mll /d.
* Art. 1192, NCC.
26.1Art. 1182, NCC.
21114
Art . 1306, NCC; Osmefia v. Rama, 14 Phil.99.
CHA.PTERONE 61
OBLIGATIONS & CONTRACTS_
is suspensive and not when the condition
is resolutory. Acondition thatisboth potesta
tive and resolutory is valid, even though
the condition is made to depend upon the
sole will of the debtor.
[27.1.3] Potestative on the part of creditor: When
the fulfillment of the condition depends
solely upon the will of the creditor the
obligation does not become illusory,
inasmuch as the creditor is interested in its
fulfillment and will fulfill the same. Hence,
the conditional obligation is valid.
• The condition imposed by the corpora
tion that the policy must have been de
livered to and accepted by the applicant
while he is in good hea lt h can hardly
be considered as a potestative or facul
tative condition. On the contrary, the
health of the applicant at the time of
the delivery of the policy is beyond the
control or will of the insurance
company. Rathe r, the condition is a
suspensive one whereby the acquisition
of rights depends upon the happening of
an event which constitutes the condition.
In this case, the suspensive condition
was the policy must have been delivered
and accepted by the applicant while he
is in good health. There was non-
fulfillment of the condition, however,
inas much as the applicant was already
dead at the time the policy was issued.
Hence, the non-fulfillment of the
condition resulted in the non-
perfectionof the contract.=
•-t The condition upon which payment of
the sums advanced was made to depend,
"as soon as he (intestate) receives funds
as&Romero v. CA, G.R. No. 107207, November 23, 1995.
 derived from the sale of
his property in

-i'aylor v. UyTieng, 43Phil. 873, 879.

2'rrJ>erez v. CA, G.R. No. 112329, January 28, 2000.
62 CIVIL LAW REVIEWER
Spain," was not a purely potestative one,
depending exclusively upon the will of
the intestate, buta mixed one, depending
partly upon the wi11 of intestate and
(28] Possible and Impossible Conditions:
partly upon chance, i.e., the presence
of a buyer of the property for the price
and under the conditions desired by the
intestate.2es
• If the condition were «if he decides to
sell his house." or "if he likes to pay
the sums advanced," or any other
condition of similar import implying
that upon him (the debtor) alone
payment would depend, the condition
would be potestative, dependent
exclusively upon his •will or discretion.2
(27.2] Effect of casual and mixed conditions:
1) A casual condition is one the fulfillment of which
depends upon chance or other factors, and not on
the will of the contracting parties. A mixed condi
tion is one the fulfillment of which depends partly
upon the will of the contracting parties and party
upon other circumstances, including the will of a
third person or chance.
2) Obligations which are made to depend on casual
or mixed conditions are valid.
3) It is only when the potestative condition depends
exclusively upon the will of the debtor that the con
ditional obligation is void.210 When the condition
depends partly on the will of the debtor and partly
upon chance or the will of a third person (or a
mixed condition), the conditional obligation is
valid. In such cases of mixed conditions, as to the
part that depends on the will of the debtor, the
provisions of Article 1186 of the NCC will be
applicable. Said article provides that "the
condition shall bedeemed
CHAPTER ONE 63
OBLIGATIONS & CONTRACTS
fulfilled when the obligor voluntarily prevents its
ful fillm en t .''
(28.1] When considered impossible: The impossibility of a
condition may either be physical or legal. Hence, con
ditions which are contrary to nature, as well as those
contrary to good customs or public policy and those
prohibited by law are considered as impossible condi
tions.z7'
[28.2] Effect of impossible conditions:
[28.2.ll If attached to a simple or remuneratory
.wma.t.illn: The condition is considered as
not imposed212 and will simply be
disregarded. Hence, the impossible condition
shall not affect the validity ofa simple or
remuneratory donation.
(28.2.2] If attached to a testamentacy disposition:
The impossible condition is considered as
not im posed2"and will simply
bedisregarded. Hence, the impossible
condition shall not affect the validity of the
testamentary disposition and shall in no
manner prejudice the heir, even if the
testator should otherwise provide.:n•
[28.2.3] If attached to an oblii::ation arisini:: from
contracts: The impossible conditions shall
render the obligation which depends upon
them void,.. But if the obligation is divisible,
263
Hermosa v. Langora, G.R. No. L-5267, October 27, 1953.
._Id.
270
Art. 1182, NCC.
 that part thereof which is not
affected by the impossible or
unlawful condition shall be
valid.21•
[28.3] Condition not to do an impossible thing:
The condition not to do an impossible
thingisconsidered as not agreed

211
Art s. 1183, 727, and 873, NCC.
mArt.
727,
NCC.
213
Art.
873,
NCC.
'"Id.
""Art. 1183, NCC.
21a1d.
64 CML LAW REVIEWER
upon or not writt en,277 because the condition is useless.
As a consequence, the obligation should be regarded
as pure.
[29) Positive and Negative:
129.1] Positive condition: A positive condition that a certain·
event will happen within a specific period has the
effect of extinguishing the obligation dependent upon
such condition from the moment: (1) said period lapses
without the condition having been fulfilled; or (2) when
it becomes certain that the event will not take place,
even before said period expir es.278 For example, if
X says: "I will give Y P500,000 if he gets married to W
before reaching the ageof 25 years.,,This obligation
will cease to exist from the moment Y reaches the age
of 25 years and is still a bachelor or, even prior to the
expiration of the said period, if either Y or W dies
before Y reaches that age.
[29.2] Negative condition: A negative condition that some
event will not happen at a determinate time has the
effect of rendering the obligation effective from the
moment: (1) the period indicated has elapsed; or (2)
ifit hasbecome evident that the event cannot occur.279
For example, ifX says:"I will give A P500,000 if Y
will not marry M within two years from rww." This
obligation will become effective if, after two years,
Y has not married M yet or, even if the two-year
period has not yet expired, if Y marries another or
M dies.
(30] Obligations Subject to Tenn or Period:
[30.1] Concept of "term" {or "period"): A term or period
consists in a space of time which, having an influence
on obligations as a result of a juridical act, and either
suspends their demandableness or produces their
extinguishment.zoo
277
Art . 1183, par. 2, NCC.
21
Art . 1184, NCC.
27
Art . 1185, NCC. ;
21lOS Manresa 158; Lirag Textile Mills v. CA, 63 SCRA 374,
CHAPJ'ERONE 65
OBLIGATIONS & CONTRACTS
[30.2] Distinguished from condition:
[30.2.1) lntheirfu)fillment:A condition is an uncertain
event, but a term or period is an event which
must happen sooner or later, at a date known
beforehand or at a time which cannot be
determined but must necessarily happen.
[30.2.2] Aa to influence on obligation: A condition
may cause an obligation to have or not to have
any effects, or to cause it to exist or to cease
to exist; a period does not go beyond
imposing limitation as to time on the
production of the effects and the efficacy of
the obligation. It is true that period may have
either a suspensive or resolutory effect; but in
the former, it cannot prevent the birth of the
obligation in due time, and in the latter, it
does not annul the fact of its existence.
Because of this difference, a period does not
carry with it, except when there is a special
agreement, the same accompaniment of
retroactive effects that follow a condition. 261
[30.2.3] Aa to will of the debtor: If the fulfillment of a
condition is left exclusively upon the will of
the debtor (and the condition is also
suspensive in character), the same renders the
obligation dependent upon it void. On the
other hand, if the designation of the period is
left to the exclusive will of the debtor, the
obligation remains valid but it empowers the
court to fix the period for its performance.
[30.3] Classifications of term or period:
[30.3.1) Suspensive or
resolutory:
a) Suspensive term - (or ex die) is one
that must lapse before the performance
of the obligation can be demanded. The
obligation begins from a day certain,
i.e., upon the arrival of the period.282
375.
•a Manresa 159-160.
Art. 1193, par. 1, NCC.
282
66 CML LAW REVIEWER
b) Resolutory term - (or in diem) is the
period after which the obligation is ter
minated, that is, the obligation is valid
up to a certain date. Upon the arrival of
said date the obligation is terminated.us
[30.3.21 Definite or indefinite:
a) Definite - refers to a known date or
time.
b) Indefinite - refers to an event which will
necessarily happen but the date of its
happening is unknown, such as the death
of a person.™ Note that if the
uncertainty consists in whether the
day will come or not, the obligation is
conditional.285
[30.3.3) Legal, voluntary or judicial:
a) Legal - period granted by law.
b) Voluntary - period stipulated by the
parties.
c) Judicial - period allowed by the court s.
(30.4) Effect of suspensive term or period:
(30.4.1] : The obligation may only be demanded
upon the arrival ofthe day certain fixed for
its performance."""
[30.4.21 Distin{Plished from suspensive condition:
A suspensive condition affects the
veryexistence of the obligation, such that if the
condition is not fulfilled the obligation does
not arise. But a suspensive term does not affect
the existence of the obligation but only its
demandability. Hence, the obligation already
exists even prior to the arrival of the day
certain although
283
Art. 1193, par. 2, NCC.
:i!HArt. 1193 , par . 3, NCC .
:&Art. 1193, par. 4, NCC.
2116
Art . 1193, par. 1, NCC.
CHAPTERONE 67
OBLIGATIONS & CONTRACTS
the same becomes demandable only upon the
arrival of the said day.
(30.4.3] In case ofloss deterioration, or
improvement: In case ofloss, deterioration,
or improvement of the thing before the arrival
of the day certain (period), the rules in Article
1189 of the NCC shall also beobserved ,
[30.4.41 Payment by mistake: Anything paid or de
livered before the arrival of the suspensive
period may be recovered, with the fruits and
interests, if the obligor was unaware of the
period or believed that the obligation had be-
-.. -come due and demandable.-
[30.5] Effect ofresolutoey term:
[30 .5.1 ] Rule: Obligations with a resolutory term
take effect and are demandable at once but
they terminate upon the arrival of the term or
r:io51specified.w
(30.5.2] Distin,::uished from resolutor_y condition: A
···-·reso luto ry condition, upon its happening,
results in the extingu.ishment of the obliga
tion""° as though it had not existed. A resolu
tory term, upon the arrival of the day certain,
simply results in..the termination of the o
ligationa., without annulling the fact of its
existence. Hence, as a rnle, a period does n !.....
carry with it the same accompaniment of ret,.
.roactive effec·t-s··-t-h·· a-t· -f- ollow a co.....n.. -d--i- t· ionm. . ·-
[30.6) Benefit oftenn or period:
[30.6.1] Presumption: Whenever in an obligatio-ii· a
period is designated, it is presumed to have
been established for the benefit of both the
11
"' Art. 1194, NCC.
2811
Art . 1195, NCC.
8
Art. 1193, par. 2, NCC.
""°Art . 1181, NCC.
291
Art. 1193, par. 2, NCC.
291
8 Manresa 159-160.
68 CNIL LAW REVIEWER
creditor and the debtor.293 The importance
of this presumption is that the creditor cannot
demand payment, and the debtor cannot
make an effective tender and consignation
of payment, before the period stipulated has
arrived.
{30.6.2] Presumption can be rebutted: The
presump tion is, however, disputable and
may be over come by proof that bythe tenor
of the obliga tion or other circumstances the
term or period appears to have been
established for the ben efit of one of the
parties only.~ Hence, if it appears that the
period has been established for the benefit of
the creditor alone, he may demand
performance at any time, even before the
arrival of the day certain, but the debtor in
such a case cannot compel him to accept
payment before the period lapses. On the
oth er hand, if the period is for the benefit of
the debtor alone, he may make payment at
any time, even before the expiration of the
period, but he may oppose a premature
demand for payment.
• It should be noted that the payment of
in terests is not the only reason why a
credi tor may not be bound to receive
payment before maturity. There may be
other rea sons, such as, that the creditor
may want to keep his money invested
safely instead of having it in his hands,
or that thecredi tor, byfixing a period,
may protect himself against sudden
decline in the purchasing power of the
currency loaned specially at a time when
there are many factors that influence the
fluctuation of the currency. Hence,
unless the creditor consents, the debtor
has no right to accelerate the time of
payment even if the premature tender
-Id.
Art. 1196, NCC.
293
CHAPrERONE 69
OBLJGATIONS & CONTRACTS
included an offer to pay principal and in
terest in full.*
• A stipulation that the payment is to be
made "within" thestipulated period is for
the benefit of the debtor only.* Hence,
a stipulation that the debt is payable
for a term of five years counted from
date of contract has been held to mean
either that the payment be made at the
end of the five years, or that the debt
could be settled at any time within five
years from the date of the contract.'°'
.; (30.6.3] Instances when debtor loses benefit of
term or period:- When any of the following
circumstances take place, the debtor loses the
right to make use of the period, in which case
the creditor need not wait for the expiration
of the period granted the debtor but may
treat the obligation as due and demandable,
for otherwise the creditor runs the risk of
the debtor not being able to comply with the
obligation -
a) Insolvency of the debtor.
• Except when he gives a security
or guaranty.
• Must occur after the obligation
has been contracted.
• Insolvency need not be
judicially declared.
b) Failure to furnish promised guaranty
or security.
• Debtor may preserve the benefit
of the term by giving the secu
rity.
*Ponce de Leon
v. Syjuco. Inc.,
90 Phil. 311.
*Samson v.
Aguila, G.R. No.
l.r5932, February
25, 1954.
5":Sia v. CA, 48
O.G. 5259.
"""Art. 1198,
NCC.
70 CIVIL LAW REVIEWER CHAPTER ONE 71
OBLIGATIONS & CONTRACTS
300Art . 1197, par. l, NCC.
c) Impairing the guaranty or security
after its establishment by debtor's
own acts.
• Sufficient that the guaranty
be
impaired by debtor's own acts.
• But the benefit is preserved if
the debtor gives a new security.
d) Loss or destruction of guaranty or
security through fortuitous event.
• In case of fortuitous event, it is
required that theguaranty must
disappear.
• Absolute disappearance is not
required; if guaranty deterio
rates in such a manner that it
becomes illusory, it is deemed
to have disappeared.299
• But the benefit is preserved if
the debtor gives a new security.
e) Violation by debtor of undert aking.
• The undertaking must be such
that in consideration thereof,
the creditor has agreed to the
period.
f) Debtor attempts to abscond.
(30.6.4) When courts may fix period:
(30.6.4.1] Grounds: The courts may fix the
duration of the period in the fol
lowing instances -
1) When the obligation does
not fix a period but the
nature of the obligation and
the circum stances warrant
the inference that a period
must have been intended.-300

mg Manresa 172-173.
 period, which period
• When the shall be fixed by the
obligation or court.""
note is payable • Here, the obligation is
on de mand, it is valid because the period
one without a
term and
does not affect its exis
becomes due tence. There is an existing
and demandable obligation and it is only
only upon its performance with res
demand. Hence, pect to time that is left
the court is not to the will of the debtor.
authorized to fix However, in an
the period.'"
" obligation subject to a
2) When the duration suspensive condition the
of the pe riod fulfillment of which
depends upon the will dependsupon the sole
of the debtor.302 will of the debtor, the
obligation is illusory and
• When the debtor hence non-demandable.
binds himself to Such a condition renders
pay "when his the obligation void.
means permit him
to do so," the
obligation is not
conditional but is
deemed to be sc"Peoples Bank &Trust Co. v. Odom, 64 Phil.126.
302
one with a Art. 1197, par. 2, NCC.
303
Art. 1180, NCC.
In the foregoing situations, the ful
72 CIVIL LAW REVIEWER fillment of the obligation itself cannot
be demanded until after the court has
fixed the period for compliance
■ When the mortgagor therewith, and such period has a
agrees to pay the sum - rrived.306 Any action to compel
"little by little," the dura performance brought before that
tion of the period is left to would be premature. However, in
the sole will of the debtor. exceptional instanc es, an action
Hence, the court is autho combining an action tofixthe period
rized to fix the period.004 with that of an ac tion for specific
performance may be allowed if it can
3) When the non-compliance by be shown that a separate action for
one of the parties in recipro specific per formance would be a mere
cal obligations is with respect formal ity because no additional
to time, the court may fix or proofs other than the admitted facts
grant a period ifthere exists a
will be presented and would serve no
just cause therefore.306
purpose other than to delay.01
[30.6.4.2] Action to fix term or period:
[30.6.4.3) Period fixed is final: Once the pe riod
 has been fixed by the court, OBLIGATIONS & CONTRACTS

3-04Seoane v. Franco, 24 Phil. 309.

it becomes part of the contract,
and it cannot be subsequently
changed or extended by the
court without the consent of
both of the part ieS.308 Stated
otherwise, the period cannot be
altered judicially but the parties
may change the period, as
innovation.
[30.6.4.4) Prescription of action to fix pe
.rk!d: While the action to fix the
period is different from the ac
tion to enforce the obligation,
the former is also subject to the
rules of prescription. Hence, in a
case, where the action to ask the
court to fix a period for certain
promis sory notes was instituted
more than 10 years after the
execution of said notes, the
action was held to have
prescribed. 09

.,-· D. Alternative and Facultative Obligations

[31] Basis of Classification: From the view point of the number

of prestations involved, an obligation may either be simple,
where there is only one prestation, or compound, where there
are various prestations. The latter, in turn, may either be
conjunctive, where the prestations are demandable jointly or
both at the same time, or distributive, where one of the various
prestations may be demanded. A distributive obligation, in .
turn, maytake the form of either alternative or facultative.
NOTE:There is noproblem witha simple
obligationbecause the obligation is extinguished only
upon the performance of the prestation. There is likewise
no problem with a conjunctive obligation because the
obligation can only be extinguished upon the
performance of all prestations included in it.
Art. 1191, par. 3, NCC.
006
_ __
1Ml6Concepcion v. People of the Phil., 74 Phil. 63;Gonzales v. Jose, 66 Pages v, Basilan Lumber Co., 104 Phil. 882.
Phil 369; 307
Tiglaov. Manila Railroad Co., 98 Phil. 181.
 308 300
Art. 1197, par. 3, NCC; Barretov. City ofManila, 11 Phil. 624. Gom ales v. Jose, 38 O.G. 1751.
74 --CM L LAW REVIEWER
CHAPTER ONE 75
OBLIGATIONS & CONTRACTS

[32] Alternative Obligations:

[32.lJ Concept: In an alternative obligation, there are various
prestatwns which are due and the obligation is fulfilled
by performance of one of them. In an alternative
obligation, the obligor must completely perform one of
the prestation..<;due and he ca nn ot compel the creditor
to receive part ofoneand part ofthe other
undertaking.310
[32.2) Who has right of choice: The rule is that the right of
choice pertains to the debtor. The creditor may exercise
the right only when the same has been expressly granted
to him._3 1.1 _
. {32.3] Limitations upon the debtor's right of choice: The
debtor may not choose those prestations: (1) which are
impossible; (2) which are unlawful; or (3) which could
not have been the object of the obliga tion .•12
latter is declared proper by the court,316 it is
clear from the law that the consent of the
other party is not necessary. What the law
requires in order for the choice to become
effective is a mere notice to the other party.
Indeed, if the consent of the other party is
required, the essence of the right to choose
and the altern at ive character of the
obligation are destr oyed.316
(32.4.3] Effect of choice: From the time the choice
is communicated, the obligation ceases to be
···· altern ative and becomes a simple one of
per forming that which has been chosen.017
[32.5] Effect ofloss ofprestation I s:
- .
' •••••-

When among the various prestations only one is Reason for Loss Right of Choice Right of Choice
practicable, ·- - - (Debtor) (Creditor)
the debtor loses the right ofchoice
'
3 3
and the 1) All prestations Obligation is Obligation is
obligation becomes a simple one of performing that are lost by rea- extin- guished. extinguished.
which is practicable. son of fortuitous
[32.4] event.
When _£ b g i be comes eff ! = The choice becomes
2) Only _on re- Obligation be- Obligation be-
g comes a simple comes a
mains; while
effective only from the time that it has been one of performing simple oneof
the others were
communicated.314 Since the Civil Code is lost by reason that which perform- ing
111/ , ''. t following the cognition theory, the choice made by one
becomes binding upon the other only when the latter
of fortuitous
- ·--··········--·
subsists. that which
event. subsists.'3 8
gains knowledge of such choice. ·· -- ·
3}--0 ne or some Obligation is still Obligation is
[32.4.1] No form required: The notice may be in were lost by alternative and still altema-
any form, provided that it is sufficient to reason of debtor may choose tive. Hence, the
make the other party know that the election fortuitous from those remain- creditor may
has been made. event; while ing. still choose from
several others those remain-
[32.4.21 Consent is not required: While there is a remained. ing.""'
decision to the effect that the effects of the
choice will arise only if such is consented
to by the creditor or, if being impugned by
the
;• .: 4 .... •. ) · ']
1
 1199, NCC.
! l OArt .
•1 Ong Guan v. c:;_ ur/ tlsurancec .;Inc., 4tf Phil'. {9i.-
311
Art. 1200, par. 1, NCC. > 1• IV Tolen tin o, Civil Cod.€ o f the Philippines, 1991
316
313
Art . 1200, par. 2, Ed., 206. 017 Art. 1205, par_ 1, NCC.
NCC. s Art . 1 205 (1 }, NCC.
3 1
313
Art. 1202, NCC. ••&[ b i d .
314
Art . 1201, NCC.
I I ■
 76 CML LAW REVIEWER CHAPl'ERONE 77
OBLIGATIONS & CONTRACTS

4) If one or some, Debtor may still Creditor may 7) If all were lost Obligation is extin- Obligation is
but not all were choose from the either: (1)claim by reason of guished. extinguished.
lost by reason of remaining. any of those sub- creditor's fault.
debtor's fault. sisting (without
[33) facultative Obligations: damages); or (2)
the price of that
[33.1] Concept: In a facultative obligation, only one prestation
whichisdisap-
due, that to which the obligation refers; but the debtor has the power to fulfill the obligation
by giving or rendering something else.324 peared, with
indemnity for (33.2) Distinguished from alternative obligations:
damages."'"
a. In alternative obligations, all the things or objects
5) If all were The creditor is The choice of of the prestation are subject to the obligation up
lost by reason entitled to recover the creditor shall to the time the election is made; whereas, in
of debtor's the value of the fall upon the facultative obligation, only the thing promised is
fault. last thing which price subject thereto, but not the other which the debtor
disappeared, or of any one of has reserved to himself the right to deliver in lieu
that ofthe service the prestations of the first.
which last become which was
impossible, with lost, with b. In alternative obligations, as all things are due,
indemnity for indemnity for the loss of one produces, or at least may produce,
dam- ages.m a deleterious influence on the obligation;
damages.322
whereas, in a facultative obligation, since only
6) If one or some, The debtor may No effect. The one thing is ow ing, the lost of that thing which
but not all, choose either to: creditor may still may be substituted does not affect the juridical
were lost by (1) perform that choose from the relations.
reason of which remains or remaining pres-
creditor's fault. choose from among tations or, if c. In alternative obligation, the right of choice may
be granted notonly to the debtor but also to the
those remaining only one is credi tor;= whereas, in facultative obligations, the
(without damages); remaining, the choice to substitute lies only with the debtor.336
or (2) rescind the obligation
contract with becomes a [33.3] Effect ofloss of substitute:
damages, because simple one [3 3.3 .1 ] If lost prior to substitution: The substitution
he cannot make ofperform- ing becomes effective only from the time that the
a choice accord- that which samehas been communicated to the creditorm.
ing to the terms of subsists. If the loss of the substitute occurs prior to the
the obligation by substitution, at which time the substitute is
reason of the credi-
tor's act.323
324
Art . 1206, par. 1, NCC; 8 Manresa 176.
326
320
Art. 1205(2), NCC. Art. 1200, par. 1, NCC.
326
321
Art. 1204, NCC. Art. 1206, par. 1, NCC.
322
Art. 1205(3), NCC. svApplying by analogy Art. 1201, NCC.

naf\111 l10u1l'iG01
 78 CML LAW REVIEWER
not what is due, the debtor is not liable even
if the loss or deterioration of the thing be by
reason of his fault.328
[33.3.2] If lost after substitution: But once the sub
stitution has been made, the obligation of
the debtor is limited to the performance of
the substitute prestation . Hence, the loss of
the substitute on account of the debtor's de
lay, negligence or fraud shall render him li
able for damages.329 However, if the prestation
is lost by reason of fortuitous event, without
any fault on the part of the debtor and prior
to him incurring delay, the obligation is extin
guished.3 30
/ E. Joint and Solidary Obligations
[34) Concept of Joint andSolidary Obligations:
{34.1] Definition:
[34.1.1] Joint obligation: One in which each debtors
is liable only for a proportionate part of the
debt, and the creditor is entitled to demand
only a proportionate part of the credit from
each debtor.331
[34.1.2] Solidazy obligation: One in which each of the
debtors is liable for the entire obligation, and
each of the credit.ors is entitled to demand the
satisfaction of the whole obligation from any
or all of the debtor s.332
[34.2] Presumption in favor of joint obligation: In case of
plurality of subjects or in case of concurrence of two
or more creditors or of two or more debtors in one and
u3 Art. 1206, par. 2, NCC.
a201d.
330
Art. 1262, par.1, NCC.
.Ja
1
PH Credit Corp. v. CA, G.R. No. 109648, November 22, 2001; Dy-Dumalasa
v. Fernandez, et al., G.R. No. 178760, July 23, 2009.
'132/d.
CHAPI'ER ONE 79
OBLIGATIONS & CONTRACTS
the s a me obligation, and in the absence of express
and indubitable terms characterizing the obligation
as solidary, the presumption is that the obligation is
only joint. 3il3 It thus becomes incumbent upon the
party alleging that the obligation is indeed solidary in
character to prove such fact with a preponderance of
evidence.334
[34.31 When solidarity exists: The well-entrenched rule is
that solidary obligations cannot be inferred lightly.
They must be positively and clearly expressed.= A
liability is solidary "only when the obligation
expressly so states, when the law so provides or when
the nature of the obligation so requires."336
{34.3 .1 ] SoHdary liability provided by law:
1) Where an inst rument containing the
word "J promise to pay" is signed by two
or more persons, they are deemed to
be jointly and severally liable thereon,
where the language of the instrument is
ambiguous.s.,,
2) If two or more heirs take possession ofthe
estate, they shall be solidarily liable for
the loss or destruction of a thing devised
or bequeathed, even though only one of
them should have been negligent.338
3) All partners are liable solidarily with
the partnership for everything charge
able to the partnership for loss or injury
caused to any person by any wrongful
act or omission of any partner in the or
dinary course of the business of the
part nership,339 and for money or
property of a
333
Art. 1207, NCC; Escaiio v. Ortigas, Jr., G.R. No. 151953, June 29,2007.
34/d .
336
PH Credit Corp. v. CA,supra.
- Art. 1207, NCC.
337
Art. 17(g), N.l.L.
338
Art.927, NCC.
a:ieArt . 1824, in relation to Art. 1822, NCC.
80 CML LAW REVlEWER
third person misapplied by a partner in
the course of the partnership
business.s•o
4) The principal is solidarily liable with the
agent even when the latter hasexceeded
his authority, if the former allowed
the latter to act as though he had full
powers.341
5) If two or more persons have appointed
an agent for a common transaction or
undertaking, they shall be solidarily
lia ble to the agent for all the
consequences of the agency.34"
6) In commodatum, twoor more bailees
are solidarily liable for a thing loaned
in the same contract.=
7) The responsibility of two or more offi
cious managers shall be solidary, unless
the management was assumed to save
the thing or business from imminent
danger.$◄◄
8) The responsibility of two or more payees
is solidary in solutio indebiti.346
9) The responsibility of two or more
persons who are liable for a quasi-delict
is solidary.- Should the lessees or
sublessees refuse to vacate the leased
property after the expiration of the
lease period and despite due demands
by the lessor, they can be held jointly
and severally liable to pay for the use of
the property. The basis of their solidary
liability is not the contract of lease or
Art . 1824, in relation to Art. 1823,
NCC.
u 1Art . 1911, NCC.
.. Art. 1915, NCC.
3
CHAPI'ERONE 81
OBLIGATIONS & CONTRACTS
sublease but the fact that they have
become joint tortfeasors.""'
10) The principals, accomplices, and
acces sories, each within their
respective class, shall be liable
severally (in soli,dum) among
themselves for their quotas, and
subsidiarity for those of the other per
sons liable.3'"
[34.3.21 Solidary liability by express stipulation:
[34.3.2.11 Word "solidary" need not be
used: It is not, however, necessary
that theagreement should use
precise ly the word "solidary" for
an obli gation to be so; it is
sufficient that thestipulation
statesforexample, that each one of
the debtors can be compelled to
pay the totality of the debt, or that
each one of them is obligated for
the entire value of the
obligation."'9
[34.3.2.2] "Jointly and severally": The
terms of a contract govern the
rights and obligations of the
contracting parties. When the
obligor under takes to be "jointly
and severally" liable, it means
that the obliga tion is solidary.360
If the promisso ry note involved
expressly states that the three
signatories therein are jointly and
severally liable, any one, some or
all of them may be proceeded
against for the en tire obligation.
The choice is left to the solidary
creditor to deter-
....,.Art. 1945, NCC. U<Art. 2146, par. 2, NCC. 346Art. 2157, NCC.
348
Art . 2194, NCC.
 "'' Alipio v. CA, G.R. No. 134100,
Sept. 29, 2000, citing Abalos v. CA,
G.R. No.
1
0
6
0
2
9
,

O
c
t
.

1
9
,

1
9
9
9
.
3

A
r
t

1
1

R
P
C
.
9
"' Juan Ysmael & Co. v. Salinas,
73 Phil. 601.
860
lnte rnational Finance Corp.
v. Imperial Textile Mills, Inc., G.R.
No. 160324, Nov. 15, 2005.
82 CML LAW REVIEWER
mine against whom he will en
force collection.351 Consequently,
the dismissal of the case against
one of the signatories may not be
deemed as having discharged the
others from liability as well.• 3 2
• In this jurisdiction at
least, the word "jointly"
when used by itself in
a judgment rendered in
English is equivalent to
the word mancomunada
mente, and that it is nec
essary to use the words
"joint and several" in or
der to convey the idea
expressed in the Spanish
term solidariamente (in
solidum)."'"'
• It is already a well-settled
doctrine in this jurisdic
tion that, when it is not
provided in a judgment
that the defendants are
liable to pay jointly and
severally a certain sum
of money, none of them
may be compelled to sat
isfy in full said judgment,
even if under the contract
executed by the parties
the obligation contracted
was joint and several in
character. [,4 REASON:
After that judgment has
361
lncioug,Jr. v. CA, G.R. No. 96405, June 26,1996.
31>Zfd.
363
De Leon v. Nepumuceno and De Jesus, 37 Phil. 180.
3MOriental Commercial Co., Inc. v. Abeto and Mabanag, 60 Phil. 723; Ang
Lln Chi v. Castelo, G.R. No. L-2514, March 31, 1949; Industrial Management
International Development Corp. v. NLRC, G.R. No. 101723, May 11, 2000.
CHAPTERONE 83
OBLIGATIONS & CONTRACTS
become final, the court
has no power to amend it
to convert a defendant's
liability into a solidary
obligation.
[34.3.2.3] "Juntos o separadamente": The
phrase juntos o separadamente
used in a contract creates the
same obligation as the phrase
"mancomun o insolidum." The
words "separadamente" and "in
solidum" used in a contract in
connection with the nature of the
liability of the parties are suffi
cient to create an individual (or
solidary) liability."•
[34.3.2.4] "Individually and coHeclively":
The words "individually and col
lectively" have also been held to
create a solidary liability,:166 So
does an agreement tobe "individ
ually liable" or "individually and
jointly liable."3 7
[34.3.3) Solidai:y liability by nature of obli2ation:
a) Some of the obligations, solidary by
nature, are also provided by law, such
as civil liability arising from crime,3611 the
obligations of two bailees,:1&9 of two
officious managers,"'"' or of two tort
feasors. 361 _
b) When several heirs of a deceased partner
continued with the business and manage
ment of the partnership against the will
of the other partner, the obligation of said
3
Par ot v. Gemora, 7 Phil. 94.
3660riental Commercial v. Lafuente, (C.A.) 38 Off. Gaz. 947.
361
Ronquillo v. CA, 132 SCRA 274.
a.saArt. 110, RPC.
369
Art..1945, NCC.
SGoArt. 2146, pa:r. 2, NCC.
381
Art. 2194, NCC.
84 CIVIL LAW REVIEWER =Art. 1208, NCC.

heirs to undertake an inventory, render

an accounting of partnership assets and
to wind up the partnership affairs is soli
dary by its nature.362
c) Since the Workmen's Compensation Act
was enacted to give full protection to the
employee, reason demands that the na
ture of the obligation of the employers
to pay compensation to the heirs of their
employee who died in line ofduty,
should be solidary; otherwise, the
purpose of the law could not be
attained."""

(351 Joint Obligations:

[35.1] Division of joint credits or debts: The division of
joint credits or debts may be established in the
obligation itself, as when the debtors specified their
respective liabilities or when the creditors specified
the sums for which each of them is entitled.
However, if the obligation itself is silent as to how
the debt or credit shall be divided among the joint
debtors or joint creditors, then such debt or credit
shall be presumed to be divided into as many equal
parts as there are creditors or debtors.364
(35.2] Correlativity of the distinct credits and debts with each
other:
a) When the division of the joint credit as fixed by
the obligation among the joint creditors being
unequal and the division among the joint debtors
being also unequal, such debts and credits as thus
divided can be matched with each other.
b) Where the number of creditors and debtors are
un equal, or when although there is an equal
number of creditors and debtors the credits to
which each joint creditor is entitled and the share
of the joint

Sunga-Chan v. CA, G.R. No. 164401, June 25,2008.

362

Liwanag v. Workmen's Compensation Commission, et al., G.R. No. L-12164,

368

May 22, 1969.

 CHAP'l'ER ONE 85
OBLIGATIONS & CONTRAC'rS

debt for which each joint debtor is answerable are

unequal and do not match, each creditor may ask
or each debtor may pay all in proportion to the
res pective credits and debts, in order that such
credits or debts may be subject to equal
contingencies.
[35.3] Effects of joint obligation: The most essential and
characteristic effect of joint obligation is that theshare of
each of the joint creditors or debtors in the credit or debt
is considered distinct from one an other.31!6 As a
consequence -
[35.3.1] Extinction:The extinction of the debtofone of
the various debtors does not necessarily affect
the debts of the othe rs. 368
(35.3.2] : The delay on the part of only one of
the joint debtors does not produce effects
with respect to the others, and if the delay is
produced through the acts of only one of the
joint creditors, the others cannot take
advantage thereof.
[35.3.3] Interruption of prescription: The interruption
of prescription by the judicial demand of one
creditor upon a debtor does not benefit the
other creditors nor interrupt the prescription
as to other debtors. In the same way, a partial
payment or acknowledgment made by one of
several joint debtors doesnot stop the running
of the statute oflimitations as to the others.367
[35.3.4] Vices of each obligation: The vices of each
obligation arising from a personal defect of a
particular debtor or creditor, do not affect the
validity of the other credits or debts.
[35.3.5] Insolvency of a debtor: 'fhe insolvency of a
debtor does not increase the liability of his co-
debtors, nor does it -authorize a creditor to
demand anything from his co-creditors.

366
Art. 1208, NCC.
366
Agoncillo and Marifto v. Javier, 38 Phil. 424.
sm1d., citing 8 Manresa 182.
86 CML "LAW REVIEWER CHAPTER ONE 87
OBLIGATIONS & CONTRACTS
373
8 Manresa 205.
[35.3.6) Defense of res iudicata: In divisible joint
obligation, the defense of res judicata is
not extended from one debtor to another
the reason being that no debtor has more '
obligation than hisown, nor may each
creditor claim more right than what
respectively pertains to him.368

(36) Solidary Obli tions:

(36.IJ Kinds of solidarity:
(36.1.1] Active solidarity: One that exists among
the creditors. This is the tie among several
creditors of the same obligation, by virtue
of which, each of them, as regards his co
creditors, is creditor only as to his share in
the obligation and, in regard to the
common debtor, he represents all of
them.369 The essential feature of active
solidarity is the existence of mutual
agency or mutual representation among the
various creditors.370
[36.1.2] Passive solidarity: One that exists among
the debtors. This is the tie among several
debtors, by virtue of which they are bound
to the payment of the whole credit.371 The
essential feature of passive solidarity is the
existence of mutual guaranty among the
various debtors.372
(36.1.3) Mixed solidarity: This is the solidarity that
exists on the part of both creditors and
debtors.373
NOTE: Considering the foregoing, the
obligation may be joint on the side of the
creditors, and solidary on the side of the
creditors, or vice versa. Thus, if the obli-

388
8 Manresa 200-201.
3611
1 Giorgi, Teoria de la Obligaciones, 89.
11708 Manresa 205-206.
1171
1 Giorgi, Teoria de la Obligaciones, 89.
372
8 Manresa 219.
 gation is joint on the side of the creditors,
and solidary on the side of the debtors,
each creditor can demand only his share in
the obligation; but each debtor may be
compelled to pay the entire obligation to
the creditor s. 314
{36.2] Active Solidarity:
(36.2.1] Mutual agency or representation: The
essential characteristic of active solidarity is
that of mutual agency, in that each one of the
solidary creditors can claim or enforce the
rights of all, with the resulting obligation of
paying everyone what belongs to him.375 Ai'J a
consequence -
[36.2.1.1] Beneficial act: Each one of the sol
idary creditors may do whatever
may be beneficial to the other sol
idary creditors.3' 6 Thus, any soli
dary creditor may make demand,
judicial or extrajudicial, upon the
debtor or debtors,377 or proceed
against any one or some or all of
the solidary debtors.378
[36.2.1.2] Prejudicial act: The existence of
mutual agency does not,
however, authorize each one of
the solidary creditors to do
anything which may be
prejudicial to the other solidary
creditors."" The effect of such
prohibition applies only to the
relationship existing among the
creditors but does not extend to
the relationship of the soli dary
creditors to their debtors. Ai'J
such-

87
•8 Manresa 201-202.
375
8 Manresa 205-206.
316
Art. 1212, NCC.
377
Art . 1214, NCC.
378
Art. 1216, NCC.
379
Art. 1212, NCC.
88 CIVIL LAW REVIEWER
CHAPTER ONE 89
OBLIGATIONS & CONTRACTS
NCC.
(36.2.1.2.1] Effect of prejudicial
act to debtors: Article 1215 of the NCC gives efficacy to
the most prejudicial acts which a solidary creditor may
execute. Accord ing to this article, no vation, compensation,
confusion or remis sion of the debt, made by any of the
solidary creditors with any of the solidary debtors, shall
extinguish the obligation.380
[36.2.l.2.2J Effect of prejudicial
act amon the credi tors.: Article 1212 of the NCC
means that
none of the solidary creditors can execute any act
prejudicial to the others without at the same time incur
ring the obligation of indemnifying the latter.n3 The
creditor who may have made any of the prejudicial acts
mentioned above (novation, compen sation, confusion or
remission) shall be li able to the others for the share in the
obli gation corresponding to them.382

380
Art. 1215, par.1,
NCC.
381
8 Manresa 206.
382
Art.1215, par. 2,
 e effects the nova tion shall be
[36.2.2] extens liable to the other creditors for
ion of the latter's shares in the
Effect of time obligation.
novation: for
[36.2.2.11 paym [36.2.2.3] Innovation by subrogation:
M ent, When novation consists in the
e given subroga tion ofa third person in
r by the the rights of the other creditors,
e credit the credi tor effecting the
or to novation is like wise liable to the
a other creditors for their share in
e solida
x the credit, since subrogation
ry transfers to the per son
t debtor
subrogated the credit with all the
e , does
rights appertaining thereto.306 But
n not
releas if the creditor subrogates a
s
e the third person, not in the rights of
i the other creditors, but in his
o others
from place, the same amounts to an
n
the assignment of his right which he
obliga could not do without the consent
o tion.:i of the other creditors."""
f a3
[36.2.3] Effect of compensation: The solidary creditor
t [36.2.2.2] In whose personal debt has boon compensated
i subst by the credit subject matter of the solidary
m itutio obligation, becomesliableto the other solidary
e n of co-creditors for their share in the credit.
: debto
r:
A When 383
384
Philippine Guaranty v.Jose, Off. Gaz., Aug. 16, 1941, p. 1475.
s Arta. 1291(2) and 1293, NCC.
novat 386
Art. 1303, NCC.
ion 386
Art. 1213, NCC.
a consi
sts in
r the
u substi
l tu
e tion
, of the
perso
t
n of
h
the
e
debto
r. the
m
e credit
r or
who
90 CML LAW REVIEWER CHAPTERONE 91
OBLIGATIONS & CONTRACTS

[36 .2 .4 )
Effect of confusion: In solidary obligations, (36.2.5.2] Remission of full share of a soli
the extinguisbment is limited to the portion dacy:debtor:
or sha re corresponding to the creditor or (36.2.5 .2.1) Effect as to solidary
debtor in whom the two characters concur.381 creditors: When the
The solidary creditor in whom the remission is for the
confusion has taken place remains liable to ful l share ofa solidary
[36.2.5] the other solidary creditors for their share. debtor in the obliga
Effect orf emission: tion, he ceases to have
any relation with the
[36.2.5.1] Remission of entire obligation: A creditor s, from whom
total remission has the effect of he is there byreleased,
extinguishing the entire obliga ti unless the continu
on.' 811 But the solidary debtor ation of his solidary
who obtained the remission of the relation has been ex
whole obligation is not entitled to pressly reserved, in
reimbursement from his co-debt which case he will be
ors ,389 beca use rem is s ion is a surety for the other
essen tially gratuitous. debtors.""' H ence , the
(36.2.5.1.1) If effected by one soli bal an ce of the obliga
dacy: creditor: The tion may not be col
creditor who made the lected from him.
remission becomes li [36.2.5.2.2] Effect as to solidary
able to his co-credi debtors: Notwith
tors for their standing his release
shares."00
with respect to the
[36.2.5.1. 2] If effected
by several. creditors, he is still
but not all: There bound, however, with
can be no action as respect to his co-debt
between those who ors, so that if one of
made it; but all of the latter is made to
them will be liable pay the share of an in
for the shares of the solvent, the released
creditors who did not debtor will still have
remit, and if one is to give his share in
insolvent, his share the portion of the in
shall be made up by solvent ..... The same
the others who con rule applies in case
curred in the remis the debt had been to-
sion.
WArt. 1277, NCC. aeeArt. 1216, pra . 1, NCC.
a41
9
Art. 1220, NCC.
as,s Manresa 226-227.
3112
1d .
92 CML LAW REVIEWER
tally paid by anyone
of the solidary
debtors before the
remission was
effected.393
[36.2.5.3] Effect of partial remission: If the
remission in favor of a solidary
debtor is partial, his character
as solidary debtor continues with
respect to the creditors and his
co debtors. Hence, he can be
made to paythe balance of the
obligation.393
[36.2.6] Assil?Jroent of rights of a solidazy creditor:
[36.2.6.1) In favor of stran r: A soli dary
creditor cannot assign his rights
without the consent of the
others,3.,. if the same is made in
favor of a stranger. Since such
as signment is prohibited, the
same is considered invalid396
and the assignee cannot be
regarded as a solidary creditor.
Hence, any pay ment made by
the debtor to such an assignee
would be a payment to a wrong
person and may not extinguish
the obligation; and a suit filed by
such assignee cannot interrupt
prescription.397
[36.2.6.2] In favor of co-creditor: The con
sent of the other solidary credi
tors is no longer necessary, be
cause the assignee is one as to
whom the confidence of the
others already exist.
393
Art. 1219, NCC.
3114
8 Manresa 225-227.
396
Art . 1213, NCC.
3118
Art . 5, NCC.
CHAPTER ONE 93
OBLIGATIONS & CONTRACTS
[36.2.7] Effect of demand by a solidary creditor:
[36.2.7.1] General rule: The debtor may pay
anyone of the solidary creditors.398
[36.2.7.2] Effect of demand: The
foregoing rule does not apply if
any de mand, judicial or
extrajudicial, has been made by
one of the soli dary creditors in
which case, pay ment should be
made to him.'"" If the debtor
pays to a creditor who did not
make the demand, the same is
deemed a payment made to a
wrong person, in so far as the
shares of the others in the credit
are concerned. In other words,
the payment made to any other
credi tor will not extinguish the
obliga tion except insofar as the
payee's share is concerned.
[36.2.7.3] Application to mixed solidarity:
In mixed solidarity, when one
credi tor makes a demand upon
one of the debtors, the latter
cannot pay to any other creditor
but the one who made the
demand. The pro hibition,
however, does not apply to the
other debtors upon whom
demand has not been served, and
hence they may pay to any credi
tor who may not be the one who
made the demand.•00
[36.2.8] Obligation of creditor who collects credit:
The solidary creditor who collects the debt
shall be liable to the others for the share in the
obligation corresponding to them.'°1 In
effect, the creditor who has collected the debt
mJVTolentino, Civil Code of the Philippines, 1991 Ed., 232.
398
Art. 1214, NCC.
399/d.
400
8 Manresa 210.
'°1Art . 1215, par. 2, NCC.
94 CIVIL LAW REVIEWER CHAPTER ONE 95
OBLIGATIONS & CONTRACTS
= Jd.
is converted into a debtor liable to his co
creditors for the share corresponding to each
of the latter.
C36.3l Passive solidarity:
(36.3.lJ Mutual guaran.cy: In passive solidarity,
what exists among the debtors is a case of
mutual guaranty, the result being that each
one of the debtors answers not only for the
portion affecting him, but also for the portion
pertaining to the others. As a consequence,
the creditor may proceed against any one of
the solidary debtors or some or all of them
simultaneously.4°2 The demand made against
one of them shall not be an obstacle to those
which may subsequently be directed against
the others, so long as the debt has not been
fully collected.403
[36.3.2] Solidary debtor distinguished from surety:
The difference lies in the respective faculties
ofthe joint and several debtors (solidary
debt ors) and the surety to seek
reimbursement for the sums they paid out to
the creditor. In the case of joint and several
debtors, Article 1217 of the NCC makes
plain that the soli dary debtor who effected
the payment to the creditor "may claim from
his co-debtors only the share which
corresponds to each, with the interest for
the payment already made." Such solidary
debtor will not be able to recover from the
co-debtors the full amount already paid to
the creditor, because the right to recovery
extends only to the proportional share of the
other co-debtors, and not as to the particular
proportional share of the solidary debtor
who already paid. In contrast, even as the
surety is solidarily bound with the principal
debt or to the creditor, the surety who does
pay the creditor has the right to recover the
full amount paid, and not just any
proportional

Art . 1216, NCC.

402
 404
E scaii o v. Ortigas, J r., G.R. No. 151953, June 29, 2007.
406
Art . 1217 , par . 1, NCC.
share, from the principal debtor or 406
Art. 1217, par. 2. NCC.
debtors. Such right to full 4'Y1fd .
reimbursement falls within the other
rights, actions and benefits which
pertain to the surety by reason of the
subsid iary obligation assumed by the
surety.-

[36.3.3] Effect of payment made by one solidazy

debtor:
[36.3.3.1] Extinguishment of
obliiation: Payment made
by one of the soli dary
debtors extinguishes the
obligation. But if there be
two or more solidary
debtors offering to pay, the
creditor may choose which
offer to accept.406
[36.3.3.2] Right ofsolidary debtor who
made the payment: The
solidary debtor who pays the
entire obligation may collect
from his co-debtors not only
the share that corres ponds to
each, but also interest from
the time of the making such
payment until he is
reimbursed by his co-
debtors. In other words, in
passive solidarity, the
debtor who made the
payment becomes a creditor
of his co-debtors for the
share that corresponded to
each of the latter in the
obligation extin guished.

Qualifications:
a) If the payment is made
before the debt is due,
nointerest for the
intervening period may
be demanded.m
96 CML LAW REVIEWER
b) If the payment is made after
the obligation has prescribed
or becomes illegal, the debtor
who paid shall not be entitled
to reimbursement from his
co de btors .•08
[36.3.3.3] Effect of insolvency of one of
so1i dary debtors: If after
payment has been made, one
debtor becomes insolvent, the
other debtors, in cluding the
debtor who has paid the debt and
whois seeking reim bursement,
are proportionately li able for the
insolvent's share.m
[36.3.3.4] No real case of subrogation: A so
lidary debtor, by paying the entire
obligation, does not become a
sub rogee of the creditor, because
the original obligation is
extinguished and a newone is
created. The pay ing solidary co-
debtor does not step into the shoes
of the credi tor as he cannot
collect the whole amount of the
loan from anyone but is only
entitled to claim from his co-
debtors the share pertain ing to
each with interest on the amount
advanced. The right of the paying
co-debtor to be reim bursed is not
based on the origi nal obligation
but upon the pay ment made by
him.•10
(36.3.4] Effect of loss of thing: or supervening:
impos sibility of p restati an :
[36.3.4.1] If without fault of the solidary
CHAPTERONE 97
OBLIGATIONS & CONTRACTS
debtors: The obligation is extin
guished.m
[36.3.4.2] If there was fault on the part of
any one of them or loss or impos
sibility is due to fortuitous event
after a debtor has incurred in
de
.li!s:: All shall be liable to the credi
tor, for the price and the payment
of damages and interest. How
ever, the innocent debtors have a
right of action to recover from
the guilty debtor the full amount
of the indemnity they have paid
to the creditor. If, on the other
hand, the creditor recovers the
indem nity from the guilty
debtor, the latter cannot get any
contribution from his co-
debtors."'
[36.3.5] Defenses available to every solidary debtor:
There are three kinds of defenses that a
solidary debtor may avail himself ofin
actions filed by a solidary creditor:
[36.3.5.1) Defenses which arise from the
nature of the obli ti o n : 413
These are the defenses which
tend to weaken or destroy the
legal tie or vinculumjuris.These
defenses constitute a total
defense which can be availed of
by any of the solidary debtors as
against the entire obligation.
Examples of these defenses are
the following:
1) That the contract is void or
in existent;
2) That the contract is unen
forceable because it
infringes the Statute of Fra
uds;
 411
Art. 1221, par. 1, NCC.
408
Art. 1218, NCC. '
1
' Art. 1221, pars. 2 and 3, NCC.
-Art.1217, par. 3, NCC. 413
Art . 1222, NCC.
'"Wilaon v. Berkenkotter, G.R. No. L-4476, April 20,
1953.
CIVIL LAW
REVIEWER CHAPTERONE 99
98 OBLIGATIONS & CONTRACTS

3) That the entire contract is ficient causes to an nul consent,

voidable due to defect in such as minority, insanity,
capacity or consent of ALL
the debtors, such as minority,
insanity, mistake, violence,
undue influence or fraud.
4) That the obligation is
already extinguished, such
as by rea son of payment,
remission, novation, etc.
5) Non-fulfillment of suspensive
condition or non-arrival ofthe
period affecting the entire ob
ligation.
6) Any other defense which may
invalidate the original con
tract from which the right
or the action of the creditor
against the debtors arises,
such as resjudicata, prescrip
tion and others of the same
class.
[36.3.5.2] Defenses personal to the debtor
being sued or pertaining only
to his share:• These defenses
14

in clude not only those affecting the

capacity or consent of the debtor
being sued, but also those refer
ring particularly to his portion of
the obligation such as condition
or term.
[36.3.5.2.1) Total defense:
De
fenses personal to the
debtor who is being
sued, which are suf
 may invoke the same
fraud, only with respect to
violence his part, but he can
, or in still be sued for the
timidati portions not subject
on, will to terms or
serve as conditions, becausehe
a is solidarily liable....
complet
[36.3.5.3] Defenses which belong to
e
exemp another debtor:"" Defenses,
tion of whether total or partial, which
the personally be long to the other
defenda co-debtors are also available to
nt from the debtor who is actually sued,
liability with the qualifi cation that he may
to the avail himself thereof only as
creditor. regards that part ofthe debt for
which the debtor to whom the
[36.3.5.2.2] Partial defense: If defense belongs is res
the
ponsible.417
personal
defense
takes the / F. Divisible and Indivisible Obligations
form of
spe cial
terms or
condi [37] Divisible and Indivisible Obligations·
tions Divisible obligation -That which has for its object a
affecting thing or an act which in its delivery or performance is
only his susceptible
part of
the 416
Inchausti v. Yulo, 34 Phil. 978.
obliga 416
Art.1222, NCC.
tion, he ,1,lcl,
CHAPl'ERONE
101
100 CIVIL LAW REVIEWER OBLIGATIONS & CONTRACTS

obligation is whether or not it is susceptible of partial

of division. The basis is whether or not the obligation is
susceptible of partial fulfillment according to the
purpose of the said obligation.418
Indivisible obligation - That which does not admit of
division, or even though it does, neither the nature of the
contract nor the intention of the parties permits it to be
fulfilled by parts.••1
(37.lJ Rules for determining divisibility or indivisibility
Qf obligations: The test of divisibility of an
performance.
This susceptibility does not mean that it is possible or not to
fulfill the obligations by parts, but rather, whether or not it is
opposed to the ends or purpose of the obliga t ion.• 20 Hence, it is
incorrect to lay down as an invariable test the divisibility of the
subject matter, or to say that the question depends upon the
number of parties. The purpose of the obligation is the
controlling circumstance. This rule applies not only to
obligations to give but also to those of doing or not doing.'21
[37.1.1] In obligations to 21,ve:
 a) Obligations to deliver a definite thing, b) These obligations are divisible,
such as an animal or vehicle, are indi however, when:
visible.422
i) ... The obligation has for its object the
b) However, even though the object may execution of a certain number of
be physically divisible, an obligation is days of work;
indivisible if so provided by law or in
tended by the parties.423 ii) The obligation has for its object
the accomplishment of work by
(37.1.21 In obligations to do: metri cal units; or
a) These are generally indivisible. Even ····ill) The obligation has for its object
though the service may be physically analogous things which by their
divisible, an obligation is indivisible if nature are susceptible of partial
so provided by law or intended by the performance.•u
parties.424 c) In obligations not to do, divisibility or
1 indivisibility shall be determined by
' 88 Manresa 233.
_
419
3 Viso 74. the character of the prestation in each
4
20JV Francisco, Civil Code of the Philippines, 366. . _. _ particular case.•211
' 214
Sanchez Roman 94. ·
mArt. 1225, par. 1, NCC. [38] Solidarity and Indivisibility:
'
23
Art,1225, par. 3, NCC.
[38.1] Rule: The indivisibility of an obligation does not
necessarily give rise to solidarity. Nor does solidarity
of itself imply indivisibility.•21
[38.2] Reason for the rule: Solidarity and indivisibility are
two distinct concepts. They differ in their origin and
basis, and in their effects, as follows:
[38.2.l J As to origin and basis: Solidarity refers to
the legal tie or uinculum that binds the
parties,.. whereas indivisibility refers to the
object or prestation of the obligation.w.1
Thus, solidarity requires plurality of subjects,
whether they be creditors and debtors. The
same is not required in an indivisible
obligation.

425
Art. 1225, par. 2, NCC.
41
.&Art . 1225, par. 4,NCC.
427
Art. 1210, NCC.
428
Art. 1207, NCC.
429
Art. 1223, NCC.
102 CML LAW REVIEWER
 [38.2.2] As to their effects: In case of plurality of
subjects in an indivisible obligation, each
debtor is liable for, and each creditor is
entitled to, only his aliquot share, and each
is distinct and separate from the others.
Hence, in case of non-performance or breach
where the obligation is now converted into
an indemnity for damages, damages can
be demanded only from the debtor who
was responsible for the breach, while the
other debtors who may have been ready to
fulfill their parts shall not contribute to the
indemnity beyond the corresponding portion
of the price of the thing or of the value of the
service in which the obligation consists.430 In
a solidary obligation, however, each debtor
answers for the default of another, and for a
co-debtor's insolvency, entitling the creditor
to recover the full amount of such
damages.•31
[39) Joint Indivisible Obligations:
- [39.1} Concept: The obligation is joint as to the parties but
indivisible as to compliance. As a rule, the obligation
is presumed to be joint in case of plurality of
subjects.02 And this presumption applies even if the
obligation is indivisible because the indivisibility of
an obligation does not necessarily give rise to
solidarity.= Hence, the obligation preserves its
character of being joint in case of plurality of
subjects notwithstanding its indivisibility, so that the
credit or debt is apportioned among the several
creditors or debtors, each credit or debt being
considered distinct from one another.•34
[39.21 Consequencesof joint indivisible obligations:
[39.2.1] As to debtors: Being indivisible, the debt can
be enforced only by proceeding against all
430
Art . 1224, NCC.
433
-ruy,
431
4 Sanchez Roman, 95, 96.
=Art. 1207, NCC.
CHAPI'ERONE 103
OBLIGATIONS & CONTRACTS
the debtosr,4•3 although they are each
liable only for his part. Stated otherwise, in
this kind of obligation the performance
requires the concurrence of all the debtors,
although each for his part. Forexample, if
A, B and C obligated themselves to deliver
a car to X, the latter cannot demand the
fulfillment of the entire obligation from
only one of the debtors, but from all of the
three debtors together. Since the obligation
remains tobe joint, if one of the debtors
becomes insolvent, the others shall not be
liable for his share.430
[39.2.2] As to creditors: Since the joint creditors
are each entitled only to his aliquot share,
which share is distinct from the others, the
collective action of all the creditors is also
necessary in order toenforce the credit. For
example, if A is obligated to deliver a car to
X, Y, and Z,neither of the latter, separately
from each other, can demand for the
fulfillment of the obligation. In this example,
all three must demand from A the fulfillment
of the obligation. On the part of A, he can
extinguish his obligation only by delivering
the object to all the creditors jointly, unless
they have authorized any one of them to
receive the payment. The foregoing principle
applies even if the act executed by one of the
creditors is beneficial to them, such as
interrupting the period of prescription. Since
the obligation is joint and the credit of each
one is distinct from the others, there is no
mutual agency that exists among the
creditors. Hence, the act of one alone is
ineffective considering that the indivisibility
of the obligation requires collective action to
be effective.
Art. 1210, NCC.
l 'l I NOy,
 437
Art. 1224, NCC.
<-l Art. 1209, NCC. 438/d.
6

438Jd.
104 CML LAW REVIEWER
CHAPI'ERONE 106
OBLIGATIONS & CONTRACTS

[39.2.3l Effectofbreachofa
jointindivisibleobligatimi: The obligation is •wa Manresa 477.
converted into one for the payment of -Pryce Corporation v. Philippine Amusement and Gaming Corp., 458 SCRA
164, 180-181.
indemnity for damages from the time anyone SSS v. Moonwalk Development & Housing Corp., G.R. No. 73345, April, 7
441

of the debtors does not comply with his

undertaking."37 The debtor who was
responsible for the breach shall bear the
liability for all the damages suffered by the
creditor while those whomay havebeen ready
to fulfill their promises shall not contribute
to the payment of damages. Their liability is
limited to their respective share of the price
of the thing or value of the service in which
the obligation consists.438

G. Obligations With a Penal Clause

[40) Obli tions with a Penal Clause: It is one with an accessory

undertaking by virtue of which the obligor assumes a greater
liability in case of breach of the obligation.=
[40.1) Penal clause, defined: A penal clause is an accessory
obligation which the parties attach to a principal
obligation for the purpose of insuring the performance
thereof by imposing on the debtor a special prestation
(generally consisting in the payment ofa sum of
money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled."'"
[40.2) Dual function: A penal clause is an accessory
under taking to assume greater liability in case of
breach. It has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat
ofgreater responsibility in the event of breach. From
the foregoing, it is clear that a penal clause is
intended to prevent the obligor from de faulting in
the performance of his obligation. Thus, if there
1
should bedefault, the penalty may be enforced."'
 obligation also refuses to pa_y
[40.3] Penalty distine:uished from condition: A penal clause the p nalty, in which case the
constitutes an obligation, although accessory; a con creditor is entitled to interest in the
dition is not. Thus, a penalty may be demanded in amount of the penalty, in
case of non-fulfillment of the principal obligation, and accordance with Article 2209 of
even with it alone; while a condition can never be the NCC; or
demanded to be fulfilled, but whether it happens or
not, only the obligation which it affects may be c. When the obligor is guilty of ud in
demanded."1' the_ ft.!!m_Imen t <?( e _ oblig _a
ion.44 •
[ 40.4) Penalty as substitute for dama s andinterest:
NOTE: In case of fraud in the
[40.4.1) General rule: The penalty takes the place fulfillment of an obligation with a penal
of the indemnity for damages and the clause, proof of such fraud is incumbent
payment of interest.•43 upon the creditor, and in case he
[40.4.2] Exceptions: Indemnity for damages, in addi demands in demnity in addition to the
tion to and apart from the penalty stipulated, penalty stipu lated, proof of the existence
may be recovered in three cases: and amount of the damages shall also
correspond to him. However, the
a. When there is an e r _sµ pµla tion creditor may demand
to that effect;
b. When the obligor having failed to 442IV Padilla, Civil Code ofth.e Philippines, 1967 Ed., 250-251.
comply with the principal ' Art.
43
1226, NCC.
™Id.
1993.
100 CML LAW REVIEWER CHAPTER ONE
OBLIGATIONS & CONTRACTS
107

only the difference of such amount over [40.6) Creditor maynot demand both the principal obliflation
the anii:iiiiiCof the penalty stipulated and penalty:
as the creditor cannot recover both the
proven damages and the stipulated pen
[40.6.lJ General rule: The creditor cannot demand the
fulfillment of the obligation. and the
alty. Hence, he may be entitled only to
satisfaction of_th e pe n a lt y _.at the same time..
the stipulated penalty plus the differ
ence between the proven damages and [40.6.2] Exce_ption: The creditor may only be entitled to both
the stipulated penalty."" rights jf..the same has been clE_ :l r l,y gr:anted to
hi.Jn.449
[40.5J Penalcy. may not replace principal obligation:
[40.6.3] If principal obligation becomes impossible: If after
[40.5.1] General rule: The penalty is not a substitute
the creditor has decided to require the fulfillment of
for the performance of the obligation. Hence,
the obligation the performance thereof should
as a rule, the debtor cannot exempt himself
from the performance of the obligation by become impossible without his fault, the penalty
may be enforced.'60
paying the penalty.....
[40.5.2) Exception: When the foregoing right is
expressly reserved for the debtor...1.. .• ..... [40.7] No need for proof of actual damages: The creditor need
 .. .in order that the pen nY may be demanded,... In [40.8] When may penalty be reduced by court: The court may
this jurisdiction, there is no difference between a equitably reduce the penalty in the following cases -
penalty and liquidated damages, so far as legal
1) When the principal obligation has be _n partly
results are concerned. Whatever differences
exists between them as a matter of language, they or irregularly comP.Hedwith by the debtor; or
are treated the same legally. In either case, the· 2) Even if there has been no performance. if the p !
party to·w Jiom paymenfls" to be made is l_aj_tj'. is_ ini qu_it o .us or unconscionable.464
entitled to recover the sum stipulated without the
necessity of proving damages. Indeed one of [40.9] Effect ofn1111ity:
the primary purposes in fixing a penalty or in [40.9.1] Nullity of penal-clause: It does not carry
liquidating damages, is to avoid such necessity with it that of the principal obligation,=
A because the principal can exist without the
stipulation on liquidated damages is a penalty accessory.
clause where the obligor assumes a greater
liability-in case of breach of an obligation. The [40.9.2) Null.icy: of principal obligation: It carries
obligor is bound to pay the stipulated amount with it the nullity of the penal clause, 06
without need for proof on the existence and on because the accessory may not exist
the measure of damages caused by the brea ch.•53 without the prin cipal.461
not present proof of actual damages suffered by him
I Art. 1228, NCC.
462
Lambert v. Fox, 26 Phil. 588.
"'•Coni.-urringopinion,Justice Antonio, in Pamintuan v. CA,G.R. No. L- -Titan ConstructionCorp. v. Uni-Field Enterprises, G.R. No. 153874, 517
26339, SCRA 180, 189.
December 14, 1979. '
54
Art. 1229, NCC.
-Art.1227, NCC. '
56
Art. 1230, NCC.
M1[d. <66Jd.
Wl[d. <67Jd.
«efd.
Wl[d.
108 CML LAW REVIEWER

I EXTINGUISHMENT OF OBLIGATIONS
·- CH.APrER ONE
OBLIGATIONS & CONTRACTS

Burden of proof: One who pleads payment has the

109

/[42.2]
burden of proving it. Even where the plaintiff must
allege non-payment, the general rule is that the burden
[41] Modes of Extinguishment of Obligations: rests on the defendant to-prove payment, rather than··
[41.1] Principal causes of extinction: on the plaintiff to prove non-paym.ent . However,
where the debtor introduces-.some evidence of
1) Payment or performance; payment, the burden ofgoing forward with the
2) Loss of the thing due; evidence - as distinct from the general burden of proof-
shifts to the creditor, who is then under a dutyof
3) Condonation or remission of the debt;
producing someevidence to show non-payment.•
4) Merger or confusion of rights;
..5)Compensation; 1) ent;
6) Novation.1 2) Rescission;
[41.2] Other causes feXJ>ressly mentioned.): 3) Fulfi1lment of a resolutory
condition;
 4) Prescription. [42.3] Requisites of payment: In order that payment may
produce all its effects, it is necessary that
[41.3] Other causes Cnot expressly mentioned):
thefollowing requisites must be present -
1) Death, in obligations which are ofa purely per-
1) Payment must be complete and regular.
sonal character;
2) Payment must be tendered by the proper
2) Arrival of a resolutory period;
per son.
3) Mutual dissen t ;--··--
3) Person paying must have the capacity to
make payment.
4) Payment should be made to the proper person.
5) Person to whom payment is made must have
the capacity to receive it.
6) The identity of prestation must be preserved.
7) Payment must be tendered in the proper place.
4) Change of civil status, in some
contracts; ,,,,-[43] Reqnisite No. 1: P,ayment must pe co,m__plet e and regular.
5) Happening of unforeseen events. 3 'i , / ·,(1 : - · -1 rl'
. [43.1] : · r..; paid when
A debt,sh ll only .he considered as
A. Payment or Performance the thing or service in which the obligation consists
has been completely delivered or rendered.6
(42] Payment, In General: Further, the creditor cannot be compelled partially to
receive the presentations in which the obligation
[42.1] Payment. defined: Payment means not only the deliv consists and neither may the debtor be required to
ery of money but also the performance, in any other make partial payments, unless there is an express
manner, of an obligation.' stipulation to that effect.'

1 "Jimenez v. NLRC, 326 SCRA 89; Royal Cargo Corp. v. DFS Sports Unlimited,
Art. 1231, NCC. Inc.,573 SCRA 414.
2/d. 6
Art. 1233, NCC.
3
8 Manresa 256- 7
Art. 1248, par. 1, NCC.
257.
Art. 1232, NCC.
110 CIVIL LAW REVIEWER
CHAPrER
OBLIGATIONS ONE
& CONTRACTS 111

[ 43.2] Exceptions to rule: An incomplete or irregular pay. though there had been a strict and
ment may extinguish the debtor's oblig o _ii! complete fulfillment; (b) but the
two instances - creditor may deduct the damages
suffered by him.8
> [ 43 . 2.1 ] Substantial performance in good faith: If the
obligation has been substantially performed [43.2.2] Waiver: If the creditor waives, eitlier
in good faith: (a) the debtor may recover as expressly or impliedly, his right to
 insist ona complete
and regular performance, 9:_ef zii/i:en he accf'Jl!§ ment is justified and shall not authorize the
the performance, knowing its_ incompletenR; debtor to resort to consignation.13
l 2) But if.the creditor accepts the payment, the
payment is valid and shall extinguish the
debtor's obligation even if the payment was
made without the knowledge or against the
will of the debtor.
3) If the payment was made without the knowl
edge or against the will of the debtor: (a) the
payor can recover from the debtor only inso far
as such payment has been beneficial to the lat
ter;•1 and (b) the payor is not entitled to be
QL irf§..i.."f!-J r[(y C!,ll;c:l _U.Jitftout expressing _a!I-Y subrogated to the rights of the creditor.••
12.rot - !. P!. _bjecti_on, the 091igation is deem_ e 4) But if the payment was made with the consent
. ,l of the debtor: (a) the payor may demand from
, fully complied with. 9 • · • •· '· · the debtor what he has paid;" 1 and (2) he can
. • •.._a :I' .
1 be subrogated to the rights of the creditor,
-[44] Requisite N- .· 2: Payb:t dt must be tend red by the prop such
person. , ,-1. • as those arising from a mortgage, guaranty, or
[44.ll Proper person to effect payment: If the-payment penalty."
5) If the payor does not intend to be reimbursed,
is coming from any of the following persons, the tender of
payment is valid and the creditor can be compelled to the payment is deemed to be a donation if
accept the payment - done with the consent of the debtor." If done
without the debtor's consent,it is not deemeda
1) From the debtor himself or from his duly au donation but the payment is valid as to the
thorized representative; creditor who has accepted it. Hence, such
19

2) From a third person who has been authorized payment shall extinguish the debtor's
by the parties to make the payment;10 o·r obligation but the payor may, should he
change his mind, demand reimbursement
3) From a third person who has an interest in the from the debtor but only insofar as such
r l i
fulfillment of the obligation.11t payment has been beneficial to the latter.w
- I ,,
[44.2) Effect of payment coming from persons other than
those mentioned above:
1) The creditor is not bound to accept the pay
ment.12 Hence, his refusal to accept the pay- .

8
Art. 1234, NCC.
9
Art. 1235, NCC.
10
Art. 1236, par. 1, NCC.
IIJd
.
12Jd
 13
Art . 1257 , par. 2,NCC.
14
Art,1236, par. 2, NCC.
1
&Art . 1237, NCC.
18
Art . 1236, par. 2, NCC.
112 CML LAW REVIEWER
[ 44.3] Distinctions between reimbursement and subro
ation:-
1) Reimbursement covers only the refund of the
amount paid; subrogation includes not only the
right of reimbursement but also the rights of
action against the debtor and other third per sons
whether they are guarantors or mortgag ees.21 -
- - 2) In case of reimbursement, the person paying
for another has only a personal action to re
cover for what he has paid without the rights,
power and guaranties attached to the original
obligation. In subrogation, the person whopays
for another acquires not only the right tobe re
imbursed for what he has paid but also the oth
er rights attached to the obligation originally
contracted by the debtor.2•
[45] Requisite No. 3: Person paying must have the capacity to make
payment. --- - · ----- -
[45.1] Effect of payment made b-y an incapacitated
person: Where the person paying has no capacity to
make the payment, the creditor cannot be compelled to
accept it; consignation will not be proper; in case he
accepts it, the payment will not be valid.-
[45.2] Capacity to make payment in obli ations to give:
r ; _C In obligations to give, payment to be valid must be made
) by a person having the free disposal of the thing due
andcapacity to alienate it.24
• ,.I
/ (46] Requisite No. 4: Payment shoultllicn n a d -e to the proper person.
[46.1] Proper person to whom payment should be made:
Payment should be made to anyofthe following
persons in order to bevalid:
17
Art. 1237, NCC.
18
Art. 1238, NCC.
ald.
20
Art. 1236, par. 2,NCC.
CHAPTERONE 113
OBLIGATIONS & CONTRACTS
2) Successor-in-interest of the original creditor;
or - - ·········- ··
3) Persons authorized t.o receive the payment,..
whether authorized by the credit.or or any
person authorized by law t.o do so, such as
guardian, executor or administrator of estate
of a deceased and assignee or liquidator of a
partnership or corporation.26
NOTE: Any payment made to persons other than
those enumerated above is a payment made to a
wrong person.
[46.2] Effect of payment made to a wrong: person:
Payment made by the debtor to the wrong party does
not extinguish the obligation a.ei t. o the- cre ditor
who is
without fault or negligence, even if the debtor acted in
utmost good faith andbymistake as to the personof the
creditor, or through error induced by fraud of a third
person.21 If it becomes impossible to recover what
was
undulypaid, any loss resulting therefrom shall
beborne by the deceived debtor, whois the only one
responsible for his own acts unless there is a
stipulation to the
contrarj•·or unless the creditor himself is responsible
for the wrongful payment .28
[46.3]
Effect of arnishment: Payment made to the
creditor by the debtor after _t _q. Jatter has been
judicially ordered to retain the debt shall not be
valid,:,, insofar as the party whoobtained the
garnishment is concerned. The debtor can therefore be
required to pay again to the
party who secured the garnishment up the extent of
the amount of the judgment in his favor.
[ 46.4] Exceptions to rule mentioned in Section 46,2: Any
payment made to a wrong person shall nonetheless
 1) Person in whose favor the obligation has been
26
constituted (or the original Art. 1240, NCC.
26
See Haw Pia v. China Banking Corp., 80 Phil. 604, citing 4 Manresa 254.
creditor); 2
7BPI v. CA, 323 SCRA 302; Serrano v. Central Bank of the Philippines, 96
SCRA 102; see also Allied Banking Corp. v. Lim Sio Wan, G.R. No. 133179.
March 27, 2008,
21
Art. 1303, NCC. 28
Pa nganiban v. Cuevas, 7 Phil. 477.
22
8 Manresa 260-261. ""Art. 1243, NCC.
Zll8 Manresa 267.
21
Art. 1239, NCC.
114 CML LAW REVIE.WEJ;t
-- CHAPTER ONE 115
OBLIGATIONS & CONTRACTS

be considered valid and shall extinguish the debtor's

obligation if made in any of the following situ ations._- person had authority to receive the
!) If the payment has redounded to the benefit of payment.36
the credito r;30 [46.6) Exception No, 2: Payment made in good faith .to....a ...
2) If the payment is made in good faith to any possessor of the credit.
per {46.6.1] Requisites in order for the - payment to be
sonin possession of the credit;3' or 2) If the creditor ratifies the payment to the third
3) If the debtor pays the creditor prior person; and
toacquiring knowledge of the assignment of 3) If by the creditor'-s conduct , the debtor
credit made by the latter.32 has been led to believe that the third
[46.5] Exception No. 1: Payment redounds to creditor's
3'lArt. 1241, par.2, NCC.
benefit.------------------------------------ . 31
Art. 1242, NCC.
azArt . 1626, NCC.
[46.5.lJ Burden of proof of benefit to the creditor: 33
8 M!lllresa 281.
Proof of such benefit is incumbent upon the 34
Panganibao v. Cuevas, supra.
debtor who paid."" The second paragraph of
Article 1241 of the NCC which provides that
"Payment made to a third person shall
also be valid insofar a._<; it may have been
beneficial to the creditor," cannot be invoked
without
conclusive proof of the benefit to the
creditor, and especially when there is not the
slightest evidence that the third person, to
whom payment was made, had any claim
whatever to the creditor's right.u _ _ _ _
[46.5.2] Exception to requirement of proof: In the
following instances, proof that the payment
was beneficial to the creditor is not necessary
and the payment is considered valid -
1) If, after payment, the third person
acquires the creditor's rights;
 Yalid,: (1) the payment is made t:o a
person in possession of the credit;
and (2) the payor acted in good faith,
believing that the
_ _E_ rson demanding the payment of
the debt or the person in whose
name the payment is demanded, is
the true owner of the credit.
[46.6.2] Possession of document evidencini
credit: Payment is required to
be_made to a possessor of the
credit, not of the document
representing or evidencing such
credit. For example,
if payment is made to a mere holder of a
promissory note payable to a
specified person (who is not the
holder), such payment is not valid
if the promissory note has not been
assigned nor negotiated to the
36
holder. Here, the holder of the note
is but a mere possessor of the
116 ClVlL LAW REVlEWER
his favor but the payment was made by the
debtor in good faith because the latter was
not aware of the defect or flaw in the
holder's right to demand payment.
[46.6.4] Payment must be made in e:qod faith:
The exception may not be invoked when the
debtor has knowledge that the person
demanding payment is in possession of the
instrument of credit for having stolen it or for
any other cause which does not give him the
character of a legitimate creditor or
representative of the la t ter .•• - ·-····-·-···--···
[46. 71 Exception No. 3: Debtor pays the previous creditor
without notice of the assignment ofcredit.
[46.7.1] Debtor's consent is not necessary: What
the law requires in an assignment of credit is
not the consent of the debtor but merely
document evidencing the credit, not a
possessor of the credit itself.
[46.6.3] Possessor of the credit: The possessor of
the credit referred to in Article 1242 of the
NCC must be a wrong p·er son who is not
entitled to the payment. For example, if the
payment was- made to a holder in whose
favor the instrument has been negotiated or
assigned, the payment is valid not because of
- Article 1242 but because of the general rule
--- -- -s ta ted in Article 1240. Here, the recipient
of the payment is entitled to it because he
is a successor-in-interest of the original
creditor. An example of a payment falling
under the provision of Article 1242 is when
the instrument is payable to bearer and the
holder is not entitled to the payment because
there was no negotiation nor assignment in
Art. 1241, par. 2, NCC.
CHAPTERONE 117
OBLIGATIONS &
CONTRACTS
notice to him. A creditor may, therefore, validly
assign his credit and its accessories without the
debtor's consent.37 Hence, upon such assignment the
credit is already transferred to the assignee even if the
assignment was made without the debtor's consent or
knowledge. As a consequence, the assignor ceases to
be entitled to the payment.
[46.7.2] Effect of _uayment made lzy debtor to assignor
prior to notice of assignment: However, the payment
made by the debtor to the assignor is valid and shall
release the former from the obligation if such
payment was made prior to
him gaining knowledge of tne· assignment."
Indeed, the purpose of the notice is only to inform
the debtor that from the date of the assignment,
payment should be made to the assignee and not to
the original creditor.39 Notice is thus for the
protection of the
 34
IV Franci1>eo, Ciuil Code oft Phppline11, p . 455.
3
7National lnveHtment and Duvelopment Co. v. Delos Angeles, 40 SCRA 489. assignee because before said date, payment to
3>iArt. 1626, NCC. the original creditor is valid...
>VR.odriguez v. CA, G.R. No. 84220, Marr.h 25, 1.992.
[47] : Person to whom payment is made must
have the capacity to receive it.
[47.11 Effect of payment made to an incapacitated person: As -
a rule, in order that payment may be valid, the person
to whom it is made must have the capacity to receive
it. Accordingly, when the payment was made to a
person who has no capacity to act or incapacitated to
manage his property, the payment is not valid.
[47.2) Exception to rule: When the payment is made to a
person whois incapacitated to administer his property,
the same shall be considered valid -
1) Ifhe haskept the thing delivered; or
2) Insofar as the payment has been beneficial to
him.<'

[48) Requisite No. 6: Identity ofprestation must be preserved,

such that the very thing orservice due must bedelivered or
released.
[48.1] Obligation to deliver a determinate thing: In
determinate obligations, the debtor cannot compel
the creditor to receive a different one, although the
latter may be of the same value as, or more valuable
than that which is due.42
[ 48.2] Obligation to deliver an indetenninate (generic)
thini: If the quality and circumstances have not been
stated, the creditor cannot demand a thing of superior
quality and the debtor may not deliver a thing of
inferior quality." In other words, the obligation should
be fulfilled by delivering the species of average quality.
However, the purpose of the obligation and other
circumstances shall be taken into consideration.«

40
Servicewide Specia lists, Inc. v. CA,G.R. No. 116363, -ember 10,1999.
• 1Art.1241, par. 1. NCC.
• 2Art. 1244, par. 1. NCC.
43
Art. 1246 , NCC.
"Id.
118 CMLLAW REVIEWER CONTRACT
CHAPTERONE S
OBLIGATIONS &
 119

[48.3) Obligation to do or not to do: An act or "'Bouvier's Law Dictionary, 3rd revised Ed., p. 1912.
forbearance cannot be substituted by another
act or forbearance against the creditor's will...
[48.4) Obligation to pay debts in money: If the
obligation of the debtor consists in payment
of money, the following rules should be
followed--.:::::...
1) The payment should be made in the cur-
- - :rency s tipul a ted;•6 otherwise, the
credi tor may validly refuse the tender
ofpay ment.
2) In the absence of such stipulation, or if
it is not possible to deliver the currency
stipulated, then the payment should be
in the currency which is legal tender in
the Philippines;0 otherwise, the
creditor may validly refuse the tender
of
--·payment.

/ C49] Legal Tender:

[49.1] Definition: Legal tender is that currency which has
been made suitable by law for the purpose of a tender
in the paymel!te?f debts'. . _
,,,,- [49.2] What is considered "le"al tender" in the Philippines:
In the Philippines, all notes and coins issued by the
Bangko Sentral ng Pilipinas and guaranteed by the
Republic of the Philippines are considered legal tender
for all debts, both public and private. 49 With respect
to coins, however, they shall be considered legal
tender:
a) Up to the maximum amount of Pl,000.00 only -
for denominations of 1-Piso, 5-Piso and 10-Piso
coins; and

411
Art. 1244, pa r . 2, NCC.
411
Art. 1249, par.1, NCC.
,11d.

b) Up to the maximum amount of Pl00.00 only- for
denominationsof1-sentimo, 5-sentimo,10-sentimo,
and 25-sentimo coins.""
,,,- [49.31 Rule as to tender of payment in checks:
[49.3.1] Not legal tender: A check is not legal
tender, and an offer of a check in payment
of a debt is not a valid tender of payment
and may be refused receipt by the creditor,"
whether it be a manager's, cashier's or
personal check.••
[49.3.2) Creditor may, at his option, accept a check
as payment: It must be emphasized,
however, that theforegoing dictum does not
prevent a creditor from accepting a check
as payment. In other words, the creditor has
the option and the discretion of refusing or
Malolos, Inc. v. Intermediat.e Appellate Court, 191 SCRA 411.
accepting it.&.1
[ 49.3.2.lJ When delivery of check produces
effect of payment: Since a
negotiable instrument is only
.iiSec. 52 RA 7653r otherwise known as the New Central Bank Act.
1
120 CIVIL LAW REVIEWER
and remains suspended until the
payment by commercial
document is actually realized.66
[49.3.2.2) Application of par. 2 of Article
: The provision of the law
that the delivery of notes or other
commercial instruments shaU
produce the effects of payment
only when they are collected
is applicable not only to those
instruments, executed by third
persons, which the debtor delivers
to the creditor, but also to the note
executed by the debtor himself
and delivered to the creditor.57
The clause relating to prejudice
caused to the instrument by the
a substitute for money and not
money, the delivery of such an
instrument does not, by itself,
operate as payment. Mere delivery
of checks does not discharge the
obligation under a judgment."
The delivery of checks (or
promissory note payable to order
or other mercantile documents)
shall produce the effect of
payment only when: (1) they have
been encashed; or (2) they have
been impaired through the fault
of the creditor.•1 Stated otherwise,
the obligation is not extinguished
60
BSP Circular No.537, Series of 2006.
61
Philipp ine Airlines, Inc. v. CA, 181 SCRA 557; Roman Catholic Bishop of
•2TI.bajia , _J r. v. CA, 223 SCRA 163, G.R. No. 100290, June 4,1993.
03
Far East Bank & Trust Company v. Diaz Realty, Inc., 363 SCRA 659.
54
Philippine Airlines, Inc. v. CA, supra.
"Art. 1249, par. 2, NCC.
CHAPTER ONE -- 121
OBLIGATIONS & CONTRACTS
fault of the creditor is applicable only to the
first class of documents, and not to the second.68
• While it is true that the de livery of a check
produces the effect of payment only when it
is cashed, the rule is other wise if the debtor
is prejudiced by the creditor's unreasonable
delay in presentment. The ac ceptance of a
check implies an undertaking of due
diligence in presenting it for payment, and
if he from whom it is re ceived sustains loss
by want of such diligence, it will be held to
operate as actual payment
of the debt or obligation for which it was
given.69 Hence, in a situation where the
check
 obligation, the Civil Code provi
was received 10 years sions on payment of obligations,
ago, the particularly Article 1249 thereof,
-·- - --- failure to are applicable.•1 Hence, the rule
encash the that the check is not legal tender
same is shall apply and that the creditor,
deemed to therefore, may validly refuse the
have resulted tender of payment.
in the [49.3.3:2) Exercise of right: When the case
impairment of
involves not the payment of an
the check due
obligation oiiC-the exercise of a
to creditor's
unreasonable right, i.e., the right of redemp
and tion, the Civil Coae provisions
unexplained on payment of obligations do not
delay.00 ap ply. Instead, what applies is
the settled rule that a mere
[49.3.3] Sufficiency of tender of tender of a check is sufficient to
checks: The tender of check compel redem ption.02 A check
may be deemed sufficient may be used for the exercise of
depending on the purpose for the right of redemption, the same
which the check is deli vered -
being a right and not an
[49.3.3.1) Payment of obligation. The tender of a check
oblie:ation: If is sufficient to compel
what is involved is redemption but is not in itself a
the payment of an payment that relieves the

hilippine Airlines, Inc. v. CA, supra; Art. 1249, par. 3, NCC.
61
Compania General de Tobacos v. Molina, 5 Phil. 142.
""ld.
wpapa v. A.0-. Valencia and Co., Inc., G.R. No. 105188, January 23,
1998.
122 CML LAW REVIEWER
redemptioner from his liability
to
pay the redemption price.63
[50] Effect of Extraordinary Inflation or Deflation:
[50.1} : In case an extraordinary inflation or deflation of
the currency stipulated should supervene, the value
of the currency at the time of the establishment of
the obligation shall be the basis of payment, unless
there is an agreement to the contary."'
6-0Papa v. A.U. Valencia and Co., Inc., supra.
61
Biana v. Gimenez, 469SCRA 486, citing Philippine Airlines, Inc.v. CA,supra.
62
Biana v. Gimenez, ibid.
CHAPTER ONE 123
OBLIGATIONS &
CONTRACTS
[50.2] When extraordinary inflat ion exist: Extraordinary inflation
exists when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond
the common fluctuation in the value of said currency, and
such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation.66
The erosion of the value of the Philippine peso in the past
three or four decades, starting in the mid-60s, is characteristic
 of most currencies. And while the Court may take
judicial noticeof the decline in the purchasing power of
the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as
the extraordinary phenomenon contemplated by
Article 1250 of the Civil Code.r,11
[50.3] Requisites fur application of Article 1250: For
tence of extraordinary inflation during a given
pe riod, the effects ofext raordinary inflation are
not to be applied.68
2) That the obligation was contractual in nature.••
3) That the parties expressly agreed to consider the
effects of the extraordinary inflation or defl.ation.
70

extraor dinary inflation (deflation) to affect an

obligation, the following requisites must be proven: / . [51] ,Requisite No. 7: Payment must be tendered in the proper place.

1) That there wasan official declaration ofextra-ordi [51.1] Rnle:The tenderof payment mustbemade at the
proper place, otherwise, the creditor may not be
nary inflation or deflation from the Bangko
compelled to accept the payment.
Sentral ng Pilipinas.61 Absent an official
pronouncement or declaration by competent [51.21 Proper place of payment:
authorities of the exis- [51.2.1] General rule: Payment must be made at the
domicile of the debtor.11 This rule applies
83
Fort unado v. CA, 196 SCRA 269. even if the debtor changes his domicile in
lWArt,_ 1250, NCC. bad faith except that the additional expenses
""Citibank, N.A. v. Sa beniano , 514 SCRA 441,468; Telengtan Brothers &So,ns in collecting the credit shall be borne by the
Inc. v. United States Lines, Inc., 483 SCRA 458, 469-470; Filipino Pipe and Foundry debtor. 12
Corp. v. NAWAf3A, 161 SCRA 32, 35.
66
Almeda v. Bathala Marketing Industries, Inc., G.R. No. 150806, January 28, (51.2.2] Exceptions to rule: The foregoing rule does
2008. notapply-
87
Equita b1ePCI Bank v. Ng Sheung Ngor, 541 SCRA 223, G.R. No. 171645,
December 19, 2007. a) If there is another place of payment
designated in the obligation;73 or
b) In the absence of agreement and when
the obligation is to deliver a
determinate thing, the payment shall
be made wher ever the thing might be
at the moment the obligation was
constituted."
[51.3] Rule on expenses relatedto collection:
[51.3.1} Extrajudicial expenses: These are the
expen ses incurred in connection with and as
a con-

""Telengtan Brothers &Sons, Inc. v. United States Lines, Inc., supra; Almeda
v. Bathala Marketing Industries, Inc., supra.
69
Equita ble PCI Bank v. NgSheung Ngor, supra.
mid.
71
Art. 1251, par. 3, NCC.
72
Art. 1251 , par. 4, NCC.
73
Art . 1251, par. 1, NCC.
74
Art. 1251, par. 2, NCC.
124
 REVIEWER
CHAPTER ONE
sequence of the normal and private payment
or performance of the obligation.• 1 They are
for the account of the debtor unless the par
ties stipulate otherwise.16 The debtor shall
also be liable for the additional expenses
that may be incurred in collecting the credit
if the debtor changes his domicile in bad
faith or after he has incurred in delay.77
[51.3.2) Judicial E,wenses: These are the expenses
which arise by reason of the judicial
proceed ing and they shall be regulated by
the Rules" of Court.1
[51.3.3) EXJ)enses of consig:nation: These are the
expenses which are the consequences of the
consignation, such as the document evidencing
the tender of payment or the announcement
of the consignation, those of the deposit and
the fee thereof, as well as the notification
of such deposit, and the withdrawal of the
deposit in order that the creditor may make the
collection.79 But the expenses which are
consequence of payment in its ordinary form
shall continue to be for the account of the
debtor pursuant to the rule mentioned in
Section 51.3.1 hereof.
[51.3.3.lJ Rule as to expenses of consi&:na
timl: When the consignation is
properly made, such expenses are
for the account of the creditor;'°
otherwise, they shall beborne by
the debtor.
,.,,,,. [521 Special Forms of Payment:
a) Dation in payment (or dacion en pago);
76
IV Francisco, Civil Cock of the Philippines, p. 465.
76
Art.1247, NCC.
17
Art. 1251, par. 4, NCC.
78
Art. 1247, NCC.
NJV Francisco, Civil Code of the Philippines, p. 568.
""Art. 1259, NCC.
126
OBLIGATIONS & CONTRACTS
b) Cession; and
c) Tender of payment and consignation
[52.11 Dation in payment:
(52.1.1) Concept: It is the alienation of property to the
creditor in satisfaction of a debt in
money.1• It requires delivery and
transmission of ownership of a thing owned
by the debtor to the creditor as an accepted
equivalent of the performance of the
obligation. There is no dation in payment
when there is no transfer of ownership in the
creditor's favor, as when the possession of
the thing is merely given to the creditor by
way of securi ty.82 In a true dacion en pago,
the assignment of the property extinguishes
the monetary debt. Where the alienation of
the properties was by way of security, and
not by way of satisfying the debt, there is
nodacion en pago.83
[52.1.2] It is a special form of payment: Although in
the modern concept what actually takes place
in dacion en pago is an objective nova:tion of -··
the obligation where the thing offered as an
accepted equivalent of the performance of an
obligation is considered as the object of the
contract of sale while the debtis considered as
the purchase price,34 the Civil Code classifies
dacion en-pagoa s- a special form-of payment.
Hence, in dacion en pago the obligation is
extinguished by way of payment and not by
novation. But what is considered as dacion en
pago is the alienation .of a property in favor
of the creditor in satisfaction of a debt in
money."" Thus, if what is offered as payment
in lieu of money is not property but service for
61
Fort Bonifacio Development Corp. v. Yllaa Lending Corp., 567 SCRA 454.
•21d.
RQ3 n g v. Rohan Lending Corp.. 557 SCRA 516.
s,Filinvest Credit Corp. v. Phil. Acetylene Co., Inc.,G.R. No. L-50449, January
30,1982.
85
Art. 1246, NCC.
126 CIVIL LAW REVIEWER
example, this is not dacwn en pago but a
case of objective novation. Also, the
obligation of the debtor in dacion en pago is
to pay a debt in money.86 Hence, if the
original obligation is not payment ofa debt in
money but something else and the creditor
accepts the delivery of property in lieu of the
original obligation, this is not dacion en
pago but a case of objective novation.
[52.1.31 Requisites of dation in payment: In order
that there be a valid dation in payment, the
following requisites must bepresent -
1) There must be the performance of the
prestation in lieu of payment (animo
solvendi) which may consist in the
delivery of a corporeal thing or a real
right or a credit against the third person;
2) There must be some difference between
the prestation due and that which is
given in substitution (aliud pro alio);
and
3) There mustbean agreement between
the creditor and debtor that the
obligation is immediately
extinguished by reason of the
performance of a prestation different
from that due.87
[52.1.4] Effect of dation in payment: The dation in
payment extinguishes the obligation to the
extent of the value of the thing delivered,
either as agreed upon by the parties or
as may be proved, unless the parties by
agreement, express or implied, or by their
silence, consider the thing as equivalent to
the obligation, in which case the obligation
is totally extinguished.88 In other words, a
88
Lopez v. Court of Appeals, 114 SCRA 671.
Art.1245, NCC. ·
86
87
Lo v. KJS Eco-Fonnwork System Phil., Inc., G.R. No. 149420, October 8,
2003.
CHAPl'ERONE 127
OBLIGATIONS & CONTRACTS
dation in payment does not necessarily
mean total extinguishment of the obligation.
The obligation is totally extinguished only
when the part ies, by agreement, express or
implied, or by their silence, consider the
thing as equivalent to the obligation.89
[52.1.5] Governed by law on sales: Dation in
payment is governed by the law of sa
les.90 The undertaking really partakes in one
sense of the nature of sale, that is,thecreditor
is really buying the thing or property of the
debtor, payment for which is to be charged
against the debtor's debt. Assuch, the
essential elements of a contract of sale,
namely, consent, object certain, and cause or
consideration must be present.91
/ C52 · 2 l Cession:
/ [52.2.1] Concept: Cession or assignment consist.s
in the abandonment of the totality of the
property of the debtor in favor of the creditors
in order that the same may be applied for the
satisfaction of their credits."'
/ (52.2.2]
a) Dation in payment transfers the owner
ship over the thing alienated to the
creditor; whereas in cession, only the
possession and administration are
transferred to the creditors.
b) Dation in payment does not require
plurality of creditors; whereas cession
requires plurality of creditors.
c) Dation in payment does not require the
debtor to be insolvent; whereas cession
 8
tex Philippines, Inc. v. Int.cnnediate Appellate Court, G.R. No.
9
C 72703, November 13, 1992.
al 90
Art.1245, NCC.
128 CJVIL LAW
REVIEWER
presupposes the existence of
insolvency on the part ofthe debtor.
d) Dation in payment involves specific
thing or property; whereas cession in
volves the totality of the property of the
debtor.
e) Dation in payment may totally extin
guish the obligation and result in the-
re lease of the debtor; whereas in
cession,
the assignment only releases the debtor
from responsibility for the net proceeds
of the thing assigned, unless there is
stipulation to the contr ary.""
"[53] Tender of Payment and Consignation:
-·· .
L53.ll Tender of payment alone is not sufficient: Tender of
payment even if valid, does not byj _ lf p rod u ce leg::1.l
. payment, unless it
is completed by consignation."' Well-settled is the rule that
tender ofpayment must be accompanied by consignation in
order that the effects
of payment may be produced. ' The effect of a valid
tender of payment, is merely to exempt the debtor
from payment of interest and/or damages.9.
[53.2] Concept of tender of payment: Tender of payment is
the definitive act of offering the creditor what is due
himor her, together with the demand that the creditor
accept the same.97 It presuppose-s not only that
the
obligor is able, ready, and wil1ing, but more so, in the
act of performing his obligation.9 •1n
obligations to
pay
in money, for example, tender of payment involves a
positive and unconditional act by the obligor of
offering
Filinvest Credit Corp. v. Phil. Acetylene Co., Inc., supra; Lo v. KJS Eco
91
Formwork System Phil., Inc., supra.
112
8 Manresa 321; Art. 1255, NCC.
CHAPrER ONE 129
OBLIGATIONS & CONTRACTS
legal tender currency as payment to the obligee for
the former's obligation and demanding that the latter
accept the same... Under the Civil Code, a tender of
payment, to be valid, must be uncondiitonal1.00
• A finding that theprivate respondent had sufficient
available funds onorbefore the grace period for the
payment of its obligation does not constitute proof
of tender ofpayment by the latter forits obligation
within the said period. Tender of payment involves
a positive and unconditional act by the obligor of
offering legal tender currency as payment to the
obligee for the former's obligation and demanding
that the latter accepts the same. Thus, tender of
payment cannot be presumed by a mere inference
from surrounding circumstances. At most, suffi
ciency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part
of the bargain. But whether or not the obligor
avails himself of such funds to settle his
outstanding ac count remains to be proven by
independent and credible evidence. Tender of
payment presupposes not only that theobligor is
able, ready, and willing, but more so, in the act of
performing his obliga tion.101
• The vendor's act of writing a letter to the vendee a
retro of his desire to repurchase the subject prop
erty without an actual tender of payment is not
sufficient exercise of the right of redemption. The
'"Art. 1255, NCC.
"PNB v. Rcla tivo. 92 Phil. 203, G.R. No. L-5298,
October 29, 1952.
9
"St.ut. Investment Huusc, Inc. v. CA, 198 SCRA
390; Pasricha v. Don Luis
mere sending of a letter expressing the intention to pay, without the accompanying payment, is not de sire to do so. The statement of intention must
considered a valid tender of payment .1oi The gen be accompanied by an actual and simultaneous
eral rule in redemption is that it is not sufficient that a person offering to redeem manifests his ten-
Dison Realty, Inc., G.R. No. 136409, March. 14, 2008. ""Cebu International Finance Corp. v. CA, 316 SCRA 488.
""PNB v. Relativo, supra. 00
' PNB v. Relativo, supra.
;,Cinco 11. GA, G.R. No. 151903, October 9, 2009; Far Ea i:.t B a nk & Tru t 10
' Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court,
Company v. Diaz Realty, Inc., 363 SCRA 659, 668. supra.
""Roman Cat holic Bis hop ofMalolos, 111c. v. Intermediate Appellate Court, '°2 Zulueta v. Octaviano, 121 SCRA 314.
191
RGRA 411.
130 CML LAW REVIEWER
CHAPTER ONE 131
OBLIGATIONS & CONTRACTS
der of pa ym e n t . 103 In several cases decided by
the
. _ C ourt '"' where the right to repurchase was held 4) When creditor is INCAPACITATED to receive
to have been properly exercised-;-t h er e vi a -s· a n the payment at the time it is due;
un equivocal tender of payment for the full 5) When, without just cause, creditor REFUSES TO
amount of the repurchase price. Otherwise, the UIV-E A RECEIPr; ··-
offer to redeem is ineffectual. Bona fide
redemption neces sarily implies a reasonable and 6) When TWO OR MORE PERSONS CLAIM THE
valid tender ofthe entire repurchase price, SAME RIGHT to collect; and
otherwise the rule on the redemption period fixed 7Y- When the- TITLE OF THE OBLIGATION HAS
by law can easily be cir cumvented. BEEN LOST.10 1
[53.3] Tender of payment and consignation, distinguished: ,/{53.5] Requisites of effective consignation: In order that
Consignation is the act of depositing the thing due the consignation may be considered effective and may,
with the court or judicial authorities whenever the thus, release the obligor, the following requisites must
creditor cannot accept or refuses to·accept payment, besatisfied108 -
and it generally requires a prior tender of payment.
Tender is the antecedent of consignation, that
1) There was a::d -bt d : Consignation requires the
is;·an act preparatory to the consignation, which is the existence of a debt.-In-instances, where no debt is
due and owing, consignation is not proper.',,.
, , · principal, and from which are derived the immediate
Hence, it does not apply to a case of a lessee with
\' consequences which the debtor desires or seeks to
option to buy since the lessee was not indebted to
, obt a i Tender of payment may be extrajudicial, while the lessor for the purchase price. Here, the lessee is
1
cohsignation is necessarily judicial, and the priority of
merely
the first is the attempt to make a private settlement exercising a right of option and had no obligation
before proceeding to the solemnities of consignation.1•0 to pay said price until execution of the deed of
sale. 1°1 Consignation is likewise inapplicable
in
[53.4) When consignation alone is sufficient: Consignatfon 3) When creditor DOES NOT
generally requires a prior tender of payment.106 But in . _ APPEAR at the place of
the following instances, consignation alone shall result payment;
in the release of the debtor from his responsibilit.y -
1) When creditor is ABSENT;
2) When creditor is UNKNOWN;
 cases of right of redemption since the right to an option contract, legal redemption or sale with
redeem is a right not an obligation. Consignation is not necessary to preserve the right to right to repurchase, wherein tender of payment
redeem.111 In cases which involve the performance of an obligation and not merely the exercise ofa would be
privilege right, the payment may be effected not by mere tender alone but by both tender and
consignation. The ntle is different in cases which involve an exercise of a right or privilege, such as
or
rn•BPI Family Savings Bank, Inc. v. Veloso, 436 SCRA 1, citing Angao v. 107
Art. 1256, par. 2, NCC.
Clavano, 17 Phil. 152. 108
B.E. San Diego, Inc. v. Alzul, supra; Banco Filipino Savings and Mortgage
1
<M.Fructo v. Fuentes, 15 Phil. 362 (1910); Retes v. Suelto, 20 Phil. 394 Bank v. Diaz, G.R. No.153134, Jwie 27, 2006; Pabugais v.Sah:ijwani, 423SCRA 596.
109
(1911); Lega spi v. CA, 142 SCRA 82.
110
Rosales v. Reyes, et al., 25 Phil. 495 (1913); Canuto v. Mariano, 37 Phil. 840 (1918); Vda. de Quirino v. Palarca, 29 SCRA1; Heirs of LuisBacus v. CA, 371 SCRA
Dela Cruz, et al. v. Resuneccion, et al., 98 Phil. 975 (1956). 295.
100
Meat Packing Corporation of the Philippines v. Sandiganbayan, 259SCRA m1mmaculata v. Navarro, 160 SCRA 211.
409; B.E. San Diego, Inc. v. Alzul, G.R. No. 169501, June 8, 2007.
106
Art. 1256, par. 1, NCC.
132 CML LAW REVIEWER
CHAPTERONE 133
OBLIGATIONS & CONTRACTS
sufficient to preserve the right or privilege.1u
Thus
for purposes of exercising the right of redemption' c placed at the disposal of the court.
the act of depositing the redemption money with o
the City Sheriff is sufficient to effect payment of - 5) After the consignation had been made,
cr the person interested was notified of
the redemption price, and there is noneed toresort
to consignation in court. When the redemptioner e the action. This requi site is fulfilled
has tendered the necessary payment for the di by the service of summons upon the
redemption of land sold at sheriffs sale and the to defendants together with a copy of the
tender has been refused, it is not necessary that r. complaint
such tender be followed by a deposit of the money 1
in Court or elsewhere.11 1
•
6
2) The consignation of the obligation had been made
because the creditor to whom tender of payment 4) T
was made refused to accept it without justifiable h
cause, or because he or she was absent or incapaci e
tated, or because several persons claimed to be en a
titled to receive the amount due or because the title m
to the obligation had been lost. o
u
3) Previous notice of the consignation had been given
n
to the person interested in the performance of the
t
obligation. Without the notice first announced to
d
the persons interested in the fulfillment of the ob
ligation, the consignation as a payment is u
void1." This notice must be made to whoever has a e
certain interest in the obligation, either as a passive w
sub ject, as in the case of a co-debtor or guarantor, a
or as an active subject, as in the case ofa solidary s
 •

therein. 1
to enable the creditor to withdraw the goods or
1
The money deposited. It will be unjust to make him
reason suffer the risk forany deterioration, depreciation or
for the loss of such goods or money by reason oflack of
notificati knowledge of the consig na tion 21.2 _
on to
the NOTE: Failure to prove any of the foregoing
persons requisites is enough ground--to render a con
intereste signation ineffective1.• 1 In addition, the forego
d in the ing essential requisites must be complied with -
fulfillme fully and strictly in accordance with the provi
nt of the sions ofArticles 1256 to 1261of the NCC. Sub
obliga stantial compliance is not enough. 11•
tion Rules reiJ1lating payment must be strictly followed:
after Consignation must be made strictly in accordance with
consigna the provisions regulating payment (Articles 1232 up
tion had to 1251, NCC); otherwise, the same is ineffectual.1.20
been Hence, where the tender of payment by the debtor
- (53.6] made, was not valid for failure to comply with the requisite
which is payment.-in legal tender or currency stipulated within
separate the grace period and as such, was validly refused
and receipt by the creditor, the subsequent consignation did
distinct not operate to discharge the former from its obligation
from the to the lat te r.121
notificat
ion Tender of payment of money judimient distin
which is ished from contractual debt: Tender..of payment of
made judgment into court is not the same as tender of
prior to payment of a contractual debt and consignation of
the the money due from a debtor to a creditor; in the
(53.7] consigna former, the requirements of Articl i,:; 1256 a-<! 1257
tion, is of the Civil
Art. 11 61 , supra.
116

ll7Soco v. Militante, supra.

118
Allandale Sportaline, Inc. v. The Good Development Corp., 574 SCRA 625;
Insular Life Assuran ce Company, Ltd. v.Toyota Bel-Air, Inc., 550 SCRA 70.
11
orcuator v. Bernabe, 459 SCRA 439; citing Adelfa Properties, Inc. v. CA, 11
11$oco v. Militante, supra.
120
240 SCRA 565. Art. 1257, par. 2, NCC.
121
ll8Castro v. Intermediate Appellate Court, G.R.No. 73859,September Roman Catholic Bishop ofMalolos, Inc.v.Intermediate Appellat.e Court,191
26,1988. 11'Limkako v. Teodoro, 74 Phil. 313; cited in Soco v. Militante, SCRA411.
123 SCRA 160- ll6JV Francisco, Civil Code of the Philippirres, p. 557.
134 CML LAW REVIEWER
CHAPfERONE 135
OBLIGATIONS & CONTRACTS

Code are not applicable.122 In case ofa refusal ofa [53.8) When debt considered extine:uished: Consignation is
tender of the amount due on a judgment, the court completed at the time the creditor accepts the same
may direct the money to be paid into court and without objections, or, ifheobjects, at the time the court
when this is done, order satisfaction of the judgment declares that it has been validly made in accordance with
to be entered.123 - - law.1•2 When the creditor accepts the money consigned,
 unconditionally and without reservation, he thereby
waives his other claims under the contractm. A sensu the time ofthe deposit of the money in court, or when it
contrario, when the creditor's acceptance of the was placed at the disposal of the judicial authority."'"
money consigned is conditional and with reservations,
he is not deemed to have waived the claims he ······ [53.llJ Effectsof consignation:
reserved against his debtor. Thus, when the amount [53.11.ll If consignation is valid: If the consignation
consigned does not cover the entire obligation, the has been accepted by the creditor, or the court
creditor may accept it, reserving his right to the has declared that it has been validly made,
balance.126 the following are the effects -
[53.9] Withdrawal b_y debtor of thing or sum deposited: 1) It produces the effect of payment,
Before the creditor has accepted the consignation or there by releasing the debtor from all
before a judicial declaration that the consignation has respon sibility.'"°
been properly made, the debtor may withdraw the . 2) The accrual of interest on the obligation
thing or the sum deposited, allowing the obligation to is suspended from the moment of
remain in force.121 But after the creditor has accepted consig nation.
the consignation or after a judicial declaration that the
consignation has been properly made, the debtor may 3) The lossof the thingoramount
nolonger withdraw the same without the consent ofthe consigned occurring without the fault
creditor. In such a situation, if the creditor authorizes of the debtor before the acceptance of
the debtor to withdraw the thing or sum deposited, the consignation by the creditor or its
approval by the court should be for the
he loses every preference which he may have over the
account of the creditor.'°'
thing and the co-debtors, guarantors and sureties shall
be released.128_. _ 4) Since the consignation has retroactive
effect, the fruits, products or interest
(53.10] Retroactive effect: The consignation has retroactive of the thing consigned shall belong
effect. The payment is deemed to have been made at to the creditor from the moment the
consignation was made.
'2l1Del Rosario v. Sandico, L-867, December 29, 1949, cited in Salvante v. Cruz, 5) The expenses of consignation shall be
88 Phil. 236; Arzaga v. Rumbaoa, 91 Phil. 499. charged against the creditor.•1 2
1
2as aJv an te v. Cruz,supra.
1
UReisenbeck v. CA, G.R. No. 90359, June 9,1992. {53.11.2)lf consig:nation is invalid: The effects are
1
:u1Sing Juco v. CA, 46 Phil. 81, cited in Reisenbeck v. CA, supra. the following -
1
:ieReisen beck v. CA, supra.
121
Art. 1260, par. 2, NCC. 1) The obligation remains and there is no
128
Art. 1261, NCC. suspension of the accrual of the
interest.
2) It is the consignor who shall bear the
loss.'33

129
Reisenbeck v. CA, G.R. No. 90359, June 9, 1992.
1
:wArt. 1256, par.1, NCC; Ponce de Leon v. Santiago Syjuco, Inc., 90 Phil. 311.
131
Sia v. CA, 92 Phil. 355.
mArt. 1259, NCC.
1
33Chua Kay v. Lim Chang, 54 O.G. 26.
136 CML LAW REVIEWER 3) The expenses of
consignation
 all befor the account of the debto r.13-4
/1 54] Application of Payment:
[54.1] Concept: It is the process of designating the debt to
which the payment made is applied, when the debtor
has different obligations in favor of the same creditor.
[54.1.1] Requisit.es of application of payment: In
order that the right of application provided for
by law may be exercised, the following
requisites are necessary:
1) There exist only one debtor and one
creditor;
2) Between them, there be several obliga
tions;
3) The various debts be of the same kind;
4) The debtsare all due,except when:
(a)the parties sostipulate; or(b) the
application is made by the party for
whose benefit the term has been
constituted;•ss and
5) The payment made is not sufficient to
cover all obligations.
[54.1.2] AJJplicability of ap,plication of payments:
The rules contained in Articles 1252 to 1254
of the Civil Code apply to a person owing
several debts of the same kind to a single
creditor. They cannot be made applicable to
a person whose obligation as a mere surety is
both contingent and singular; his liability is
confined to such obligation, and he is entitled
to haveall payments made applied
exclusively to said application and to
noother.' 36
SC
114
Art. 1259, NCC.
Art. 1252, par. 1, NCC.
136
. ''"8 Manrra,su 288.
CHAPT R ONE 137
OBLrGATIONS & CONTRACTS
[54,2] Right to make application of pa ymen-t-:-
[54.2 .1 ] Primarily b_ : To the debtor
corresponds ·1:n · firs-t· rnsta nce the right to
determine to which debt his payment should
be applied.1'" But such right must be
exercised by the debtor at the time of
payment,i:•• and not afterwards.'"" And once
the right is exercised, such application is
irrevocable and the debtor has no more right
to change his application of payment.uo The
debtor's right to apply payment has been
considered merely directory, and not
mandatory, following the Court's earlier
pronouncement that the ordinary acceptation
of the terms "may"
_ and "sha ll " may be resorted to as guides in
ascertaining the mandatory or directory
character of statutory provisions1.' 4
[54.2.2) If debtor fails to exercise such right: If at
the --time of payment the debtor has not
exercised such right, it is extinguished, and
.the application is thereafter governed by law,
unlessthe creditor determines the application,
and his decision is accepted by the obligor.'"
The debtor's right to apply payment can be
waived and even granted to the creditor if the
debtor so agrees.113
/ [54.2.3] Exercise by the creditor of the right to make
agplication of payment: Where the debtor
has notexpressly elected any
particularobligation to which the payment
should be applied at the time of making the
payment, the creditor may make such
apphcation.'" However, in order
'"'Art. 1252, par.1, NCC; Texa.'! Company. Inc. v. Marfil, (C.A.J, 39 O.G. 1238.
'""Id .
"mPowell v. National Bank, 54 Phil. 54.
040
Bachrach Garage and Taxicab Co. 11. (lolingco. 39 Phil. 912.
14'P remiere Development Bank v. Central S rety & ln,;unmce Co., Inc..
579 RA 359, February 13, 2009.
'
43
Pr emier e Development Bank v. Central 8L1ret,v & Insurance Co., Inc.. supra.
 1 11 1
.wSocony-Vacuum Corp. v. Miraflores, 67 Phil. 304; Reparations Conunissio .. Art. 1252, NCC.
v. Universal Deep-Sea Fishing Corporation, A.M. No. 21901, June 27,1978.

138 CML LAW REVIEWER

CHAPTER ONE
OB L IG ATIO N S·&·c o N 139
TRACTS----

for the application made by the creditor to

be valid and lawful, the following requisites 1) Guaranteed debts are to bedeemed
more onerous to the debtor than
must be present: (1) the creditor expresses
those not
such application in the corresponding receipt ·---·- --- --guara n tee d, and entitled to priority in
that he issued; and (2) the debtor must have the application of the debtor's payments,
assented to such application, as shown by his because, in their case, the debtor may be
acceptance of the receipt without protest.146 subjected to action not only by the credi
illtirnately, therefore, the application tor, but also by the guarantor, and this
by a creditor depends upon the debtor's even before the guaranteed debt is paid
acquiescence.'' 6 Hence, the debtor is not by the guarantor; hence, the payment of
bound by application of payments without his the guaranteed debt liberates the debtor
knowledge and consent. 147 But once the debtor from liability to the creditor as well as to
accepted without any protest the receipt in the guarantor, while payment of the un
which the creditor specified expressly and secured obligation only discharges him
unmistakably the obligation to which such from possible action by only one party,
payment was to be applied, such acquiescence the unsecured creditor.1• 2
is equivalent to an agreement and has the NOTE: The foregoing rule does not
force and efficacy of contract"" and the debtor apply to a situation where there
can no longer contest the application made is one single debt of which only a
nor demand that the payment be applied to portion was guaranteed. Here, the
another debt,149 unless there is a cause for guarantors had no right to demand
invalidating the contract." 0 that the partial payments made by
/ [54.3] Application of payment pursuant to provisions of law: the principaldebtorshouldbeapplied
When neither the debtor nor the creditor has precisely to the portion guaranteed.
specified to which of the several debts the payment The reason is apparent: the legal
should be applied or if application cannot be inferred rules of imputation of payments
from other circumstances, the following rules should presuppose that the debtor owes
be applied: several distinct debts of the same
(1) the payment should be applied first to the debt nature; and does not distinguish
which is most onerous to the debtor; or (2) if the between portions of the same debt.
debts due are of the same nature and burden, the Hence, where the debtor only owes
payment should be applied to all of them one debt, all partial payments must
proportionately.161 necessarily be applied to that debt,
and the guarantor answers for any
[54.3.1) Debts which are more onerous to the debtor: unpaid balance, provided it does
According to jurisprudence, the following not exceed the limits of the gua ran
debts are considered more onerous to the ty.'"" Here, any such payment as
debtor - the principal debtor may have
made
 wild.; Traders Insurance & Surety Company v. Dy Eng Giok, 55 O.G. 5546.
1
WI'raders Insurance &Surety Company v. Dy Eng Giok, id. 162
Tra ders Insurance & Surety Company v. Dy Eng Giok, 55 O.G. 5546; see
141B1mcode las Islas Filipinaa v. Espinosa, (C.A.), 40 O.G.,{Sup. 4),
also Commonwealth v. Far Eastern Surety & Insurance Company, 83 Phil. 305 and
68. 149Sanz v. Lavin Brothers, 6 Phil 299. Hongkong & Shanghai Banking Corp. v. Aldanese, 48 Phil. 990.
H 9Kander v. DWlilug, (C.A.), 43 0.G. 3176. '""Hongkong Shanghai Bank v. Aldanese , id., and Commonwealth v. Far
1
roArt. 1252, par. 2, NCC. Eastern Surety & Insurance Co., 83 Phil. 305, 46 0.G. 4879.
161
Art. 1254, NCC.
U ILLIIIllll rnIIllill CHAPTERONE 141
140 OBLIGATIONS & CONTRACTS

on account of such obligation must partnership an-

be applied first to the unsecured
portion of the debt, for, as regards • Hongkong Shanghai Bank v. Aldanese, 48 Phil. 990.
the principal debtor, the obligation 1
Mision de San Vicente v. Reyes, 19 Phil. 525.
is more onerous as to the amount
161
Philippine National Bank v. Veraguth, 50 Phil. 253.
61
' Menzi & Co. v. QuingChuan, G.R. No. L-46278, October 26, 1939. '"6Commonwealth
not secured.164
v. Far Eastern Surety & Insurance Company, 83 Phil. 305,
2) As between the mortgage debt and the citing 8 Manrosa, 4th Ed., p. 290.
unsecured advances there can be no '""Art. 1253, NCC.
doubt that the former was the more
onerous .166
3) Where there are various debts, the old
est ones are more burdensome, and
pay ments should be applied to them
before
the more recent ones.166
·-- .....···-·- - - -----
4) Where one debt bears interest and the
other does not, even if the latter should
be the older obligation, the former is
considered as more onerous.101
5) When a person has two debts, one as
sole debtor and another as solidary co
debtors, his more onerous obligation to
which first payments are to be applied
is the debt as sole debtor.158
[54.4] Limitation upon debtor's right to make application
of payment: The right of the debtor to make
application of payment is subject to at least
twolimitations -
1) If the debt produces interest, payment of the prin
cipal shall not be deemed to have been made until
the interests have been covered;160 and
2) If a partner authorized to manag-e collects ·a de
mandable sum, which was owed to him in his
own name, from a person who owed the
 other sumalso demandable, the sum
thus collected shall be applied to the two
credits in proportion to their amounts,
even though he may have given a
receipt for his own credit only; but
should he have given it for the account
of the partnership credit, the amount
shall befully applied to the latt er.100
NOTE: The provision of Article 1253
of the Civ il Code only applies in the
absence of verbal or written agreement,
to the contrary. It is like wise merely
directory, and not mandatory.161 Thus,
when the creditor had applied the· pay
ments made by debtor to the principal
instead of the accrued interest, the said
application of payments must be
deemed to have been agreed upon by
parties, and the same cannot now be
changed without the consent of the
debtor.
B. Loss of the Thing Due and Impossibility
of
142 CML LAW REVIEWER
Performance
[55] In Real Oblie:ations (Obli tjons to Give):
/[55.1] Concept of loss in real oblie:a:tions: It is understood that
the thing is lost when: (1) it perishes, or (2) goes out
of commerce, or (3) disappears in such a way that its
existence is unknown or it cannot ber ecovered.162 As
a rule, it is necessary that the loss or destruction of the
thing must be total. In case of partial loss, however,
the court shall determine whether the same, under
the circumstances, is so important as to extinguish the
obligation.'63 Hence, where the portion that is lost is
of such importance in relation to the whole that the
obligation would not have been constituted without
it, then the obligation is considered extinguished.
/c55.2] Not applicable to generic obligations: Only a
determinate or specific obligation may be extinguished
160
Art.1792, NCC.
Balta zar v. Lingayen Gulf ElectricP ower Co., Inc., G.R. No. L-16236, June
11
•
30, 1965; Magdalena Est ates, Inc. v. Rodriguez, G.R. No. L-18411, December 17,
1966.
102
Art. 1189(2), NCC.
"' Art.1264, NCC.
143
CHAPTERONE
OBLIGATIONS & CONTRACTS

through loss of the thing duebut not an indeterminate "delim ions.168 Between the specific
9.1'. generic obligation. In an obligation to delivera ited" obligations and generic
generic thing, the loss or destruction of anything of generic ones there ·exist a class of
the obliga obligations which partakes in
-··-· - _ _ _ same kind does not extinguish the obligation.164 If tions: a certain manner of the
the obligation is generic in the sense that theobject The character of the former,
thereof is designated merely by its class or genus without rule while appearing more to be
any particular designation or physical segregation stated the latter, as when the same
from all others of the same class, the loss or destruction of in embraces the genus, limiting
anything of the same kind even without the debtor's Sectio the objectof the obligation to
fault and before he has incurred in delay will not have the n a specified group
effect of extinguishing the obligation.'65 This rule is does determined-by special
based on the principle that the genus of a thing can never not qualities, within which the
perish. Genus·nunquam perit.".e, For example, an apply obligation concerned findsits
obligation to pay money is generic; therefore, it is not to object among various things
excused by fortuitous loss of any specific property of delimit comprised by that group but
the debtor.'"' ed without specifying
generic individually which it has to
[55.2.1] Rule does not apply in case of obl be.169 For example, if the
 obligation is to deliver
land, the obligation is classified as delimited
gene ric. In this kind of obligation, the rule
is that if theloss includes the things covered
by the genus already limited (e.g., the crops
were destroyed by reason of fortuitous
event) then such loss will produce the
extinguishment of this class of obligation.
!55.3] Requisites for the loss of obli ation: In order that
the loss should extinguish the obligation and
exempt the debtor from further liability, the
following essential requisites must concur:
1) The obligation consists in the delivery ofa
determi nate thing;110
2) Theloss must beposterior to the constitution of
the obligation;
3) The loss or destruction of the thing must have oc
curred without the fault of the debtor, 171 for if fault
on the part of the debtor intervenes, the obligation
is not extinguished but converted into payment of
indemnity for damages;
4) The loss or destruction occursbefore the debtor
has incurred in delay;m otherwise, the obligation
is not extinguished but converted into paynient of
indem nity for damages; and
5) The debtor must not have obligated himself to de
liver the same thing to two or more persons who
do not have the same interest; otherwise, he shall
be responsible for the loss of the thingby reason of
for tuitous event until he has effected the
delivery.m
palay which is to be produced by a particular
[55.4] Presumption offault on the part of debtor:
[55.4.1] : Unless there is proof to the contrary, it
164
Art. 1263, NCC. - -
is presumed that theloss was due to the
1
SGGaisa no Cagayan, Inc. v. Insurance Co. of North America, G.R. No. 147839, fault of the debtor whenever the thing is
June 8, 2006, citing Jurado, Comments and Jurisprudence on Obligations and lost in his possessionm.
Contracts (1993), pp. 289·290. See also Republic of the Philippines v. Grijaldo, 12 2
Phil. 1060, 1066(1965}; De Leon v. Soriano, 87 Phil. 193, 196 (1950). 110
Arts. 1262 and 1263, NCC.
'f#<Jd., Bunge Corp. and Universal Comm. Agencies v. Elena Camenforte& 171
Art. 1262, par. 1, NCC.
Company, 91 Phil. 861, 865 (1952). See also Republic of the Philippines v. Grijaldo, 1121d.
supra; De Leon v. Soriano, supra. 173
Art. 1165, par. 3, NCC.
167
Ramirez v. CA, 98 Phil. 225, 228 (1956). ' Art.
74
1265, NCC.
168
See IV Tolentino, Civil Code of the Philippines, 1991 Ed., 340•341.
169
1VCapistra no, Civil Cock of the Philippines , 586.
144 CML LAW REVIEWER
[55.4.2] When foreli:"oing presumption not
applicable: The presumption that the -loss - w
a s due to the fault of the debtor whenever the
thing is lost in his possession does not apply in
case of earthquake, flood, storm, or other
natural calamity.1'6 - - - -
(55.5] When debtor is liable for the loss of th i ng caused by
fortuitous event: The debtor is liable for the loss of
the thing even when the loss is caused by fortuitous
event in the following cases -
1) When the·law expressly provides (such instances
where the law expressly provides for liability
even in cases of fortuitous event are enumerated
in Sec tion 22.4.1 of this Chapter);
2) When the parties stipulate the- contrary, hence,
it is lawful for the parties tostipulate that the
debtor shall still be responsible even for
fortuitous event; and
3) When the nature of the obligation requires the
assumption of risk.""
J55.6J Rule when obligation to deliver a determinate thing
arises from crime Cex delicto): - only to obligations "'to do," which include all
{55.6.1] Rl,ik: The loss of the thing---due for any
cause, including fortuitous event, does not
extinguish the obligation. 111 The obligor
in such case remains liable to pay for the
value of the thing lost.
[65.6.2] Exception: When prior to the loss of the
thing, the debtor has offered to return the
thing to the person who should receive it but
the latter refused to accept it without any
justification, in which case, the obligation is
extinguished upon the loss of the thing.1'
8
Here, there is no need on the part of the
176
11
Art. 1265, NCC.
•Art. 1263, par. 2,
NCC.
CHAPfERONE 146
OBLIGATIONS & CONTRACTS
debtor to resort to consignation because the
mode of extinguishment of the obligation is
not payment but the loss of the thing due.
(56) In Positive Personal Obli ations <Obli ations to Do):
[56.1) Concept of loss in obli tions to do: This mode of
extinguishing an obligation also covers the loss of the
object in obligations to do. In obligations to do, the
debtor may be released from responsibility by reason
ofthe loss of the object of the obligation in the following
cases-
1) When the prestation becomes legally or physically
impossible without the fault of the debtor; 179 OJ"
2) When the service has become so difficult as to be
manifestly beyond the contemplation of the par
ties.180
NOTE: In the case of the latter; the court
may release the obligor from his obligation,
either wholly or partially depending on the
circum stances and the intention of the parties.
• Article 1266 of the Civil Code is applicable
kindsof work or service. The obligation to pay
rentals or deliver the thing in a contract of lease
falls within the prestation "to give"; hence, it is
not covered within the _cope of Article 1266. 1 1
•
/ [56.2] Article 1267, not absolute application of rebus sic
stantibus: The principleofrebus sic stantibus
statesthat the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease
to exist the contract also ceases to exist.•1 2 Article
1267 of the Civil
Code, which enunciates the doctrine of unforeseen
events, is not, however, an absolute application of the
principle of rebus sic stantibus, which would endanger
the security of contractual relations. The parties to the
in Art. 1268, NCC.
178,i,

mArt. 1266, NCC.
180
Art. 1267, NCC.
146 CIVIL J.4 W. EWER
contract must be presumed to have assumed the risks
of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that
equity demands assistance for the debtor.183
[57) Remedy of Creditor if Thin was Lost by Reason of Fault
of Third Persons: So long as the loss of the object of the
obligation was without the fault ofthe_debt or and prior to him
incurring
in delay, the obligation of the debtor is extinguished."'' The
creditor, however, acquires all the rights of action which the
debtor may have against third person by reason of the loss.1•8
C. Condonation or Remission of the Debt
(58] Condonation or Remission:
[58.1) -e:m:1cept:It is an act of liberality by which the
obligee, who receives no price or equivalent thereof,
renounces the enforcement ofthe obligation, which is
extinguished in its entirety or in part or aspect of the
same to which the remission refers. 100
[58.1.1] Acceptance by the debtor is necessary:
Con donation or remission requires the
acceptance by the
• Without
obligor.1the
1
acceptance by
the debtor, the remission is not valid. Hence,
a unilateral renunciation of the credit by the
creditor, without the consent of the debtor,
does not, by itself,. xtinguish the latter's ob
ligation. In such a case, it is possible that the
obligation may be_ extinguished through pre
scription but not by reason of such unilateral
renunciation.
[58.1.2] It must be tuitous: It is an essential
char
acteristic of remission that it be gratuitous,
that there is no equivalent received for the
benefit given; once such equivalent exists,
the
181
PNCC v. CA, G.R. No. 116896, May 5, 1997.
182
Naga Telephone Co. v. CA, 230SCRA 351.
CHAPTER ONE 147
OBLIGATIONS &
CONTRACTS
nature of the act changes.It ..may become da
tion in payment when the creditor receives a
thing different fromt hat_stipula te_d; or nova
tion, when the object or principal conditions
of the obligation should be changed; or com
promise, when the matter renounced is in
litigation or dispute and in exchange of some
concession which the creditor receives.1sa
/(58.2) Requisites for valid condonation or remission: - - -··
1) It must be gratuitous.•1•
2) The obligation must bedemandable at the time
.Q(ther em.i,:ii_ i.<.>n . - :<>
3) It must be accepted by the obligor.101
4) It must not amount to an inofficious donation.',,.
5) Ifit ismade expressly, it must comply with
the forms of donation.•1 3
/ [58.2.1) When obligation remitted is inofficious:
The obligation remitted forms part of the
estate of the creditor upon his death. Hence, if
the obligation remitted turns out
tobeinofficious, it may be reduced.194 The
obligation remitted is considered inofficious if
it impairs the legitime of the compulsory
heirs.•96
/ [58.3) Foons of condonation: The condonation may be made
expressly or impliedy -
/ [58.3.1] If made expressly: It must comply with the
forms of donation.196 The formalities required
in donation are discussed in Section 226 of
183
PhilippineNational Construction Corp. v. CA, G.R. No. 116896, May5, 1997.
11
"Arts.1262, par. 1,and 1266, NCC.
186
Art. 1269, NCC.
1
868 Manresa 365.
167
Art. 1270, par. 1, NCC.
 188 192
Dizon v. CA, G.R. No.140944, April 30, 2008, citing Art. 1270, par. 2, NCC.
IVTolentino, Ciuil Code of tlU!. Philippines, 1991 Ed., p. 353. t93Jd.
189 194
Art. 1270, par. 1, NCC. l d., in relation to Art. 752, NCC.
190 90
8 Manresa 365. ' Art. 752, NCC.
191
Art. 1270, par. 1, NCC. 196
Art.1270, par. 2, NCC.
CML LAW REVIEWER CHAPTER ONE 149
148 OBLIGATIONS &
CONTRACTS

Volume 1 of this Reviewer. If these be presumed, in the absence of proof that the
formalities are not followed, the condonation document wasdelivered for some other reason
becomes invalid. Hence -
1) · If the obligation remitted involves 197
8 Manresa 333.
the delivery of real property, the 11111
Art. 1Z7Z, NCC.
remission and its acceptance must be
made in a public instrument;
otherwise, the remission is void.
2) If the obligation remitted involves
· the delivery of personal property, the
value of which exceed P5,000, both the
remission and its acceptance must bein
writing; otherwise, the remission is void.
If the value does not exceed P5,000, the
remission and the acceptance may be
made orally.
/[58.3.2] Ifmade impliedly: An implied remission does
not requireany form, but the acceptance
bythe debtor must also be shown, though
impliedly,
. because the reason requiring acceptance is
fundamental.'"1
[58.4) Presumption of reJ:Q.:is.aiQn:
/ [58.4.1) Possession of private document of credit by
debtor: The possession by the debtor of a
private document proving a debt creates the
presumption that the creditor delivered it
voluntarily, unless the contrary is proven.1!)S
(58.4.2) Effect of such voluntary delivery: Such
voluntary delivery by the creditor of a private
document of credit to the debtor implies
the renunciation of the action which the
creditor had for the recovery of his credit.'99
Hence, a tacit renunciation of the debt may
 than a gratuitous waiver of the debt and the
complete extinction of the obligation to
pay.200
. .J58.4.3] Nature of the document: In order for the
foregoing presumption of remission to apply,
it is necessary that: (1) the document is a
private one; and (2) it is an evidence of
credit. Hence, the possession by the debtor
of a copy of a public instrument, even when
it is the same copy delivered to the creditor
on the execution thereof, does not result into
tacit remission.
[58.5] Remission of accessory obligation:
(58.5.ll Effect of remission of principal obli"ation:
The remission of the principal debt
extinguishes the accessory obligation; but the
remission of the accessory obligation does not
affect the
principal debt.201
[58.5.2] Presumption of remission of pled : Pledge
is a real contract which is perfected only by
150 CIVIL LAW REVIEW'£'.a
has been returned by- the pledgee. This
presumption also exists if the thing pledged
is in the possession of a third person who
has received it from the pledgor or owner
after the constitution of the pledge.206
D. Confusion or Merger of Rights
[59] Confusion:
[59.1] Concept: Confusion or merger is the meeting in one
person of the qualities of creditor and debtor with
respect to the same obligation.206 It exists when
the cl!_aracters of creditor and debtor are merged in the
same person.201 It renders impossible the enforcement
of the obligation since it is absurd that a person should
enforce an obligation against himself.108 For
example, if A executes a promissory note in favor of B
the delivery of the thing pledged to the
creditor pledgee.202 When, therefore, the
thing pledged, after its delivery to the
creditor-pledgee, is found in the possession
of the debtor, or of a third person who owns
the thing, it creates a presumption that the
accessory obligation of pledge has been
remitted.203
[58.5.3] Effect of return by creditor of thing
pledged: If the thing pledged is r turned
by the pledgee to the pledgor or owner, the
pledge is extinguished, and any
stipulation to the contrary is void.204 If
subsequent to the perfection of the pledge,
the thing is in the possession of the pledgor
or owner, there is a prima facie
presumption that the same
21
xiArt . 1271, par. 2, NCC; Velasco v. Masa , 10 Phil. 279.
201
Art. 1273, NCC.
2JJ Arts . 1316 and 2093, NCC.
2
mArt. 1274, NCC.
204
Art . 2110, par. 1, NCC.
CHAPTERONE 151
OBLIGATIONS & CONTRACTS
and that promissory note is negotiated by B to C and the
latter
. negotiated it back in favol"_ of A. Here, the obligation is
extinguished because A will find himself the debtor and
creditor ofthe.same obligation.
[59.2] Requisites of confusion: In order that confusion or
merger will have the effect of extinguishing an obliga
tion, the following requisites must concur:
1) It must take place in the person of the principal
crediter----and principal debtor. 209 If the merger
involves the creditor and the guarantor, the
obligation is not extin guished.210
NOTE: Any merger involving the persons of the
principal creditor and debtor will also result in
the release of the guarantors 211 since the accessory
obligation cannot exist without the
 principalobligation. However, when the
merger takes place in the person of the
guarant.or, the accessory obligation is
extinguished but the principal obligation
continues" 2 since the latter can exist
independently of the former.
2) It must be complete and definite because if not
complete the obligation still subsists."'
[59.31 Confusion in joint and solida:r::y obli ations:
[59.3.1] In joint obligation: Since the credits and
debts in joint obligation are considered
distinct from one another/" confusion does
not extinguish a joint obligation except as
regards the share corresponding to the
creditor or debtor in whom the two
characters concur."'
(59.3.2) In solidary obligation: With respect t.o
soli dary obligations, Article 1215 of the
Civil Code expressly provides that confusion
has the effect of extinguishing the obligation.
E. Compensation
(60] Compensation:
/ [60.1] Concept: It is a mode of extinguishing to the
concurrent amounts the obligations of persons who,
in their own right and as principals, are reciprocally
crediters and debtors of each other.216
[60.2] Kinds of compensation:
1) Legal - that which takes place ipso Jure when all
the requisites oflaw are present;m
2) Conventional or Voluntary - that which occurs
when the parties agree to the mutual extinguish-

212
206 Art . 1276, NCC.
Art. 2110, par. 2, 213
2 Castan, 60.
NCC. 21
•At-t. 1208, NCC.
206
4 Sanchez Roman, 421. 216
Art. 1277, NCC.
207
Art. 1275, NCC. 216
PNB Madecor v. Uy, G.R. No. 129598, August 15, 2001; Art. 1278, NCC.
208
8 Manresa, 388. ' 17Mavest (USA), Inc. v. Sampaguita Garment Corp., G.R. No. 127454,

"°"Art. 1276, NCC. September 21, 2005.

21ozd.
2111d.
152 CML LAW REVlEWER
CHAPTER ONE 153
OBLIGATIONS & CONTRACTS

ment of their credits or tocompensate their contracting parties to their obligations

mutual obligations even in the absence of some of would be absent. At least one party would
the legal requ is ite s;218 and be binding himself under an authority
he does not possess.119 But while
3) Judicial - that which takes place when the court compensation, be it legal or
allows the set off or counterclaim of the conventional, requires the confluence in
defendant as against the claim of the plaintiff. the parties ofthe characters of mutual
[60.3] Minimum requirement of compensation: Whatever debtors and creditors, their rights as such
may be the kind of compensation involved, there creditors, or their obligations as such
must be the confluence of the characters of mutual debtors, need not spring from one and the
debtors and creditors. Without this, the contracting same contract or tr ansaction.220
parties cannot stipulate, in case ofvoluntary
compensation, to the compensation of their /[61] Legal Compensation:
obligations, for then the legal tie that binds [61.1] ReqJJisites of legal compensation: In
 order that legal compensation may be proper, it is
necessary that ,.
1) The parties must be creditors and debtors of
each other in their ownright.221
2) The parties must be hound principally.22 -
4) Both debts must be due, liquidated and de
mandable.224
5) Over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.=
[61.1.1] Requisite No. 1: It must be shown that the
rights and obligations properly pertain or
belong to the parties themselves and it is
not enough that they exercise them or that
they represent the creditor or debtor in any
manner with respect to the obligations.:r-•
Hence, the credit of the stockholders of one
corporation may not be compensated with the
obligation of such corporation with another
corporation because corporations, under the
law, have personalities separate and distinct
-------
from their stockholders. --
227

·-
[61.1.2) Requisite No. 2: The parties must be bound
principally. Thus, there can be no compensa
tion when one party is a principal creditor in
one obligation but is only a guarantor_in the
other.228 By way of exception, however, the
guarantor may set up compensation as what
the creditor may owe the principal debtor.228
Thus, a guarantor may set up credits which
personally belong to him and also credits
which belong to his principal, the former un
der the general rule of compensation (Article
1278) and the latter byvirtue of the exception
(Article 1280).230 - · - -
______ 3) Both debts consist in a sum of money, or if
[61.1.3] uisite No. 4: Article 1279 requires,
the things due are consumable, they beofthe
among others, that in order that legal
same kind, and also of the same quality if the
compensation shall take place, "the two
la t r hasbeen stated.223 debts be due" and "they be liquidated and
demandable."

rcilrt 177jm Nf-:fi

218
Maveet (USA), Inc. v. Sampaguita Garment Corp., supra.
mcKH Industrial and Development Corp. v. CA, 272 SCM-. 333,
S48.
220
Mavest (USA), Inc. v_ Sampaguita Garment Corp., supra.
221
Art. 1278, NCC.
222Art. 1279(1), NCC.
 22
'Art. 1279(3) 227
C_KH1n dus trial and Development Corp. v. CA, supra.
228
and (4), NCC. 8 Manresa 405.
-•
326
Art . 1279(5), NCC. 229
Art. 1280, NCC.
226
8 Manresa, 404. 230
IV Padilla, Civil Code of the Philippines, 1967 Ed., 451.
CML LAW REVIEWER CHAPTER ONE 155
154 OBLIGATIONS & CONTRACTS

Compensation is not proper where the claim
of the person asserting the set-off against the
otheris notclear nor liquidated;
compensation cannot extend to unliquidated,
disputed claim existing from breach of contr
act.2"' Also, if the obligation is payable on
demand and there has been no demand
made, it follows that the obligation is not
yet due. Therefore, this obligation may not
be subject to compensation for lack of a
requisite under the law.232
[61.1.4] Requisite No. 5: It is necessary that neither
of the debts be subject to any lien, retention
or suit instituted by third persons of which
notice has been communicated in due time to
the debtor. By "in due time" should be meant
the period before legal compensation was
supposed to take place, considering that legal
compensation operates so long as the requi
sites concur, even without any conscious in
tent onthe part of the parties.233 Acontroversy
that is communicated to the parties after that
time may no longer undo the compensation
that had taken place by force of law, lest the
law concerning legal compensation be for
naught.=
/ [63] Obligations Which
[61.1.5) Effect of legal compensation: When all the
requisites enumerated in Section 61.1 hereof
are present, compensation takes effect by
operation oflaw, andextinguishes both debts
effects arise on the very day on which all its
requisites concur. When used as a defense, it
retroacts to the date when its requisites are
fulfilled.""2
[62) Conventional or Voluntary Compensation:
[62.1] Concept: Compensation may also be voluntary or con
ventional , that is, when the parties, who are mutually
creditors and debtors agree tocompensate their
respec tive obligations, even though not all the
requisites for legal compensation are present. 23'
Thus, the parties may agree upon the compensation
of debts which are not yet due.238
[62.21 Requirements of conventional compensation:
Without the confluence of the characters of mutual
debtors and creditors, contracting parties cannot
stipulate to the compensation of their obligations, for
then the legal tie that bindscontracting parties to their
obligations would be absent. At least oneparty would
be binding himself under an authority he does not
possess.21.9 As observed by a noted author, the
requirements of conventional compensation are: (1)
that each of the parties can dispose of the credit he
seeks to compensate, and (2) that they agree to the
mutual extinguishment of their credits.=
May or May Not be the Subject of Compen
sation:
[63.1] Debts which may not be the subject of compensation:
....... C.9mpensatto
' V I- ·:
is, _•not proper
I ',
· •.
in he following cases -
J • . : - - •

to the concurrent amount, even though the. Silahis Marketing Corp. v. Intermediate Appellate Court, G.R. No. L-74027,
231

creditors and debtors are not aware of the. o mber 7,1989.

:,a,PNB Madecor v. Uy, G.R. No. 129598, August 15, 2001.
compensation.236 Legal compensation operates -a3Jd.
even against the will of the interested parties 1:UJd .
and even without the consent of them. Since
this compensation takes place ipso jure, its
Mr iir?,NYYI
 · · I/ 1) Wheri one of the debts arises'. from
2) When one of the debts arises from the
obliga tions of a depositary or of a bailee
in commoda- tum;
156 CIVIL LAW REVIEWER
3) When one of the debts arises from a claim for
_ s _up po rt due by gr a t ui to us _t itl e;
4) When one of the debts consists in civil liability
arising from a penal offense;2.t2 and
5) When one of the debts consists in the claim of
Government for payment of taxes.
NOTE: Taxes cannot be subject to compensation
for the simple reason that the government and
the taxpayer are not creditors and debtors of each
other. There is a material distinction between a
tax and debt. Debts are due ·t o the Government
in its corporate capacity, while truces are due
to the Government in its sovereign capacity_,,.
In addition, the government and taxpayer are
not mutually creditors and debtor-s of eadi other
and a claim for taxes is not such a debt,
demand,
contract or judgment as is allowed to be set-off.™
Thus, there can be no off-setting of tax.es against
the claims that the taxpayer may have against
the government. A person cannot refuse to pay a
tax on the ground that the government owes him
an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the
results of a lawsuit against the government.2"'
[63.2] Example of debts which may be the subject of com.pen:
sation:
1) When one of the debts is in the form of ordinary
bank deposit. Ordinary bank deposits are in the
nature of irregular deposits; they are really loans
because they earn interest. The relationship then
between a depositor and a bank is on ofcreditor
a depositum; 236
Bank of the Philippine Islands v. CA, 255 SCRA 571; see al.w Trinidad v.
Acapulco, G.R. No. 147477, June 27-, 2006"·:· ····
23 7
CKH Industrial and Development Corp. v. CA, 272 SCRA 333.
2.'.lllArt. 1282 , NCC.
239
CKH Industrial and Development Corp. v. CA, supra.
'1Al>/d., ci IV TolenitnoC,ivil Code of the Philippines, 1985 Ed., p. 368.
157
CHAPTER ONE
OBLIGATIONS & CONTRACTS
and debtor.246 Thus, legal compensation may take
24 1
_ __ __ _
_ _ . _...... place . when all the requisites mentioned in Article
1279 of the Civil Code are present. 2 "
. 2) When one or both debts are rescissible or voidable,
they maybecompensated against each other before
they are judicially rescinded or avoided2' 8 because
at that time, theobligations are valid and binding.
[64] Effect of Assignment of Credit Upon Legal Compensation:
[64.1] Concept of assignment of credit: An assignment of
credit has been defined as an agreement by virtue of
which the owner of a credit (known as the assignor),
by a legal cause - such as sale, dation in payment
or exchange or donation - and without need of the
debtor's consent, transfers that credit and its accessory
rights to another (known as the assignee), who acquires
the power to enforce it, to the same extent as the
assignor could have enforced it against the debtor.249
What the law requires in an assignment of credit is not
the consent of the debtor but merely notice to him. A
creditor may, therefore, validly assign his credit and
its accessories without the debtor's consent.""' The
purpose of the notice is only to inform the debtor that
from the dateof the assignment, payment should be
made to the assignee and not to the original creditor.
201
[64.2] Effect if assia:nroent is made aft.er the requisites
of_;. compensation had taken place: As discussed in
Section 61.1.5, when all the requisites are present, legal
compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of
2<6Serrano v. Central Bank of the Philippines, 96 SCRA 96; Traders Royal
 Bank v. Radio Philippines Network, Inc., 390 SCRA 608.617; Associated
'"'Art.
NCC.
1287,
1
" Art. 1288, NCC.
u:1phiJex Mining Corp. v. Commissioner oflntemal Revenue, G.R. No.12570,
4 :i. Art. 1285, NCC.
August 28, 1998.
i«South African Airways v. Commissioner oflntemal Revenue, 612
SCRA February 16, 2010.
:u6Francia v. Intermediate Appellate Court, 162 SCRA753; Caltex Philippines,
Inc. v. Commis11ion on Audit, 208 SCRA 726.
158 CIVIL LAW REVIEWER
the compensation. Hence, any assignment of the credit
that will be made thereafter will no longer affect the
debtor since his obligation to the assignor had already
been extinguished prior to the assignment. Here, the
remedy of the assignee is not against the debtor but
against the assignor.
[64.3] Effect if assignment is made prior to the reg_uisites_gf
lepl compensation takin2 place:
(64.3.1] And the assignment was made with thf
consent of the debtor: If the debtor consented
,/ l
to the assignment of rights made by the -
; creditor in favor of a third person, he can no
longer set up against the assignee the com-
i _.. pensation which would pertain to him
against the assignor, unless the debtor has
notified the assignor at the time that he gave
his consent that hewasreserving his right to
the compensation.
-'
2 2
fI ' ';l ' •'. ,. (
[64.a:21 And the assignment was made with the
debtor's knowledge but without his consent:
If the debtor did not consent to the assignment
1 when he was notified thereof by the creditor•
assignor, he may set up the compensation of -
debts existing previous to the assignment, but
Bank v. CA,
· 19 SCR:A 620 , 633; Bank of the Philippine Island s v. CA, 216 SCRA 51. 63; Bancode
Savtngs and Mortgage Bank v. Equitable Ban.king Corporation, 157 SCRA 188,
8; Republic Bank v. Ebrada, 65 SCRA 680, 687-688.
241
Associated Bank v. Tan, G.R. No. 156940, December 14, 2004.
"'"Far East Bank v. Diaz Realty, Inc., 363 SCRA 659.
665 N . 260
Rodriguez v. Court of Appeals, G.R. No. 84220, March 25, citing
' 199, 2
ationaI Investment and Development Co. v. De loo; An geles. 40 SCRA
u 489. .
CHAPTER ONE 159
OBLIGATIONS & CONTRACTS
obligation by a subsequent one which extinguishes
1
or modifies the first; either by changing the object or
principal conditions, or by substitutinganother in place
r
of the debtor, or by subrogating a third person in the
rights of the creditor. 256 Novation, unlikeother modes of
t
extinction of obligations, is a juridical act with a dual
function, namely, it extinguishes an obligation and
creates a newone in lieu of the old.266
[65.2] Requisites of novation: For novation to take place, the
following requisites must concur -
1) There must be a previous valid obligation;
2) The parties concerned must agree to a new
con tract;
3) Theold contract must be extinguished;
4) There must be a valid new contract.2.17
[65.2.1] Requisite No. 1: In order that novation may
not of subsequent ones.253
[64.3.3] And the assignment was made without the
knowledge of the debtor: He may set up the
compensation of all credits existing prior to, or even
after, the assignment, until he had
 knowledge of the assign ment.264
F. Novation
[65] Novation:
{65.1] Definition and concept: Novation is the
extinguishment of an obligation by the substitution or
change of the
a62Art. 12s5-, piir. 1;Nee.
14, 1995.
Decernber 23, 2009-.
268
Art. 1285, par. 2, NCC.
264
Art. 1285, par. 3,
NCC.
CIVIL LAW REVIEWER
160
the original one shall subsist- as there is
no novation. By way of exception, however
even if the new obligation turns out to
void, the original obligation does not subsist
if the parties clearly intended that theformer
relation shouldbeextinguished in any
event.2111
[65.2.31 Original obligation may be pure while new
obJi&::ation may be conditional and vice-ver
sa: If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall also be under the same con
dition but the parties may stipulate other-
- _wis e. 2132 Hence, the original obligation may be
conditional but the new obligation is pure. In
the same vein, the original obligation may be
pure but the newobligation is conditional.263
exist to give rise to a new obligation, it is
an indispensable requisite that the original
obligation be valid. As a consequence, the
novation, as a rule, is void if the original
obligation was void.""' This rule is subject to
the following exceptions -
1) When the annulment may be claimed
only by the debtor and he consented to
the novation; or
2) When ratification validates acts which
are voidable.269
[65.2.2] Requisite No. 4: In order that novation may
exist, it is necessary that the new obligation
be valid. Thus, if the new obligation is void,
u,;Ajax Marketing & Development Corp. v. CA, G.R. No. 118585, September
------ · - _ _ _- ··
W.Jd.
267
Adria tico ConBortium, Inc. v. Land Bank ofthe Philippines, G.R. No. 187838,
258
Art. 1298, NCC.
2s9ld.
CHAPTER ONE 161
OBLIGATIONS & CONTRACTS
of all parties concerned to a new contract, (3) the
extinguishment of the old obligation, and (4) the birth
of a valid new obligation.266 _ _ _ _ _ _
[66] Kinds ofNovation:
(66;1]--- Extinctive and modificatozy: Novation, in
its broad concept, may either be extinctive or
modificatory. It is extinctive when an old
obligation is terminated by the creation of a new
obligation that takes the place of the former; it is
merely modificatory when the oldobligation
subsists to the extent it remains compatible with
the amendatory agreement. An extinctive
novation results either by changing the object or
principal conditions (objective or real), or by
substituting the person of the debtor or
 subrogating a third person in the rights of the creditor
·(subjective or personal).2114 An extinctive novation
would thus have the twin effects of, first, extinguishing
· an existing obligation and, second, creating a
new one in its stead. This kind of novation
presupposes a confluence of four essential requisites:
(1) a previous valid obligation, (2) an agreement
200
Art.1297, NCC.
'llllfd.
'lllZArt. 1299, NCC.
283
1V Tolentino , Civil Code of the Philippirws, 1991Ed., p. sn:··
2154
Quinto v. People of the Philippines, G.R. No.126712,April 14, 1999; Babst v.
CA, G.R. No. 99398, January 26,2001; Garcia v. Lamas, G.R. No. 154127,
Dece01ber 8, 2003; Banate v. Philippine Countryside Rural Bank (Liloan, Cebu),
Inc., G.R. :No.
u1vn1 111111 11 amn
H5i
check. And neither is there incompatibility
because both checks were given precisely to
[66.1.lJ When change is merely incidental to main
obligation: Alterations of the terms and
conditions of the obligation would generally
result only in modi:ficatory novation unless
such terms and conditions are considered to
be the essence of th e obligation itself 286 Hence,
the incompatibility must take place in any of
the essential elements of the obligation,-such
as its object, cause or principal conditions
thereof; otherwise, the change would be
merely modifica.tory in nature andinsufficient to
..extinguish _ _ the original obligation.:l,67
Novation is merely modi.6.catory where the
change brought about by any subsequent
agreement is merely incidental to the main
obligation (e.g., a change in interest rates or
an extension of time to pay). In this instance,
the new agreement will not have the effect
of extinguishing the first but would merely
supplement it or supplant some but not all of
its provisions.= The obligation to pay a sum of
money is not novated by an instrument that
expressly recognizes the old, changes only
the terms of payment, adds other obligations
not incompatible with the old ones or the new
contract merely supplements the old one.-
Hence, the acceptance by the creditor of a
new check in replacement of the dishonored
check does not result in extinctive novation in
the absence of an express agreement that the
debtor is already discharged from his liability
to pay the amount covered by the dishonored
""Salazar v. J.Y.Brothers Marketing Corp., G.R. No.171998.Oct.ober 20,2010.
266
Swagman Hotels and Travel, Inc. v. CA, G.R. No. 161136, April 8, 2005.
• • 1Quinto v. People-of the Philippines, G.R. No. 126712, April 14, 1999.
1168
Salazar v. J.Y. Brothers Marketing Corp., supra; Foundation Specialists,
Inc. v. Betonval Ready Concrete, Inc., G.R. No. 170674, August 24, 2009.
280li'oundat.Ion Specialists. Inc.
V. Bet.onval Ready Concrete, Inc., id.
CHAPTER ONE 163
OBLIGATIONS & CONTRACTS
terminate the same obligation.210. ... _ .
[66.2] Ohjective _(als _o known as ! al) and Suhjective {aISil
 known as personal}: Novation can be objective
subjective, or mixed. Objective novation occurs whe
there is a change of the object or principal conditions
of an existing obligation while subjective novation
occurs when there is a change of either the person of
[67]
the debtor, or of the creditor in an existing
obligation.211 When the change ofthe object or
principal conditions of an obligation occurs at the same
time with the change of either in the person of the
debtor or creditor a mixed novation occurs.272
(66.3] Express and Implied: Novation may either be
express, when the new obligation declares in
unequivocal terms that the old obligation is
extinguished; or implied, when the new obligation -is
on every point incompatible with the old one. 273
Express noyation ta es plac: _when
the contracting parties expressly disclose that their
o,bject iil making the new contract is to ex:tinguish
the old contract, otherwise the old contract remains
in force and _the new contract is merely added to it,
and each gives rise to an obligation still in force.274
To determine if there was at..least...an implied
novation because of a clear incompatibility between
the old and new obligations, the Court applied the
rule that the change must refer to the object, the
cause, or the principal conditions of the obligation. In
other words, there must be an essential change.2•1 In
addition, the
21°Sal a 2ar v. J.Y. Brothers Marketing Corp., supra; Nyco Sales Corp. v. BA
Finance Corp., G.R. No. 71694, August 16, 1991, 200 SCRA 637.
271
Ajax Marketing & Development Corporation v. CA, G.R. No. 1185,58
September 14, 1995, citing Cochingyan, J r. v. R & B Surety and Insurance Co.,
I,n,c 151 SCRA 339, 349 (1987}; see also Sps. Bautista v. Pilar Deyti}Qp n t
Corp., G.R. No. 135046, August 17, 1999; Caiieda, J r. v. CA, 181 SCRA 762.
nZ/d.
273
Sps. Bautista v. Pilar Development Corp., supra; Adri1:1.tico Consortium, Jnc.
v. LandBank of the Phil., G.R. No. 187838, December 23, 2009.
"mJd.
27
6Youngv. CA, G.R. No. 83271 , May 8, 1991.
20 l 0 ; Martinez v. Cavives, 25 Phil. 581, 586-587 <1913 ); Tiu Suico v. Habana, 45
Phil. 707, 713 (1924); Goni v. CA, 144 SCRA 222,232 (1986); see also Art. 1292, NCC.
test of incompatibility is whether the two obligations
can stand together, each one with its own
independent " existence.' 1
Nnvation is Not Presumed:
[67.1] RJ.ik; The well settled rule is that extinctive novation
is never presumed;277 there must be an express
intention to novate; in cases where it is implied, the
acts of the parties must clearly demonstrate their
intent to dissolve the old obligation as the moving
consideration for the emergence of the new one.
ImpJied novation necessitates that the
incompatibility between the old and new obligation
be total onevery point such that the oldobligation is
completely superseded by the newone. The test of
incompatibility is whether they can stand together,
each one having an independent existence; if they
cannot and are irreconcilable, the subsequent
obligation would also extinguish the first.218
[67.2] Rule as applied to objective and subjective novation:
To effect an objective novation it is imperative that
the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the
new one. In the same vein, to effect a subjective
novation by a change in the person of the debtor it is
necessary that the old debtor be released expressly
from the obligation, and the third person or new
debtor assumes his place in the relation. There is no
novation without such release as the third person who
has assumed the debtor's obligation becomes merely
a co-debtor or su rety.219 Th.us, an obligation to pay a
sum of money is not novated, in a new instrument
wherein the old is ratified, by changing only the terms
of payment and adding other obligations not
incompatible with the old one, or wherein the old
contract is merelysupplemented
76
Adri a t ico Conso rt ium , In c. v. Land Bank of the Phil., supra.
277
Salaz ar v. J.Y. Brothers Marketing Corp., G.R. No. 171988, October 20,
278
Salaz ar v. J.Y. Brothers Marketing Corp., supra.
279
1\iax Marketing & Develo pme nt Corp. v. CA, supra.
164 CML LAW REVIEWER

CHAPI'ERONE 166
OBLIGATIONS & CONTRACTS
by the new one. The mere fact that thecreditor
receive
a guaranty or accepts payments from a third perso n21 Testate ERtate of Lazaro Mota v. Serra, G.R. No. L-22825, February 14•
whohas agreed to assume the obligation, when there 1925, citing 8 Manresa 424-426. ···-- - .....
is no agreement that the first debtor shall be released Ajax Marketing & Developmen t Corp. v. CA, G.R. No. 118585, September 14, 1995;
282

see also Reyes v. CA, G.R. No. 120817, NQv mber 4, 1996,
from responsibility does not constitute a novation, and "'8aJd.
the creditor can still enforce the obligation against teh
. original debtor.280

[68] Novation by Substitution of Debtor:

[68.1] There must be substitution of debtor: In this kind
of novation, it is not enough to extend the juridical
relation to a third person, but that it is necessary to
place the latter in the same position occupied by the
original debtor. Consequently, the obligation
contracted by a third person to answer for the debtor,
as in the case of suretyship, in the last analysis, does
not work as a true novation, because the third person
is not put in the same position as the debtor - the
latter continues in his same place and with the same
obligation which is guaranteed by the former.281
[68.2) Old debtor must be released and new debtor assumes
his place: To effect a subjective novation by a
change in the person of the debtor it is necessary
that the old debtor be released expressly from the
obligation, and the third person or new debtor
assumes his place in the relation. There is no
novation without such release as the third person
who has assumed the debtor's obligation becomes
merely a co-debtor or su rety. 282 Without express
release of the debtor from the obliga tion , any third
party who may thereafter assume the obligation
shall beconsidered merely as co debtor or surety.283
Thus, the mere circumstance that the creditor
receives payments from a third person who
acquiesced to assume the obligation of the debtor
under a contract of sale, when there is clearly no
agreement

Magdalena Estates, Inc.-v.Rocfd guez,G.R. No. L-18411, December 17,

280

1966·
 to rel e ase the debtor from his responsibility, original debtor from the obligation, so that
does not constitute novation, at most, it only the intervention and the consent of these
creates a juridical relation of co-debtorship or three persons are necessary.288
suretyship on the part of such third person.'"'
[68.4) Creditor'sconsentnecessary:The consent ofthe creditor
(68.3] Two Forms: There are two forms of novation to the change of debtors, whether in expromision or
by sub stituting the person of the debtor , delegacion,·1s-an indispensable requirement."""
depending on whose initiative it comes from, Hence,
and they are: (1) expromi.sion and (2) it is a rule that novation by substitution of debtor
delegaci.on .2•8 must always be made with the consent of the
[68.3.1] Expromision: Here, the initiative for creditor. 290 As such, the aggrieved creditor is not
the change does not come from the bound to deal with the substitute when the contract
debtor and may even be made without is unlawfully novated by an applicable and
his knowledge or against his will,281 unilateral substitution of the obligor by another. 1
--· ---··
since it consists in a third person
assuming the obligation. AJo such, ·-- -
it logically requires the consent of the 284Reyes v. CA, supra.
28
third person and the creditor.287 "Quinto v. People of the Philippines, G.R. No. 126712, April 14, 1999;Cortes
v. Venturanza, G.R. No. L-26958;0ctober 28, 1977; see also Arts. 1293-1295, NCC.
[68.3.2] Delee,acion: Here, the debtor za6Art. 1293, NCC.
287
Cortes v. Ventur a, supra; Quinto v. People of the Philippines, supra;
offers, and the creditor accepts, a Garcia v. Llamas, supra.
third person who consents to the 'J&Id.
substitution and assumes the Id.; se;rnlsoAr.t1293, NCC.
2
obliga tion, thereby releasing the 91'.lOfesta te Estate ofLazaro Mota v. Serra, supra.
291
BoY !!!lW v. lnterphil Promotions, Inc., G.R. No. L-22690, March 20, 1987.

166 CNIL LAW REVIEWER

CHAPrERONE
OBLIGATIONS & CONTRACTS 167

[68.4.1] But or,it is not necessary tha theconsent of the creditor be given
his consent expressly. In several cases,292 the Court reiterated the rule
need not that there can be implied consent of the creditor to the
begiven
expressly:1 substitution of debtors. While the Court said in the case of
orde Estate of Mota
r to u. S erra = that the creditor's express consent
have
a is necessary in order that there may be a novation of a
vali contract by the substitution of debtors, said ruling was,
[68.6]
d however, clarified in Asia Banking Corporation u. Elser.294 In
nova the latter case, it was explained that the Court did not wish to
tion convey the impression that the word "express" was to be given
by
subs an unqualified meaning.
tituti Effect of expromision done without the knowledge or a ainst the
nn
the will of debtor: If the substitution of the person of the debtor was done
without the latter's
pers
ono knowledge or against his will, the third person who assumed the
fthe debtor's obligation is entitled to demand reimbursement only up to the
debt extent that the payment has been beneficial to the debtor . But he will
295
[68.5)
not be entitled to en proposed by the old debtor and the former's
the right of H insolvency was already in existence at the time of the
subrogation.296 o substitution and ofpublic knowledge, or known to the
w old debtor, the creditor's action against the olddebtor
Effect of e is thereby revived.•
novation by v
substitution of e Noyation by Subrogatiom
person of debtor: [69] r
[69.1] Subrogation, defined: It is the transfer of all the
Whether it is a ,
rights of the creditor to a third person, who substitutes
case of himin all his rights.299
expromision or w
h [69.2] Kinds of subrogation: It may either be legal or
delegacion, the
e conventional. Legal subrogation is that which takes
obligation of the
n place without agreement but by operation of law
old debtor is
because of certain acts. Conventional subrogation is
already
t that which takes place by agreement of parties.300
extinguished. As
such, the h [69.3) Legal subrogation: It is not presum ed, 301
except in the
insolvency of the e following cases -
new debtor or his
n 1) When a creditor pays another creditor who is
non fulfillment of
e preferred, even without the debtor's knowl
the new
w edge;
obligation shall
not, as a rule, 2) When a third person, not interested in the
give rise to any d obligation, pays with the express or tacit
liability on the e approval of the debtor;
part of the b
olddebtor. This t 3) When, even without the knowledge of the
rule is true o debt or, a person interested in the fulfillment
whether the r of the obligation pays, without prejudice to the
substitution was effects of confusion as to the latter's share.302
done with or h NOTE: There is no true subrogation in the case
without the a of a solidary co-debtor who paid the whole obliga
knowledge of the s tion, because by his payment the obligation is ex
old debtor.297
tinguished, although the co-debtor who made the
b payment can make a claim upon his co-debtors
e for their share of the amount he had advanced. In

M.ABia Banking Corporation v. Elser, 54 Phil. 994 (1929); Vda. de Hijos de 2911
pjo Barrettoy Cia., Inc. v. Albo & Sevilla, Inc., 62 Phil. 593 (1935); Babst v. Art . 1295 , NCC.
299
CA,G.R. No, 99398, January 26, 2001. D Chemphll Export & Import Corp. (CEIC) v. CA, G.R. Nos. 112438-39,
2113
4 7 Phil. 464. ecember 12, 1995; Licaros v. Gatmaitan, G.R. No. 142838, August 9, 2001.
300
294
Su.pra. 301
Art. 1300, NCC; Licaros v. Gatmaitan, id.
Art. 1300, NCC.
* Art. 1293, in relation to Art. 1236, 302
NCC. MIArt. 1293, in relation to Art.
Art. 1302 , NCC.
1237, NCC. mSee Arts. 1294 and 1296,
NCC.
168 CIVIL LAW REVIEWER OBLIGATIONS &
CHAPTERONE CONTRACTS
 169

other words, the co-debtor who made the payment

does not step into the shoes of the creditor signment may fully produce legal
because he cannot enforce against them the effects. What the law requires in
an assignment of credit is not the
original obliga tion- .
consent of the debtor but merely
(69.41 Conventional subro ation: notice to him as the assignment
(69.4.1] Requires consent of all: Conventional takes effect only from the time he
subro gation of a third person requires the has knowledge thereof. A creditor
consent of the original parties (the original may, therefore, validly assign his
credi tor and debtor) and of the third person credit and its accessories without
(the new creditor).004 It is a new contractual the debtor's consent. On the other
rela tion based on the mutual agreement hand, conventional subrogation
among all the necessary part ies.306 Thus, requires an agreement among
consent of the debtor is required for the the three parties concerned - the
effectivity of the subrogation.= original creditor, the debtor, and
the new creditor. It is a new con
[69.4.2] Distinguished from assignment of credit: tractual relation based on the mu
Under our Code, conventional subrogation is tual agreement among all the nec
not identical to assignment of credit.307 essary parties."" Thus, consent of
An assignment of credit has been defined as the debtor is required for the ef
the process of transferring the right of the fectivity of the subrogation.m
assignor to the assignee who would then
have the right to proceed against the [69.4.2.21 As to extinguishment of obli"a
debtor.308 On the other hand, subrogation has rum.: Subrogation extinguishes
been defined as the transfer ofall the rights the obligation and gives rise to
of the creditor to a third person, who a new one; assignment refers to
substitutes him in all his right s.300 They the same right which passes from
differ as follows - one person to another.312 Conven
tional subrogation has the effect
[69.4.2.lJ Requirement of debtor's of extinguishing the old obliga
consent: The crucial distinction tion and giving rise to a newone.
deals with the necessity of the However, the extinguishment of
consent of the debtor in the the old obligation is the effect of
original transac tion. In an the establishment of a contract
assignment of credit, the consent for conventional subrogation. It
of the debtor is not necessary in is not a requisite without which a
order that the as- contract for conventional
subroga tion may not be created.
303
Wilson V. Berkenkottcr, 92 Phil. 918. As such,
304
Art. 1301, NCC.
,!()6Licaros v. Gatmaitan, supra.
30CLedonio v. Capitol Development Bank, G.R. No. 149040, July 4, 2007, citing

Licaros v. Gatmaitan, supra. --·

307
Licaros v. Gatmaitan, id.,citing IV Tolenti no, Ciuil Code of the Philippines,-· 1991 Ed., p. 401.

r¥.116Jd.
»llfd.
v. Gatmaitan, supra.
170 CML LAW REVIEWER
it is not determinative of whether
or not a contract of conventional
subrogation was constit uted.31 3
On the other hand, an
assignment of credit and its
accessory rights does not at all
obliterate the ob ligation of the
debtor to pay, but merely puts the
assignee in the place of the assign
or.314 Hence, the obligation of the
debtor to pay his debt subsists
despite the assign ment thereof;
only, his obligation after he came
to know of the said assignment
would be to pay the debt to the
assignee, instead of
... the original creditor.316
[69.4.2.3] Effect of nullity of old
obligation: The nullity of an old
obligation may be cured by
subrogation, such that a
newobligation will be perfectly
valid; but the nullity of an
obligation is not remedied by the
assignment of the creditor's right
to another.3'6
[69.4.31 Intention of parties rn:
Indetermining
whether the case is oneofassignment ofcredit
or conventional subrogation, the intention
of the parties shall prevail. In Licaros v.
Gatmaitan.,317 the Court held
thattheintention of the parties was to treat
the Memorandum o.LAgreement as
embodying a conventional subrogation and
not an assignment of credit, as such_in te n
tion was shown not only by the
310
Licaros v. Gatmaita n, G.R. No. 142838, August 9, 2001.
311
Ledoniov. Capitol Development Bank, supra.
312
1VTolentino, Civil Code of the Philippines, 1991 Ed., p. 401, cited in Licaros
CHAPTER ONE 171
OBLIGATIONS &
CONTRACTS
"whereas clause" but also by the signature
space captioned "WITH OUR CONFORME."
The Court explained that had the intention
been merely to confer on a third person the
status ofa mere"assignee" of creditor's credit,
there is simply no sense for them to have
stipulated in their agreement that the same
is conditioned on the "express conformity"
thereto of the debtor. The fact that they did
so, the Court adds, only accentuates the
parties' intention to treat the agreement as
one of conventional subrogation. In
Rodriguez
v. CA•18 however, the Court found that the
case was one of assignment of the credit
and not subrogation, as the deed of
assignment clearly states that the third
person became an assignee and, therefore,
he became the only party entitled to collect
the indebtedness.
[69.5] Effect of subr ogat ion:
[69.5.1) In legal subrogation: Subrogation transfers
to the person subrogated·(or new credit.or)
the credit, together with all the rights thereto
appertainingtsuch as the right to the exercise
of the accessory rights, i.,e. mortgage or
313
Licaros v. Gatmaitan, supra.
Ledonio v. Capitol Development Bank, G.R. No. 149040, July 4, 2007, citing
314
National Investment and Development Corp. v. Delos Angeles, 148-B Phil. 452,461
(1971).
a16Jd.
318
IV Tolentino, Civil Code of the Philippines, 1991 Ed., p. 401,cited in LlcatOS
v. Gatmaitan, supra.
317
Supra.
 pledge), whether those-rights-be
against the debtor or against third
persons. '" Here, the transfer of rights
is strictly observed. - - -· -
[69.5.2] In conventional subrogation: The effects
provided for in Section 69.5.1may be
modified by the express agreement of
the part ies.320
(69.5.3] Effect of partial subrogation: In
caseof partial subrogation where the
creditor receives partial payment only,
the latter is entitled to exercise his
right for the remainder."'" While his
rights co-exist with the newly acquired
318
G.R. No. 84220, March 25, 1992, 207 SCRA 553.
319
Art . 1303 NCC.
32D/d. '
321 Art. 1304, NCC:-
172 CIVIL LAW REVIEWER

rights of the person who has been subrogated 1111:1

in his place in virtue of the partial payment
of the same credit, he shall be preferred over
that of the person who has been partially
subrogated.322

[70) Effects of Extinctive Novation Upon the Accessory

Obligations.:
[70.1] In novation by changing the object or principal condi.
tions and novation by substitution of the debtor:
When the principal obligation is extinguished in
consequence of a novation by changing the object or
principal condi tions or by substitution of the person of
the debtor, ac cessory obligations, as a rule, are also
extinguished.szi However, if there is a stipulation in
favor of third per sons, accessory obligations subsist
insofar as they may benefit such third persons who
have not given their consent to the novation.324
[70.2] In novation by subro&nition: As discussed in
Section 69.5.1, the new creditor, as a rule, is also
entitled to the exercise of the accessory rights, such as
the right to the mortgage or pledge. Hence, such
accessory obliga tions are not extinguished upon the
extinguishment of the principal obligation in
consequence of subrogation. However, as discussed in
Section 69.5.2, the parties may, by express agreement,
modify the effects men tioned in Section 69.5.1 in the
case ofconventional sub rogation.

'
22
Art. 1304, NCC.
828
8 Manresa 441.
 Part Two:
CONTRACTS
DEFINITION, CLASSIFICATION, AND DISTINCTIONS
[71) Contract,In General:
[71.1) Definition: A contract is a meeting of minds
between two persons whereby one binds
himself, with respect to the other, to give
something or to render some service.' It may
also be defined as "a juridical convention
manifested in legal form, by virtue of which
oneor more persons bind themselves in favor
of anotherorothers, or reciprocally, to the
fulfillment of a prestation to give, to do, or
not to do."1
(71.2) Distin ished from conventions: In its
derivative sense, the word "contract" (cum
traho) simply means an agreement or
convention. Although a contract is a
convention, or agreement of wills, not every
convention is a contract. 3 Convention is
broad enough to include any kind of
agreement which may create, modify or
extinguish patrimonial and even family
relations;• a contract, on the other hand, is
limited to agreements which produce
patrimonial liabilities.6
[71.3] Implied Contract:
(71.3.ll Contract can exist by implication:
While Article 1305 of the NCC
speaks of "meeting of the minds," it
does not mean that contracts can
exist only by express agreement. A
contract can also exist by
implication.•

1
Art . 1305, NCC.
•Jardine Davies, Inc. v. CA, 333 SCRA 684, 692-694, citing 4 Sanchez Roman
148-149.
3
1V Tolentino, Civil Code of the Philippines, 1991 Ed., p. 406.
•Jurado, Obligations & Contracts, 1987 Ed., p. 348.
6
IV Tolentino, Civil Code of the Philippines, 1991Ed., p. 406.
6
/d., citing Arroyo v. Azur, 76 Phil. 493.

173